20110810 1053 Global Market Related News.

Asian Stocks Gain on U.S. Fed’s Low-Rate Pledge (Source: Bloomberg)
Asian stocks climbed for the first time in seven days and commodities rallied, with oil rebounding from a 10-month low, after the Federal Reserve pledged to keep interest rates near zero through mid-2013. The MSCI Asia Pacific Index climbed 1.6 percent as of 9:42 a.m. in Tokyo, halting a six-day, 13 percent slump. Standard & Poor’s 500 Index futures climbed 0.2 percent percent and Treasury 10-year yields slipped two basis points to 2.23 percent. South Korea’s won jumped 0.9 percent to 1,078.35 per dollar, while Australia’s dollar added 0.3 percent. Crude jumped 2.4 percent in New York. Wheat and corn rose more than 1 percent and copper snapped a five-day loss.
The Fed vowed to keep its benchmark rate at an all-time low and discussed a range of policy tools to bolster the economy, saying it is prepared to use them “as appropriate.” Evidence that policy makers are taking steps to spur growth and restore investor confidence helped global equity markets snap a nine-day rout that had wiped out $7.8 trillion in value.

Asia Stocks Climb on Fed Rate Pledge, Prospect of Other Support for Growth (Source: Bloomberg)
Asian stocks rose, snapping six days of losses for the region’s benchmark index, after the U.S. Federal Reserve pledged to keep its benchmark interest rate at a record low at least through mid-2013 and said it may apply additional tools to revive the world’s biggest economy. BHP Billiton Ltd. (BHP), Australia’s No. 1 oil producer, jumped 3.1 percent in Sydney as oil and metal prices rebounded. Commonwealth Bank of Australia surged 2.6 percent, leading banks higher, after reporting that second-half profit rose 22 percent to a record. Canon Inc. (7751), the world’s biggest camera maker by market capitalization, gained 1.6 percent in Tokyo as the outlook for Asian exporters’ earnings improved. The MSCI Asia Pacific Index, which last week entered a so- called correction after falling more than 10 percent from its May peak, rose 1.6 percent to 122.36 as of 9:20 a.m. in Tokyo today.

GLOBAL MARKETS-Share rout sends world stocks down 20 pct since May
LONDON, Aug 9 (Reuters) - World stocks sank sharply for a 10th session running on Tuesday, racking up a "bear market" 20 percent loss since early May, fuelled by fears of a new global downturn.  "Markets are now worried about another global recession. Out of Europe, French bond yields have widened on expectations of sovereign debt downgrade because of the country's exposure to peripheral European debt," said Natalie Robertson, a commodities strategist at ANZ.

Shares nosedive but pare losses; gold hits fresh peak
SINGAPORE, Aug 9 (Reuters) - Asian shares tumbled as investors scrambled to adjust to a rapid downgrade in the outlook for U.S. and global economic growth, but later staged a sharp rebound from early lows, helping cushion expected losses in Europe.  "Not even in the global financial crisis did we see this extraordinary volatility," said RBS Australia's head of Sydney   sales trading, Justin Gallagher.

Fed to Keep U.S. Interest Rates at Record Lows (Source: Bloomberg)
The Federal Reserve pledged for the first time to keep its benchmark interest rate at a record low at least through mid-2013 to revive a recovery that’s “considerably slower” than anticipated. The Federal Open Market Committee is “prepared to employ” additional tools to bolster an economy hobbled by weak hiring and anemic household spending, it said in a statement today in Washington. Three members of the committee dissented, preferring to maintain a previous pledge to keep rates low for an “extended period” without a specific timeframe. Stocks rallied and yields on 10-year Treasury notes briefly touched a record low.

Bernanke Time Commitment on Benchmark Rate Spurs Most Dissents Since 1992 (Source: Bloomberg)
Ben S. Bernanke lost the full consensus of the Federal Open Market Committee as he reached for another non-traditional tool and provoked three dissenting votes in the process -- the most for a Federal Reserve chairman since 1992. For the first time today, U.S. central bankers specified a date for their commitment to low borrowing costs, saying the benchmark rate will stay in a range of zero to 0.25 percent at least through mid-2013. The new language replaces their prior promise to keep rates low for an “extended period.” Today’s decision shows that a Fed chief can govern with more than two opposing votes, and it opens the door to bolder action if necessary, said Roberto Perli, a former economist in the Fed’s Division of Monetary Affairs, which helps craft the language of the FOMC statements.

Biggest Mortgage Rate Cuts Since Lehman Signal RBA Peak: Australia Credit (Source: Bloomberg)
Australia’s biggest lender made the largest cuts to fixed mortgage rates since 2008, after money markets signaled the central bank may lower the world’s highest benchmark borrowing costs as global growth slows. Commonwealth Bank of Australia (CBA), with A$299.4 billion ($305 billion) in outstanding home loans, yesterday cut its fixed-rate home loans by as much as 0.6 percentage point, while Westpac Banking Corp. (WBC), with A$281.8 billion in mortgages, lowered its three year rate. Interbank cash-rate futures indicate the Reserve Bank of Australia’s key rate will fall to 3.49 percent by December from 4.75 percent. “One has to respect the collective thought process of the market and the market seems to be absolutely convinced an easing cycle is coming,” said Gavin Stacey, head of research for Australia at Barclays Capital in Sydney. Commonwealth Bank “has been able to offer this rate for the simple reason that swap rates have priced in Armageddon.”

Productivity in U.S. Falls for Second Straight Quarter as Labor Costs Rise (Source: Bloomberg)
The productivity of U.S. workers dropped from April through June for the second consecutive quarter, leading to an increase in labor costs that may restrain gains in profits. The measure of employee output per hour fell at a 0.3 percent annual rate in the second quarter after a revised 0.6 percent drop in the prior three months, figures from the Labor Department showed today in Washington. The median estimate of 60 economists surveyed by Bloomberg News projected a 0.9 percent decrease. Expenses per employee climbed at a 2.2 percent rate. Falling efficiency and rising costs mean companies like AutoNation Inc. have less incentive to take on staff or increase pay, representing another obstacle to the recovery after growth almost stalled in the first half of the year. To help shore up the economy, Federal Reserve policy makers today pledged for the first time to keep their benchmark interest rate at a record low at least through mid-2013.

Statement by Federal Open Market Committee on Interest Rates: Full Text (Source: Bloomberg)
The following is a reformatted version of the full text of the statement released today by the Federal Reserve in Washington:
Information received since the Federal Open Market Committee in June indicates that economic growth so far this year has been considerably slower than the Committee had expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out, investment in nonresidential structures is still weak, and the housing sector remains depressed. However, business investment in equipment and software continues to expand. Temporary factors, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply chain disruptions associated with the tragic events in Japan, appear to account for only some of the recent weakness in economic activity. Inflation picked up earlier in the year, mainly reflecting higher prices for some commodities and imported goods, as well as the supply chain disruptions.
More recently, inflation has moderated as prices of energy and some commodities have declined from their earlier peaks. Longer-term inflation expectations have remained stable.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting and anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, downside risks to the economic outlook have increased. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee’s dual mandate as the effects of past energy and other commodity price increases dissipate further. However. the Committee will continue to pay close attention to the evolution of inflation and inflation expectations.

Obama Sparring With Boehner Shows Compromise on Deficit-Reduction Not Near (Source: Bloomberg)
President Barack Obama and House Republican leaders are showing no signs of backing off their stances on how to cut the federal deficit. Obama, making his first public comments since Standard & Poor’s downgraded the U.S. credit rating to AA+ from AAA on Aug. 5, said yesterday that “common sense and compromise” should lead to a deficit-reduction plan that includes more tax revenue, which Republicans have rejected, as well as spending cuts. U.S. House Speaker John Boehner and Majority Leader Eric Cantor responded with statements saying what’s needed are cuts in mandatory spending, such as Social Security and Medicare, to make enough progress on the long-term shortfall. Boehner ruled out what he called “job-destroying tax hikes.”

Fed May Strengthen Stimulus Pledge on Renewed Recession Concern (Source: Bloomberg)
Federal Reserve officials may strengthen their commitment to record monetary stimulus as soon as today after a faltering economic recovery and a U.S. credit- rating cut provoked a rout in global stocks. By a 52 percent to 48 percent margin, respondents in a Bloomberg News survey said the Fed would ease policy this year through monetary tools or statement language. If the central bank acts, 59 percent said it would communicate that the federal funds rate, balance sheet or both will remain especially stimulative for a longer period or more specific amount of time. Chairman Ben S. Bernanke and his colleagues are weighing the use of more untested policy tools after two rounds of bond buying totaling $2.3 trillion failed to spur sufficient economic growth and reduce unemployment below 9 percent. The Federal Open Market Committee holds its regular meeting today in Washington following the worst day for U.S. stocks since December 2008.

Dollar Is Near One- Week Low Versus Euro on Fed Measures; Yen Halts Gain (Source: Bloomberg)
The dollar was 0.5 percent from a one-week low against the euro on speculation Federal Reserve policy makers will signal which additional tools the central bank is prepared to use to bolster the U.S. economy. The yen snapped a three-day advance versus the U.S. currency amid concern Japanese authorities will intervene to halt a rally in their currency that threatens exporters. Finance Minister Yoshihiko Noda said today he will continue to watch markets carefully as the yen’s one-sided moves pose a risk to the nation’s recovery. “The lower interest rates should be a negative for the U.S. dollar,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “At some point if the economy slows further as expected, then core inflation should fall from where it is now. And then that would most likely be a trigger for a new round of quantitative easing.”

Treasury 30-Year Bonds Decline After Fed Vows to Keep Interest Rates Low (Source: Bloomberg)
Treasury 30-year bonds fell, snapping a two-day rally, on speculation the Federal Reserve’s pledge to keep interest rates at a record low will lead to faster inflation over the life of the securities. Shorter maturities, which are more sensitive to what the central bank does with its target for overnight loans between banks, were little changed. The Treasury is scheduled to sell $24 billion of 10-year notes today and $16 billion of 30-year debt tomorrow. “The Fed committed to keeping rates low,” said Tomohisa Fujiki, a bond strategist at BNP Paribas Securities Japan Ltd. in Tokyo. “Shorter maturities should be well-supported. With any pickup in economic sentiment, longer maturities will be vulnerable to higher inflation.”

U.S. Stocks Post Biggest Gain Since March 2009 (Source: Bloomberg)
U.S. stocks rose, capping the biggest rally in more than two years for benchmark indexes, as the Federal Reserve said it was prepared to use a range of tools to bolster the economy following yesterday’s rout in equities. The Standard & Poor’s 500 Index swung between gains and losses following the Fed’s statement and closed near the highest level of the trading day. Financial stocks in the S&P 500, which paced a slide that erased $1 trillion in market value yesterday, rallied 8.2 percent. Bank of America Corp. (BAC) and Citigroup Inc. (C) jumped at least 13 percent. Freeport-McMoRan Copper & Gold Inc. (FCX) gained 7.5 percent as gold advanced to a record. The S&P 500 jumped 4.7 percent to 1,172.53 at 4 p.m. in New York, after falling as much as 1.6 percent. The Dow Jones Industrial Average rose 429.92 points, or 4 percent, to 11,239.77 today. Both gauges had the biggest gain since March 23, 2009. About 16.8 billion shares changed hands at 4:56 p.m., more than twice the three-month average, Bloomberg data show.

VIX Has Second-Biggest Percentage Drop Ever Amid Fed Interest-Rate Pledge (Source: Bloomberg)
The VIX had the second-largest percent drop ever, reversing yesterday’s biggest surge in four years, after Federal Reserve Chairman Ben S. Bernanke promised to keep interest rates at record lows to revive economic growth. The VIX, as the Chicago Board Options Exchange Volatility Index is known, slumped 27 percent to 35.06 at 4:15 p.m. in New York, paring yesterday’s 50 percent surge to 48, the highest level since March 2009. The only larger drop in its 21-year history was a 30 percent slide on May 10, 2010, according to data compiled by Bloomberg. The VIX measures the cost of options on the Standard & Poor’s 500 Index, which surged 4.7 percent. “The moves are fierce,” said Nelson Saiers, chief investment officer of Alphabet Management LLC, said in a telephone interview. The New York-based volatility hedge fund manages $635 million. “Swings that rival, or exceed, even the fall of 2008 underscore how quickly the markets’ appetite for risk is changing.”

China May Delay Rate Rises Until 2012 (Source: Bloomberg)
China may join Asian nations from South Korea to India in delaying interest-rate increases after the nation’s leaders urged global cooperation to stabilize financial markets. The People’s Bank of China will leave borrowing costs unchanged for the rest of this year, according to eight of 10 analysts surveyed yesterday. Economists’ median forecast is for South Korea to extend a pause for a second month tomorrow, while Indonesia stayed on hold yesterday. The U.S. Federal Reserve pledged yesterday to keep interest rates near zero through mid-2013 and use other policy tools “as appropriate,” addressing the slump in confidence that triggered a global stock rout. China’s State Council said “relevant nations” should adopt responsible fiscal and monetary policies to maintain investors’ confidence, in a statement yesterday evening after a meeting chaired by Premier Wen Jiabao.

China’s Premier Wen Jiabao Urges Global Cooperation to Stabilize Markets (Source: Bloomberg)
China’s Premier Wen Jiabao urged global cooperation to stabilize financial markets after a U.S. rating downgrade and Europe’s debt crisis triggered a slump in equities worldwide. Countries should cut their fiscal deficits and resolve their debt problems to maintain global investors’ confidence and calm markets, according to a State Council statement yesterday after a meeting chaired by Wen. Weaker-than-estimated economic data from China to the U.S. and the unprecedented downgrade of America’s credit rating by Standard & Poor’s and Europe’s debt crisis have wiped out $7.9 trillion of global equity market capitalization since July 26. The Federal Reserve yesterday pledged to keep its benchmark interest rate at a record low at least through mid-2013.

Aug. 9 (Bloomberg) -- China’s inflation accelerated to the fastest pace in three years in July, limiting the scope for monetary easing to support growth as plunging stock markets signal the global recovery is weakening. Consumer prices climbed 6.5 percent from a year earlier as food costs surged, reports from the Beijing-based National Bureau of Statistics showed today. That was more than the 6.4 percent median estimate in a Bloomberg News survey of 26 economists. In June, inflation was 6.4 percent.

Japan’s Topix Snaps Six-Day Losing Streak After Fed Pledges Low Rates (Source: Bloomberg)
Japan’s Topix index snapped a six- day losing streak after the U.S. Federal Reserve pledged to keep its benchmark interest rate at a record low at least through mid-2013 to revive the world’s biggest economy, boosting the outlook for Asian exporters. Canon Inc. (7751), the world’s largest camera maker by market capitalization, gained 1.2 percent. Nissan Motor Co., a carmaker that gets about 80 percent of its revenue overseas, jumped 1.6 percent. Sumitomo Mitsui Financial Group Inc., Japan’s No. 2 publicly traded bank, climbed 1.6 percent. The Topix gained 1.3 percent to 780.72 as of 9:41 a.m. in Tokyo, with 15 stocks rising for each that fell. The Nikkei 225 (NKY) Stock Average rose 1.6 percent to 9,089.04.

Japan’s Bond Futures Rise After Federal Reserve Pledges to Keep Low Rates (Source: Bloomberg)
Japan’s bond futures climbed for a third day in four as the Federal Reserve’s pledge to keep interest rates at a record low for longer spurred speculation the Bank of Japan will follow its U.S. counterpart. Yields on benchmark 10-year bonds approached this year’s low as the yen was 1.1 percent from a record high against the dollar, raising concern a stronger local currency will derail Japan’s export-led recovery. The extra yield investors demand to hold two-year Treasuries instead of similar-maturity Japanese notes fell to the lowest level in almost two decades, increasing the relative attractiveness of yen-denominated assets. The Fed’s pledge indicates “the era of high growth for the U.S. and Europe as well as the global economy overall might have ended,” said Shuntaro Take, Tokyo-based deputy general manager for corporate investment at Tokio Marine & Nichido Life Insurance Co., which manages the equivalent of $43 billion in assets. “The environment is positive for bonds.”

South Korea’s Unemployment Rate Stays at Half-Year Low as Economy Expands (Source: Bloomberg)
South Korea’s unemployment rate stayed at the lowest level in half a year as jobs increased in manufacturing and the health and social welfare service sectors. The jobless rate was at 3.3 percent in July, unchanged from June, Statistics Korea said today in Gwacheon, south of Seoul. The median estimate in a Bloomberg News survey of eight economists was for a rate of 3.4 percent. Sustained job growth driven by an economic expansion has been fueling inflation that’s exceeded the central bank’s target since January, prompting the bank to raise the benchmark interest rate three times this year. Still, downside risks to the economy are rising due to the slump in global financial markets, Bank of Korea Governor Kim Choong Soo said yesterday.

Singapore Cuts Export Growth Forecast on Risks (Source: Bloomberg)
Singapore cut its forecast for export growth this year as a struggling U.S. economy and Europe’s debt crisis intensified risks to the global recovery. The currency pared gains. Non-oil domestic exports will probably rise 6 percent to 7 percent in 2011, lower than a previous forecast for shipments to grow 8 percent to 10 percent, the trade promotion agency said in a statement today. Gross domestic product fell an annualized 6.5 percent in the second quarter from the previous three months, compared with a preliminary estimate of 7.8 percent, the trade ministry said separately. Asia faces the threats of weakening demand and rising currencies after Standard & Poor’s cut its U.S. credit rating and a sell-off in Italian and Spanish debt intensified risks to world growth. A global stocks rout in the past week may prompt central banks to delay tightening monetary policy further after the region led interest-rate increases in the past year.

France in Crosshairs as Germany Enjoys Sole Safe-Haven Status: Euro Credit (Source: Bloomberg)
France’s borrowing costs are rising as Europe’s debt crisis makes investors wary of lending to any nation other than Germany. “There is only one sovereign in Europe, and that is Germany,” said Stuart Thomson, who helps oversee about $120 billion as a portfolio manager at Ignis Asset Management in Glasgow. “Everything else is a credit and trades like a credit, even France.” Investors currently demand about 90 basis points of extra yield to buy 10-year French debt rather than German bunds, even though both carry AAA grades from the major rating companies. That spread is almost triple the 2010 average of 33, and compares with 17 in the second half of the previous decade.

Trichet Turns ‘President of Europe’ as Debt Crisis Stuns Political Leaders (Source: Bloomberg)
When Jean-Claude Trichet retires on Oct. 31, the euro area may lose more than just a European Central Bank president. Trichet has emerged as Europe’s key policy maker during the sovereign debt crisis, holding the 12-year-old monetary union together as heads of state squabble over their response. While ECB officials have sometimes split over the direction, under Trichet the central bank shown itself more willing and able to act than the bloc’s 17 finance ministers and government leaders. “Trichet has become the de facto president of Europe,” said Marco Valli, chief European economist at UniCredit Global Research in Milan. “He is the only one who’s delivered the leadership necessary during this crisis.”

Eastern Europe Rate Pressure May Ease as Food-Cost Decline Curbs Inflation (Source: Bloomberg)
Eastern Europe’s policy makers may have an easier choice between economic growth and price stability after inflation reports this week will probably show that declining food costs are alleviating price pressures. The Czech inflation rate dropped for a second month in July, a report today showed. Romania and Hungary will say inflation slowed last month, while data in Poland and Slovakia will show the pace of price increases stabilized after slowing the previous month, according to Bloomberg surveys. Russia’s July inflation rate fell to the lowest this year, declining more than economists estimated. “We’ve seen inflation essentially turn in the region,” said Simon Quijano-Evans, an economist at ING Groep NV (INGA) in London. “In addition we’ll start to have central banks becoming much more dovish. Growth remains on the top of everybody’s list of priorities.”

Kiwi Falls on Global Growth Concern; Aussie Weaker on Confidence Figures (Source: Bloomberg)
New Zealand’s dollar declined against its U.S. counterpart as lingering concern about global economic growth sapped demand for higher-yielding currencies. The so-called kiwi fell versus 12 of its 16 major counterparts, even after the Federal Reserve pledged to hold down interest rates to bolster the world’s largest economy. The Australian dollar failed to add to yesterday’s surge against the greenback after a report showed consumer confidence slumped to its lowest in more than two years. “The question is whether the Fed’s commitment is going to override the concerns about the outlook for global growth,” said Robert Ryan, a currency strategist at BNP Paribas SA in Singapore. Investors are weighing whether “we have enough global growth to keep the commodities complex supported, to keep the Aussie and the kiwi supported.”

Chile inflation slows, boosts cenbank rate hold view
SANTIAGO, Aug 8 (Reuters) - Chilean inflation slowed in July, boosting views the central bank will leave its key rate unchanged again this month, while the trade surplus widened, data showed on Monday.
Chile followed the lead of Peru and left its key rate unchanged last month, as inflation across Latin America eases following a drop in global commodity prices.

FOREX-Swiss franc near record highs amid slump fears
LONDON, Aug 9 (Reuters) -The Swiss franc hovered near all-time highs against the euro on Tuesday as fears of a global recession kept safe-haven currencies in high demand and drove further declines on already under-fire stock markets.
"Liquidity matters in the current environment so the Swiss franc, the yen , the dollar and to some extent the euro will remain well supported, They are large and liquid and don't have the stretched positioning associated with carry currencies such as the Aussie, kiwi and the Nordics," said Raghav Subbarao, currency strategist at Barclays Capital.

FOREX-Swiss franc surges to record highs on slump worries
LONDON, Aug 9 (Reuters) - The Swiss franc surged to all-time highs against the euro and the dollar in volatile trade on Tuesday as fears of a global recession drove further declines in already under-fire stock markets and kept safe-haven currencies in high demand.  
"Parity looks pretty likely for euro/Swiss as long as there is heightened risk aversion," said Tom Levinson, currency strategist at ING.