Asia FX By Cornelius Luca - Thu 12 Jul 2012 16:54:03 CT (Source: CME/www.lucafxta.com)
The financial markets continued to avoid risk on Thursday amid lack of Fed easing and increasing unemployment. However, losses were small, as the initial shock dissipated. The European currencies and the Australian dollar deepened losses after the falling on Wednesday. The US stock indexes fell slightly, but the gold/oil ratio declined.
The short-term outlook for the European and commodity currencies is sideways, but they are due for a minor correction. The medium-term outlook for most of the foreign currencies is bearish. The LGR short-term model is short on the European currencies and yen. Good luck!
Overnight
US: First time claims unemployment benefits unexpectedly fell to 350,000 in the week ended July 7th, due to seasonal distortions, from the previous week's revised figure of 376,000.
Canada: The new housing price index rose by 0.3% in May after rising 0.2% in April.
Today's economic calendar
China: Gross Domestic Product
China: Industrial production in June
China: Retail sales in June
Japan: Industrial production in May
Asian Stocks Swing Between Gains, Losses Before China GDP (Source: Bloomberg)
Asian stocks swung between gains and losses ahead of a report today that is forecast to show China’s economy is slowing, and as South Korea cut this year’s growth forecast and Singapore’s economy shrank last quarter. Dentsu Inc. (4324), a Japanese advertising company, sank 5.3 percent after agreeing to buy Britain’s Aegis Group Plc. Korea Zinc Co., the refined zinc producer, climbed 1.3 percent in Seoul after Shinyoung Securities Co. said the company’s second- quarter operating profit will probably exceed consensus estimates. China Pacific Insurance (Group) Co., an insurer, may be active in Hong Kong after saying it expects its first-half profit to drop about 55 percent. The MSCI Asia Pacific Index (MXAP) was little changed at 114.66 as of 9:42 a.m. in Tokyo, headed for a 3.3 percent decline for the week. It earlier fell as much as 0.1 percent. About twice as many shares rose as fell in the measure before markets in China, Hong Kong and Singapore open.
“Concern is mounting about a slowdown in the global economy,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc., Japan’s biggest brokerage. “Should Chinese data slow more than expected, that would boost bets about policy measures such as interest-rate cuts and public investment.” The MSCI Asia Pacific Index fell 11 percent from this year’s high on Feb. 29 through yesterday, as Europe’s spreading debt crisis weighed on growth and corporate earnings. Shares in the measure are valued at 11.7 times estimated earnings on average, compared with 12.8 times for the Standard & Poor’s 500 Index and 10.6 times for the Stoxx Europe 600 Index.
Japanese Stocks Swing From Gains, Losses on Chinese Loans (Source: Bloomberg)
July 13 (Bloomberg) -- Japanese stocks swung between gains and losses after a report showed China’s new loans exceeded estimates ahead of economic growth data to be released today. Shares fell earlier after Italy’s sovereign debt rating was cut by Moody’s Investors Service. Fanuc Corp. (6954), which provides robotics for Chinese factories, rose 1.2 percent. Mitsui O.S.K. Lines Ltd. led shipping companies lower after a key gauge of cargo rates fell. Dentsu Inc. fell 6 percent after the 111-year-old advertising company agreeing to buy Britain’s Aegis Group Plc in a 3.16 billion- pound ($4.9 billion) deal, the biggest in Dentsu’s history.
The Nikkei 225 Stock Average (NKY) added 0.1 percent to 8,728.23 as of 9:35 a.m. in Tokyo after falling as much as 0.3 percent. The gauge is headed for a 3.2 percent slide this week, which would be the first weekly loss in six weeks. Volume was 38 percent above the 30-day average as traders settled on the price of Nikkei 225 options for July. The broader Topix Index was little changed at 747.80. “Concern is mounting about a slowdown in the global economy,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc., Japan’s biggest brokerage. “Should Chinese data slow more than expected, that would boost bets about policy measures such as interest-rate cuts and public investment.”
A Chinese government report today is expected show the nation’s economic growth rate fell below 8 percent for the first time since 2009, according to the median estimate in a Bloomberg News survey of economists. Data on industrial production and retail sales are also due to be released today.
S&P 500 Has Longest Slump Since May on Economic Concern (Source: Bloomberg)
U.S. stocks retreated, sending the Standard & Poor’s 500 Index to the longest slump since May, as concern intensified about a slowdown in the global economic recovery and American corporate earnings. Equities pared earlier losses as Procter & Gamble Co. (PG) and Merck & Co. rallied more than 3.7 percent, while an S&P index of homebuilders jumped 2.4 percent. Bank of America Corp. (BAC) and Morgan Stanley (MS) slipped at least 1.9 percent, pacing declines among banks. Supervalu (SVU) Inc. sank 49 percent after the third- largest U.S. grocery chain said it will review strategic alternatives for the business and suspended its dividend.
The S&P 500 (SPX) slid 0.5 percent to 1,334.76 at 4 p.m. New York time, paring a drop of as much as 1.2 percent. The benchmark index for American equities retreated for a sixth straight day, losing 2.9 percent over the period. The Dow Jones Industrial Average fell 31.26 points, or 0.3 percent, to 12,573.27, after losing more than 112 points. Volume for exchange-listed stocks in the U.S. was 6.5 billion shares, 3.3 percent below the three- month average. “There’s a worldwide slowdown,” Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, said in a phone interview. The firm oversees $40 billion. “Wall Street analysts have been reducing their second- quarter earnings estimates as companies have guided them lower. Profit growth, which has been a main driver for the market, will be less supportive going forward.”
Canadian Stocks Fall as Commodity Shares Slump on Economy (Source: Bloomberg)
Canadian stocks fell as banks and commodity producers slumped amid concern the global economic recovery is slowing down. Canadian Natural Resources Ltd. (CNQ) and Suncor Energy Inc. (SU), two of the nation’s largest energy providers, each declined 1.4 percent. Goldcorp Inc. lost 0.4 percent as the metal slipped on the Comex for the third day. Royal Bank of Canada, the nation’s largest lender, fell 1.2 percent. Bank and energy stocks were the biggest drag on the Standard & Poor’s/TSX Composite Index (SPTSX), with all 10 industries falling. The S&P/TSX slumped 119.17 points, or 1 percent, to 11,425.47, after rising 0.3 percent yesterday. The benchmark index has dropped 4.4 percent in 2012. “You can see how sentiment is very negative right now,” Jason Hornett, who co-manages C$250 million for Calgary-based Bissett Investment Management, said in a phone interview. “We’re going to feel the pain in energy and materials stocks more than the U.S. equity indexes because we have more exposure.”
Global equities fell amid further signs that the economic recovery is faltering. Bank of America Corp. strategists reduced earnings estimates for S&P 500 companies for this year and next, citing Europe’s debt crisis and slowing growth in China. Data due tonight may show China’s economic growth fell below 8 percent for the first time since 2009, according to the median estimate in a Bloomberg News survey. Royal Bank of Canada fell 1.2 percent to C$52.18. Toronto- Dominion Bank, the second-largest, dropped 0.7 percent to C$79.25. Bank of Nova Scotia slipped 1.4 percent to C$52.32.
European Stocks Decline as Fed Damps Stimulus Optimism (Source: Bloomberg)
European stocks declined the most in more than two weeks as minutes released by the Federal Reserve disappointed investors seeking a more definitive signal for further quantitative-easing measures. Temenos Group AG plunged 28 percent to a three-year low after reducing its estimate for 2012 revenue growth and saying its chief executive officer quit. Ashmore Group Plc (ASHM) dropped 6.7 percent after the fund manager reported a drop in assets. Aegis Group Plc surged 45 percent, the most in 21 years, after Japan’s Dentsu Inc. agreed to buy the company. The Stoxx Europe 600 Index (SXXP) fell 1.1 percent to 252.89 at the close in London, the biggest retreat since June 25. The benchmark measure has retreated 0.6 percent this week, after a five-week rally, as concern mounted the slowing economic growth will curb earnings in the U.S. and Europe.
“It was clear that the Fed would not take any actions because they already have the Operation Twist program,” said Andreas Lipkow, an equity trader at MWB Fairtrade Wertpapierhandelsbank AG in Frankfurt. “Some market participants hoped that the Fed would give some signals for further actions.” The Federal Open Market Committee said on June 20 it will expand Operation Twist to extend the maturities of assets on its balance sheet, and it stands ready to take further action as needed.
Dollar Index May Climb More, JPMorgan Says: Technical Analysis (Source: Bloomberg)
The Dollar Index may extend its climb beyond a two-year high after rising above a key technical level, according to JPMorgan Chase Co. The gauge closed yesterday at 83.568, breaking through a resistance level at 83.55 as it exceeded its June 1 high, Niall O’Connor, a New York-based technical analyst at the firm, wrote today in a client note. It now may rise to 84.93, he said in an interview. The dollar has gained as the euro and higher-yielding currencies have slid amid European financial turmoil, he said. “The dollar’s strength has been through the euro’s weakness, and the Dollar Index has been range-bound,” O’Connor said. “Now, we’re starting to see other dollar pairs weaken against the dollar, like we’ve seen in the commodity currencies today, so it’s more confirmation of a broader dollar move.”
The index rose as much as 0.3 percent today to 83.829, the highest since July 2010. The greenback strengthened against all of its 16 most-traded counterparts tracked by Bloomberg except the yen. The Australian and New Zealand dollars, whose countries export commodities, fell against most peers. Intercontinental Exchange Inc. uses the Dollar Index to track the greenback against the currencies of six major U.S. trading partners. The 84.93 level, the highest since June 2010, is the 76.4 percent Fibonacci retracement of a two-year decline. A drop below 82.95 may signal a short-term end to the rally, O’Connor said. Resistance is a level on a chart where sell orders may be clustered. Fibonacci analysis is based on the theory that prices increase or decrease by certain percentages after reaching new highs or lows. In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
Pound Falls to Five-Week Low Versus Dollar on Recession Concern (Source: Bloomberg)
The pound fell to its lowest level in five weeks versus the dollar on concern efforts to pull the U.K. out of its first double-dip recession since the 1970s will be hampered by the euro-area crisis and declining global growth. Sterling slid for a third day against the U.S. currency after PricewaterhouseCoopers LLP said British businesses should prepare for the possibility of a “prolonged recession” if Europe’s sovereign-debt turmoil worsens. Ten-year yields fell to the least since June 1 after the U.K. sold bonds maturing in 2022 at a record-low yield. “Given the situation in Europe, the U.K. recession may not end until next year, and that is an optimistic scenario,” said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo- Mitsubishi UFJ Ltd. in London. “The pound will weaken alongside the euro, while the dollar is strengthening broadly as risk aversion is creeping back into the market.”
The pound fell 0.5 percent to $1.5417 at 4.30 p.m. London time after weakening to $1.5394, the lowest level since June 6. The U.K. currency fell 0.2 percent to 79.06 pence per euro. It appreciated to 78.71 yesterday, the strongest since Nov. 3, 2008. The pound may find support at last month’s low of $1.5269 and this year’s low of $1.5235, and later $1.5192, the 61.8 percent Fibonacci retracement of its rally between May 2010 and April 2011, according to data compiled by Bloomberg.
FOREX-Euro at 2-year low vs firmer dollar; yen gainsc
LONDON, July 12 (Reuters) - The euro fell to a two-year low against a broadly firmer dollar after minutes from the Federal Reserve dampened prospects of more U.S. monetary stimulus in coming months, weighing on riskier assets and growth-linked currencies. "Risk aversion is creeping back into the market. There is disappointment that the BoJ left policy unchanged and the Fed gave no clear signal that further quantitative easing was likely to be forthcoming in August," said Lee Hardman, currency economist at BTMU.
Treasury Yield Is 3 Basis Points From Low Before PPI Data (Source: Bloomberg)
Treasury 10-year yields were three basis points from the record low before a report today that economists said will show inflation is slowing. U.S. government securities headed for a third weekly gain after Moody’s Investors Service cut Italy’s debt rating and a report in Singapore showed the economy unexpectedly shrank, fueling demand for the safest assets. The difference between yields on 10-year notes and same-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices, was 2.05 percentage points, versus the average over the past decade of 2.15 percentage points. “The inflation numbers continue to decline,” said Hiromasa Nakamura, who helps oversee the equivalent of $41.5 billion as an investor at Mizuho Asset Management Co. in Tokyo. “This month yields will probably reach a record low.” Benchmark 10-year notes yielded 1.47 percent as of 10:01 a.m. in Tokyo, according to Bloomberg Bond Trader prices.
The all-time low was 1.44 percent on June 1. The 1.75 percent security maturing in May 2022 changed hands at 102 18/32 today. Labor Department figures today will probably show the U.S. producer price index slid for a third month in June with a 0.5 percent decline, according to the median estimate of economists surveyed by Bloomberg News. Consumer prices were probably unchanged, after falling 0.3 percent in May, based on a separate survey before the July 17 report. Moody’s lowered Italy’s government bond rating by two steps to Baa2, citing weakening economic growth and rising unemployment, according to a statement issued in Frankfurt today.
Bond Danger Reaches Record High as Yields Lure: Credit Markets (Source: Bloomberg)
Corporate bonds have never been more perilous for investors who are scooping up longer-maturity debt at the fastest pace since 2008 in a bet the Federal Reserve will keep interest rates at record lows through late 2014. The duration of global company bonds, a measure of the securities’ price sensitivity to yield changes that rises with longer maturities, reached a record high yesterday, according to Bank of America Merrill Lynch index data. An investor holding $10 million of United Technologies Corp. (UTX)’s 4.5 percent debentures due 2042 would lose about $565,000 if the yield increased to 4 percent from 3.7 percent now. While the Fed has said its benchmark rate will likely remain in a range of zero to 0.25 percent through late 2014, Goldman Sachs Group Inc. and Bank of America Corp. say the central bank won’t move until the middle of 2015 as the economy slows. The International Monetary Fund will cut its 3.5 percent estimate for global growth this year, Managing Director Christine Lagarde said last week.
Bond buyers are “reading the tea leaves from the Federal Reserve to mean that there’s no near-term danger of policy rates rising,” Martin Fridson, global credit strategist at BNP Paribas Investment Partners, said in a telephone interview from New York. “As the pressure mounts to get yield, investors one way or another come up with a way to go out longer than they traditionally have.”
Aussie, Kiwi Set for Weekly Drop on China Growth Concerns (Source: Bloomberg)
The Australian and New Zealand dollars headed for their second week of losses amid signs China’s economy is slowing, dimming the outlook for the South Pacific nations’ exports to Asia’s biggest economy. The so-called Aussie held onto the biggest decline against the yen since May as Asian shares failed to rally for a seventh day before data forecast to show growth in China’s gross domestic product in the second quarter was the slowest in three years. The Reserve Bank of New Zealand will announce today data on government debt held by international investors last month. “We expect China’s Q2 GDP to disappoint,” said Gavin Stacey, the Sydney-based chief rate strategist at Barclays Plc. “That would be disappointing for the market and therefore would likely hit the Australian dollar.”
Australia’s currency was at $1.0128 at 10:54 a.m. in Sydney from $1.0139 at the close yesterday, set for a 0.8 percent drop this week. It was little changed at 80.39 yen, after weakening 1.7 percent yesterday, the sharpest decline since May 30. The New Zealand dollar traded little changed at 78.92 U.S. cents, having depreciated 1.1 percent since July 6, and fetched 62.61 yen from 62.62. The yield on Australia’s one-year government notes slid as much as four basis points, or 0.04 percentage point, to an all- time low of 2.277 percent. The 10-year rate fell three basis points to 2.86 percent, the least since June 5.
Yen Gains to Six-Week High Versus Euro on Growth Outlook (Source: Bloomberg)
The yen climbed to the strongest level in six weeks against the euro and gained versus all its most-traded counterparts as signs global growth is slowing underpinned demand for the relative safety of the currency. The dollar rose versus most major peers as the euro slid below $1.22 for the first time since July 2010 and the pound dropped on concern the European crisis remains unresolved. The Bank of Japan (8301) refrained from expanding stimulus, adding to haven demand. The Australian dollar tumbled after employers cut jobs, while Canada’s currency erased losses as crude oil, the nation’s biggest export, ended a retreat. “The Bank of Japan to some degree disappointed with its report today,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank (TD)’s TD Securities unit, said in a telephone interview. “There was some additional easing, but it was really just a shuffling of the deck. Markets were a bit disappointed that there was no new money involved.”
The yen gained 0.9 percent to 96.80 per euro at 5 p.m. New York time after appreciating earlier to 96.43, the strongest level since June 1. The Japanese currency advanced 0.6 percent to 79.31 per dollar. The euro weakened 0.3 percent to $1.2203 after sliding to as low as $1.2167. Japan’s currency rose versus the dollar as the extra yield investors receive for investing in two-year U.S. Treasuries versus comparable Japanese government bonds fell to the lowest in a month, limiting dollar-denominated assets’ appeal. The yield spread was 16 basis points, or 0.16 percentage point.
Yen Trades Near 6-Week High Versus Euro on Growth Concern (Source: Bloomberg)
The yen traded 0.4 percent from the strongest level in six weeks against the euro as signs global growth is slowing boosted demand for haven assets. The yen was set to gain versus all 16 major peers this week before data forecast to show China’s gross domestic product growth and industrial production slowed and U.S. consumer confidence stagnated. The euro was 0.2 percent from a two-year low against the dollar after Moody’s Investors Services cut Italy’s bond rating before the nation sells debt today. “Most developed economies around the world are either in contraction or experiencing only very modest growth,” said Andrew Salter, a strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney. “Most investors that are looking for a global recovery are looking towards China to supply it. If we do get a Chinese GDP number that is weaker, there’ll be a move into currencies that are traditional safe havens” such as the yen and the dollar, he said.
The yen traded at 96.79 per euro as of 10:12 a.m. in Tokyo from 96.80 yesterday, when it reached 96.43, the strongest level since June 1. Japan’s currency is set for a 1.1 percent gain this week. The yen was little changed at 79.38 per dollar from yesterday, when it advanced 0.6 percent. It’s poised for a 0.4 percent weekly gain. The euro bought $1.2195 from $1.2203 yesterday, when it touched $1.2167, the least since June 2010.
China New Yuan Loans Top Forecasts; Forex Reserves Shrink (Source: Bloomberg)
China’s new loans exceeded estimates in June, boosting odds the government will secure an economic rebound after growth probably slowed for a sixth quarter. Banks extended 919.8 billion yuan ($144.3 billion) of local-currency loans, the People’s Bank of China said yesterday. That compares with the 880 billion yuan median forecast in a Bloomberg News survey. Foreign-exchange reserves fell to $3.24 trillion at the end of June, the central bank said, a record quarter-to-quarter drop. The pickup in lending bolsters Premier Wen Jiabao’s case that easing policies, including the first interest-rate cuts since 2008, are showing results and that the economy has stabilized. The government will report data today that will probably show second-quarter growth of 7.7 percent, according to analyst estimates, a three-year low that Nomura Holdings Inc. says may mark the bottom of the slowdown.
“The data confirms our view that further rate cuts are not needed and thus are unlikely,” Dariusz Kowalczyk, a Hong Kong- based senior economist and strategist at Credit Agricole CIB, said in a research note yesterday.
Consumer Comfort in U.S. Stagnates Amid Unemployment (Source: Bloomberg)
Consumer confidence stagnated last week as scant improvement in the labor market left Americans more discouraged about the economy. The Bloomberg Consumer Comfort Index held at minus 37.5 in the week ended July 8. Some 86 percent of those surveyed said the economy was in bad shape, 21 percentage points higher than the average since 1985. “Consumers remain generally downbeat about the economy and expectations for the future,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Given slower job growth and the recent stabilization of oil and gasoline prices near current levels, there is little impetus to support an improvement in overall sentiment in the near term.” Gasoline prices that are no longer falling along with the labor market’s worst quarterly performance since the first three months of 2010 risk stifling the consumer spending that accounts for 70 percent of the U.S. economy.
Flagging sentiment stretches around the globe, according to a Pew Research Center report that showed Europe’s debt crisis is taking a toll.
Fed’s Williams Sees 8% Unemployment Into 2013 (Source: Bloomberg)
Federal Reserve Bank of San Francisco President John Williams said he expects the unemployment rate to remain at or above 8 percent into next year as the economy enters a period of slower job growth. “Progress on bringing down the unemployment rate has probably slowed to a snail’s pace and perhaps even stalled,” Williams said today in the text of a speech in Portland, Oregon. The policy-setting Federal Open Market Committee extended its Operation Twist program last month to lower longer-term interest rates and bolster growth. A few members of the FOMC said the Fed will probably need to ease policy further to move the economy toward its target for full employment and stable prices, according to minutes of that meeting released yesterday.
The jobless rate is “still much too high, and economic growth is far short of what’s needed to keep bringing it down quickly,” Williams said in remarks similar to a speech he gave in Coeur D’Alene, Idaho, on July 9. “We stand ready to do what is necessary to attain our goals of maximum employment and price stability.” Minutes of the June 19-20 meeting highlighted Fed officials’ concerns over the tempering economic outlook. Fifteen participants said the risks to the economy were weighted to the downside in June, up from eight in April, yesterday’s release showed. Two said additional bond purchases are appropriate while two others said they would be warranted in the absence of “satisfactory” employment gains.
Job Openings in U.S. Rose in May After April Plunge (Source: Bloomberg)
Job openings increased in May after plunging the prior month, easing concern the U.S. job market was faltering. The number of positions waiting to be filled climbed by 195,000 to 3.64 million, partially countering the 294,000 drop seen in April, the Labor Department said today in Washington. Another report showed confidence among small companies slumped in June. Increasing demand for workers indicates some companies see an opportunity to expand as sales improve. At the same time, the report showed firings also picked up, indicating the European debt crisis and slowing growth in emerging markets like China may be prompting some employers to cut back. “The labor market still looks pretty tenuous,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The April report “sent some worrying signals that maybe things were in free fall. You have the May report and you can see businesses were turning a bit more cautious, but they weren’t completely pulling back.”
Import Prices in U.S. Fell in June by Most Since 2008 (Source: Bloomberg)
Prices of goods imported into the U.S. decreased more than forecast in June as declining energy costs curbed inflation. The 2.7 percent plunge in the import-price index was the biggest since December 2008 and followed a 1.2 percent drop in May, Labor Department figures showed today in Washington. Prices excluding fuel fell 0.3 percent, the most in almost two years. The cost of goods and materials that the world’s largest economy purchases from abroad may remain depressed as cooling markets from Europe to Asia restrain demand for commodities like oil. A rising dollar also means American companies can hold the line on prices, consistent with Federal Reserve policy makers’ projections that inflation will ebb. “Global demand is leaning toward slower growth,” said Jonathan Basile, an economist at Credit Suisse in New York. “Prices are under control. The Fed doesn’t have to worry about inflation.”
Import costs were projected to decline 1.8 percent, according to the median forecast of 47 economists in a Bloomberg News survey. Projections ranged from decreases of 0.4 percent to 2.8 percent.
Jobless Claims in U.S. Plunge on Fewer Auto Shutdowns (Source: Bloomberg)
Fewer Americans than forecast filed first-time claims for unemployment insurance payments last week, reflecting the volatility of applications during the annual auto-plant retooling period. Applications for jobless benefits decreased by 26,000 in the week ended July 7 to 350,000, the fewest since March 2008, Labor Department figures showed today. Economists forecast 372,000 claims, according to the median estimate in a Bloomberg News survey. Last week’s distortion is likely to unwind slowly over coming weeks, a Labor Department spokesman said as the data was released to the press. Automakers including Chrysler Group LLC, Ford Motor Co. (F) and Nissan Motor Co. are keeping more plants than normal open during this time of year to fulfill demand and replenish inventories. For that reason, it may take time to determine if the labor market is making any progress.
“You can never take claims at face value because of the July shutdowns,” said Jonathan Basile, an economist at Credit Suisse in New York, who projected the number of applications would drop to 355,000. “We are in a period of uncertainty. This makes for a situation where businesses will hold off on taking risks regarding investment and payrolls.” Prices of imported goods decreased more than forecast in June as declining energy costs curbed inflation, another Labor Department report showed. The 2.7 percent plunge in the import- price index was the biggest since December 2008 and followed a 1.2 percent drop in May. Prices excluding fuel fell 0.3 percent, the most in almost two years.
BOJ Refrains From Adding Stimulus, Spurring Stock Decline (Source: Bloomberg)
The Bank of Japan refrained from expanding monetary stimulus as signs of strength in the domestic economy outweighed the threat from Europe’s debt crisis. The bank expanded its asset-purchase program to 45 trillion yen ($564 billion) from 40 trillion yen, according to a policy statement released in Tokyo today. Seven of 17 economists surveyed by Bloomberg News predicted monetary easing. The loan facility was cut to 25 trillion yen from 30 trillion yen. Stocks fell after the decision, which followed South Korea’s central bank unexpectedly lowering borrowing costs today and China cutting interest rates last week. Japanese Finance Minister Jun Azumi this morning called for the central bank to do more to boost the world’s third-biggest economy and meet a 1 percent inflation goal.
“This is simply a technical move that shouldn’t be considered to be monetary easing,” said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co. in Tokyo, and a former BOJ official. “Some market participants will be disappointed to see that the BOJ didn’t ease policy.” The central bank this month raised its economic evaluation of all regions for the first time in more than two years, citing improvements in consumer spending and rebuilding demand from last year’s earthquake.
Bank of Korea Trims 2012 Growth Forecast After Rate Cut (Source: Bloomberg)
The Bank of Korea reduced its 2012 economic-growth forecast for the second time this year, a day after it unexpectedly cut interest rates and signaled it would act preemptively to protect against slowing global growth. South Korea’s economy will expand 3 percent this year, the central bank said today in a statement, an estimate lowered from a 3.5 percent prediction made in April and 3.7 percent in December. Consumer prices are expected to rise 2.7 percent, down from an earlier forecast of a 3.2 percent price gain. Bank of Korea Governor Kim Choong Soo said yesterday the board cut its benchmark rate a quarter percentage point in response to “deteriorating external conditions.” The won dropped the most since May 16 yesterday, leading Asian currencies lower amid mounting concern the global economy is faltering.
“It’s quite a big cut to the growth estimate, suggesting weakening exports are beginning to erode domestic demand and there won’t be a quick fix,” said Park Sang Hyun, chief economist at HI Investment & Securities Co. in Seoul. “The BOK may cut interest rates again as early as August and sometime in the fourth quarter as growth momentum is losing steam quite fast while prices are pretty stable.”
Singapore GDP Unexpectedly Shrinks as Europe Crimps Exports (Source: Bloomberg)
Singapore’s economy unexpectedly contracted last quarter as manufacturing fell, adding to signs of a deepening slowdown in Asian expansion as Europe’s debt crisis curbs demand for the region’s goods. Gross domestic product fell an annualized 1.1 percent in the three months through June from the previous quarter, when it climbed a revised 9.4 percent, the Trade Ministry said in an e- mailed statement today. The median of 14 estimates in a Bloomberg News survey was for a 0.6 percent gain. The economy expanded 1.9 percent from a year earlier.
The Asian Development Bank cut its growth forecast for the region yesterday and South Korea unexpectedly reduced interest rates as it joined countries from Brazil to China in easing borrowing costs this month to protect their economies. Singapore’s exports declined in May from the previous month, and the government has highlighted the risk of a worsening in the European turmoil even after a growth rebound in the first quarter prompted the island’s central bank to tighten policy. “The growth momentum has clearly come off due to the softening of industrial production and non-oil domestic exports so far this year,” Aninda Mitra, a Singapore-based economist at Australia & New Zealand Banking Group Ltd., said before the report. “What may help Singapore is not so much government support but a pick-up in Chinese growth in the second half as its recent monetary easing and fiscal spending starts to take effect.”
Samaras Pledges Greek Budget Reforms as Doubts Rise on Goals (Source: Bloomberg)
Greece’s government will implement reforms to convince the European Union and the International Monetary Fund of the need for more time to reduce the budget deficit as officials confirmed the country will fall short of promised funds from the sale of state assets this year. Prime Minister Antonis Samaras and coalition partners Evangelos Venizelos, the head of the Pasok party, and Democratic Left leader Fotis Kouvelis agreed yesterday to press ahead with reforms after an official at the state-asset sale fund said Greece won’t be able to raise 3.2 billion euros ($3.9 billion). “We must pursue reforms, we must convince them that the recession is worse than expected, we must sell state assets, to prove our credibility,” Venizelos told reporters in Athens after the meeting. “Talks are never easy. It is important to present the right arguments.”
Samaras’s government faces the risk of running out of money and defaulting while seeking to qualify for 4.2 billion euros in aid. That payment, which was due in late June as the first tranche of a 31 billion-euro transfer, was stalled because parliamentary elections delayed a review of Greece’s progress on fiscal-austerity conditions.
Hollande’s Pledge to Block Firings Defied by Peugeot’s Reality (Source: Bloomberg)
PSA Peugeot Citroen (UG)’s plan to close a factory in France for the first time in two decades represents the biggest challenge to Socialist President Francois Hollande’s promise to prevent a wave of job cuts. For Hollande, who pledged during his campaign to block what he called an expected “parade of firings,” the cuts by France's largest carmaker leave him squeezed between businesses seeking measures to spur growth and demands of his union supporters. Peugeot, whose announcement yesterday brought its job cuts to 14,000, is hardly alone. Air France-KLM Group (AF) is eliminating more than 5,000 slots. Drugmaker Sanofi (SAN) may reduce staff by more than 2,000. Economists say more mass firings are likely as growth grinds to a halt. “There’s going to be an avalanche of job cuts and the expectations of public opinion are huge,” said Jerome Fouquet, a director of pollster Ifop in Paris, who says that unemployment is the top concern among voters. “This puts the government in a very difficult position.”
The French economy, Europe’s second biggest, failed to grow in the first three months of the year. The Bank of France estimates that it probably shrank in the second quarter for the first time since 2009. The number of people looking for work in France was 2.92 million in May, more than at any time since 1999. The unemployment rate is 10 percent.
Peugeot to Shut Plant to Raise Job Cuts to 14,000 Posts (Source: Bloomberg)
PSA Peugeot Citroen (UG), Europe’s second-biggest carmaker, will shut the first auto factory in France in 20 years and reduce its workforce by 6.7 percent in an effort to stem widening operating losses. The automaker will cut a total of 14,000 jobs, with 8,000 additional positions being eliminated on top of the 6,000 posts already announced last year, Chief Executive Officer Philippe Varin said today at a press conference in Paris. French Prime Minister Jean-Marc Ayrault called the factory closing and workforce reductions a “true shock” for employees. Peugeot, Renault SA (RNO) and Fiat SpA (F) have posted the biggest sales declines this year in Europe, where Peugeot now expects the market to contract 8 percent. Moody’s Investors Service in March was the last of the three main credit-reporting companies to cut Peugeot’s debt rating to junk.
“Peugeot is struggling with the power of Volkswagen, especially on the credit side, as VW benefits from lower costs of financing,” said Kristina Church, a Barclays analyst in London with an “underweight/neutral” rating on Peugeot shares. “More importantly, Peugeot still has an issue with overcapacity and is in a worse position than Renault.”
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