Asia FX By Cornelius Luca - Wed 01 Aug 2012 15:14:18 CT (Source:CME/www.lucafxta.com)
The appetite for risk soured on Wednesday, after the Federal Reserve reiterated the slowing the US economy without committing to additional easing. I had warned you about this behavior, given the limited tools the Fed has; the Fed must preserve these tools for more dire situations. All eyes are now on the ECB meeting on Thursday, and there is a better chance of some action there. The foreign currencies ended lower. The US stock markets slipped as well. But the gold/oil ratio fell. The short-term outlook for the foreign 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: The ADP report showed that the private sector added 163,000 jobs in July following a downwardly revised increase of 172,000 jobs (from 176,000) in June.
US: Manufacturing PMI declined to 51.4 in July from 52.5 in June.
US: The ISM's manufacturing PMI inched up to 49.8 in July from 49.7 in June.
US: Construction spending grew by 0.4% in June, less than +0.9% in May.
Today's economic calendar
Australia: Retail sales for June
Australia: Trade balance for June
First All-Market Gain in Two Years Led by Drought, Draghi (Source:Bloomberg)
For the first time in more than two years, commodities, equities, bonds and the dollar posted a monthly gain, as the U.S. drought sent corn prices to a record and European Central Bank President Mario Draghi’s pledge to protect the euro buoyed stocks. Raw materials led the increase as the Standard & Poor’s GSCI Total Return Index of 24 raw materials rose 6.4 percent in July, the most since October. The MSCI All-Country World Index of equities rallied at the end of the month for a 1.4 percent gain. The U.S. Dollar Index, a measure against six currencies, added 1.3 percent. Bonds of all types returned 1.4 percent on average, the most since December, Bank of America Merrill Lynch’s Global Broad Market Index shows.
The last time all four measures rose for a month was in April 2010, when concerns about Greece were heating up and U.S. economic reports were improving. While corn rose the most last month in almost a quarter century and wheat reached a four-year high, financial assets gained as policy makers worked to boost global growth. Federal Reserve Chairman Ben S. Bernanke said he’s prepared to take more steps, and Draghi pledged to do “whatever it takes” to preserve the euro. “A lot of the rally in everything is central-bank led,” said Jason Brady, a managing director at Thornburg Investment Management in Santa Fe, New Mexico, which oversees $80 billion. “So now we have a world where central-bank actions are really what people are looking at, and those actions are really positive for all asset prices and negative for savers and folks who are looking to put money in at reasonable levels over a longer period of time.”
Asia Stocks Swing Between Gains and Losses on Fed, ECB (Source:Bloomberg)
Most Asian stocks rose, with the benchmark index swinging between gains and losses, amid speculation the European Central Bank will announce measures to combat the debt crisis after the U.S. Federal Reserve refrained from adding stimulus to the world’s biggest economy. Toyota Motor Corp. (7203), Asia’s biggest carmaker by market value, rose 3.8 percent in Tokyo after its U.S. sales gained 26 percent in July. Commonwealth Bank of Australia, the nation’s No. 1 lender, fell 0.8 percent, pacing declines among banks after its investment rating was cut by Deutsche Bank AG. Aozora Bank Ltd. jumped 11 percent in Tokyo after saying it’s close to an agreement on a plan to repay public funds. The MSCI Asia Pacific Index was little changed at 118.32 as of 10:10 a.m. in Tokyo before markets in Hong Kong and China opened. It’s swung between gains and losses six times. About two stocks rose for each that fell.
“People would like the Fed to do more because I think it would improve the market sentiment a little bit,” said Angus Gluskie, managing director at White Funds Management in Sydney who manages more than $350 million. “But I think the fact that the Fed is not doing anything and still saying they remain prepared to, it’s not a huge negative. I think it’s neutral.”
Asia Stocks Open Little Changed After Fed Stimulus Pledge (Source:Bloomberg)
Asian stocks opened with the regional benchmark index little changed after the Federal Reserve said it will pump fresh stimulus if necessary into the world’s biggest economy, disappointing some investors anticipating a more definitive sign of further easing. Westpac Banking Corp. (WBC), Australia’s No. 2 lender by market value, fell 0.3 percent in Sydney. Sony Corp. (6758), Japan’s No. 1 exporter of consumer electronics, rose 3.5 percent Tokyo after the yen retreated from a two-month high against the dollar. Soy sauce maker Kikkoman Corp. dropped 3.9 percent in Tokyo after first-quarter operating profit fell. The MSCI Asia Pacific Index was little changed at 118.22 as of 9:22 a.m. in Tokyo before markets in Hong Kong and China opened.
“People would like the Fed to do more because I think it would improve the market sentiment a little bit,” said Angus Gluskie, managing director at White Funds Management in Sydney who manages more than $350 million. “But I think the fact that the Fed is not doing anything and still saying they remain prepared to, it’s not a huge negative. I think it’s neutral.”
Japan Stocks Rise as Fed Says It’s Ready to Act if Needed (Source:Bloomberg)
Japan stocks rose after the U.S. Federal Reserve’s pledge to provide additional support for the world’s largest economy if necessary boosted exporters. Toyota Motor Corp. (7203) advanced after sales in the U.S. beat estimates. Sony Corp. (6758), Japan’s No. 1 exporter of consumer electronics, climbed 4 percent after the yen retreated from a two-month high against the dollar. Toyota, Asia’s biggest carmaker, advanced 3.3 percent. Aozora Bank Ltd. (8304), a lender controlled by Cerberus Capital Management LP, surged 11 percent after saying it’s close to an agreement with major stakeholders to repay public funds. The Nikkei 225 (NKY) Stock Average rose 0.4 percent to 8,679.98 at 9:56 a.m. in Tokyo. The broader Topix Index climbed 0.6 percent to 734.15.
“There remains a significant risk that policy makers will keep intervening to support economic confidence and financial markets,” said Mikio Kumada, a Singapore-based global strategist for LGT Capital Management, which oversees more than $20 billion. “Overly bearish investors still risk being caught wrong-footed in rising markets. A reasonably constructive investment approach remains appropriate for now, with a slight tilt in favor of selected risky assets.” The Topix lost 16 percent since this year’s peak on March 27, leaving shares on the gauge trading at 0.9 times book value, compared with 2.2 times for the S&P 500 and 1.4 times for the Europe Stoxx 600 Index. A number less than one means that companies can be bought for less than value of their assets.
U.S. Stocks Decline as Fed Fails to Bolster Confidence (Source:Bloomberg)
U.S. stocks declined, reversing earlier gains, as the Federal Reserve’s pledge to provide additional support for the economy disappointed investors anticipating a more definitive sign of further monetary easing. Knight Capital Corp. (KCG), one of the largest market makers of U.S. stocks, plunged 33 percent as it experienced technology issues with trading. MasterCard Inc. (MA), the second-biggest payments network, slumped 2.2 percent as sales missed analysts’ estimates. Comcast Corp. (CMCSA), the largest U.S. cable company, and Allstate Corp. (ALL), the biggest publicly traded U.S. home and auto insurer, rose at least 3 percent as earnings topped projections.
Fourteen stocks fell for every five rising on U.S. exchanges at 4 p.m. in New York. The Standard & Poor’s 500 Index slid 0.3 percent to 1,375.32. The Dow Jones Industrial Average dropped 37.62 points, or 0.3 percent, to 12,971.06. The Russell 2000 Index of small companies slumped 2 percent to 771.11, led by Knight. Volume for exchange-listed stocks in the U.S. was 7.4 billion shares, 10 percent above the three-month average. “The Fed basically passed,” said Michael Strauss, who helps oversee about $26 billion of assets as the chief investment strategist at Commonfund in Wilton, Connecticut. “They didn’t say anything new. The Fed is recognizing the economy is a bit weaker, but there’s not that much it can do.”
European Stocks Gain Amid Speculation of Central Bank Aid (Source:Bloomberg)
European stocks rose for the fourth time in five days as speculation central banks will take further steps to support the economic recovery outweighed the biggest contraction in U.K. manufacturing for three years. Next Plc (NXT) jumped 6.5 percent as the retailer increased its annual profit forecast after reporting first-half sales that rose more than analysts estimated. Arkema SA (AKE) climbed 5.7 percent as second-quarter earnings beat projections. Mediaset SpA (MS) dropped 11 percent after profit declined 65 percent amid lower advertising sales. The Stoxx Europe 600 Index (SXXP) gained 0.5 percent to 262.57 at the close of trading. The benchmark measure has rallied 12 percent from this year’s low on June 4 as German Chancellor Angela Merkel and French President Francois Hollande last week joined European Central Bank President Mario Draghi in promising to do everything to protect the euro.
“Markets are clearly being driven by the expectation of further central-bank intervention,” said Peter Garnry, an equity strategist at Saxo Bank A/S in Copenhagen. “Everyone is expecting Draghi to launch another round of secondary-market purchases to get yields on Spanish and Italian bonds lower.”
Emerging Stocks Advance a Fifth Day on Interest-Rate Speculation (Source:Bloomberg)
Emerging-market stocks rose, sending the benchmark index to the longest rally since April, as speculation of more interest-rate cuts by central banks outweighed data showing weaker manufacturing in Asia. The MSCI Emerging Markets Index (MXEF) added 0.2 percent to 954.22, with 432 companies gaining to 329 declining. Homebuilder Rossi Residencial SA and state controlled oil company Petroleo Brasileiro SA (PETR4) led Brazilian stocks higher. Russia’s Micex Index climbed, led higher by OAO Mechel, the country’s biggest maker of coking coal. Anhui Conch (914) Cement Co. surged in Hong Kong after the government pledged to ensure stable economic growth.
The Federal Open Market Committee “will provide additional accommodation as needed” to boost economic recovery, it said at the conclusion of a two-day meeting in Washington. A purchasing managers’ index released today showed China’s manufacturing industry grew at the slowest pace in eight months in July. The European Central Bank will announce a policy decision tomorrow after ECB President Mario Draghi last week pledged to do “whatever it takes” to preserve the euro. “It’s the reaction toward comments from different authorities and that has continued into this week,” Elena Ogram, a portfolio manager at Bank am Bellevue AG in Zurich, which manages about $50 million of emerging-market equity assets, said by phone. “Markets expect some sort of quantitative easing from either the ECB or the Federal Reserve or both.”
FOREX-Euro steady before U.S., euro zone policy decisions
LONDON, Aug 1 (Reuters) - The euro held steady against the dollar before monetary policy decisions in the United States and the euro zone, with investors gearing up for possible European Central Bank action to stem the region's debt crisis.
"If the ECB come up with something very clear-cut we could see a position squeeze (higher) in the euro, depending on how much detail Draghi gives at the press conference," said Ankita Dudani, currency strategist at RBS.
Euro Remains Lower Before ECB Meets to Discuss Crisis (Source:Bloomberg)
The euro failed to rally from a decline yesterday before European Central Bank policy makers meet to discuss ways to tackle the region’s debt crisis today. The 17-nation currency remained lower versus the yen before Spain sells bonds today for the first time since ECB President Mario Draghi pledged to do whatever it takes to defend the euro, suggesting the central bank may intervene in bond markets. Demand for the dollar was supported after the Federal Reserve yesterday refrained from monetary easing. “I think a lot of people are expecting the ECB to announce some sort of ‘shock-and-awe’ policy today,” said Peter Dragicevich, a Sydney-based foreign-exchange economist at Commonwealth Bank of Australia. (CBA) “If the ECB were to disappoint, we expect the euro to fall.”
The euro bought $1.2222 as of 9:40 a.m. in Tokyo after falling 0.6 percent to $1.2225 in New York. The shared currency traded at 95.90 yen from 95.89 yesterday, when it dropped 0.2 percent. The dollar was little changed at 78.45 yen, following a 0.4 percent gain yesterday. Investors and politicians are clamoring for ECB action to quell Europe’s sovereign debt crisis, which is threatening to cripple Spain and Italy and tear the 17-nation euro area apart. While Draghi’s commitment in London last week to do what’s needed fueled a global market rally, some economists cast doubt on his ability to build the consensus needed to deliver a game changer.
U.S. Treasury Plans Floating-Rate Notes in Year or More (Source:Bloomberg)
The U.S. Treasury Department said today it is developing a floating-rate note program that could be operational in a year or more, while it is preparing for possible negative-rate bidding. The Treasury also plans to sell $72 billion in notes and bonds in next week’s refunding, it said in a statement in Washington. The Treasury intends to auction $32 billion in 3- year notes on Aug. 7, $24 billion in 10-year notes on Aug. 8 and $16 billion in 30-year bonds on Aug. 9. The floating-rate notes would be the first new U.S. government debt security since Treasury Inflation-Protected Securities, known as TIPS, were introduced in 1997. With a budget deficit estimated at $1.21 trillion this year, the Treasury needs to expand its base of investors, and the notes may appeal to those who are seeking to protect themselves from a possible increase in interest rates or faster inflation stemming from the Federal Reserve’s unprecedented stimulus.
“People are nervous about fixed-rate instruments because of rising rates,” said William Larkin, a fixed-income money manager who helps oversee $500 million at Cabot Money Management Inc. in Salem, Massachusetts. “The floating-rate notes remove that risk for investors, so it makes the Treasury’s source of capital a little bit more stable.” The Treasury Borrowing Advisory Committee, the bond dealers and investors who meet quarterly with department officials, said it unanimously supports the introduction of the notes as soon as possible. The group predicted “strong, broad-based demand for the product.”
Fed Signals More Steps to Spur Economy Amid Slower Growth (Source:Bloomberg)
The Federal Reserve said it will pump fresh stimulus if necessary into the weakening economic expansion to boost growth and reduce an unemployment rate that’s been stuck at 8 percent or higher for more than three years. The Federal Open Market Committee “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” it said today in a statement at the end of a two-day meeting in Washington. “Economic activity decelerated somewhat over the first half of this year.” Stocks fell on disappointment Fed Chairman Ben S. Bernanke refrained from taking action even as consumer spending flagged, job growth slackened and manufacturing cooled. Before its next meeting Sept. 12-13, the FOMC will assess unemployment reports for July and August, and the European Central Bank may take steps to ease Europe’s debt crisis at a meeting tomorrow.
“They were as blunt as you can get without actually pulling the trigger,” said Dan Greenhaus, chief global strategist at BTIG LLC in New York. “They’re saying, ‘Hey, things are not good and we’re an inch away from easing.’”
U.S. Manufacturing Unexpectedly Shrinks for Second Month (Source:Bloomberg)
American manufacturing unexpectedly contracted in July for a second month, reflecting a drop in orders that threatens to undercut a mainstay of the recovery. The Institute for Supply Management’s factory index was 49.8 last month, little changed from a three-year low of 49.7 reached in June, the Tempe, Arizona-based group said today. Economists surveyed by Bloomberg News projected a reading of 50.2, according to the median estimate, just above the 50 mark that separates expansions and contractions. Manufacturers from China to the euro area joined the U.S. in showing signs of retrenching, indicating Europe’s debt crisis and the looming U.S. government spending cuts and tax increases that constitute the so-called fiscal cliff are taking a toll on customers globally. Federal Reserve policy makers today acknowledged that the economy has slowed and foreshadowed new steps to boost the weakening expansion.
“We’ve seen slower growth in emerging markets, the recession in Europe -- all of that is still ever-present,” said Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “Firms are holding pat right now.”
Geithner Urges U.S. Congress, Europe to Spur Growth (Source:Bloomberg)
U.S. Treasury Secretary Timothy F. Geithner called on European policy makers and lawmakers in Washington to spur economic growth even as they seek long-term measures to narrow budget deficits. “There’s a lot of things Congress can do, in the near term, not just in the long run, to make growth stronger,” Geithner said in an interview with Bloomberg Television in Los Angeles yesterday. European leaders also “have to do some more things to help support growth in the near term,” he said. Geithner, 50, said Congress should take advantage of low borrowing costs to adopt measures to support the economy, which he said must grow faster to create jobs and reduce an unemployment rate stuck above 8 percent since February 2009. He said such measures include helping homeowners refinance mortgages and approving tax incentives for businesses.
“We pay about 1 1/2 percent for a 10-year Treasury now, to borrow long-term now, because fundamentally people have faith in the ability of the U.S. to solve its problems,” Geithner said. “It’s sensible for us to take advantage of this moment to do things that will make the economy stronger.”
Draghi Pledge May Boost Investment in Europe Stocks (Source:Bloomberg)
The underperformance of European stocks relative to their U.S. counterparts may be ending, as investors speculate the European Central Bank will win the backing of government leaders on a plan to ease the euro area’s debt crisis. The Euro Stoxx 50 Index -- a benchmark of blue-chip shares -- has risen 8.1 percent since July 25, the day before ECB President Mario Draghi pledged that policy makers are “ready to do whatever it takes to preserve the euro.” By comparison, the Standard & Poor’s 500 Index has risen 2.8 percent during the same period. The recent outperformance comes after the European index lagged behind the S&P 500 by almost 80 percent between March 9, 2009, when the U.S. index hit a 13-year low, and June 18, 2012.
As “most of the bad news” already may be built into market prices, Pioneer Investment Management Inc., which oversees about $185 billion in assets, “cautiously moved to a risk-on” position in European equities about a month ago, while remaining underweight U.S. stocks, said Monica Defend, head of global asset-allocation research in Milan. While this “appears to be a bold move” in the current market, “we should not underestimate the commitment of leading central banks” to provide support to the financial system, she said.
U.K. Manufacturing Slump Deepens as Export Orders Fall: Economy (Source:Bloomberg)
U.K. manufacturing shrank the most in more than three years in July as export orders slumped, indicating the economy’s recession continued to deepen at the start of the third quarter. A factory-output gauge fell to 45.4 from a revised 48.4 in June, London-based Markit Economics said today. The reading was weaker than any of the 30 forecasts in a Bloomberg News survey. The decline was led by weaker demand in the euro area, where a separate index showed manufacturing shrank for a 12th month. British manufacturers are struggling as the sovereign debt crisis deepens in Europe, the U.K.’s biggest trading partner, and global growth cools. The Bank of England, which expanded stimulus last month, will probably keep its bond-purchase target unchanged tomorrow as policy makers assess their Funding for Lending plan aimed at stoking the flow of credit and reviving growth.
“There is a lot of ground to recover,” said Ross Walker, an economist at Royal Bank of Scotland Group Plc in London. “Alongside distinctly underwhelming anecdotal evidence from consumer-facing parts of the economy, this bodes ill for hopes of a rebound in third-quarter gross domestic product.” Economists had forecast a reading of 48.4 for the factory index, based on the median estimate. A reading below 50 indicates contraction.
U.K. Factory Output Shrinks Most in More Than Three Years (Source:Bloomberg)
U.K. manufacturing shrank the most in more than three years in July as new export orders slumped, indicating the economy continued to weaken at the start of the third quarter. A gauge of factory output, based on a survey by Markit Economics and the Chartered Institute of Purchasing and Supply, fell to 45.4 from a revised 48.4 in June, London-based Markit said today. The index was weaker than any of the 30 forecasts in a Bloomberg News survey and the pound weakened against the dollar and the euro. A reading below 50 indicates contraction. British manufacturers are continuing to struggle as the sovereign debt crisis deepens in the euro area, the U.K.’s biggest trading partner. The Bank of England will probably maintain its target for bond purchases tomorrow as policy makers assess their Funding for Lending plan aimed at stoking the flow of credit.
“A perfect storm of wet weather and weak confidence in the U.K. has combined with global economic drift to engulf the manufacturing sector,” CIPS Chief Executive Officer David Noble said. “While the euro zone has continued to be the major factor, declines in business from Asia have dashed hopes of a quicker recovery.” Economists had forecast a reading of 48.4 for the factory index, based on the median estimate. Markit said the level of new export business declined for a fourth month in July and at the fastest pace since February 2009. The euro area “remained the principal drag” on exports, it said.
IMF Chief Lagarde Praises Greece, Spain for Efforts (Source:Bloomberg)
International Monetary Fund Managing Director Christine Lagarde defended the lender’s role in Greece and said the nation has made progress even as it needs to deepen structural changes to its economy. “When I look back to the initial program and the achievements of the Greek economy and the Greek population, it’s impressive,” Lagarde told reporters in Washington today. “There is still a lot that the country can do.” Greece’s budget deficit will narrow to 7 percent of gross domestic product this year and 2.7 percent next year, the Washington-based IMF said in a July 16 report. The IMF had forecast in April that Greece’s deficit will be 7.2 percent this year and 4.6 percent in 2013. Lagarde also praised Spain, saying, “When we look at what Spain has already done, and is committing to do, there’s not much more that we would be asking from Spain if it was in a program with the IMF.”
Spain sought a European bailout for its banks in June of as much as 100 billion euros ($123 billion) as the government lacked the financing to shore up its lenders. Prime Minister Mariano Rajoy is fighting to keep enough access to markets to fund the deficit, and has called for the European Central Bank to buy Spanish bonds and for European Union nations to take steps to bring down borrowing costs.
Indonesia’s July Inflation Accelerates on Higher Food Prices (Source:Bloomberg)
Indonesia’s inflation quickened for a second month in July, limiting scope for the central bank to join its neighbors in lowering interest rates even as declining exports threaten growth. Consumer prices rose 4.56 percent from a year earlier, after climbing 4.53 percent in June, the statistics bureau said in Jakarta today. The median forecast of 23 economists in a Bloomberg News survey was for a 4.59 percent gain. Inflation was mainly held up by increasing food costs, the bureau said. Bank Indonesia has held off from adding to a February rate cut, seeking to support a currency that has fallen about 4 percent in 2012. Policy makers from China to the Philippines lowered rates last month, a move Governor Darmin Nasution may avoid amid the risk of price pressures as the world’s largest Muslim population observes the fasting period of Ramadan and the Eid al-Fitr festival that marks its end.
“Inflation has started to creep higher, with inflation now in the upper half” of the central bank’s target range, said Chua Hak Bin, a Singapore-based economist at Bank of America Corp. “We expect Bank Indonesia to hold the policy rate” at the Aug. 9 meeting, he said. The rupiah fell 0.3 percent to 9,470 per dollar as of 2:35 p.m. in Jakarta, according to prices from local banks compiled by Bloomberg.
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