20120712 1048 Global Market Related News.

Asia FX (Source: CME/www.lucafxta.com)
The appetite for risk soured again late on Wednesday after the Fed minutes provided no hint that a third round of quantitative easing while the economy expanded at a moderate pace amid an increasingly sluggish labor market. More broadly, no improvement can be envisioned in the gloomy state of the global markets. The European currencies resumed losses, the yen reversed gains and commodity currencies closed only a little higher after falling on Friday and Tuesday. The US stock indexes fell. The gold/oil ratio also fell. The short-term outlook for the foreign currencies is sideways. 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: The trade deficit shrank 3.8% to $48.7 billion in May from April's trade deficit at $50.6 billion.
US: The economy continues to expand at a moderate pace despite an increasingly sluggish labor market, minutes of the central bank's June meeting said Wednesday. But the Fed gave no hint that a third round of quantitative easing is imminent.
Canada: The trade deficit widened to C$793 million in May from C$623 million in April.

Today's economic calendar
Australia: Consumer inflation expectation in July
Australia: Unemployment rate in June
Japan: The BoJ will leave interest rate at 0.1%

Asian Stocks Fall Sixth Day ahead of China Growth Report (Source: Bloomberg)
Asian stocks fell for a sixth day, extending the regional benchmark’s longest losing streak since May, before a Bank of Japan policy decision today and economic reports from China and Europe that may signal a deeper slowdown in the global economy. Asahi Glass Co. (5201) led makers of the material lower in Tokyo after cutting its forecast for operating profit by almost a third. Shionogi & Co. climbed 4.1 percent after saying its experimental HIV drug beat an existing treatment in trials. Kingway Brewery Holdings Ltd. may be active in Hong Kong after saying it expects a loss. The MSCI Asia Pacific Index (MXAP) slid 0.2 percent to 116.31 as of 10:13 a.m. in Tokyo, with about the three stocks falling for every two that rose. Shares fell before the open of markets in Hong Kong and China.
“Investors will sit on the fence until results of the BOJ meeting come out,” said Mitsushige Akino, Tokyo-based executive officer at Ichiyoshi Investment Management Co., which oversees about 40 billion yen ($502 million). “Few expect the BOJ to do more easing this time.” Japan’s Nikkei 225 Stock Average declined 0.3 percent, with volume 15 percent below its 30-day average. Australia’s S&P/ASX 200 Index was little changed. South Korea’s Kospi Index rose 0.1 percent after its central bank unexpectedly cut its key interest rate.

Japan Stocks Fall Sixth Day Before BOJ Policy Decision (Source: Bloomberg)
July 12 (Bloomberg) --　Japanese stocks fell for a sixth day on speculation the Bank of Japan will refrain from boosting stimulus measures at the end of its two-day policy meeting today. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest lender, fell 1 percent. Asahi Glass Co. dropped 6.8 percent after cutting its operating profit forecast. Best Denki Co. surged 11 percent on a report Yamada Denki Co. will acquire the electronics retailer. The Nikkei 225 Stock Average (NKY) fell 0.4 percent to 8,817.96 as of 10:21 a.m. in Tokyo, with three stocks dropping for each that rose. Trading volume on the Nikkei was 13 percent below the 30-day average. The broader Topix Index lost 0.5 percent to 753.89.
“When you look at domestic economic conditions, you see few reasons to expect a move out of the BOJ,” said Takahiro Nakano, a Tokyo-based senior strategist at Mizuho Trust & Banking Co., a unit of Japan’s third-largest bank by market value. “Yet there are still lingering expectations for more easing this time. The market hasn’t reached its consensus, and that’s why people are wavering.” The Topix rebounded about 8.5 percent since June 4, when it closed at its lowest since 1983, after euro leaders agreed to ease bailouts for lenders and on optimism central banks around the world will ease policy.

S&P 500 Erases Loss as Investors Look for Stimulus Signs (Source: Bloomberg)
The Standard & Poor’s 500 Index erased losses in the final hour of trading as investors weighed the Federal Reserve’s latest policy minutes for evidence that the central bank may be closer to additional stimulus actions. Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) added more than 1 percent as financial companies rallied. Exxon Mobil Corp. rose 1.5 percent as oil rebounded from the lowest close in more than a week. DuPont Co. and Google Inc. (GOOG) fell at least 1.1 percent after analysts said the companies may miss estimates. Best Buy Co. sank 8.4 percent after electronics retailer Hhgregg (HGG) Inc. cut its forecasts.
The S&P 500 fell less than 0.1 percent to 1,341.45 at 4 p.m. New York time, after sinking as much as 0.6 percent earlier. The benchmark gauge has retreated 2.4 percent over five days amid concern about corporate profits. The Dow Jones Industrial Average lost 48.59 points, or 0.4 percent, to 12,604.53. Volume for exchange-listed stocks in the U.S. was 6 billion shares, 9.5 percent below the three-month average. “You didn’t see any kind of commitment one way or another from the Fed in the minutes from last time,” Robert Pavlik, who helps manage $1.4 billion as chief market strategist at Banyan Partners LLC in New York, said in a phone interview. “You have to be taking a cautious approach to this market here, especially heading into the earnings season. I’m optimistic, but I’m not fully committed to the possibility of a terrific earnings season.”

Most European Stocks Decline Before Fed Minutes Released (Source: Bloomberg)
Most European stocks fell before the release of minutes from the latest Federal Reserve meeting, as investors waited for clues about further measures to spur economic growth. Burberry Group Plc (BRBY) tumbled to its lowest this year after quarterly sales growth missed projections. UniCredit SpA and BNP Paribas SA led bank shares higher. Getinge AB (GETIB) rose 3.9 percent after saying it expects “significant improvement” in second- half earnings growth. The Stoxx Europe 600 Index dropped less than 0.1 percent to 255.59 at the close of trading. Two out of three shares on the gauge slid. The benchmark measure yesterday rose for the first time in a week as manufacturing in the U.K. and Italy unexpectedly rose. The Fed will release the minutes of the June meeting at 2 p.m. in Washington. The Federal Open Market Committee said on June 20 it will expand its Operation Twist program to extend the maturities of assets on its balance sheet.
“All eyes are now on the FOMC minutes, in the hope that the Fed is ready to take further steps to prop up the U.S. economy,” said Stephane Ekolo, chief European (SXXP) strategist at Market Securities in London. “There is no clear direction in the market and the main catalyst is definitely the FOMC minutes.”

Emerging Stocks Fall to Two-Week Low on Fed Minutes, Earnings (Source: Bloomberg)
Emerging-market stocks fell, dragging the benchmark index to a two-week low, as Federal Reserve meeting minutes disappointed investors looking for a stronger signal of stimulus to fight the global slowdown. The MSCI Emerging Markets Index (MXEF) dropped 0.2 percent to 932.38 in New York, retreating for a sixth straight day, the longest losing streak since May 18. Russia’s Micex Index (INDEXCF) slumped 1.2 percent after UBS AG put VTB Group on its list of least- preferred stocks. Embraer SA, a Brazilian aircraft maker, sank 7.3 percent to push the Bovespa lower after saying its backlog of orders declined in the second quarter.
Technology companies sank the most among industry groups in the developing-nations gauge after Applied Materials Inc. (AMAT), the U.S. chipmaking-equipment provider, said sales won’t reach the previous outlook as demand in Europe and China ebbs. Federal Reserve minutes from a June meeting today showed comments of members that strains in global markets stemming from Europe’s debt crisis had increased since their April meeting. More action may be necessary to boost the labor market and meeting its inflation target, a few members said. “Talks that indicate more easing and stimulus is not enough to satisfy the markets today the possibility of easing has already been anticipated,” Dave Lutz, head of exchange- traded fund trading and strategy at Stifel Nicolaus & Co., said by phone from Baltimore yesterday. “We’ll probably see a sharp sell-off and get back to our lows until there is more action.”

SEC Votes to Require Consolidated Audit Trail for Markets (Source: Bloomberg)
The U.S. Securities and Exchange Commission adopted a rule today that would build a single system to monitor and analyze trading activity across U.S. equity and options markets. In a 3-2 vote, the SEC’s members agreed to require securities exchanges and the Financial Industry Regulatory Authority to create a so-called consolidated audit trail that will enable the reconstruction of market crises and analyze trading on 13 equity exchanges, 10 options markets and more than 200 broker-dealers that execute stock trades away from public venues. The effort is part of the agency’s response to the May 6, 2010, stock rout that temporarily erased $862 billion in U.S. equity value. “A consolidated audit trail that accurately tracks orders throughout their lifecycle and identifies the broker-dealers handling them will provide us with an unprecedented ability to effectively oversee the markets we regulate,” said SEC Chairman Mary Schapiro.
The SEC has already implemented circuit breakers to halt trading when a company’s shares move 10 percent in five minutes. Still, Schapiro has pressed for tools that would allow faster and broader oversight of trading activity. After the 2010 market disruption, it took a 20-person SEC team three months to collect and process quote and trade data that arrived in different formats from exchanges and brokers. Schapiro, a political independent appointed by President Barack Obama, had to rely on the support of Republican Commissioners Troy Paredes and Daniel Gallagher to adopt the rule. The two Democrats on the SEC, Elisse Walter and Luis Aguilar, opposed the measure, saying it doesn’t go far enough.

Treasury 30-Yield Is 10 Basis Points From Low Before Sale (Source: Bloomberg)
Treasury 30-year bond yields were 10 basis points from the least ever after minutes from the Federal Reserve’s last meeting showed some members favored increasing the central bank’s bond purchases to spur the economy. The government is scheduled to auction $13 billion of 30- year bonds today, after a 10-year sale yesterday drew an all- time low rate. Demand for the relative safety of U.S. debt is sending yields down as U.S. economic growth slows and European governments struggle to find ways to pay their debts. “There’s a possibility that yields will go lower,” said Yoshiyuki Suzuki, the head of fixed income in Tokyo at Fukoku Mutual Life Insurance Co., which has the equivalent of $69 billion in assets. “The central bank may continue purchases of bonds.” U.S. 30-year bonds yielded 2.61 percent as of 9:44 a.m. in Tokyo, according to Bloomberg Bond Trader data. The record low was 2.51 percent set June 1. The 3 percent security due in May 2042 changed hands at 108 1/8 today.
Ten-year notes yielded 1.51 percent, versus the all-time low of 1.44 percent. Japan’s 10-year rate was little changed at 0.79 percent after reaching a nine-year low of 0.785 percent yesterday.

FOREX-Vulnerable euro steady near 2-yr low vs dollar
LONDON, July 11 (Reuters) - The euro held near two-year lows versus the dollar as it emerged there would be no  quick resolution to a German court hearing on activating euro  zone bailout funds, adding to unease over how policymakers will  tackle the debt crisis.
"People will be aware the non-decision we have got (from the court) might be a severe problem if yields really pick up and  then euro/dollar will come under pressure," said Lutz Karpowitz, currency strategist at Commerzbank.

Yen Gains Before BOJ Decision, Europe and China Data (Source: Bloomberg)
The yen rose versus all of its major peers on bets the Bank of Japan (8301) will refrain from taking steps to stem the currency’s gains as it concludes a meeting today and as signs of a global slowdown boosted demand for haven assets. The yen was 0.4 percent from its highest level in a month against the euro before a report today that may show manufacturing output in the 17-nation region remained stagnant in May and ahead of figures tomorrow forecast to indicate a moderation in China’s gross domestic product and retail sales growth. South Korea’s central bank unexpectedly lowered its key rate. Australia’s dollar dropped after data showed employment fell in June, driving the jobless rate to a three-month high. “The BOJ has disappointed me on a number of occasions this year and I don’t feel all that optimistic that the BOJ would be able to meet and beat expectations” this time, said Robert Rennie, chief currency strategist at Westpac Banking Corp. (WBC) in Sydney. “I expect the yen to outperform the euro.”
The yen rose 0.3 percent to 97.37 per euro as of 10:53 a.m. in Tokyo from yesterday, when it touched 97, the strongest level since June 4. Japan’s currency gained 0.1 percent to 79.65 per dollar. The greenback fetched $1.2233 per euro from $1.2239 yesterday, when it reached $1.2213, the highest since July 2010.

Some on FOMC Said More Stimulus Probably Will Be Needed (Source: Bloomberg)
A few Federal Reserve policy makers said the central bank will probably need to take more action to boost the labor market and meet its inflation target, according to minutes of their June meeting. “A few members expressed the view that further policy stimulus likely would be necessary to promote satisfactory growth in employment and to ensure that the inflation rate would be at the Committee’s goal,” according to the record of the Federal Open Market Committee’s June 19-20 gathering released today in Washington. Stocks fell as the report disappointed investors looking for a stronger signal that additional stimulus was likely. Fed Chairman Ben S. Bernanke last month said policy makers were prepared to “take additional steps” to boost the economy following their decision to extend the Operation Twist program aimed at lowering long-term interest rates.
“The Fed is being cautious,” said Mark Vitner, senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We are not at the threshold yet to justify additional securities purchases and a further increase in the balance sheet. We have to wait for a more of a slowdown before the Fed will act.”

Trade Gap in U.S. Narrowed in May as Imports Decreased (Source: Bloomberg)
The trade deficit in the U.S. narrowed in May as falling crude oil prices and weakening demand for consumer goods trimmed the import bill. The gap shrank 3.8 percent to $48.7 billion, in line with the median estimate of economists surveyed by Bloomberg News, from $50.6 billion in April, Commerce Department figures showed today in Washington. Purchases from abroad fell to the lowest level in three months, while exports climbed to the second- highest on record. Slowing global growth, which led central banks from Europe to China to cut interest rates and announce more stimulus a week ago, may signal American companies will have a harder time boosting overseas sales. At the same time, an increase in imports of business equipment indicates sustained investment in the U.S., and more inbound shipments of cars point to continued strength in the auto industry.
“The trade deficit will drift slightly lower because of the decline in the price of oil,” said Jay Bryson, senior global economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who was the only analyst to correctly project the trade outcome. “Exports are holding up, but as we go forward we are going to see pretty weak numbers given the slowdown abroad. Our economy has slowed as well.”

Wholesalers in U.S. Lift Stockpiles at Slower Pace as Sales Fall (Source: Bloomberg)
Inventories at U.S. wholesalers rose in May at a slower pace as sales dropped by the most in three years. The 0.3 percent gain in stockpiles followed a 0.5 percent increase in April that was smaller than previously estimated, the Commerce Department reported today in Washington. Sales decreased 0.8 percent, the biggest decline since March 2009. Businesses are lowering inventories in line with concern about the outlook for demand, indicating stockpiling will contribute less to gross domestic product. Wholesalers had goods on hand to last 1.18 months at the current sales pace, the most since July 2011. “Demand’s been unimpressive, though we’ve had some decent inventory growth in the last couple quarters, and I think it’s time for some slowing,” David Sloan, a senior economist at 4Cast Inc. in New York, said before the report. Third-quarter GDP growth is likely to suffer from the slackening demand, he said.
The median estimate in a Bloomberg survey of 29 economists called for a 0.3 percent gain. Forecasts ranged from a drop of 0.2 percent to an increase of 0.5 percent.

Industry Suppliers-Box Makers May Show Slow U.S. Growth (Source: Bloomberg)
Investors may see more signs of slowing U.S. manufacturing growth when makers of corrugated boxes and distributors of supplies report quarterly earnings this month. W.W. Grainger Inc. (GWW) and Packaging Corp. of America are among companies that offer “good insight into industrial America,” said Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group, based in Bedford Hills, New York. Data from these businesses can be particularly useful in verifying or contradicting the pace of activity measured by the government and third-party groups, he said. “These types of companies are a great way of evaluating real demand in manufacturing,” Ghriskey said. The consensus reflects slowing expansion, with no signs of recession, as concerns intensify that the world’s largest economy may be faltering.
The business environment “continues to move sideways” for Memphis, Tennessee-based International Paper Co. (IP), the world’s largest pulp and paper maker, Tom Ryan, a spokesman for the company, said in a June 29 interview. Even so, an improving housing market has made demand for durables, such as appliances, a “bright spot,” he said.

San Bernardino Third California City to Choose Bankruptcy (Source: Bloomberg)
San Bernardino’s City Council voted to become the third California municipality this year to seek bankruptcy protection after officials learned they may not have enough cash to pay workers. The council last night voted 4 to 2, with one abstention, to authorize a filing under Chapter 9 of U.S. bankruptcy law. The city of 209,000, about 65 miles (105 kilometers) east of Los Angeles, is so broke it can’t cover its payroll, interim City Manager Andrea Travis-Miller said. San Bernardino would follow Stockton, a community of 292,000 east of San Francisco, which on June 28 became the biggest U.S. city to enter bankruptcy. Mammoth Lakes, a mountain resort of 8,200, sought court protection from creditors July 3 saying it can’t pay $43 million owed on a legal judgment, more than twice its general-fund spending for the year. Declining tax revenue, growing worker costs, accounting discrepancies and an unemployment rate in the metropolitan area of almost 12 percent helped propel San Bernardino toward court.

China Slowdown Seen Forcing Wen’s Hand on Property Curbs (Source: Bloomberg)
China’s weakest growth in three years may pressure Premier Wen Jiabao to further ease the government’s crackdown on a property industry that accounts for more than a quarter of final demand. Gross domestic product expanded 7.7 percent in the second quarter from a year earlier following an 8.1 percent increase in the first quarter, according to the median estimate of 38 economists surveyed by Bloomberg News before a report tomorrow. The slowdown may test Wen’s pledge to sustain controls aimed at cooling home prices as he seeks to buoy growth ahead of a once-in-a-decade leadership transition later this year. China’s efforts to prevent a property bubble limit its policy options as the European debt crisis curbs exports and contrast with the Federal Reserve’s attempts to jump-start the U.S. housing market amid a five-year slump.
“It will be extremely hard to stimulate a strong rebound in the economy without involving the property sector,” said Mark Williams, Asia economist at Capital Economics Ltd. in London. “They may have to look again at their property tools.” While China’s leaders probably want growth of around 8.5 percent for the world’s second-biggest economy, they may fail to exceed 8 percent without contributions from real estate, said Williams, who previously worked for the U.K. Treasury. “It would only take a shock from Europe for things to suddenly look a lot worse,” he said.

‘Good Neighbor’ China Pushes Asean for Joint Development in Seas (Source: Bloomberg)
China repeated a call for joint development of energy resources in waters claimed by Vietnam and the Philippines before a regional security meeting today that includes U.S. Secretary of State Hillary Clinton. Envoys from 26 Asia-Pacific nations and the European Union are meeting in Phnom Pehn, Cambodia, to discuss security concerns in the region. China warned nations this week to avoid mentioning the territorial spat, which Clinton called a “critical issue” two days ago in a visit to Vietnam. “Pending the settlement of the disputes, the parties concerned may put aside their differences and engage in joint development,” Zhang Jianmin, spokesman for the Chinese delegation to the meetings, told the official Xinhua News yesterday. “China will always be a good neighbor, good friend and good partner for other Asia-Pacific countries,” he said.
The Philippines and Vietnam reject China’s map of the waters as a basis for joint development and have sought a regional solution to increase their bargaining power with Asia’s biggest military spender. Clinton has urged the countries to define their territory based on the United Nations Law of the Sea, a move China has resisted because it may lead to a loss of some waters it now claims.

Rajoy Outlines Budget Cuts as Protests Hit Madrid (Source: Bloomberg)
Spanish Prime Minister Mariano Rajoy rolled back social-welfare protections and raised taxes to clinch emergency aid and pacify investors as anti-austerity protesters marched in the capital. Rajoy announced cuts in unemployment benefits and public wages, signaled reductions in pensions and raised sales taxes as part of a 65 billion-euro ($80 billion) package of deficit cuts, risking a deeper recession. As striking miners clamored for aid to keep their industry alive in a march along Madrid’s main boulevard, Rajoy trimmed union funding by 20 percent. Spain’s desperation for foreign capital to sustain public services and keep its banks afloat has ripped control of policy from the government, leaving officials to implement the diktats of markets and the European Union. Preventing a meltdown in the fourth-biggest euro economy is key for policy makers to limit risks to the 17-nation currency union.
“We have very little room to choose,” Rajoy told the national parliament in Madrid. “I pledged to cut taxes and now I’m raising them. But the circumstances have changed and I have to adapt to them.”

Rajoy Announces 65 Billion Euros of Cuts to Fight Crisis (Source: Bloomberg)
Spanish Prime Minister Mariano Rajoy announced tax increases and spending cuts totaling 65 billion euros ($80 billion), risking a deepening recession to keep the euro financial crisis at bay. Rajoy’s fourth austerity package in seven months will raise the sales levy to 21 percent from 18 percent; scrap a tax rebate for home buyers; scale back unemployment benefits and study pension cuts; consolidate local governments and eliminate the year-end bonus for public workers. The budget measures, covering the next two-and-a-half years, are about double those previously announced. The prime minister addressed Parliament in Madrid today as European officials put the finishing touches to a 100 billion- euro bailout for Spain’s banks. The amendments to the budget come less than two weeks after it went into effect and a day after the European Union loosened Spain’s deficit targets.
“I know that the measures I’ve announced aren’t agreeable,” Rajoy said in his 70-minute speech to lawmakers. “They aren’t agreeable but they are essential. We are in an extraordinarily serious situation.”

German Inflation Rate Dropped to Lowest in 17 Months (Source: Bloomberg)
Germany’s inflation rate dropped to the lowest level in 17 months in June as energy prices declined. Inflation, calculated using a harmonized European Union method, eased to 2 percent, the lowest since January last year, from 2.2 percent in May, the Federal Statistics Office in Wiesbaden said today, confirming a June 27 estimate. In the month, consumer prices fell 0.2 percent. Oil prices have dropped 22 percent since the end of February and are 10 percent lower than a year ago. The sovereign debt crisis is also damping economic growth across the 17-nation euro area, prompting the European Central Bank to last week cut its benchmark rate to a record low of 0.75 percent. German unemployment at a two-decade low and rising wages are helping Europe’s largest economy to weather the turmoil.
“The crisis and the drop in oil prices mean that any inflation threats have been banished in Germany,” said Alexander Koch, an economist at UniCredit Group in Munich. “At the same time, the strong labor market and rising wages mean that the inflation rate is unlikely to drop as much as in other euro-area countries.” ECB President Mario Draghi told lawmakers on July 9 that euro-area inflation will drop below the bank’s 2 percent limit in 2013 from 2.4 percent currently.

Portugal’s international creditors may soon have to ease terms of the country’s bailout to prevent the plan from derailing as the government faces setbacks in attaining its deficit goals. (Source: Bloomberg)
Prime Minister Pedro Passos Coelho’s struggle to meet deficit pledges were further hampered last week when about 2 billion euros ($2.5 billion) of planned cuts to pensions and civil servants’ holiday pay were ruled unconstitutional. With Portugal’s 10-year bond yield above 10 percent, returning to the markets next year may be untenable, requiring more international aid despite the premier’s insistence he won’t seek concessions. “Lisbon’s strategy is to continue to be the good student among bailed-out countries until it becomes clear that Brussels and Berlin must ease the rules of the game for it to succeed,” said Antonio Barroso, a London-based analyst at Eurasia group.
Portugal completed the fourth review of its 78 billion-euro bailout plan on June 4 and progress helped bring down the benchmark yield from a euro-era record of 18.3 percent on Jan. 31. Now a deepening recession and the court ruling are putting pressure on government finances, and raising doubts about the chances of the nation reducing its deficit to within the European Union’s limit of 3 percent of gross domestic product next year.

Colombia Rate Cut More Likely Than Rise, Central Banker Says (Source: Bloomberg)
The Colombian central bank’s next move is more likely to be an interest-rate cut than a rise, board member Cesar Vallejo said. The peso pared gains and interest rate swaps fell. “There’s more chance of a reduction than an increase,” Vallejo said in an interview in Bogota yesterday, citing turmoil in European markets and the weak global economy. “That doesn’t mean we’re going to cut rates at the next meeting.” The peso reversed earlier gains, falling 0.1 percent to 1,787.90 per dollar at 11:29 a.m. in Bogota. The yield on three- month interest-rate swaps fell 3 basis points, or 0.03 percentage point, to 4.97 percent. The yield has fallen 28 basis points since March 3, indicating traders expect an interest rate cut within the next three months.
Colombia held its benchmark interest rate at 5.25 percent for a fourth straight meeting last month, and at least one member of the central bank’s seven-person policy committee voted for a cut. Vallejo said Colombia’s economy is growing close to its long-run potential, meaning that any change in borrowing costs would be a form of “fine-tuning.”

China Rebound to Help Peru Reach Economic Targets, Velarde Says (Source: Bloomberg)
Peru may reach or exceed its economic growth targets for this year, bolstered by domestic demand and a rebound in China in the third quarter, the president of the Peruvian central bank said. Inflation in South America’s sixth-largest economy is no longer a problem, allowing the government to keep interest rates on hold for a while, Julio Velarde said in an interview in Shanghai today. “I believe we are going to grow close to 6 percent,” Velarde said. “I am optimistic the slowdown in China will be only in the second quarter and the third quarter it will recover and there won’t be a meltdown in Europe.” Peru’s economy expanded at the slowest pace in more than two years in April as weaker demand for metals and manufacturing exports offset a surge in construction. Growth will be 5.8 percent this year and 6.2 percent in 2013, which is close to potential, the central bank said in a June 15 report.
The price of copper, Peru’s top export, is down about 21 percent in the past year as the slowdown in China, the biggest consumer of industrial metals, crimps demand. Metal prices are poised to rebound, Velarde said.