Asia FX By Cornelius Luca - Wed 05 Dec 2012 17:20:03 CT (CME/www.lucafxta.com)
The appetite for risk was mixed on Wednesday. Most foreign currencies ended lower, with only the Aussie gaining on the day. There is no change in the big political picture of the "fiscal cliff" negotiations, so the markets remain vulnerable to leaks, rumors and personal guesses about the success. The US stock markets ended divergently on a day when Apple was hit hard. Gold, oil and silver also ended divergently. 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 short on all European currencies. Good luck!
Overnight
US: The ISM's non-manufacturing index inched up to 54.7 in November from 54.2 in October.
US: The ADP employment change fell to 118,000 in November from the downwardly revised 157,000 in October.US: Factory orders increased by 0.8% in October following a revised 4.5% increase in September.US: The final labor productivity for the third quarter was revised upward to 2.9% from the preliminary estimate for a 1.9% increase.Today's economic calendar
US: Factory orders increased by 0.8% in October following a revised 4.5% increase in September.
US: The final labor productivity for the third quarter was revised upward to 2.9% from the preliminary estimate for a 1.9% increase.
Today's economic calendar
Australia: Trade balance for October
Australia: Unemployment rate for November
Asian stocks rose, with the regional benchmark index headed for its highest close in eight months, as all industry groups advanced after data on U.S. services and factory orders beat estimates. (Bloomberg)
Toyota Motor Corp., the world’s biggest carmaker by market value, gained 0.7 percent in Tokyo. Rio Tinto Group (RIO), the world’s second-largest mining company, climbed 0.9 percent in Sydney as metal prices rose. The MSCI Asia Pacific Index (MXAP) gained 0.3 percent to 125.6 as of 9:47 a.m. in Tokyo, heading for its highest close since April 3. Markets in China and Hong Kong have yet to open. The measure advanced last month amid signs of economic improvement in the world’s two largest economies and optimism U.S. lawmakers will agree on a budget deal to avert the so-called fiscal cliff. “The economic data looks OK and that’s been supporting the share market,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “Markets will have to see a resolution of the U.S. fiscal cliff for the rally to continue.”
China’s Stocks Rise Most in Three Months; Machinery Makers Surge (Bloomberg)
China’s stocks rose the most in three months after the government allowed insurers to invest more in banks and investors speculated profits at construction and cement companies will increase. Sany Heavy Industry Co. jumped 10 percent and Anhui Conch Cement Co. climbed to a six-month high as analysts said the first meeting by the ruling party under new leader Xi Jinping signaled increased urban development. Industrial Bank Co. led a gauge of financial stocks to the biggest gain in two months as a regulation limiting investment in banks by insurers was abolished. Ping An Insurance (Group) Co. of China Ltd. jumped 4.1 percent as HSBC Holdings Plc agreed to sell its stake.
The Shanghai Composite Index (SHCOMP) surged 2.9 percent to 2,031.91 at the close, capping the biggest advance since Sept. 7. Trading volumes were 102 percent above the 30-day average, according to data compiled by Bloomberg. The CSI 300 Index rose 3.6 percent to 2,207.88, with the materials, industrial and financial gauges climbing at least 3.6 percent. “Lately, the government had been relaying messages about improving the economy, in particular its plans for urbanization,” said Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu. Investors “see a clearer direction and roadmap for government reforms,” Mao said. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong increased 2.7 percent. The Bloomberg China- US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, lost 0.1 percent in New York. Thirty-day volatility in the Shanghai gauge was at 16.5, compared with this year’s average of 16.9.
Japan Stocks Rise on Optimism U.S Will Avoid Fiscal Cliff (Bloomberg)
Japanese stocks rose, with the Nikkei 225 (NKY) Stock Average heading for a seven-month high, on optimism U.S. lawmakers will reach a budget compromise to avoid the so- called fiscal cliff, boosting Japanese exporters. Toyota Motor Corp., an automaker that gets 25 percent of its sales in North America, rose 1 percent after U.S. services and factory data beat estimates. Canon Inc. (7751), the world’s top camera maker, rose 1 percent on a Wall Street Journal report the company plans to triple its China sales in five years. Renesas Electronics Corp. climbed 0.7 percent amid optimism lenders will relax terms on emergency loans to the chipmaker.
The Nikkei 225 gained 0.7 percent to 9,533.67 as of 9:32 a.m. in Tokyo. The equity gauge capped the biggest monthly gain since February last month on speculation Japan’s opposition will win the Dec. 16 election and call for more stimulus. The broader Topix Index climbed 0.8 percent to 788.38, with about four stocks rising for each that fell. All of the measure’s 33 industry groups advanced. In the U.S. budget debate, “there are distant signs that both parties should come to at least a short-term agreement,” said Chris Weston, chief market strategist at IG Markets Ltd. in Melbourne. “Certainly the market is seeing it that way and giving the situation the benefit of the doubt. U.S. data on the whole was positive.”
Futures on the Standard & Poor’s 500 Index climbed 0.1 percent today. The gauge rose 0.2 percent yesterday as a few dozen Republicans joined a bipartisan call to break the impasse between President Barack Obama and House Speaker John Boehner over taxes for the highest-earning Americans, signing a letter calling for exploration of “all options.” Obama told a business group that the budget debate could be solved in about a week if Republicans move.
U.S. Stocks Snap Two-Day Slump Amid Optimism Over Budget (Bloomberg)
U.S. stocks advanced, following a two-day decline in the Standard & Poor’s 500 Index, amid optimism lawmakers will reach a budget agreement before the end of the year and after economic data topped estimates. Plains Exploration & Production Co. and McMoRan Exploration Co. (MMR) surged at least 23 percent as Freeport-McMoRan Copper & Gold Inc. (FCX) agreed to acquire them for about $9 billion. Citigroup Inc. gained 6.3 percent on plans to eliminate more than 11,000 jobs and pull back from some emerging markets. Apple Inc. (AAPL) fell 6.4 percent on concern about Nokia Oyj getting a leg up in China and traders betting that a recent rally may have sputtered. The S&P 500 rose 0.2 percent to 1,409.28 at 4 p.m. New York time. The Dow Jones Industrial Average added 82.71 points, or 0.6 percent, to 13,034.49. The Nasdaq Composite Index declined 0.8 percent to 2,973.70. More than 7 billion shares changed hands on U.S. exchanges, or 12 percent above the three-month average, according to data compiled by Bloomberg.
“The economy is still on track for moderate growth, but there are bigger issues to focus on,” said Jay Wong, a Los Angeles-based portfolio manager with Payden & Rygel, which oversees $75 billion. “The market’s reaction is based on investors’ focus on headlines and a strong appetite for a fiscal cliff resolution. The market will continue to react to any news in connection with a potential resolution.” Equities rose as a few dozen Republicans joined a bipartisan call to break the impasse between President Barack Obama and House Speaker John Boehner over taxes for the highest- earning Americans, signing a letter calling for exploration of “all options. (COST)” Obama told a business group that “nobody wants to get this done more than me” and lawmakers probably could solve the budget debate in about a week if Republicans move.
Recap Stock Index Market Report (CME)
The December S&P 500 experienced a volatile trading session that culminated in a positive outside day reversal. Equities came under pressure shortly after the Wall Street opening, weighed down by 15% slide in the shares of Freeport-McMoran on a $9 billion acquisition deal. The technology sector remained a drag throughout the session, weighed down by a more than 4% downdraft in Apple, on news that a clearing firm boosted margin requirements for the stock. Equity market sentiment took a positive turn during the later morning hours on comments from President Obama that a deal on the fiscal cliff could come next week. Financial shares were among the upside leaders on the session, helped by gains in Citigroup on reports the company was reducing its workforce by 11%. Shares of Travelers were up 5% on the session on slightly smaller than expected damages from Hurricane Sandy.
European Stocks Rise to 18-Month High on China Optimism (Bloomberg)
European stocks rose to an 18-month high as China signaled wider policy support for economic recovery, outweighing a report that showed euro-area manufacturing and services output shrank for a 10th month. HSBC Holdings Plc climbed to 1 1/2-year high after the bank agreed to sell its stake in China’s Ping An Insurance (Group) Co. for $9.4 billion. Vedanta Resources Plc (VED) jumped 2.6 percent. Tesco Plc rallied the most in 14 months after starting a review of its U.S. Fresh & Easy business. Nokia Oyj (NOK1V) gained 9.7 percent after winning a deal to sell its flagship smartphone in China. The Stoxx Europe 600 Index added 0.2 percent to 276.91 at the close of trading. The benchmark gauge has surged 18 percent from this year’s low on June 4 as the European Central Bank and the Federal Reserve expanded economic support and optimism grew that U.S. lawmakers will avoid a looming fiscal deadlock.
“Investor sentiment is improving, and the market is receptive for positive news, such as the news out of China,” Otto Waser, chief investment officer at Research & Asset Management AG in Zurich, said in a telephone interview. “There’s still a wall of worry regarding the fiscal cliff that causes investors to be cautiously positioned which implies room to increase equity allocations.” National benchmark indexes climbed in 12 of the 18 western European markets. France’s CAC 40 and Germany’s DAX each added 0.3 percent. U.K.’s FTSE 100 (UKX) rose 0.4 percent.
Yen (Bloomberg)
The yen remained lower against the dollar amid speculation the Bank of Japan (8301) will roll out additional stimulus this month, debasing the currency. The yen traded 0.2 percent from a seven-month low versus the euro before a general election on Dec. 16 in Japan where the front-runner to become the next prime minister is calling for unlimited central-bank easing. New Zealand’s dollar gained to an eight-month high against the yen after Reserve Bank Governor Graeme Wheeler said the outlook for the nation’s economy is stronger as policy makers kept interest rates unchanged. “Government pressure on the BOJ to ease will increase,” said Greg Gibbs, Singapore-based senior currency strategist at Royal Bank of Scotland Group Plc. “If there’s any currency out there that you have to assume is at risk of a major change toward a weaker trend next year, it’s the yen.”
Japan’s currency traded at 82.37 per dollar as of 9:33 a.m. in Tokyo from yesterday, when it depreciated 0.7 percent to 82.47. The yen bought 107.71 per euro from 107.78 yesterday, when it touched 107.96, the weakest since April 20. The 17- nation euro was little changed at $1.3073. It fell 0.2 percent yesterday after reaching $1.3127, the highest since Oct. 18. New Zealand’s dollar rose 0.2 percent to 83.02 U.S. cents, extending a 1 percent, three-day gain. The so-called kiwi touched 68.4 yen, the highest since April 2, before trading at 68.38 yen, little changed from yesterday.
Bailout Cash Gives Europe Edge Over U.S. in Debt: Credit Markets (Bloomberg)
Companies in Europe are perceived to be the safest compared with their U.S. counterparts in 17 months as risks of a currency breakup diminish while politicians in the world’s biggest economy struggle to cut the nation’s deficit. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies from Spain’s Telefonica SA to engine-maker Rolls Royce Plc exceeds the U.S. equivalent by the least since July 2011, with the gap narrowing to 20 basis points yesterday. Their bonds are also gaining, with relative yields dropping below their U.S. peers for the first time since June of last year.
Europe is making a comeback in the debt markets as European Central Bank President Mario Draghi pledges to do whatever’s necessary to protect the euro, with the government bonds of Greece, Portugal, Ireland, Italy and Spain generating the biggest returns since June of 26 sovereign markets tracked by Bloomberg/EFFAS indexes. At the same time, lawmakers in the U.S. are bickering over how to avert more than $600 billion in mandated spending cuts and tax increases. “The U.S. fiscal cliff has eclipsed the euro zone crisis as the focal point for market uncertainty,” said Nicholas Spiro, managing director at sovereign risk consulting firm Spiro Sovereign Strategy in London. The ECB “is underwriting everything now,” he said.
ADP Says U.S. Companies Added 118,000 Workers in November (Bloomberg)
Companies in the U.S. added fewer workers in November than a month earlier after superstorm Sandy battered the East Coast and temporarily shuttered some businesses. The 118,000 increase in employment followed a revised 157,000 gain in October that was less than initially estimated, data from the Roseland, New Jersey-based ADP Research Institute showed today. The median forecast of 38 economists surveyed by Bloomberg projected a 125,000 rise in November. The report estimated that Sandy reduced payrolls by about 86,000. Hiring plans were put off by companies in the mid-Atlantic, a three-state region that employs about 14 percent of U.S. workers, as they recovered from Sandy. Firms are also awaiting a solution by lawmakers in Washington to avoid automatic tax increases and budget cuts that raise the risk of recession in 2013.
“The manufacturing, retailing, leisure and hospitality, and temporary help industries were hit particularly hard by the storm,” Mark Zandi, chief economist at Moody’s Analytics Inc., said in a statement. Moody’s produces the figures with ADP. Aside from Sandy, “the job market turned in a good performance during the month,” Zandi said. “This is especially impressive given the uncertainty created by the presidential election and the fast-approaching fiscal cliff.”
Obama Lesson on Debt Talks Is Standing Firm on Tax Rates (Bloomberg)
President Barack Obama is hardening his stance in his first post-election confrontation with Republicans, declaring he will make no deal on the country’s fiscal future unless congressional leaders first accept tax-rate increases on top earners. During an appearance yesterday on Bloomberg Television, Obama’s first media interview since his re-election, the president paired his ultimatum on taxes with signals he is ready to make concessions to Republican House Speaker John Boehner’s calls for cuts to entitlement programs such as Medicare health insurance for the elderly. His demands on taxes and a public relations offensive to engage voters are a shift from Obama’s approach to the budget battles of the last two years, reflecting greater political leverage after his re-election and lessons the administration has drawn from past negotiations.
“He is in a much stronger position now and he’s acting like it,” said Paul Begala, a Democratic communications strategist who worked in President Bill Clinton’s White House. “This is a very different negotiating position than last time.” Many Democrats criticized Obama for agreeing to an extension of President George W. Bush’s tax cuts in December 2010 and for focusing on private negotiations with Boehner on raising the debt limit in 2011 rather than mounting a public appeal.
Singh Wins India Vote on Retail in Boost to Flagging Policy Push (Bloomberg)
Indian lawmakers endorsed in a vote the government’s decision to allow the entry of overseas retail chains, boosting Prime Minister Manmohan Singh’s bid to push through policies to revive a slowing economy. While 253 members of the 545-member of the lower house supported the government plan yesterday, 218 voted against. Singh’s Congress Party-led minority coalition emerged victorious as two regional parties that oppose the arrival of foreign supermarkets walked out rather than vote with ideological rivals. The September move to enable companies like Wal-Mart Stores Inc. (WMT) and Tesco Plc (TSCO) to open stores in India didn’t require parliamentary approval to become law. Singh’s government agreed to a vote to end protests that had stalled legislative business as it seeks to push through the country’s biggest embrace of foreign investment in a decade.
This vote in parliament on FDI in retail “shows the resolve of the government and will boost foreign investor sentiment,” said Kishor Ostwal, managing director at CNI Research Ltd. in Mumbai. “We expect foreign inflows into stocks to rise. If the government can implement this smoothly and initiate one or two more reforms, then it will be a re-rating of the Indian markets.” As the debate began Dec. 4, opposition lawmakers contended that the policy would throw small shopkeepers out of work, further impoverish farmers and hurt consumers. Ruling coalition members defended the retail plan, which can be rejected by state administrations.
RBA’s Lowe Calls Australian Dollar ‘Uncomfortably High’ (Bloomberg)
Australia’s exchange rate is “uncomfortably high” and business confidence subdued, breaking with past experience during interest-rate reductions, Reserve Bank Deputy Governor Philip Lowe said. “Countries that are in relatively good shape and have not seen large-scale expansion of the central bank balance sheet are experiencing stronger currencies than those that are in relatively poor shape,” Lowe said in a speech yesterday in Sydney. “In response to this, interest rates are lower than they otherwise would be to offset some of the effects of an uncomfortably high exchange rate.” Lowe highlighted a split between Australian households, where data have “picked up somewhat” in response to 1.75 percentage points of rate cuts in the past 14 months, and businesses, where confidence and conditions have not. “This difference will obviously bear close watching over the period ahead,” he said.
The No. 2 RBA official’s speech titled ‘What Is Normal?’ sought to place Australians’ higher savings and lower retail spending, as well as stagnant asset prices in the context of the economy’s performance of the past 30 years. He said consumers were “prudent” rather than “cautious” and indicated that their behavior was simply returning to pre-boom levels. The RBA lowered rates six times in the past 14 months to 3 percent, matching a half-century low reached at the height of the 2009 global recession. Lowe said it is possible that lending rates will be “somewhat lower” for a period, reflecting global weakness and fallout from the credit boom last decade.
N.Z. Extends Interest-Rate Pause as Growth and Inflation Slow (Bloomberg)
New Zealand’s central bank extended a period of record-low borrowing costs that began in March last year as rising unemployment and falling retail sales slow the economic recovery and contain inflation. Reserve Bank Governor Graeme Wheeler left the official cash rate at 2.5 percent, according to a statement released today in Wellington. The decision is the former World Bank official’s second on borrowing costs since he took over from Alan Bollard in late September. Wheeler is betting that weakness in the economy doesn’t justify a rate cut because earthquake-related construction and housing investment will boost growth next year. Economists forecast that benign inflation gives him scope to delay raising borrowing costs until the second half of next year, or later.
“Given the outlook for inflation, we think it likely that the RBNZ’s central projection will point to yet another small delay in the expected timing of the first policy tightening,” Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland, said ahead of the statement. He doesn’t expect a rate rise until the first quarter of 2014. New Zealand’s dollar gained, buying 82.75 U.S. cents at 9:02 a.m. in Wellington from 82.54 cents immediately before the statement. Today’s decision was forecast by all 16 economists in a Bloomberg News survey. Annual inflation slowed to the weakest pace in more than 12 years in the year through September, and fell beneath the 1 percent to 3 percent range the central bank targets, as a stronger currency made imports cheaper.
The New Zealand dollar has gained 6.1 percent the past 12 months, the best performing Group of 10 currency. The country’s jobless rate unexpectedly rose to a 13-year high of 7.3 percent in the third quarter, as retail sales fell, adding to the case for gross domestic product to slow in the second half of the year. Still, construction expanded the most in 10 years in the July-September period, boosted by rebuilding in the South Island city of Christchurch which was devastated by earthquakes in 2010-11.
Osborne Says U.K. Growth Forecast Cut as Deficit Seen Wider (Bloomberg)
Chancellor of the Exchequer George Osborne unveiled a cut in the government’s economic growth forecasts and said the budget deficit will take longer to tame than he originally planned. Forecasts from the Office for Budget Responsibility show the economy will shrink 0.1 percent this year instead of the 0.8 percent growth predicted in March, and expand 1.2 percent next year instead of 2 percent, Osborne said in his autumn statement to Parliament. He extended his fiscal consolidation by one year to the 2017-18 fiscal year and said he will miss his target to start cutting debt as a percentage of gross domestic product in 2015 by a year. The announcement drew attacks from the opposition Labour Party, which says he is damaging the economy by trying to cut the deficit too quickly. The chancellor is already struggling to rebuild his reputation after a decision to cut income taxes for the highest earners in his March budget and a series of policy U-turns cost his Conservative Party support with voters.
“While our deficit is forecast to go on falling, instead of taking three years to get our debt falling, it’s going to take four,” Osborne said. “Some say we should abandon our deficit plan, and try to borrow more. They think by borrowing more, they can borrow less. That would risk higher interest rates, more debt interest payments and a complete loss of Britain’s fiscal credibility.”
Bailout Cash Gives Europe Edge Over U.S. in Debt: Credit Markets (Bloomberg)
Companies in Europe are perceived to be the safest compared with their U.S. counterparts in 17 months as risks of a currency breakup diminish while politicians in the world’s biggest economy struggle to cut the nation’s deficit. The Markit iTraxx Europe Index of credit-default swaps on 125 investment-grade companies from Spain’s Telefonica SA to engine-maker Rolls Royce Plc exceeds the U.S. equivalent by the least since July 2011, with the gap narrowing to 20 basis points yesterday. Their bonds are also gaining, with relative yields dropping below their U.S. peers for the first time since June of last year.
Europe is making a comeback in the debt markets as European Central Bank President Mario Draghi pledges to do whatever’s necessary to protect the euro, with the government bonds of Greece, Portugal, Ireland, Italy and Spain generating the biggest returns since June of 26 sovereign markets tracked by Bloomberg/EFFAS indexes. At the same time, lawmakers in the U.S. are bickering over how to avert more than $600 billion in mandated spending cuts and tax increases. “The U.S. fiscal cliff has eclipsed the euro zone crisis as the focal point for market uncertainty,” said Nicholas Spiro, managing director at sovereign risk consulting firm Spiro Sovereign Strategy in London. The ECB “is underwriting everything now,” he said.
Euro-Area Manufacturing, Services Contract for 10th Month (Bloomberg)
Euro-area services and manufacturing output shrank for a 10th month in November, suggesting the economy may struggle to pull out of a recession as governments toughen spending cuts to fight the sovereign-debt crisis. A composite index based on a survey of purchasing managers in both industries rose to 46.5 from 45.7, London-based Markit Economics said today. That’s above an initial estimate of 45.8 published on Nov. 22. A reading below 50 indicates contraction. The economy of the 17 nations that use the euro has shrunk for two successive quarters and economists foresee a further drop in the final three months of the year as the debt crisis continues to weigh on confidence. The Organization for Economic Cooperation and Development projected last week that the euro- area economy will shrink 0.4 percent this year and 0.1 percent in 2013.
“The euro zone’s recession looks to have deepened in the final quarter, with GDP likely to have fallen by considerably more than the modest 0.1 percent decline seen in the third quarter,” Chris Williamson, chief economist at Markit, said in the report. “France, Spain and Italy continue to see strong contractions, while a milder downturn is evident in Germany.” The euro was off its session highs against the dollar after the data, trading at $1.3103 at 10:51 a.m. in Brussels, up 0.1 percent on the day.
