20120801 1004 Global Market Related News.

Asia FX By Cornelius Luca - Tue 31 Jul 2012 16:59:22 CT(Source:CME/www.lucafxta.com)
The appetite for risk soured a little on Tuesday ahead of the Federal Reserve policy decision tomorrow and the ECB meeting on Thursday. Traders hope for further easing, but these central banks have yet to answer these expectations. The foreign currencies made little progress, but the commodity currencies remained relatively strong. The US stock markets, gold, oil and silver fell. The short-term outlook for the foreign currencies is generally 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: The Conference Board's consumer confidence index climbed to 65.9 in July from an upwardly revised 62.7 in June.
US: The ISM Chicago's business barometer rose to 53.7 in July from 52.9 in June.
US: Personal income rose 0.5% in June from previous reading of +0.3%. Consumer spending fell 0.1% in June, down from +0.1% in May.
US: The S&P/Case-Shiller 20-City Composite Home Price Index rose by 2.2% in May following a 1.3% increase in April.
Canada: The GDP grew 0.1% in May, down from +0.3% in April.
Canada: The industrial product price index decreased 0.3% in June, more than -0.1% in May.

Today's economic calendar
Australia: AiG performance of manufacturing index for July
Australia: House Price Index for the second quarter
China: HSBC manufacturing PMI for July

Asian Stocks Head for First Drop in Five Days Before Fed (Source: Bloomberg)
Asian stocks fell, with the regional benchmark index heading for the first drop in five days, as investors await monetary policy decisions by the Federal Reserve and the European Central Bank. Japanese shares led declines on disappointing earnings reports. Komatsu Ltd. (6301), Japan’s largest construction machinery maker, plunged 9.4 percent after cutting its annual earnings forecast. Carmaker Honda Motor Co. (7267) dropped 5.7 percent in Tokyo after reporting profit that missed analyst estimates. Mobile phone maker LG Electronics Inc. (066570), which gets 45 percent of its sales in North America and Europe, fell 1.6 percent in Seoul. The MSCI Asia Pacific Index dropped 0.6 percent to 117.96 as of 10:07 a.m. in Tokyo before markets in Hong Kong and China opened. Almost three stocks fell for each that rose on the measure, which gained 1.3 percent in July, capping a second monthly gain. Shares of companies that do business in China may be active after the nation pledged to maintain stable growth.
“Investors have been in wait-and-see mode for the last two days ahead of key central bank announcements and that will continue today,” said Prasad Patkar, portfolio manager who helps manage about $1 billion at Platypus Asset Management Ltd. in Sydney.

Japan Stocks Fall on China Manufacturing; Honda Slumps (Source: Bloomberg)
Japanese stocks fell, with the Nikkei 225 (NKY) Stock Average declining the first time in five days, as companies from Honda Motor Co. and Komatsu Ltd. missed profit estimates and after China’s manufacturing output expanded at a slower pace than economists expected. Honda, Japan’s third-largest carmaker by sales, slipped 5.8 percent as it joined Nissan Motor Co. in reporting earnings that trailed estimates. Komatsu, which gets about 14 percent of sales from China, sank 9.7 percent after the world’s second-biggest maker of construction equipment cut its annual profit forecast. Nomura Holdings Inc. slid 2.9 percent as Japan’s No. 1 brokerage faces penalties after staff leaked information on at least three share sales in 2010.
“This quarter’s earnings have shown that Japanese exporters are badly affected by the slowdown in China, the recession in Europe and the yen’s appreciation,” said Norihiro Fujito, a senior investment strategist at Mitsubishi UFJ Morgan Stanley Securities Co. “Given that the Chinese economy hasn’t bottomed yet, next quarter’s earnings could be even worse and share prices may keep sliding. It’s difficult to see a recovery by the end of the year.” The Nikkei 225 retreated 1.3 percent to 8,579.91 as of 10:17 a.m. in Tokyo, with five shares falling for each that rose. The broader Topix Index lost 1.2 percent to 727.45.

China’s Stocks Decline to 2009 Low; B Shares Slump on New Rules (Source: Bloomberg)
China’s stocks fell to the lowest level in more than three years amid concern the slowing economy will hurt earnings growth. Foreign-currency denominated B shares dropped for their biggest two-day loss in almost a year. Chinese steelmakers, including Baoshan Iron & Steel Co. and Angang Steel Co., slid after posting a 96 percent drop in first- half profit. Kama Co. led declines by B shares on concern stricter rules by the exchange may lead to companies being delisted. China Railway Group Ltd. (601390) gained after the government boosted investment in railways for the second time in a month. The Shanghai Composite Index (SHCOMP) fell 0.3 percent to 2,103.64 at the close, the lowest since March 2009. The gauge, Asia’s worst-performing gauge this month with a 5.5 percent loss, has tumbled 14.5 percent from this year’s high on March 2. The Shanghai B-Share Stock Price Index slumped 0.9 percent for a two-day, 6.5 percent loss, the most since Aug. 2011.
“The declining trend hasn’t changed, as the economy is bad,” said Tang Yonggang, an analyst at Hongyuan Securities Co. in Beijing. “We could see some short-term gains but in the mid- to-long term it’s going to continue to fall unless we see more policy loosening.” The CSI 300 Index (SHSZ300) fell 0.1 percent to 2,332.92. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, dropped 1.4 percent in New York. The Shanghai index is valued at 9.4 times estimated profit, compared with the three-year average of 14.7.

Hong Kong Stocks Rise 4th Day on Signs of China Stimulus (Source: Bloomberg)
Hong Kong stocks gained, with the Hang Seng Index capping its longest rising streak since March, on signs China is boosting infrastructure investment as it seeks to spur growth in the world’s second-largest economy. CSR Corp. (1766), a Chinese train maker, gained 4.2 percent after China boosted investment in railways for a second time in a month. Aluminum Corp. of China Ltd., the nation’s largest producer of the metal, rose 1.9 percent. Hang Lung Properties Ltd., a Hong Kong developer that derives 46 percent of its sales from the mainland, jumped 3.8 percent after reporting better than expected half-year results. The Hang Seng Index rose 1.1 percent to 19,796.81 at the close of trading in Hong Kong, with all but nine shares gaining on the 49-member gauge. The gauge last advanced for four days in March. It and increased 1.8 percent in July, a second straight advance. The Hang Seng China Enterprises Index (HSCEI) of mainland companies added 1.6 percent to 9,674.27.
“The question is when investors get bullish,” said Khiem Do, Hong Kong-based head of Asian multi-asset strategy at Baring Asset Management (Asia) Ltd., which oversees about $8 billion. “They are looking for a strong reason to buy back into the market. There is encouraging progress being made.” The benchmark Hang Seng Index fell 8.7 percent from this year’s high in February through today on signs Europe’s debt crisis is worsening while growth slows in China and the U.S. The drop reduced the value of shares on the gauge to 10.4 times estimated earnings on average, compared with 13.5 for the Standard & Poor’s 500 Index and 11.2 for the Stoxx Europe 600 Index.

U.S. Stocks Decline as Investors Await Fed Decision (Source: Bloomberg)
U.S. stocks fell, trimming a second monthly advance in the Standard & Poor’s 500 Index, as investors awaited the Federal Reserve’s monetary-policy decision tomorrow. Coach Inc. (COH), the largest U.S. luxury handbag maker, tumbled 19 percent after reporting revenue that trailed analysts’ estimates. Humana Inc. (HUM) slumped 13 percent as the provider of Medicare benefits cut its 2012 profit forecast. Apple (AAPL) Inc. rose 2.6 percent as Sanford C. Bernstein & Co. said it is considering a stock split that could prompt the world’s most valuable company to be added to the Dow Jones Industrial Average. About five stocks fell for every three that rose on U.S. exchanges at 4 p.m. New York time. The S&P 500 (SPX) slid 0.4 percent to 1,379.32. The benchmark measure rose 1.3 percent in July. The Dow average slid 64.33 points, or 0.5 percent, to 13,008.68 today. Volume for exchange-listed stocks in the U.S. was 6.7 billion shares, or about in line with the three-month average.
“People are taking some chips off the table as they don’t expect the Fed to come up with any positive surprise,” said Michael Holland, chairman of New York-based Holland & Co. His firm oversees more than $4 billion. “In addition, you have a mixed bag of earnings and news out of Europe is not helping.” Equities fell on bets the Fed may forgo announcing a third round of large-scale asset purchases this week, and is more likely to wait until September to unveil plans to buy $600 billion in housing and government debt. Policy makers meeting today and tomorrow may wait for more employment data before deciding whether action is needed to boost an economy that’s slowed for two straight quarters.

Recap Stock Index Market Report (Source:CME)
The September S&P 500 trended lower throughout the session, marking its low of the day during the final hour. Some traders noted that trading volumes were very light, and that seemed to foster a choppy end-of month trade. The September E-mini Dow and S&P 500 registered a lower low on the session, while the September NASDAQ remained inside of the previous session's range. They major indices showed little reaction to this morning's flow of US economic data, which revealed an unexpected bounce in May home prices and unexpected gains in Chicago PMI and consumer confidence. Earnings this morning from Pfizer came in better than expected, and that offered a measure of support to the S&P and Dow Jones Index. Shares of Apple were up nearly 2.0% on talk that the company could be contemplating a stock split. Meanwhile, retail-related shares came under pressure following disappointing results from Coach. Most of the major S&P sectors were in negative territory, led by declines in consumer discretionary and energy-related shares.

Emerging Stocks Climb for a Fourth Day on Stimulus Speculation (Source: Bloomberg)
Emerging-market stocks rose for a fourth day on speculation central banks from the U.S. and Europe will take measures to bolster economic growth. The MSCI Emerging Markets Index added 0.4 percent to 952.49, the most since July 5. Brazil’s Bovespa stock index dropped from an 11-week high, pushed lower by phone company Tim Participacoes SA. Samsung Electronics Co. (005930), which gets more than a third of its sales in America and Europe, capped its biggest four-day rally this year. Policy makers at the U.S. Federal Reserve began a two-day meeting today, looking for new stimulus measures as the International Monetary Fund said Europe’s debt crisis is likely to be prolonged. Reports today showed South Korea’s industrial production fell for the first time in three months and Taiwan’s gross domestic product unexpectedly shrank. Last week, European leaders had resolved to do whatever it takes to protect the euro.
“The big signal for a risk rally will come from a strong policy response,” said Mohamed Saidi, a Brussels-based fund manager at Dexia Asset Management, which oversees about $860 million of equity assets in developing nations. “Emerging markets have been doing quite well on the back of more positive euro sentiment, starting with the words of Mario Draghi on Thursday. On top of that, there is expectation of monetary stimulus from the U.S.”

U.K. Stocks Retreat on BP Earnings, German ESM Comments (Source: Bloomberg)
U.K. stocks retreated, paring their second monthly advance, as BP Plc (BP/) reported results that missed estimates and Germany’s Finance Ministry said it sees no need to give Europe’s permanent bailout fund a banking license. BP lost 4.4 percent, the most in eight months, after Europe’s second-largest oil company posted a net loss for the second quarter. Barclays Plc (BARC) led a retreat in banks, falling 1.5 percent. CRH Plc (CRH) tumbled 5.8 percent, the most since November. The FTSE 100 Index (UKX) lost 58.35 points, or 1 percent, to 5,635.28 at the close in London, trimming this month’s gain to 1.2 percent. The gauge has climbed 7.1 percent from its 2012 low on June 1, boosted by pledges from European Central Bank President Mario Draghi to preserve the euro. The broader FTSE All-Share Index also fell 1 percent today, while Ireland’s ISEQ Index retreated 0.9 percent.
“Confidence and sentiment are being slowly eroded away by the dire state of affairs in the periphery” of Europe, said Simon Denham, managing director at Capital Spreads in London. “Despite the markets getting excited about the prospects of fresh stimulus, the trickle down to confidence and the man on the street won’t materialize for months to come.” Stocks extended losses after Germany’s Finance Ministry said the rules of the European Stability Mechanism don’t foresee a banking license to allow refinancing at the European Central Bank. They said they are holding no talks on the topic.

Treasury 5-Year Yield Near Record Low Amid Slowing Signs (Source: Bloomberg)
Treasury five-year note yields were six basis points from a record low as signs of an economic slowdown in the U.S. and Europe boosted demand for the securities as a haven. The notes remained higher following a two-day advance before reports today that economists say will show U.S. employers added the fewest workers in three months and that a gauge of euro-area manufacturing slid to a three-year low. The Federal Reserve will conclude a two-day policy meeting today. “Economies are weak globally, resulting in a flight to quality,” said Hiromasa Nakamura, who helps oversee the equivalent of $42 billion as an investor at Mizuho Asset Management Co. in Tokyo. “Treasury yields have more room to decline.”
The benchmark five-year yield was little changed at 0.59 percent as of 9:48 a.m. in Tokyo. It reached the all-time low of 0.53 percent on July 25, according to Bloomberg Bond Trader data The 0.5 percent security due July 2017 traded at 99 18/32 today. Ten-year yields were at 1.48 percent after falling eight basis points in the past two days to 1.47 percent yesterday. ADP Employer Services will probably say today that companies in the U.S. added 120,000 workers last month, according to the median estimate of economists surveyed by Bloomberg News. That would be the least since April and down from a 176,000 increase in June.

Euro Holds Gains Versus Dollar, Yen on ECB Stimulus Bets (Source: Bloomberg)
The euro remained higher against the dollar following an advance yesterday as optimism built that the European Central Bank will take steps at a meeting tomorrow to stem the region’s debt crisis. The 17-nation currency held gains against the yen after France’s President Francois Hollande and Italy’s Prime Minister Mario Monti said yesterday the countries are “determined” to do everything to protect the integrity of euro zone. The greenback maintained this week’s decline against the Japanese currency before the Federal Reserve concludes a two-day meeting today amid speculation the U.S. central bank will signal additional monetary easing. “I’m bullish on the euro in the near term,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “The ECB is expected to show its resolve and act to preserve the currency.”
The euro bought $1.2295 as of 8:51 a.m. in Tokyo after climbing 0.4 percent yesterday to $1.2304. The shared currency traded at 96.06 yen from 96.12 yesterday, when it advanced 0.3 percent. The dollar was little changed at 78.13 yen, having fallen for the past two days. Spanish Economy Minister Luis de Guindos is pushing for additional budget cuts after his German counterpart, Wolfgang Schaeuble, signaled to him that such a move would be rewarded by bond market assistance, according to two people in Madrid familiar with his thinking.

Aussie Dollar Falls on Stocks Drop, China Manufacturing (Source: Bloomberg)
Australia’s dollar weakened after a manufacturing index in China, the nation’s biggest trading partner, slid to the lowest level this year, sapping demand for the South Pacific nation’s assets. The so-called Aussie slid versus all except one of its 16 major peers after a gauge of Australian manufacturing dropped last month to the lowest level in three years, while New Zealand’s currency remained lower against the yen after a two- day decline. Demand for the Australian and New Zealand currencies was tempered as technical indicators showed their recent gains may have been too rapid. “Investors are being a little bit more cautious,” said Callum Henderson, global head of currency research at Standard Chartered in Singapore. “We’ll see the dollar be a little bit stronger against the Group of 10 currencies, with the higher- yielding, higher-bet currencies such as the Aussie and kiwi giving up some of their recent gains.”
The Australian dollar lost 0.3 percent to $1.0473 as of 11:15 a.m. in Sydney from $1.0503 yesterday, when it touched $1.0538, the strongest level since March 27. It slid 0.5 percent to 81.67 yen. New Zealand’s currency was little changed at 80.93 U.S. cents. The so-called kiwi dropped 0.1 percent to 63.11 yen after falling 0.6 percent in the previous two days.

FOREX-Euro steady, investors nervous before ECB meeting
LONDON, July 31 (Reuters) - The euro was subdued against the dollar, trading below recent three-week highs on growing doubts the European Central Bank can meet market expectations of bold steps to combat the euro zone debt crisis.
"There is a clear danger that expectations might be too high...He's got to put his money where his mouth is, as there is a risk of disappointment around Thursday," said Nick Parsons, head of markets strategy at nabCapital in London.

Fed Seen Forgoing New Bond Buying Program Until September (Source: Bloomberg)
Federal Reserve Chairman Ben S. Bernanke will probably forgo announcing a third round of large- scale asset purchases this week, and is more likely to wait until September to unveil plans to buy $600 billion in housing and government debt, according to median estimates of economists in a Bloomberg News survey. Eighty-eight percent of economists say the Federal Open Market Committee will refrain from starting new purchases at a two-day meeting that began today in Washington. Forty-eight percent say the FOMC will announce the buying at its Sept. 12-13 meeting, according to the July 25-27 survey of 58 economists.
The FOMC may take further action should the job market not make “sustained progress” in bringing down an unemployment rate stuck above 8 percent for 41 consecutive months, Bernanke said this month in congressional testimony. The FOMC wants to see more jobs data before beginning asset purchases aimed at holding down borrowing costs, spurring growth and reducing unemployment, said Michael Gapen, senior U.S. economist for Barclays Plc in New York. Policy makers “don’t need to do something immediately because the economy is basically treading water,” with a second quarter growth rate of 1.5 percent, Gapen said. “What gives the Fed the ability to sit tight for now is financial market conditions haven’t weakened that much.”

Consumer Spending in U.S. Was Unchanged in June (Source: Bloomberg)
Consumer spending in the U.S. stagnated in June as labor-market weakness prompted Americans to use the biggest gain in incomes in three months to build savings. Household purchases, which make up 70 percent of the economy, were unchanged last month after a 0.1 percent decline in May, a Commerce Department report showed today in Washington. The median estimate in a Bloomberg News survey of economists called for a 0.1 percent rise. Incomes climbed 0.5 percent, lifting the saving rate to 4.4 percent, the highest in a year. Americans may be growing less pessimistic about job prospects later in the year, with another report today showing consumer confidence rose unexpectedly for the first time in five months. Federal Reserve policy makers meeting today and tomorrow may wait for more employment data before deciding whether action is needed to boost an economy that’s slowed for two straight quarters.
“There’s been some back-tracking in the labor market so consumers are choosing to save the income rather than spend it,” said Julia Coronado, chief economist for North America at BNP Paribas in New York, who correctly projected the stagnation in purchases. “The third quarter will be pretty subdued.”

Geithner Says 2-3 Years of Creative Housing Needed (Source: Bloomberg)
Treasury Secretary Timothy F. Geithner said two to three years of “aggressive, creative” programs are needed to help the U.S. recover from its housing crisis. “We’re going to keep at this as long as necessary,” Geithner said at an event in Los Angeles today. “We think there’s a very good case for people deeply under water, experiencing hardship, to modify their mortgages by reducing principal.” Government-sponsored enterprises Fannie Mae and Freddie Mac won’t forgive principal on delinquent mortgages they guarantee, the firms’ regulator said today. Months of analysis showed there would be no clear benefit to taxpayers if the Federal Housing Finance Agency were to change its policy barring the mortgage- finance companies from loan modifications that include debt writedowns, Edward J. DeMarco, the agency’s acting director, told reporters.
Geithner criticized the decision in a letter to DeMarco today. “I do not believe it is the best decision for the country,” Geithner wrote. “The use of targeted principal reductions by the GSEs would provide much-needed help to a significant number of troubled homeowners.”

U.S. Housing Recovery Tested as Economy Tempers Optimism (Source: Bloomberg)
Rob Gray moved his family of four from Massachusetts to Texas, where he bought a new five-bedroom, five-bath, two-fireplace home built by Toll Brothers Inc. (TOL) After completing the deal on July 26 for the $572,000 brick-and-stone house in Allen, about 30 miles (48 kilometers) north of Dallas, Gray and his wife Paula plan to spend about $30,000 on new furniture, appliances, window treatments and an outdoor grill. “We’re not afraid to roll the dice, to take a leap of faith on the U.S. economy,” Gray, 47, an insurance-company recruiter, said in a telephone interview. “Things are on the rebound, and we need to get off the sidelines.”
As the residential property market climbs back from the worst collapse since the Great Depression, homebuilders need more customers like the Grays for the industry to enter a sustainable recovery and help drive U.S. economic growth. While orders for new homes are rising at the fastest rate in two years and housing may be a net contributor to the economy’s expansion for the first time since 2005, slowing job growth, tight inventories and a backlog of foreclosures threaten to put the brakes on a comeback.

Consumer Confidence in U.S. Unexpectedly Climbed in July (Source: Bloomberg)
Confidence among U.S. consumers unexpectedly rose for the first time in five months as Americans became more upbeat about job prospects later this year. The Conference Board’s index increased to 65.9 this month from 62.7 in June, figures from the New York-based private research group showed today. Economists projected a reading of 61.5, according to the median estimate in a Bloomberg News survey. The report showed a gain in the share of consumers anticipating better labor and economic conditions in six months. A pickup in the housing market and decreases in fuel prices may also be helping sustain consumer sentiment. At the same time, faster job gains are needed to spur consumer spending, which grew in the second quarter at the slowest pace in a year.
“The increase was partly in expectations for business conditions and less pessimism on the future job market, but very little change in the outlook for household income and that is probably more important,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. Stocks held losses after the report. The Standard & Poor’s 500 Index fell 0.1 percent to 1,383.91 at 11:08 a.m. in New York.

Business Activity in U.S. Unexpectedly Grows at Faster Pace (Source: Bloomberg)
Business activity in the U.S. unexpectedly grew at a faster pace in July as the economy weathered a slowdown in hiring and household spending. A barometer from the Institute for Supply Management- Chicago Inc. increased to 53.7, the highest since April from 52.9 in June. Readings greater than 50 signal growth. The median forecast of 50 economists surveyed by Bloomberg News projected the purchasing managers’ gauge would decline to 52.5. The need to rebuild auto inventories may be giving a boost to manufacturing, which had been a key driver of the economic recovery. The Federal Reserve is meeting this week to determine if more stimulus is needed as Europe’s fiscal crisis and the threat of more than $600 billion in U.S. spending cuts and tax increases at year’s end curbed demand. Manufacturing is showing “modest improvement,’’ Harm Bandholz, chief U.S. economist at UniCredit Group in New York, said before today’s report. “It’s not great but it’s also not that bad.’’

Home Prices in U.S. Fell Less Than Forecast in Year to May (Source: Bloomberg)
Residential real estate prices declined less than forecast in the year ended May, another sign that the housing market is on the mend. The S&P/Case-Shiller index of property values in 20 cities decreased 0.7 percent from May 2011, the smallest 12-month fall since September 2010, after dropping 1.8 percent in the year ended April, the group said today in New York. The median forecast of 29 economists in a Bloomberg News survey projected a 1.4 percent fall. Stabilizing prices could help drive a housing market that’s starting to recover three years after the end of the recession. Federal Reserve policy makers have said residential construction is a bright spot in the recovery even as unemployment remains a concern to households.
“This is great news that certainly bucks the trend of other data that points to an economy that’s slowing,” said Ellen Zentner, a senior U.S. economist at Nomura Securities International Inc. in New York. “It’ll be a salve for a lot of U.S. households if we continue to see price gains in housing.”

Don’t Fight Fed as Decision Days Fuel Rally, Bespoke Says (Source: Bloomberg)
Investors should buy stocks before the Federal Reserve’s announcement tomorrow, if history is of any guide, according to Bespoke Investment Group LLC. The Standard & Poor’s 500 Index (SPX) has advanced in 20 out of the past 29 decision days since the Fed pledged to keep interest rates near zero in December 2008, a study from Harrison, New York-based Bespoke shows. While Fed days made up 3 percent of the trading days during the period, they accounted for about 38 percent of the equity gauge’s gain, the data show. “‘Don’t fight the Fed’ is one of the most well-known market axioms around, and these performance numbers couldn’t do a better job of highlighting why,” Justin Walters, Bespoke’s co-founder, wrote in a note today. The S&P 500 has rallied 10 percent this year amid speculation that worse-than-expected economic data will prompt the Fed to take more actions to spur growth. Chairman Ben S. Bernanke and other Federal Open Market Committee members began a two-day meeting today.
Bernanke will probably forgo announcing a third round of large-scale asset purchases, and is more likely to wait until September to unveil plans to buy $600 billion in housing and government debt, according to median estimates of economists in a Bloomberg News survey.

China Reiterates Growth Chief Priority (Source: Bloomberg)
China’s leaders pledged to keep adjusting policies to ensure stable economic growth this year as a state newspaper said some banks are telling branches to provide local-government loans. “The ongoing pace of economic growth is within expectations, but the external environment remains grim and poses difficulties and challenges,” the official Xinhua News Agency said yesterday, citing a meeting of the Communist Party’s Politburo. The meeting also determined that maintaining stable growth is still the top priority, Xinhua said. The Politburo reiterated that China will pursue a “prudent” monetary policy and “proactive” fiscal policy, signaling that authorities are trying to stem a six-quarter slowdown in the world’s largest economy without resorting to the level of stimulus implemented after the global financial crisis.
“If the economic situation worsens, China can ease more,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. Options include further reductions in banks’ reserve requirements and in benchmark interest rates, he said.

China Manufacturing Slows to Eight-Month Low (Source: Bloomberg)
China’s manufacturing expanded at the slowest pace in eight months, adding to evidence Premier Wen Jiabao has yet to reverse the nation’s economic slowdown. The Purchasing Managers’ Index fell to 50.1 in July from 50.2 in June, the Beijing-based National Bureau of Statistics and China Federation of Logistics and Purchasing said in a statement today. That compares with the 50.5 median estimate in a Bloomberg News survey of 24 economists. A reading above 50 indicates expansion. Today’s data increase odds China will introduce more measures to stem a deceleration in the world’s second-biggest economy that may extend into a seventh quarter. Leaders of the ruling Communist Party pledged yesterday to keep adjusting policies to ensure stable growth, describing the external environment as posing “difficulties and challenges” as the jobless rate in the euro area reached the highest on record.
“The impact of policy easing is taking some time to show up,” Zhu Haibin, Hong Kong-based chief China economist with JPMorgan Chase & Co., said before the report. There is also “large uncertainty” in the global economy, he said. China may cut interest rates a third time this year and lower banks’ reserve requirements three more times, Zhu estimates.

South Korea’s Inflation Moderates to Slowest in 12 Years (Source: Bloomberg)
South Korea’s inflation moderated to a 12-year low in July as service-sector and communication prices fell, giving the central bank room to further ease borrowing costs as Europe weighs on growth. Consumer prices increased 1.5 percent from a year earlier, the slowest since May 2000, after a 2.2 percent gain in June, Statistics Korea said today in Gwacheon, south of Seoul. The median estimate in a Bloomberg News survey of 16 economists was for a 2 percent gain. Prices fell 0.2 percent from the previous month. South Korea’s economy grew at the slowest pace in almost three years in the second quarter and the central bank has pared its forecast for this year's expansion. Industrial production unexpectedly fell for the first time in three months in June, the government said yesterday. “This gives the central bank a big push to lower rates in the coming months, most likely in September,” said An Ki Tae, an economist at Woori Investment & Securities. “The inflation rate will stay low through this year.”
The won was little changed at the 9 a.m. open in Seoul, according to data compiled by Bloomberg, while the Kospi stock index fell 0.6 percent.

Korean Bonds Rise as Exports Plunge, Inflation Cools; Won Gains (Source: Bloomberg)
South Korea’s bonds rose, building on a run of four monthly gains, as data showing a slide in exports and the slowest inflation since 2000 fanned speculation the central bank will cut interest rates. The won climbed to a three-month high before a Federal Reserve meeting ends today. Overseas sales fell 8.8 percent in July from a year earlier, the biggest contraction since September 2009, the government reported today. The median estimate in a Bloomberg News survey was for a 3.7 percent decline. Consumer prices rose 1.5 percent, less than all 16 estimates in a Bloomberg survey. The Kospi Index (KOSPI) snapped a four-day rally even as overseas funds bought more Korean equities than they sold for a fourth day.
“With consumer-price gains falling to the 1 percent level and exports posting the biggest decline this year, there are expectations that the Bank of Korea will cut rates further,” said Travis Choi, a fixed-income analyst at Woori Investment & Securities Co. in Seoul. The Bank of Korea unexpectedly lowered its benchmark rate by a quarter of a percentage point to 3 percent last month. The yield on South Korea’s 3.25 percent notes due June 2015 slid three basis points, or 0.03 percentage point, to 2.82 percent as of 9:47 a.m. in Seoul, Korea Exchange Inc. prices show. That follows a 45 basis point drop in July that was the biggest decline for a benchmark three-year note since 2008. Three-year debt futures rose 0.11 to 106.08 and the one-year interest-rate swap slid four basis points to 2.84 percent.

Default Concerns Make Belize Bonds Worst in Emerging Markets (Source: Bloomberg)
Belize’s notes are the worst performers in emerging markets this month as the Central American nation’s budget deficit widens and concerns grow that the government will force holders of $544 million of bonds to take losses in a restructuring. Belize’s dollar bonds have fallen 2.5 percent this month, the most among 52 emerging-market countries tracked by JPMorgan Chase & Co’s EMBIG index. Brazilian and Indonesian bonds have gained 4.2 percent over the same period. Yields on Belize’s so- called superbond due in 2029 climbed 145 basis points, or 1.45 percentage point, to 20.08 percent this month as the country nears its second restructuring in five years.
Prime Minister Dean Barrow, who campaigned on a promise to restructure the bonds, told lawmakers in June that lowering the debt burden is “unavoidable.” The government faces an Aug. 20 payment of about $25 million and Barrow said Belize’s budget deficit will swell to 2.5 percent of gross domestic product next year from 1.1 percent this year. Investors are starting to “appreciate the difficulty” the government will have in meeting creditor demands, said Stuart Culverhouse, chief economist at Exotix Ltd.

IMF Urges Brazil to Guard Against Bubbles as Interest Rates Fall (Source: Bloomberg)
Brazil should boost supervision of its banking system to avoid against credit bubbles that could form as a result of fast credit growth and falling interest rates, the International Monetary Fund said. Credit that has doubled as a percent of gross domestic product in the last decade has helped spur economic growth but is also showing signs of straining households, the IMF said in a report today about the health of Brazil’s financial system. In prime housing markets like Sao Paulo and Rio de Janeiro, prices have jumped as much as 30 percent annually in recent years, the Washington-based lender said. “There is a risk that the financial system may become a victim of its own success,” Dimitri Demekas, head of the team that conducted the assessment, said in a statement on the IMF’s website.
Brazil has cut interest rates to record low this year and loosened reserve requirements to spur car purchases even as consumer default levels hover near a 30-month high and growth remains weak. Today, HSBC (HSBA) became the latest bank to reduce its 2012 growth forecast, to 1.7 percent from 2.5 percent. Consumer confidence in Brazil fell in July for the third month in a row, according to the Getulio Vargas Foundation.

Geithner Says Europe Committed to Resolving Crisis (Source: Bloomberg)
U.S. Treasury Secretary Timothy F. Geithner said Europe is “absolutely committed to doing what’s necessary” to resolve the continent’s debt crisis, one day after meeting with German Finance Minister Wolfgang Schaeuble and European Central Bank President Mario Draghi. “This is completely within their financial ability to solve,” Geithner said today at an event at the Los Angeles World Affairs Council. He added that “the politics of doing this are very hard.” German government bonds rose for a second day, and Spanish bonds slid for the first time in five days as German Chancellor Angela Merkel’s coalition rejected granting the permanent rescue fund access to European Central Bank liquidity, fueling doubts that Draghi will fulfill his pledge to “do whatever it takes to preserve the euro.”
“Both the economic reforms and those changes to the institutions of Europe are going to take a long time and going to take time to work,” Geithner said today. “What Europe’s trying to do now is make sure they do enough to hold things together, lay the foundation for growth in the short term, bring down interest rates.” Geithner held separate meetings yesterday in Germany with Schaeuble and Draghi. In a statement released after their meeting, Geithner and Schaeuble “took note” of comments made last week by European leaders to “take whatever steps are necessary to safeguard financial stability” in the 17-nation euro area.

Euro-Area Unemployment Rate Reaches Record 11.2%: Economy (Source: Bloomberg)
The jobless rate in the euro area reached the highest on record as the festering debt crisis and deepening economic slump prompted companies to cut jobs. Unemployment in the economy of the 17 nations using the euro reached a revised 11.2 percent in May and held at that level in June, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995. In Germany, unemployment climbed for a fourth straight month in July, a separate report showed. Policy makers are weighing options to counter the turmoil that has forced five euro-area nations to seek external aid, eroded investor confidence and pushed companies to trim their workforces. European Central Bank President Mario Draghi, who met with U.S. Treasury Secretary Timothy Geithner yesterday in Frankfurt, has pledged to do everything to preserve the euro.
“Companies generally are under serious pressure to keep their labor forces as tight as possible to contain their costs in the face of the current limited demand, strong competition and worrying and uncertain growth outlook,” said Howard Archer, chief European economist at IHS Global Insight in London. “There looks to be a very real danger that the euro-zone unemployment rate could reach 12 percent in 2013.”

Saudi $60 Billion Debt-Financed Hub Will Triple Traffic: Freight (Source: Bloomberg)
Saudi Arabia is spending more than $60 billion on a logistics hub, airport improvement and roads to reduce travel time in the Arab world’s biggest economy. The investments also yielded the largest sukuk, or Islamic bond, offered in the Middle East this year and an initial public offering on the stock exchange in June. “There is a large infrastructure boom happening in Saudi Arabia,” Jarmo Kotilaine, chief economist at Jeddah-based National Commercial Bank, said in a phone interview on July 30. “Once they create these sukuk instruments, they cut their reliance on direct government funding and make it possible to buy into the projects. This policy benefits the government and investors.”
The world’s top oil exporter is spending $500 billion to build power plants, schools, roads and other facilities to modernize the country and create jobs for youth. Earlier this month, the kingdom’s Ministry of Transportation signed contracts valued at 4.4 billion riyals ($1.2 billion) to build new roads and maintain and operate existing ones. Saudi Arabia’s economy is forecast to expand 4.8 percent this year, the fastest rate after Qatar among the six Gulf Cooperation Council states, according to an April survey of economists compiled by Bloomberg. Net foreign assets of the kingdom’s central bank increased 20 percent in June to 2.2 trillion riyals from a year earlier, central bank data show. Under the $53 billion five-year aviation investment program, the government plans to triple passenger traffic at Riyadh’s King Khaled International Airport to 25 million people, build an airport in Jazan in the southwest and renovate other airports.