Asia FX By Cornelius Luca - Sun 29 Jul 2012 17:15:43 CT(Source:CME/www.lucafxta.com)
The foreign currencies open little changed in the Far East after the European and commodity currencies have surged since Wednesday on hopes that both ECB and the Fed will ease as early as this week in order to alleviate the Eurozone debt crisis and support the deteriorating US economy. Facts will need to meet these hopes. The short-term outlook for the European and commodity currencies is sideways. The medium-term outlook for most of the foreign currencies is sideways. The LGR short-term model is short only the euro and franc. Good luck!
Overnight
US: Gross domestic product grew 1.5% in the second quarter, down from 2% posted in the first quarter.
US: The final Reuters and the University of Michigan consumer sentiment index for July was upwardly revised to 72.3 from the mid-month reading of 72.0.
Today's economic calendar
Japan: JMMA Manufacturing Purchasing Manager Index for July
Japan: Industrial production for June
Asian Stocks Advance Third Day on Optimism Over Europe (Source:Bloomberg)
Asian stocks rose for a third day, led by financial firms, on optimism European policy makers will support the euro and after companies including Konica Minolta (4902) Holdings Inc. and Fujifilm Holdings Corp. reporting earnings. Commonwealth Bank of Australia, Australia’s biggest lender by market value, gained 2.3 percent after the cost to protect Asian bonds against default declined. Konica Minolta, a maker of photo film that gets 28 percent of its sales in Europe, jumped 6.9 percent in Tokyo after operating profit almost doubled from a year earlier. Cnooc Ltd. (883) added 1.4 percent after U.S. regulators got a court order to freeze assets of traders who allegedly profited by trading before the energy company announced a takeover. The MSCI Asia Pacific Index added 0.9 percent to 116.99 as of 10:54 a.m. in Tokyo with about three stocks rising for each that fell. The index added 1.8 percent on July 27, the biggest gain since June 29.
“There is a strong political and financial will for the euro,” said George Boubouras, Melbourne-based head of investment strategy at UBS AG’s Australian unit. The Swiss bank has about $1.5 trillion in assets under management. “Actions that address the EU challenges will create the opportunity for a sustainable rally ahead.”
Japan Stocks Rise as European Debt-Crisis Concern Ebbs (Source:Bloomberg)
Japanese stocks rose for a third day amid optimism European policy makers will act to ease the region’s debt crisis, boosting the outlook for exporters. Makita Corp., a maker of power tools that generates 42 percent of sales in Europe, advanced 1 percent. Konica Minolta Holdings Inc. (4902) surged 7.1 percent after reporting a 94 percent increase in first-quarter operating profit. Hitachi Cable Ltd. slumped 9.2 percent as the maker of power cables and optical fiber lowered its full-year profit estimate. The Nikkei 225 Stock Average advanced 0.8 percent to 8,634.97 as of 9:59 a.m. in Tokyo, bringing its three-day gain to 3.2 percent. The broader Topix Index today climbed 0.6 percent to 730.77.
“There is a strong political and financial will for the euro,” said George Boubouras, Melbourne-based head of investment strategy at UBS AG’s Australian unit. The Swiss bank has about $1.5 trillion in assets under management globally. “Actions that address the EU challenges will create the opportunity for a sustainable rally ahead.” Leaders in Berlin, Paris and Rome have backed European Central Bank President Mario Draghi’s approach to combat the sovereign debt crisis, saying they will do what’s needed to protect the 17-nation euro. The proposal involves the region’s rescue fund buying government bonds, two central bank officials said July 27 on condition of anonymity.
European Stocks Climb for an Eighth Week; Santander Jumps(Source:Bloomberg)
European stocks rose for an eighth week as German Chancellor Angela Merkel and French President Francois Hollande joined European Central Bank President Mario Draghi in promising to do everything to protect the euro. Banco Santander SA (SAN) jumped 14 percent as Spanish lenders led gains on the benchmark Stoxx Europe 600 Index. (SXXP) Barclays Plc (BARC), the British lender fined for rigging Libor, climbed 4.9 percent as it posted first-half profit that beat analysts’ estimates. MAN SE slumped 7.4 percent as the German truckmaker controlled by Volkswagen AG cut its earnings forecast for 2012. The Stoxx 600 added 0.6 percent to 259.81 this past week, its eighth consecutive advance for the longest stretch of weekly gains since January 2006. The gauge has rebounded 11 percent from this year’s low on June 4 as central banks from Europe to China eased monetary policy to help spur economic growth. The Stoxx 600 has risen 3.4 percent so far this month.
“The real focus for everyone is Europe and the comments made by Draghi and Merkel,” said Chris Beauchamp, a market analyst at IG Index in London. “They make a strong defense of the euro. But if you do not see these words backed up with real action, disappointment could quickly set in.”
Treasuries Fall as European Leaders to Meet on Crisis Measures(Source:Bloomberg)
Treasury 10-year note yields rose for the first time in five weeks as European leaders pledged to take steps to resolve the region’s sovereign-debt crisis, damping demand for the safest assets. European Central Bank President Mario Draghi and the head of the Bundesbank will discuss new rescue measures, which could include bond purchases, two central bank officials said. The leaders of Germany and France said they would do “everything” necessary to save the common currency. The Federal Reserve will announce Aug. 1 whether it intends to take additional measures to bolster the U.S. economy. “Draghi’s comments have lifted expectations that the ECB is finally ready to act,” said Guy Haselmann, an interest-rate strategist in New York at Bank of Nova Scotia (BNS), one of the 21 primary dealers that trade with the Fed. “The marketplace is expecting something out of the Fed.”
The U.S. 10-year yield rose nine basis points for the week, or 0.09 percentage point, to 1.55 percent, according to Bloomberg Bond Trader prices. The 1.75 percent note due in May 2022 fell 26/32, or $8.13 per $1,000 face amount, to 101 27/32. Treasury trading volume reported by ICAP Plc, the largest inter-dealer broker of U.S. government debt, rose to $330.3 billion at 5:03 p.m. yesterday, the highest since June 6. Trading has averaged $240.1 billion this year.
Dollar Repatriation First Since Lehman Evokes Post-LTCM Rally(Source:Bloomberg)
Until about four months ago, JKMilne Asset Management invested at least half the money in its global fund outside the U.S. No more. With Europe’s debt crisis intensifying, the Fort Meyers, Florida-based firm with $1.8 billion under management has all its money in dollars. “It’s been a winning strategy,” John Milne, chief executive officer, said July 26 in a telephone interview. “Given the magnitude of the problem, there was the realization that there was a contagion possibility.” Milne has plenty of company. U.S. investors repatriated $48.9 billion from December to May, the first time they brought assets home during a six-month stretch since the period following the failure of Lehman Brothers Holdings Inc. in 2008, according to the latest Treasury Department data compiled by Bloomberg. The flows are among the biggest since 1999, after the collapse of hedge fund Long-Term Capital Management LP boosted the dollar as investors retreated from all but the world’s safest assets.
IntercontinentalExchange Inc.’s Dollar Index rose 3.2 percent this year as investors moved cash into funds that focus on U.S. bonds. Inflows more than doubled to $157 billion in the first six months from $65 billion during the same period a year earlier, while international bond investments were unchanged, according to TrimTabs Investment Research.
Euro Weakens Versus Peers Before Confidence, Jobless Data(Source:Bloomberg)
The euro fell against most major peers, retreating from near a two-week high against the yen, before a report today that may add to signs the region’s debt crisis is weighing on consumer sentiment. The 17-nation currency trimmed gains from last week before data tomorrow that may show the region’s unemployment increased to a record last month. European Central Bank President Mario Draghi meets U.S. Treasury Secretary Timothy Geithner today as he attempts to win over Bundesbank President Jens Weidmann on measures to ease the region’s debt woes. The ECB can’t resolve the debt crisis, Moody’s Investors Service said, as central bank officials gather for a policy decision on Aug. 2.
“The euro will continue to struggle,” said Daisaku Ueno, a senior currency and debt strategist at Tokyo-based Mitsubishi UFJ Morgan Stanley Securities Co., a unit of Japan’s biggest financial group by market value. “To resolve Europe’s debt crisis, monetary policy will have to bear a lot of the burden.” The euro dropped 0.3 percent to $1.2285 as of 11:02 a.m. in Tokyo, trimming last week’s 1.4 percent rally. The common currency slid 0.3 percent 96.35 yen after touching a two-week high of 97.34 on July 27. The dollar bought 78.42 yen, little changed from last week. Today’s report from the European Commission in Brussels will probably confirm its index of household sentiment in the euro area declined to an almost three-year low of minus 21.6 in July, according to economists in a Bloomberg News survey.
FOREX-Euro's bounce fizzles, U.S. GDP awaited
LONDON, July 27 (Reuters) - The euro fell, retreating from a two-week high against the dollar, as investors sold into its recent rally on fresh doubts about whether the European Central Bank would take bold measures to tackle the sovereign debt crisis.
"It suggests we saw a bit of an overreaction to Draghi's comments yesterday," said Adam Cole, global head of FX strategy at RBC.
Geithner to Meet Schaeuble, Draghi in Germany Next Week(Source:Bloomberg)
U.S. Treasury Secretary Timothy F. Geithner will meet with German Finance Minister Wolfgang Schaeuble and European Central Bank President Mario Draghi in separate sessions on July 30. The meeting with Schaeuble will take place on the German island of Sylt in the afternoon of July 30, and the session with Draghi will be held that evening in Frankfurt, the Treasury Department said in a statement today. The Treasury said the meetings will be closed to the press, with a photo opportunity before the Schaeuble meeting. A Treasury official with knowledge of the matter said that Geithner and Schaeuble won’t hold a news conference after the meeting. European stocks rose for an eighth week as German Chancellor Angela Merkel and French President Francois Hollande joined Draghi in promising to do everything to protect the euro. “France and Germany are fundamentally attached to the integrity of the euro zone,” Merkel and Hollande said in a joint statement today. “They are determined to do everything to protect it.”
The leaders of the euro area’s two biggest economies issued their statement a day after Draghi said that the central bank will act to preserve the euro.
Hiring Probably Limited by Slowing Growth: U.S. Economy Preview(Source:Bloomberg)
The pace of hiring in July probably failed to reduce the U.S. jobless rate, which has been stuck above 8 percent for more than three years, economists said before a report this week. A payroll increase of 100,000 workers would follow an 80,000 gain in June, according to the median forecast of 68 economists surveyed by Bloomberg News ahead of Labor Department figures Aug. 3. Unemployment is projected to hold at 8.2 percent. Other data this week may show manufacturing stagnated in July and consumer confidence fell for a fifth month. Federal Reserve policy makers will meet ahead of the jobs report to decide whether additional stimulus is needed to combat a slowing economy as Europe’s debt crisis lingers. Companies such as Lockheed Martin Corp. (LMT) are among those warning they’ll have to reduce headcounts later this year in the run up to the so-called U.S. fiscal cliff of automatic tax increases and government spending cuts.
“The pace of hiring is pretty lackluster,” said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “It’s going to be a painfully slow grind lower on the unemployment rate. Firms have become cautious as the U.S. is slowing a fair bit and global markets are getting worse.” Payroll gains slowed to an average 75,000 in the April to June period, down from 226,000 in the first quarter and the weakest in almost two years, Labor Department figures show.
Deflation Dismissed by Bond Measure as QE3 Anticipation Abounds(Source:Bloomberg)
For all the handwringing over the slowdown in the U.S. economy, the bond market shows there’s less risk of deflation now than before the Federal Reserve’s first two rounds of large-scale debt purchases. The expectation that consumer prices will rise, measured by the five-year, five-year forward breakeven rate, means that Fed Chairman Ben S. Bernanke has persuaded traders the U.S. will avoid the chronic deflation that has slowed Japan’s economy since 1995. It also complicates the central bank’s decision about starting more quantitative easing to boost an economy that grew at the slowest pace in a year during the second quarter. Commodity prices surged during QE1 and QE2 in 2008 and 2010.
“Higher inflation results in a tax on consumers and slows the economy down,” Michael Materasso, a senior portfolio manager and co-chairman of the fixed-income policy committee at Franklin Templeton Investments, which oversees $320 billion of bonds, said in a July 24 interview at Bloomberg headquarters in New York. “If you end up with a spike in commodity prices, have you done more harm than good?” The Fed’s favored bond-market gauge of inflation expectations ended last week at 2.39 percent, above the 2 percent levels in 2008 and 2010 that led the central bank to inject $2.3 trillion into the economy by purchasing Treasuries and mortgage-related bonds, the policy known as quantitative easing. The five-year, five-year measure shows how much traders anticipate consumer prices will rise during a period of five years starting in 2017.
Facebook Stock Plunge Slashes $34 Billion of Market Value(Source:Bloomberg)
Facebook Inc. (FB) has lost about $34 billion in market value since its May initial public offering, as the operator of the world’s largest social-networking service fails to assuage concerns about how it can make more money from almost a billion users. Facebook’s stock dropped 12 percent yesterday, its biggest one-day loss on record, after its first quarterly earnings report as a public company. That brought the plunge to 38 percent since the May 17 debut, which at $16 billion was the largest ever for a technology company. Chief Executive Officer Mark Zuckerberg’s fortune plunged to $12.1 billion yesterday from $13.7 billion, according to the Bloomberg Billionaires Index. “Investors were always paying for potential for Facebook,” said Aaron Kessler, an analyst at Raymond James & Associates in San Francisco, who has a market perform rating on the stock. “Clearly, today people are willing to pay less for that potential, which may be a few years out still.”
Of the largest IPOs on record, no other company has lost so much value so quickly, data compiled by Bloomberg show. General Motors Co. (GM) raised $18.1 billion after expanding its November 2010 offering and gained value in the comparable period, as did Visa Inc. (V), which generated $19.7 billion when it listed in 2008.
Chinese City Halts Waste Project After Thousands Protest(Source:Bloomberg)
Authorities in eastern China scrapped plans for a pipeline to discharge waste from a paper mill into the sea after a protest by thousands of residents turned violent. The mayor of Nantong in Jiangsu province said on July 28 the project would be permanently canceled, a day after the vice mayor of Qidong, a lower-level coastal city where the demonstration took place, pledged to suspend construction of the pipeline from a paper factory run by a venture of Japan’s Oji Paper Co. The unrest was the latest in a series of confrontations between local governments and residents over pollution concerns linked to industrial projects. Thousands of people in the southwestern city of Shifang protested earlier this month over the construction of a molybdenum copper plant, and demonstrators in northeast China’s Dalian last year succeeded in getting a chemical factory shuttered on environmental grounds, according to reports by state media.
The Qidong protests “demonstrate that ordinary people’s awareness of their rights has increased and they are more willing to assert their rights,” Willy Wo-Lap Lam, an adjunct professor of history at the Chinese University of Hong Kong, said in a telephone interview yesterday. “It also demonstrates more sophistication on the part of the authorities in handling protests.”
Japan’s Production Unexpectedly Falls as Korean Confidence Sinks(Source:Bloomberg)
Japan’s industrial production unexpectedly declined and South Korean manufacturers’ confidence dropped to a three-year low as global demand weakened. Production fell 0.1 percent in June from May, when it slid 3.4 percent, Japan’s Trade Ministry said today. The median estimate of 29 economists surveyed by Bloomberg News was for a 1.5 percent gain. The South Korean confidence index for August was at 70 from 81 for July, the central bank said. Weakness in the U.S., European and Asian economies is fueling speculation that extra stimulus may be rolled out in coming months by central banks including the Federal Reserve and the Bank of Japan. (8301) European Central Bank President Mario Draghi’s success in taming the euro region’s debt crisis may be the key to the global outlook after he pledged to do whatever it takes to preserve the common currency.
“It’s increasingly likely that the Fed and ECB will ease further by September and I think the BOJ will follow,” said Masamichi Adachi, a senior economist at JPMorgan Securities in Tokyo and a former central bank official. In Japan, “it’s a very likely scenario that the government will implement a supplementary budget this autumn and the BOJ will expand the asset-purchase program again.”
South Korea Manufacturer Confidence Drops to 3-Year Low(Source:Bloomberg)
South Korean manufacturers’ confidence dropped to the lowest level in more than three years as Europe’s worsening fiscal crisis damped sentiment in a country where exports make up about half the economy. An index measuring expectations for August was at 70, the lowest level since May 2009, after dropping from a revised 81 in July, the Bank of Korea said in a statement in Seoul today. A measure of expectations at non-manufacturing companies also dropped to 69 from a revised 76. “The South Korean economy is muddling through uncertainty caused by the European debt crisis,” Oh Suk Tae, an economist at SC First Bank Korea Ltd. in Seoul, said before the release. “The central bank indicated that it’s ready to act, but the market is expecting supplementary fiscal support only if the economy contracts significantly.”
Asia’s fourth-largest economy grew at the slowest pace in almost three years last quarter, with HSBC Holdings Plc and Citigroup Inc. saying the Bank of Korea may cut rates again this year. The BOK lowered its main rate a quarter percentage point to 3 percent on July 12, and Governor Kim Choong Soo warned last week the nation may miss a 3 percent growth estimate for 2012.
Record Cash Collides With Yen as Topix Valuation Approaches Low(Source:Bloomberg)
Japan’s stagnating stock market, its aging populace and the slowing global recovery are masking record cash in company accounts and equity valuations that are close to a 20-year low. The 1,671 companies in the Topix (TPX) Index, the country’s broadest measure of equity performance, had 105.2 trillion yen ($1.34 trillion), or 41 percent of their market value, according to the latest filings compiled by Bloomberg. Almost half have more cash than debt, a record. At the same time, the index’s 75 percent drop since 1989 pushed prices to 0.86 times book value, 4 percent from a two-decade low, data show. For bulls, the combination makes Japanese shares irresistible as earnings rebound from last year’s earthquake and chief executive officers spend more on buybacks and dividends that have doubled since 2006. Bears say the country has been disappointing investors for the last 20 years and that rising cash shows managers are reluctant to invest as the yen appreciates and the recovery weakens.
“The price that a Japanese company sells for is significantly lower than the rest of the world,” said David Herro, the Chicago-based manager of the $8.5 billion Oakmark International Fund and Morningstar Inc.’s international fund manager of the decade. “What would really ignite the Japanese stock market is an acceleration of better capital allocation and a weakening in the yen. I think those are the only two factors preventing the Japanese from exploding on the upside.”
New U.K. Strategy Urged as Triple-Dip Recession Predicted(Source:Bloomberg)
Chancellor of the Exchequer George Osborne was urged by businesses and his political opponents to reconsider the U.K.’s austerity strategy, as economists warned the nation could face a “triple-dip” recession. The London-based Sunday Times newspaper reported economists’ concerns that the euro-area crisis and a possible Greek exit from the region could push the U.K. into a recession again next spring. The opposition Labour Party’s finance spokesman Ed Balls renewed his attack on Osborne, saying the chancellor’s policies are “flat-lining” economic recovery. Osborne is facing renewed criticism after figures released last week showed Britain’s recession deepened in the second quarter, prompting questions about his economic plans and whether he should remain at the Treasury. Gross domestic product fell 0.7 percent from the first quarter, the third consecutive quarterly decline.
“If last week’s figures won’t make the government wake up and change course, then I don’t know what will,” Balls wrote in an article for the London-based Sun newspaper today. “But the longer they stick to this failing plan, the heavier the price our country will pay.” Osborne’s Labour opponents say his fiscal plans are too harsh at a time when households and banks are weighed down by debt. Taking longer to bring the budget into balance would have paid for tax and spending measures and sustained consumer confidence, they say.
Merkel, Monti Agree ‘Will Do Everything’ to Protect Euro(Source:Bloomberg)
German Chancellor Angela Merkel and Italian Prime Minister Mario Monti agreed that the European Union’s summit conclusions last month must be implemented “as quickly as possible” after speaking by phone yesterday. Merkel and Monti “agreed that Germany and Italy will do everything to protect the euro area,” German government spokesman Georg Streiter said in an e-mailed statement today in Berlin. Monti agreed to travel to Berlin for talks with Merkel in the second half of August, Streiter said.
Spanish Bond Yields Drop Most in 7 Months on Bets ECB Will Buy(Source:Bloomberg)
Spain’s government bonds rose, with 10-year yields dropping the most in seven months, amid speculation the European Central Bank will accelerate efforts to ease the region’s sovereign debt crisis. Italy’s securities also rallied after German Chancellor Angela Merkel and French President Francois Hollande pledged to do everything to keep the 17-nation currency bloc intact, echoing comments the day before from ECB President Mario Draghi. Germany’s bunds declined after Moody’s Investors Service cut the outlook on the nation’s Aaa rating, citing concern the country will have to support weaker euro-region members. The ECB meets to review monetary policy on Aug. 2.
“A lot of it is down to Mr. Draghi’s comments, which convinced the market that come next Thursday the ECB will be providing us with some support” for bonds, said Eric Wand, a fixed-income strategist at Lloyds Banking Group Plc in London. “The language he used was pretty forceful. If he fails to deliver on that promise the market is going to make them pay and big time.” Spain’s 10-year yield fell 52 basis points, or 0.52 percentage point, this week to 6.74 percent at 5 p.m. London time yesterday, the biggest weekly drop since the period ended Dec. 2. The 5.85 percent bond due in January 2012 gained 3.38, or 33.80 euros per 1,000-euro ($1,237) face amount, to 93.83. The Italian 10-year bond yield declined 21 basis points this week to 5.96 percent after rising to 6.71 percent on July 25, the highest level since Jan. 16.
U.K. Home Prices Fall for First Time This Year, Hometrack Says(Source:Bloomberg)
U.K. house prices fell in July for the first time this year and may extend their decline as a deepening recession curbs demand for homes, Hometrack Ltd. said. Values slipped 0.1 percent from June, when they stagnated, the London-based property-research company said in a report today. A measure of demand fell the most in six months. In London, the pace of home-price inflation slowed to 0.1 percent. Data this week showed Britain’s economy shrank 0.7 percent in the second quarter, the most in more than three years, while Chancellor of the Exchequer George Osborne said there are “deep-rooted economic problems.” At the same time, the euro- area debt crisis is mounting, with speculation increasing that Spain may need a full sovereign bailout.
“Weaker demand is to be expected over the summer months, but compared to previous years, the seasonal slowdown has started earlier and developed more rapidly,” said Richard Donnell, director of research at Hometrack. “This reflects growing concern over the U.K.’s economy and the deepening euro- zone crisis.” Compared with June, prices fell in eight out of 10 regions tracked by Hometrack and were unchanged in one, according to the report. London was the only region to register an increase. From a year earlier, values nationally fell 0.5 percent. The number of new buyer registrations, a measure of demand, dropped 2.1 percent in July from the previous month, while the volume of properties being put up for sale rose 1.4 percent. Donnell said the gap between supply and demand “is set to widen over the summer months and points to further modest price falls.”
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