Asia FX By Cornelius Luca - Tue 28 Aug 2012 16:55:06 CT (Source:CME/www.lucafxta.com)
The appetite for risk improved in FX on Tuesday following well−received Spanish auctions of short−term T−bills. Most of the foreign currencies ended higher after a shaky start, but volume remained light at the end of the summer vacation. Meanwhile, the markets hope for additional bond buying from both the Fed and the ECB. The US stock markets ended mixed and the gold/oil ratio down. The short-term outlook for most foreign currencies is sideways. The medium-term outlook for most of the foreign currencies is sideways. The LGR short-term model is long on most foreign currencies. Good luck!
Overnight
US: The Conference Board's consumer confidence index fell to 60.6 in August from a revised 65.4 in July.
US: The S&P/Case-Shiller 20-City Composite Home Price Index rose by 0.9% on a monthly basis in June compared to a 1.0% increase in May.
Most Asian Stocks Rise Before U.S. GDP, Bernanke Speech (Bloomberg)
Most Asian stocks rose as investors await a report on U.S. economic growth and Federal Reserve Chairman Ben S. Bernanke’s speech on monetary policy this week. Samsung Electronics Co. (005930), the world’s biggest mobile-phone maker by sales, climbed 2.1 percent in Seoul. Renesas Electronics Corp. surged 29 percent after the Nikkei newspaper reported that Kohlberg Kravis Roberts & Co. will spend 100 billion yen ($1.3 billion) buying new shares of the chipmaker. Daikin Industries Ltd. sank 5.1 percent after a report that Japan’s largest airconditioner maker will buy Houston-based Goodman Global Inc.
The MSCI Asia Pacific Index (MXAP) rose 0.1 percent to 119.34 as of 10:04 a.m. in Tokyo, with almost two shares rising for each that fell. The measure climbed 9.4 percent from a June low through yesterday on bets the U.S., Europe and China will take action to support economic expansion. Investors are waiting for hints of further easing in Bernanke’s speech on Aug. 31 at an annual economic symposium in Jackson Hole, Wyoming. “Bernanke’s probably going to hold fire here, while sending an encouraging message,” said Angus Gluskie, managing director at White Funds Management in Sydney who manages more than $350 million. “Realistically we’re probably going to see him say what he’s said over the last couple of months, which is simply that they will act, but only if conditions continue to deteriorate. That’s probably neutral for the market.”
Gluskie and Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian are among money managers speculating Bernanke probably won’t provide specific plans for further monetary action this week. El-Erian spoke yesterday on Bloomberg Television’s “In the Loop” with Betty Liu.
Japanese Stocks Rise on U.S. Home Prices; Renesas Soars(Bloomberg)
Japan stocks gained after U.S. home prices rose for the first time in almost two years and as investors await Federal Reserve Chairman Ben S. Bernanke’s speech this week. Shares of Renesas Electronics Corp. soared on a report Kohlberg Kravis Roberts & Co. will buy the chipmaker. Mazda Motor Corp. (7261), a carmaker that gets almost 30 percent of its sales from North America, climbed 1.1 percent. Renesas soared 31 percent after KKR offered 100 billion yen ($1.3 billion) for the company, according to a Nikkei newspaper report. Daikin Industries Ltd. sank 6.3 percent on a report the air- conditioner manufacturer will buy Texas-based Goodman Global Inc. The Nikkei 225 Stock Average (NKY) rose 0.3 percent to 9,061.91, with volume almost 15 percent above the 30-day average. The broader Topix (TPX) Index gained 0.4 percent to 749.27 as of 9:45 a.m. in Tokyo, with about nine shares rising for every five that fell.
“Bernanke’s probably going to hold fire here, while sending an encouraging message,” said Angus Gluskie, managing director at White Funds Management in Sydney who oversees more than $350 million. “We’re probably going to see him say what he’s said over the last couple of months, which is simply that they will act, but only if conditions continue to deteriorate.” Futures on the Standard & Poor’s 500 Index gained 0.1 percent today. The underlying gauge slid 0.1 percent yesterday as a report showed that confidence among U.S. consumers fell in August by the most in 10 months. Home prices in 20 U.S. cities climbed in June from a year earlier, the first gain in almost two years, indicating the market that triggered the recession is beginning to rebound.
U.S. Stocks Fall as Confidence Drops Before Fed Speech(Bloomberg)
U.S. stocks fell, following yesterday’s drop in the Standard & Poor’s 500 Index, as investors watched economic reports ahead of Federal Reserve Chairman Ben S. Bernanke’s speech on the economy in three days. KLA-Tencor Corp. (KLAC), a maker of machinery used in the production of semiconductors, slumped 2.5 percent after Deutsche Bank AG cut its rating. Lexmark International Inc. (LXK) surged 14 percent after the printer maker said it plans to cut 1,700 jobs and shut a factory in the Philippines as it explores a sale of its inkjet technology. H.J. Heinz Co. (HNZ) advanced 1.7 percent after reporting preliminary profit that topped analysts’ estimates. The S&P 500 fell 0.1 percent to 1,409.30 at 4 p.m. New York time. The Dow Jones Industrial Average dropped 21.68 points, or 0.2 percent, to 13,102.99. Volume for exchange-listed stocks in the U.S. was 4.6 billion shares, or 26 percent below the three- month average, according to data compiled by Bloomberg.
“It will be interesting to see what Bernanke says about the economy,” said Liz Ann Sonders, the New York-based chief investment strategist at Charles Schwab Corp., which has $1.82 trillion in client assets. “I wouldn’t expect to hear much about easing other than: we’re going to keep the door open. The U.S. may not be shining in an absolute sense but relative to the rest of the world the trajectory is far more positive.” Data today showed that confidence among U.S. consumers fell in August by the most in 10 months as households grew more pessimistic about the economic outlook. Home prices in 20 U.S. cities climbed in June from a year earlier, the first gain in almost two years, indicating the market that triggered the recession is beginning to rebound.
European Stocks Decline as Catalonia Seeks Aid; G4S Drops(Bloomberg)
European (SXXP) stocks declined to a three- week low, snapping two days of gains, as the Spanish region of Catalonia asked for a bailout from the central government and Japan lowered an assessment of its economy. G4S Plc (GFS) dropped 2 percent after the security company said that first-half profit slumped 73 percent. Banco Santander SA (SAN) slipped. Vestas Wind Systems A/S (VWS) surged 19 percent after saying it has started talks with Mitsubishi Heavy Industries Ltd. over possible cooperation. The Stoxx Europe 600 Index slid 0.7 percent to 267.32 at the close, its lowest level since Aug. 6. The benchmark measure has still risen 14 percent from this year’s low on June 4 as European Central Bank President Mario Draghi pledged to do whatever it takes to preserve the euro and the region’s political leaders agreed to ease repayment terms on loans to Spain’s banks.
“The world economy in the second quarter was the worst in quite some time, and Japan is catching up now,” said Konstantin Giantiroglou, head of investment advisory at Neue Aargauer Bank in Brugg, Switzerland. “It’s a reaction to what’s going on and it was overdue that they correct the assessment.” Spain’s Catalonia region said it will ask for a 5 billion- euro ($6.3 billion) loan from the country’s central government. The Spanish cabinet approved a fund of as much as 18 billion euros on July 13 to help the most indebted regional governments manage their financial deficits.
Emerging-Market Stocks Retreat for Third Day on Growth Concerns(Bloomberg)
Emerging-market stocks dropped for a third day, sending the benchmark index to its lowest in more than three weeks, as concern deepened that the global economic slowdown will curb corporate earnings. The MSCI Emerging Markets Index (MXEF) fell 0.2 percent to 958.78 as of 10:40 a.m. in London, poised for its longest losing streak in a month and the lowest close since Aug. 3. China Southern Airlines Co. sank to a six-week low as profit trailed analysts’ estimates. TPK Holding Co. (3673) and Chimei Innolux Corp. (3481) slumped at least 5.9 percent in Taipei after the consumer-electronics companies announced plans to raise capital. AngloGold Ashanti Ltd. retreated 2.6 percent, leading a gauge of raw-materials stocks to the lowest in a month.
Exporters led the MSCI index’s decline after Japan’s government downgraded its assessment of the economy for the first time in 10 months, citing risks from a further slowdown in global growth. The world economic situation is “severe” and “complicated,” Wang Chao, China’s vice commerce minister, said at a forum in Beijing today. “Growth in emerging markets is going to continue to be disappointing,” Alain Bokobza, the head of global asset- allocation strategy at Societe Generale SA in Paris, said in an interview on Bloomberg Television.
Treasuries Snap Gain Before Home-Sales Data, Auction(Bloomberg)
Treasuries snapped a two-day gain before an industry report that economists said will show pending home sales rose and the second of three note auctions this week. U.S. government securities have handed investors a 0.5 percent loss this month as of yesterday, according to Bank of America Merrill Lynch indexes. The MSCI All-Country World Index (MXWD) of stocks returned 2.7 percent in the period. Benchmark 10-year yields were little changed at 1.64 percent as of 9:42 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in August 2022 was 99 29/32. The rate compares with the record low of 1.38 percent set July 25 and the average of 3.73 percent for the past decade. “I wouldn’t want to buy here,” said Kazuaki Oh’e, a debt salesman in Tokyo at CIBC World Markets Japan Inc., a unit of Canada’s fifth-largest lender. “The economy is improving slightly.”
Pending home sales rose 1 percent in July from June, rebounding from a 1.4 percent decline, based on a Bloomberg News survey of economists before the National Association of Realtors issues the figure today. The U.S. is scheduled to auction $35 billion of five-year debt today and $29 billion of seven-year securities tomorrow. It sold $35 billion of two-year notes yesterday. Treasuries rose yesterday as speculation the Federal Reserve will begin a third round of bond purchases under quantitative easing this year stoked demand.
FOREX-Euro rises to session high versus dollar
LONDON, Aug 28 (Reuters) - The euro rose to a session high and moved closer to recent peaks against the dollar on Tuesday, after the European Central Bank said that its chief Mario Draghi will not be attending this weekend's Jackson Hole symposium.
"There's talk of a downgrade for the U.S., although we haven't seen anything concrete on that yet," said a London-based FX trader, who also cited buying by Middle East investors that triggered stops at $1.2555-60.
Bernanke to Reiterate Fed Minutes at Jackson Hole, El-Erian Says(Bloomberg)
Ben S. Bernanke probably won’t provide specific plans for further monetary action at the Federal Reserve Bank of Kansas City’s annual Jackson Hole symposium this week, according to Pacific Investment Management Co. Chief Executive Officer Mohamed El-Erian. The Fed signaled last week it’s ready to take further steps to spur the economic recovery. Many policy makers said additional stimulus probably will be needed soon unless the economy shows signs of a durable pickup, according to minutes released Aug. 22 of the central bank’s most recent meeting, on July 31-Aug. 1. Fed Chairman Bernanke is scheduled to speak on Aug. 31 at the economic-policy conference in Wyoming.
“The minutes were consequential and we don’t expect Bernanke to take it further than what the minutes said,” El- Erian, also the co-chief investment officer of the world’s largest manager of bond funds, said on Bloomberg Television’s “In the Loop” with Betty Liu. “It’s highly probable that he will outline the options that the Fed has available and the commitment to do more if needed.” The central bank bought $2.3 trillion of debt from 2008 to 2011 in two rounds of what’s become known as quantitative easing, or QE. It has also kept its benchmark interest rate at zero to 0.25 percent since December 2008 and has pledged to hold it there until at least 2014. Bernanke said in a letter dated Aug. 22 to Representative Darrell Issa, a California Republican who chairs the House Oversight and Government Reform Committee, that the Fed has the ability to take additional steps to boost the economy.
Bernanke Backed by Better Financial State: Chart of the Day(Bloomberg)
Measures showing U.S. financial market conditions have improved put little pressure on Federal Reserve Chairman Ben S. Bernanke to signal added monetary stimulus this week, according to Credit Suisse Group AG. The CHART OF THE DAY shows the Bloomberg U.S. Financial Conditions Index moved above zero on July 27, a threshold that signals receding market risk. It was below negative 1 last year when Bernanke spoke at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming. The bottom panel shows the spread between the rate to exchange floating for fixed-interest payments and Treasury yields for two years, a gauge of investors’ perceived risk in the banking sector, fell yesterday to the lowest since May 2011. Bernanke speaks at this year’s Jackson Hole conference on Aug. 31.
“Most Fed officials would acknowledge that quantitative easing is most effective in addressing financial turmoil and it’s harder to prove its real fundamental, economic effects,” Dana Saporta, U.S. economist in New York at Credit Suisse, said in an interview yesterday, referring to the central bank’s debt- purchasing strategy. “The financial markets are calmer now than they were in early August. Our thinking, and perhaps that of the chairman, as well, is that while easing is highly likely from the Fed in the months ahead, the timing is uncertain.” The so-called swap spread narrowed to a one-year low of 16.3 basis points yesterday as investors speculate policy makers will contain Europe’s debt crisis and that America’s economy will endure headwinds from the region’s troubles. Sentiment toward the euro area has improved since European Central Bank President Mario Draghi vowed on July 26 to do “whatever it takes” to save the common currency and signaled that would include buying sovereign debt.
Bernanke may structure his Jackson Hole speech this year as he did in 2010, discussing the economic outlook, policy actions to date, and costs and benefits of future policy alternatives, Saporta and Neal Soss, chief U.S. economist at Credit Suisse, wrote in a note published on Aug. 26. Credit Suisse gives a 50 percent chance the Fed will ease monetary policy at their policy meeting, Sept. 12-13.
Consumer Confidence in U.S. Declines by Most Since October(Bloomberg)
Confidence among U.S. consumers fell in August by the most in 10 months as households grew more pessimistic about their employment prospects and the economic outlook. The Conference Board’s index decreased to 60.6 from a revised 65.4 in July, figures from the New York-based private research group showed today. The 4.8-point decrease was the biggest since October. The reading was less than the most- pessimistic forecast in a Bloomberg survey in which the median projection was 66. Rising gasoline prices, a jobless rate that’s been above 8 percent since the start of 2009 and limited income gains are keeping consumers glum. Persistent pessimism raises the risk of a pullback in household purchases that account for about 70 percent of the world’s biggest economy.
“The consumer is still very cautious,” said Jim O’Sullivan, chief U.S. economist for High Frequency Economics Ltd. in Valhalla, New York, who projected a drop in sentiment. “The labor market is still relatively weak. There’s a lot of uncertainty about policy ahead of the election” and fuel costs have accelerated, he said. This month’s confidence reading was the lowest since November. Estimates for the Conference Board gauge ranged from 61 to 68 in the Bloomberg survey of 77 economists. The measure averaged 53.7 during the 18-month recession that ended in June 2009. Stocks were little changed ahead of Federal Reserve Chairman Ben S. Bernanke’s speech on the economy in three days. The Standard & Poor’s 500 Index dropped less than 0.1 percent to 1,409.9 at 1:55 p.m. in New York.
Home Values Rise in U.S. for First Time Since 2010: Economy(Bloomberg)
Home prices in 20 U.S. cities climbed in June for the first time since a tax credit boosted sales in 2010, indicating the industry at the heart of the worst recession in the post-World War II era is starting to rebound. The S&P/Case-Shiller index increased 0.5 percent from June 2011 after falling 0.7 percent in the year to May, a report from the group showed today in New York. The last 12-month increase took place in September 2010. Nationally, prices jumped last quarter by the most in more than six years. The lowest mortgage rates on record and a decline in sales of distressed properties may help the market contribute to the economic expansion that is now in its fourth year. A more sustained rebound may require easier lending conditions, which would also give consumers a lift after a report today showed household confidence sank to the lowest level of the year.
“Finally, the housing market is forming a bottom,” Mohamed El-Erian, chief executive officer and co-chief investment officer of Pacific Investment Management Co., said on Bloomberg Television’s “In the Loop” with Betty Liu. “That should be welcome. It is not surprising because affordability is so attractive right now.”
Apple Seeks Ban on Sales of Eight Samsung Phones in U.S.(Bloomberg)
Apple Inc. (AAPL) is seeking a U.S. sales ban on eight models of Samsung Electronics Co. (005930) smartphones and the extension of a preliminary ban on a tablet computer after winning a patent trial against the South Korean company. Apple, which won more than $1 billion Aug. 24 after a jury found Samsung infringed six of seven patents at stake in the trial, named the phones it wants barred in a filing yesterday with U.S. District Judge Lucy Koh in San Jose, California. The list includes several devices in the bestselling Galaxy lineup. The effect on Samsung’s sales will be negligible because Apple’s list only includes older devices that will account for less than 1.4 percent of the Korean company’s profits next year, said Mark Newman, an analyst at Sanford C. Bernstein who used to work at Samsung. The impact would be 6.3 percent if Apple manages to broaden a ban to newer devices and block 80 percent of all Samsung phones, he said.
“The older models aren’t selling much now, and the penalty will only be a one-time cost,” Im Jeong Jae, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $29 billion, said by phone today. “There won’t be big damage to Samsung’s sales and operating profit.”
Donors Invest Millions in Romney for Billions in Returns(Bloomberg)
Wealthy donors and corporations are more heavily invested in this presidential election than at any time since the 1972 Watergate scandal led to stricter campaign- finance laws. A series of court decisions and regulatory changes in 2010 unraveled federal limits on donations, paving the way for a return of the big players. They are pooling their money in nonprofits, which keep contributor names secret, and super- political action committees, which amassed $350 million through the end of July. One-quarter of that money comes from just 10 donors, led by Las Vegas casino billionaire Sheldon Adelson, according to data from the Center for Responsive Politics, a Washington-based group that tracks such spending. Top Republican contributors say they back the party’s presidential candidate Mitt Romney because they agree with his small-government philosophy or oppose President Barack Obama’s new regulations on banks and the health-care industry.
Yet Romney is more than just a political kindred spirit; he’s a sound investment. Here’s how a Romney presidency might pay off -- literally -- for some of these super-donors.
China Retailers Lose Steam, Deepening Wen’s Challenges(Bloomberg)
China’s retailers from clothing to computers are reporting weaker sales growth, undermining Premier Wen Jiabao’s goal of relying more on consumer spending for expansion as the economy cools. Passenger-vehicle sales trailed analysts’ estimates in July. Sportswear seller Li Ning Co. shut 1,200 stores in the first half and department-store chain Parkson Retail Group Ltd. (3368)’s same-store sales rose at less than a quarter the pace of a year earlier. Electronics retailer Gome Electrical Appliances Holding Ltd. (493) said it would report a first-half loss on lower sales. The reports show an extra drag on the second-largest economy after export growth almost stalled in July and factory output missed forecasts. The year’s fastest decline in industrial companies’ earnings and a stock market at a three- year low mean income gains may slow, giving consumers less money to spend and boosting odds Wen will add stimulus. “The pressure on retail sales is growing bigger and bigger,” said Shen Jianguang,
Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd. “When exports are fragile and investment is weak, if companies started to reduce their production or workforce, how can it be possible for consumer spending to stay strong?” Retail sales missed economists’ forecasts in three of the last four months and Mizuho said they will stay weak. Sales increased 13.1 percent in July from a year earlier, the National Bureau of Statistics said Aug. 9, compared with the median 13.5 percent estimate of 32 analysts surveyed by Bloomberg News.
Billionaire Li’s Venture May Seek Singapore Land: Southeast Asia(Bloomberg)
Billionaire Li Ka-shing’s Singapore property joint venture may seek more land in the city’s downtown to replicate its latest development that attracted global banks including Standard Chartered Plc and Macquarie Group Ltd. The venture, made up of Li’s Cheung Kong Holdings Ltd. (1), Hongkong Land Holdings Ltd. (HKL) and Keppel Land Ltd. (KPLD), developed the Marina Bay Financial Centre for about S$4.5 billion ($3.6 billion), it said. The shareholders may be interested in projects close to the existing development, said Warren Bishop, chief executive officer of Raffles Quay Asset Management Pte, which is owned by and manages the venture’s Singapore properties.
“Given the right space, the developers will probably be keen to bid on some of those spaces,” Bishop said in an interview at its Marina Bay Financial Centre in Singapore yesterday. “The current perspective of the developers is to be central business district-based, if possible grow on this development here, so adjacent sites within this vicinity would be the most attractive.” The development is part of Singapore’s effort to build a new downtown extension to boost its offering of office space and draw the world’s biggest financial services companies. The property has also attracted tenants including Barclays Plc (BARC) and Nomura Holdings Inc. as more global banks relocated regional and global functions to Singapore. Singapore’s move to open up its financial sector after the 1997 Asian financial crisis helped boost demand for office space, especially in the business district, CBRE Group Inc. said.
Poor in India Starve as Politicians Steal $14.5 Billion of Food(Bloomberg)
Ram Kishen, 52, half-blind and half- starved, holds in his gnarled hands the reason for his hunger: a tattered card entitling him to subsidized rations that now serves as a symbol of India’s biggest food heist. Kishen has had nothing from the village shop for 15 months. Yet 20 minutes’ drive from Satnapur, past bone-dry fields and tiny hamlets where children with distended bellies play, a government storage facility five football fields long bulges with wheat and rice. By law, those 57,000 tons of food are meant for Kishen and the 105 other households in Satnapur with ration books. They’re meant for some of the 350 million families living below India’s poverty line of 50 cents a day. Instead, as much as $14.5 billion in food was looted by corrupt politicians and their criminal syndicates over the past decade in Kishen’s home state of Uttar Pradesh alone, according to data compiled by Bloomberg.
The theft blunted the country’s only weapon against widespread starvation -- a five-decade-old public distribution system that has failed to deliver record harvests to the plates of India’s hungriest. “This is the most mean-spirited, ruthlessly executed corruption because it hits the poorest and most vulnerable in society,” said Naresh Saxena, who, as a commissioner to the nation’s Supreme Court, monitors hunger-based programs across the country. “What I find even more shocking is the lack of willingness in trying to stop it.”
Hungary Tests Investors With Rate Reduction as Recession Deepens(Bloomberg)
Hungary’s deepening recession prompted the central bank to unexpectedly lower the European Union’s highest benchmark interest rate as policy makers test investors’ tolerance for lower borrowing costs, said economists from London to Budapest. The Magyar Nemzeti Bank cut the two-week deposit rate to 6.75 from 7 percent percent yesterday, the first decrease since April 2010. It will probably ease policy further this year as concerns about the lack of economic growth outweigh accelerating inflation, economists at Morgan Stanley, Danske Bank A/S (DANSKE), Equilor Zrt., and Capital Economics Ltd. said.
Policy makers have been divided on when to start cutting rates, with some arguing that the start of bailout talks opens the way to lower rates to spur growth after the economy sank into its second recession in four years. The non-executive members of the Monetary Council probably overcame objections about the inflation outlook and the pending bailout talks, said Pasquale Diana, an economist at Morgan Stanley (MS) in London. “We think that the four external members have chosen to use the leeway offered by the better risk environment, and it is conceivable that the same members may vote to cut as long as they feel it is warranted by the risk backdrop, regardless of whether an IMF deal is struck or not,” Diana wrote in an e-mail yesterday.
The forint weakened 1.1 percent to 280.90 per euro as of 6:05 p.m. in Budapest, its biggest loss in more than a month. The currency has gained 12.1 percent this year, the most among more than 20 emerging-market currencies tracked by Bloomberg, as investors speculated that Hungary will obtain an IMF bailout.
Catalonia Seeks $6.3 Billion From Spain Regional Rescue Fund(Bloomberg)
Catalonia will tap a national rescue fund after Spain’s most indebted region was shut out of financial markets, suffering the type of funding squeeze that led Greece, Ireland and Portugal to seek international bailouts. Catalonia, the largest of Spain’s 17 autonomous regions, will seek 5 billion euros ($6.3 billion), almost a third of the 18 billion-euro fund created in July by the government of Prime Minister Mariano Rajoy. Valencia was the first to tap the fund with a request on July 20. Spain’s ability to avoid a broader bailout depends on the government getting the regions to reduce their shortfalls, which were one of the reasons the country missed its budget-deficit target in 2011. The regions, which control more than a third of public spending, are increasingly being shunned by investors, mirroring the dynamic of the euro-region debt crisis.
“This is a milestone because it’s a formal recognition that Catalonia doesn’t have the money it needs,” said Javier Diaz-Gimenez, an economics professor at IESE business school in Madrid. “It shows how weak Spain’s arrangement has become for its regional finances.”
ECB Said to Urge Weaker Basel Liquidity Rule on Crisis Risks(Bloomberg)
The European Central Bank is pushing global banking regulators to relax a draft liquidity rule so that lenders can use some asset-backed securities and loans to businesses in a buffer they must hold against a possible credit squeeze, according to three people familiar with the talks. The ECB, backed by the Bank of France, considers a draft version of the liquidity coverage ratio, or LCR, may hamper efforts to combat the euro-area debt crisis by curtailing lending and making it harder for central banks to implement their monetary policies, said the people, who couldn’t be identified because the discussions at the Basel Committee on Banking Supervision are private. They said the ECB stance is opposed by some other Basel members, including U.S. regulators. The LCR was drawn up by the Basel group as part of a package of measures to prevent a repeat of the turmoil that followed the 2008 collapse of Lehman Brothers Holdings Inc.
The ECB is seeking to relax the rule -- designed to force banks to hold enough easy-to-sell assets to survive a 30-day credit squeeze -- by expanding the range of eligible securities, aligning the standard more closely with its own collateral arrangements, the people said. “As central banks have relaxed their rules” during the debt crisis in the euro area, “the LCR has become more and more out of sync with central-bank reality,” said Jesper Berg, senior vice president at Nykredit A/S, Denmark’s biggest mortgage bank.
Hollande Loses Bond Market Love as Growth Stalls: Euro Credit(Bloomberg)
French President Francois Hollande’s honeymoon with bond investors may be ending as economic reality bites. Hollande, who returned from a 15-day summer break last week, faces an economy that hasn’t grown in three quarters, rising joblessness, a ballooning trade deficit and the task of coming up with a plan in the next few weeks to plug a budget hole of more than 30 billion euros ($37 billion) for next year. The challenges ahead may undermine the rally in French bonds that has allowed the country to sell bills at negative yields for the first time. During Hollande’s first 100 days in office, the premium demanded to hold French 10-year debt rather than comparable German securities fell to the lowest in more than a year. That trend may be reversing.
“France’s fundamentals -- rising unemployment, widening current account deficit and budget deficit -- would not support its bonds,” said Jamie Stuttard, head of international bond investments at Fidelity Investments in London, which has $1.6 trillion under management. “The more expensive French bonds go, the harder the case becomes for French government debt.” The French 10-year yield is at 2.07 percent, near the record-low of 2 percent reached on Aug. 3 and down from 2.89 percent on the last trading day before Hollande’s election on May 6. The premium France pays over Germany to borrow for a decade, which fell below 60 basis points for the first time in more than a year on Aug. 15, rose to 73 basis points today.
Spain recession deepens as austerity weighs (Reuters)
Spain's economy shrank further in the second quarter of the year and a slump in domestic spending accelerated, signalling a protracted recession as the country presses on with efforts to slash its public deficit.
