20120905 0957 Global Markets Related News.

Asia FX By Cornelius Luca - Tue 04 Sep 2012 17:37:59 CT (Source:CME/www.lucafxta.com)
The appetite for risk was mixed on Tuesday amid conflicting opinions about easing in the Eurozone and the US. ECB President Draghi signaled how the central bank is going act on the euro crisis. The markets also hope that the Federal Reserve is moving towioard open-ended bond purchases. All foreign currencies but the Aussie and yen remained relatively firm after advancing on Friday. The Aussie was hurt by additional evidence that the Chinese economy is slowing. The US indexes closed slipped, while the gold/oil ratio advanced. The short-term outlook for the foreign currencies is sideways. The medium-term outlook for most of the foreign currencies is slightly bullish. The LGR short-term model is long on most foreign currencies. Good luck!

Overnight
US: Construction spending contracted 0.9% in July after expanding 0.4% in June.
US: The manufacturing ISM slipped to 49.6 in August from 49.8 in July.
US: The Markit manufacturing PMI fell to 51.5 in August from 54.0 in July.

Today's economic calendar
Australia: AiG Performance of Services Index for August
Australia: Gross Domestic Product for the second quarter
China: HSBC China Services PMI for August

Asian Stocks Fall 5th Day as U.S. Manufacturing Contracts (Bloomberg)
Asian stocks fell, with the regional benchmark index headed for the longest losing streak in eight weeks, as U.S. manufacturing contracted for a third month, adding to signs the world’s biggest economy is slowing. Samsung Electronics Co. (005930), South Korea’s largest exporter of consumer electronics that gets 20 percent of its revenue in America, lost 0.9 percent. BHP Billiton Ltd. (BHP), Australia’s biggest mining company and oil producer, slid 1.7 percent as oil dropped. Toyota Motor Corp. (7203), Asia’s No. 1 carmaker by market value, rose 1.5 percent after sales of its Lexus luxury brand increased 34 percent last month. The MSCI Asia Pacific Index dropped 0.4 percent to 116.78 as of 9:54 a.m. in Tokyo, heading for a fifth day of losses, before markets in Hong Kong and China opened. Almost three stocks declined for each that rose on the index.
“Clearly it’s in the contracting territory again, which is never a good thing,” Cameron Peacock, a Melbourne-based market analyst at IG Markets, a provider of trading services for stocks, bonds and currencies, said of U.S. manufacturing. Federal Reserve Chairman Ben S. “Bernanke has indicated that they are growing a bit tired and frustrated about the lack of progress.” The MSCI Asia Pacific Index was little changed this quarter through yesterday as expectations for further stimulus measures overshadowed signs of a global economic slowdown. The Asian benchmark traded at 12.3 times estimated earnings as of last week, compared with 13.6 times for the Standard & Poor’s 500 Index (SPXL1) and 11.6 times for the Stoxx Europe 600 Index.

Japanese Stocks Decline For Fifth Day Before ECB Meeting (Bloomberg)
Japan stocks declined for a fifth day amid concern tomorrow’s European Central Bank meeting may fail to ease investor concerns about the debt crisis and as U.S. manufacturing contracted for a third-straight month. Canon Inc., a camera maker that generates 31 percent of its sales in Europe, lost 1.9 percent. Nissan Motor Co., Japan’s second-largest automaker, dropped 1 percent as its vehicle sales in the U.S. missed estimates. Kakaku.com Inc. declined 1.7 percent after Mitsubishi UFJ Morgan Stanley advised selling the price-comparison website’s shares. The Nikkei 225 Stock Average (NKY) lost 0.5 percent to 8,734.76 as of 9:25 a.m. in Tokyo, heading for the longest streak of losses in two months. The broader Topix Index slid 0.5 percent to 723.13. The ECB’s Governing Council is due to decide tomorrow on President Mario Draghi’s bond-buying proposal, which he says is necessary to ensure the euro’s survival.
“The market has set itself up to be disappointed both from the Fed and from the ECB,” said Philip Poole, head of investment strategy at HSBC Global Asset Management, said in a Bloomberg TV interview. “For the ECB it takes longer to get the plan in place than the market is anticipating.”

S&P 500 Trims Loss Amid Speculation Europe to Take Steps (Bloomberg)
The Standard & Poor’s 500 Index fell, after trimming steeper declines, as speculation European leaders will announce new steps to tame the debt crisis tempered concern the economic recovery is slowing. Apple Inc. (AAPL) climbed 1.5 percent amid speculation the company is close to introducing a new iPhone with a larger screen and thinner body. Morgan Stanley (MS) added 3.4 percent after the shares were upgraded at CLSA Ltd. Netflix Inc. slumped 6.4 percent as Amazon.com Inc. reached a deal with pay-television channel Epix. Facebook Inc. (FB) fell 1.8 percent to a record low after Morgan Stanley cut its price forecast on the company’s shares. The S&P 500 lost 0.1 percent to 1,404.94 at 4 p.m. New York time, trimming a drop of as much as 0.7 percent. The Dow Jones Industrial Average retreated 54.90 points, or 0.4 percent, to 13,035.94. Volume for exchange-listed stocks in the U.S. was 5.6 billion shares, or 7.3 percent below the three-month average.
The European Central Bank’s plans “to stabilize Europe takes the big-event risk off the table,” Frank Ingarra, who helps manage $1.4 billion at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview. “Everyone is kind of digesting and getting back to the game today,” he said. As speculation about Europe swirls, he said, “people are happier that it’s happening now and willing to go long equities.” ECB President Mario Draghi said the bank’s primary mandate compels it to intervene in bond markets to wrest back control of interest rates and ensure the euro’s survival. Draghi “appears willing to write two- to three-year ‘checks’” to debt-strapped euro-bloc nations in a reflationary move, Bill Gross, co-chief investment officer and founder of Pacific Investment Management Co., said in a Twitter post.

Profits Matter Most for U.S. Stocks as Economy Fixation D (Bloomberg)
Profits (SPX) are moving U.S. equity prices more than any time since the bull market began 3 1/2 years ago, rewarding investors for picking stocks based on company data instead of following the herd rocked by Europe’s debt crisis and the slowing U.S. economy. Companies in the Standard & Poor’s 500 Index rose or fell an average of 4.4 percent the day after releasing results since July, according to data compiled by Bloomberg. The last time they moved more was in the second quarter of 2009. Daily swings in the benchmark gauge narrowed to 0.4 percent last month from 2.2 percent a year ago, as economic and policy changes battered investors. More than 475 S&P 500 stocks moved in the same direction in six of the first nine days of August 2011, with all 500 down on Aug. 8.
Bulls say lockstep moves are diminishing because investors are changing their behavior, making choices based on corporate results at a time when analysts estimate profits for companies in the S&P 500 will rise almost 10 percent a year through 2014 . Bears say the focus on earnings won’t bring back individuals who have drained more than $420 billion from U.S. equity mutual funds over the past four years even as stocks rallied 108 percent since March 2009 and net income was unchanged in the second quarter. “I’m not saying it’s an easy job to be a stock picker in this environment, but it’s certainly easier,” Sandy Lincoln, the Chicago-based chief market strategist with BMO Global Asset Management, which oversees about $100 billion, said in an Aug. 28 interview. “Stock selection does have the opportunity here to finally show a face with a smile.”

Emerging Market Stocks Decline on China, Europe Concerns (Bloomberg)
Emerging-market stocks fell for the first time in three days as Goldman Sachs Group Inc. cut Chinese earnings estimates and a report showed contraction in U.S. manufacturing for a third straight month. The MSCI Emerging Markets Index (MXEF) slipped 0.6 percent to 947.37. Brazil’s Bovespa stock index retreated to a one-month low, with homebuilder Rossi Residencial SA (RSID3) and JBS SA (JBSS3), the world’s largest beef producer, leading the decliners. China Merchants Bank Co. (3968) dropped for a fifth day in Hong Kong, while the Shanghai Composite Index closed at its lowest level since February 2009. Hyundai Motor Co. (005380) and Kia Motors Corp. (000270) retreated more than 2 percent in Seoul. Goldman Sachs cut its projections for Chinese earnings this year and next while Credit Suisse Group AG reduced its target for the MSCI China Index and Societe Generale (GLE) SA lowered forecasts for the nation’s economic growth.
The Institute for Supply Management’s factory index fell to 49.6 last month, the longest slide since the recession ended. “You have weaker growth in the U.S., China’s slowdown and the euro zone debt crisis all adding to a reduced appetite for risk,” Win Thin, global head of emerging-market strategy at Brown Brothers Harriman & Co., said by phone from New York. “I still believe in emerging markets in the long-term, but in the shorter term, I am a little bit more nervous and defensive.”

European Stocks Decline on U.S. Manufacturing Report (Bloomberg)
European stocks retreated the most in two weeks as a report showed that U.S. manufacturing unexpectedly contracted in August. Vodafone Group Plc (VOD) fell 2.6 percent after Sanford C. Bernstein & Co. downgraded the world’s second-largest mobile- phone operator. Royal Ahold NV rose 2.5 percent after saying it may sell its 60 percent stake in Scandinavian retailer ICA, possibly through an initial public offering. The Stoxx Europe 600 Index slid 1.1 percent to 265.43 at the close of trading, its biggest drop since Aug. 22. The equity benchmark has still surged 13 percent from its lowest level this year on June 4 amid speculation that central banks will do more to support growth.
“Investors won’t be willing to do much before the European Central Bank’s meeting on Thursday,” said Henrik Drusebjerg, a senior strategist at Nordea Bank AB in Copenhagen, where he helps oversee $220 billion. The ECB’s president “should reveal details of what he plans to do. There’s a limit to how many times investors are willing to accept no news.” European (SXXP) stocks advanced the most in a month yesterday as an unexpected drop in Chinese manufacturing increased speculation that the government will announce further stimulus.

Treasury 10-Year Yields Near 1-Month Low Before Jobs Data (Bloomberg)
Treasury 10-year yields were within three basis points of a one-month low before reports this week forecast to show U.S. employment is struggling to pick up. U.S. government bonds snapped a decline ahead of a private report due tomorrow that may show U.S. companies added the fewest workers in three months amid rising speculation the Federal Reserve will undertake a third round of bond purchases, known as quantitative easing. It will be followed by Labor Department figures the next day projected to indicate payrolls grew at a slower pace in August. “If the payroll number undershoots the market consensus, expectations of another round of quantitative easing will rise, and Treasury yields will fall further,” said Hitoshi Asaoka, a Tokyo-based senior strategist at Mizuho Trust & Banking Co., a unit of Japan’s third-largest lender by market value. “Even if it doesn’t, expectations of additional easing are more likely to remain.”
The benchmark 10-year yield was little changed at 1.57 percent as of 9:27 a.m. in Tokyo. It fell to 1.54 percent yesterday, the lowest since Aug. 6. The 1.625 percent note due in August 2022 traded at 100 17/32. Japan’s government bonds were little changed, with five- year rates at 0.2 percent. ADP Employer Services is forecast to say tomorrow that U.S. employment increased 143,000 in August, the smallest gain since May, according to the median estimate of economists surveyed by Bloomberg News. It will be followed by the Labor Department report on Sept. 7 that may show payrolls rose by 125,000 last month, down from 163,000 the prior month, based on another poll. Speaking on Aug. 31 in Jackson Hole, Wyoming, Fed Chairman Ben S. Bernanke said the costs of “nontraditional policies” appear manageable when considered carefully. That implies Fed policy makers “should not rule out the further use of such policies if economic conditions warrant,” he said.

Euro Remains Lower Against Most Peers Before ECB Meets (Bloomberg)
The euro fell for second day before the European Central Bank meets tomorrow to discuss measures to tackle the debt crisis. ECB President Mario Draghi told lawmakers in a closed-door session in Brussels this week the bank’s primary mandate compels it to intervene in bond markets to ensure the euro’s survival. The 17-nation currency remained lower versus most of its major counterparts before data forecast to show retail sales declined and services contracted in the euro area. The Australian dollar touched a six-week low before the government reports second- quarter gross domestic product today. “A lot of expectations have been built into the ECB meeting since President Draghi’s comments,” said Yuki Sakasai, a currency strategist at Barclays Plc in New York. “There’s a risk of a disappointment, so the euro may face some downward pressure into the meeting.”
The euro fell 0.3 percent to $1.2532 as of 9 a.m. in Tokyo from yesterday when it declined 0.2 percent. It climbed to $1.2638 on Aug. 31, the strongest since July 2. The shared currency dropped 0.2 percent to 98.34 yen. The yen fetched 78.48 per dollar from 78.43. Australia’s dollar slid 0.2 percent to $1.0205, the weakest level since July 25.

FOREX-Euro firms on ECB expectations, gains seen limited
LONDON, Sept 4 (Reuters) - The euro rose versus the dollar  on optimism the European Central Bank will unveil a  plan to tackle the region's debt crisis this week, although  gains were capped by concerns the plan may lack detail.
"If we just get the bare bones of what the bond-buying  programme will look like we may see a 150 to 200 point fall in  the euro," said Adam Cole, global head of FX strategy at RBC  Capital Markets.

Aussie Touches Six-Week Low on Global Economic Concern (Bloomberg)
The Australian dollar touched its lowest level in six weeks as weakening economic data from Europe add to signs of a slowdown in global growth, damping demand for higher-yielding assets. The so-called Aussie also dropped to a six-week low versus the yen before reports today that may say euro-area retail sales dropped in July and services shrank last month. Data yesterday showed a contraction in U.S. manufacturing. Australia’s currency was supported before a report predicted to show the nation’s gross domestic product advanced in the second quarter. Losses in New Zealand’s dollar, nicknamed the kiwi, were tempered after construction gained. “There’s still a theme of very weak economic data out of the euro zone,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “Both the Aussie and kiwi have turned down and are heading towards the bottom” of their ranges, he said.
The Australian dollar lost 0.2 percent to $1.0205 at 10:30 a.m. in Sydney after earlier touching $1.0197, the lowest since July 25. It reached 79.996 yen, also the weakest since July 25, before trading at 80.07, 0.2 percent lower than yesterday’s close. New Zealand’s currency fell 0.1 percent to 79.38 U.S. cents and 62.27 yen. Australia’s 10-year yield declined three basis points, or 0.03 percentage point, to 3.06 percent. It completed a 12-day drop on Sept. 3, the longest stretch of declines on record, according to data compiled by Bloomberg since 1990. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, slid 3.5 basis points to 2.645 percent.
Sales in the euro region probably fell 0.2 percent in July after advancing 0.2 percent the previous month, according to the median estimate of economists in a Bloomberg News survey before the European Union’s statistics office releases the figures today. A final reading due today of an index based on a survey of purchasing managers in services industries in the currency bloc may confirm a drop to 47.5 in August from 47.9 in July, a separate poll showed.

Manufacturing in U.S. Shrank in August for Third Month (Bloomberg)
U.S. manufacturing shrank for a third month in August in the longest decline since the recession ended in 2009, threatening to deprive the world’s largest economy of a driver of growth. The Institute for Supply Management’s factory index fell to 49.6 last month, the lowest since July 2009, from 49.8 in July, the Tempe, Arizona-based group said today. Economists in the Bloomberg survey projected an August reading of 50, which is the dividing line between expansion and contraction. Measures of orders and production dropped to three-year lows. Stocks fell early on concern American factories, which sparked the U.S. expansion three years ago, are succumbing to a manufacturing slowdown that stretches from Asia to Europe. The data underscore Federal Reserve Chairman Ben S. Bernanke’s view that the economy is too weak to spur hiring and may require additional monetary stimulus.
“Manufacturing has been one of the stalwarts of an otherwise lackluster recovery but it’s starting to show some cracks,” said Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama, who correctly forecast the index. “Until we get more clarity on the fiscal policy outlook here, more clarity on Europe and some signs on the course of China’s economy, manufacturing is just going to languish.” The Standard & Poor’s 500 Index, which had fallen as much as 0.7 percent, dropped 0.1 percent to 1,404.94 at the close in New York as shares of Apple Inc. rallied. The yield on the benchmark 10-year Treasury note climbed to 1.57 percent from 1.55 percent on Aug. 31.

China Said to Plan Boosting Export-Tax Rebates on Some Goods (Bloomberg)
China may expand exporters’ tax rebates to help them cope with a slump in trade growth, according to three people with direct knowledge of the plan, deploying a stimulus tool used during the global credit crunch. The government may give a full rebate of the 17 percent value-added tax on products including furniture, shoes and toys, up from the current range of 13 percent to 15 percent, said the people, who asked not to be identified because the discussions are private. The policy may be rolled out as soon as this month, depending on whether trade remains weak, they said. Premier Wen Jiabao has pledged policy “fine tuning” to cope with a deepening slowdown in the world’s second-largest economy that saw export gains slump to an annual 1 percent pace in July from 11 percent in June. The deterioration in trade escalated the risk that Wen will miss his full-year economic expansion target for the first time since he took office in 2003.
“The tax rebates cover mainly labor-intensive products, and it reflects the government’s concern about rising unemployment pressures,” said Joy Yang, chief Greater China economist for Mirae Asset Securities (HK) Ltd. in Hong Kong. The policy change is unlikely to increase exports, said Yang, who formerly worked for the International Monetary Fund. “The biggest problem for Chinese exports now is the weak demand from overseas markets, and tax rebates won’t help much in boosting demand.”

Japan Fiscal Impasse Threatens Stimulus to Spur Growth: Economy (Bloomberg)
Japan’s political gridlock threatens to curtail the government’s ability to apply fiscal stimulus as a rebound falters in the world’s third-largest economy. Opposition parties in the upper house of parliament stymied legislation approved in the lower house Aug. 28 that enables the issuance of 38.3 trillion yen ($490 billion) of deficit- financing bonds, seeking to force Prime Minister Yoshihiko Noda into an early election. The government could hit a spending ceiling as soon as October, according to the Finance Ministry. The freeze may suspend outlays from this year’s budget for the first time, according to Goldman Sachs Group Inc., and limits Noda from proceeding with the supplementary spending package he mooted in July. With economists increasingly seeing an economic contraction this quarter, the deadlock adds to risks facing global expansion that include a so-called fiscal cliff of spending cuts and tax increases in the U.S. at year-end.
“The impasse on deficit-covering bonds may delay the compilation of a stimulus package and would be a drag for the economy,” said Taro Saito,　Tokyo-based director of economic research at NLI Research Institute and a past winner of a Japan Center for Economic Research award for accuracy in forecasting. “This is not as severe as the U.S. fiscal cliff but could be said to be Japan’s fiscal slope.”

Singapore REITs Yield World’s Best Returns: Southeast Asia (Bloomberg)
Singapore’s real estate investment trusts, the best performing in the world this year, are luring investors after a shopping spree for properties across Asia gives them a broader stream of rental income. Singapore’s $38 billion REIT market has returned an average 37 percent in 2012, twice the gains in the U.S., U.K. and Japan, according to data compiled by Bloomberg. Australia, the largest REIT market in the Asia-Pacific region with $86 billion, advanced 24 percent. Growth among Singapore REITs was led by asset acquisitions and rental appreciation, with total rental revenue increasing 5.8 percent annually between 2008 and 2011, according to property broker CBRE Group Inc. In the first half, Singapore REITs were the second-most active purchasers after Japan in Asia, buying assets in Australia, China, Japan, Malaysia and South Korea, and accounting for 33 percent of acquisitions by the region’s REITs since 2009, CBRE said.
“Singapore remains amongst the last few AAA rated economies,” Priyaranjan Kumar, Singapore-based regional director of the capital markets group at broker Cushman & Wakefield, said in an interview. “Its real estate market has received unprecedented attention from most investors as it’s seen to offer a good proxy for the increasingly recognized strength of the Asian consumer.” The gap between their yield and interest rates is double that in Australia, according to data compiled by Bloomberg. Property trusts in the island-state offer an average 413 basis- point income return premium relative to 10-year government bonds, while in Australia they average 192 basis points, data compiled by Bloomberg showed. A basis point is 0.01 percentage point.

Sharp Is Said to Seek Syndicated Loan After Yen Borrowings (Bloomberg)
Sharp Corp. (6753), the Japanese electronics maker that widened its loss forecast eightfold last month, is in talks with potential lenders for a syndicated loan, a person with knowledge of the matter said, declining to be identified because the negotiations are private. Mizuho Financial Group Inc. (8411) and Mitsubishi UFJ Financial Group Inc., Sharp’s two main lenders, provided the company with 210 billion yen ($2.7 billion) of loans over the past two months, according to another person with knowledge of the matter. The Osaka-based company obtained a short-term facility of about 60 billion yen in July and an approximately 150 billion-yen credit last month, the person said.
Sharp, which widened the full-year loss projection to 250 billion yen, is seeking to raise cash and cut costs as 706 billion yen of its bonds, commercial paper and borrowings mature within one year. The company has said it will cut 5,000 jobs to help reduce fixed costs by 100 billion yen after the Japanese currency rose to a postwar high and slumping global TV demand led to a record loss last fiscal year. “We cannot comment on the amount of money we borrow from each bank,” Miyuki Nakayama, a Tokyo-based spokeswoman for Sharp, said by phone yesterday when asked about the loans and extra financing. “We believe financial institutions, including our main banks, are considering a lending plan for us.”
Sharp shifted from a drop of as much as 3.4 percent and advanced 3.8 percent to 217 yen as of 9:56 a.m. in Tokyo trading. Shares of the company, Japan’s biggest liquid-crystal display maker, have declined 68 percent this year, the second- biggest percentage loser on the MSCI Asia-Pacific Index. (MXAP)

RBA Holds Key Rate as Economy Withstands Global Slowdown (Bloomberg)
Australia maintained the highest benchmark interest rate among major developed economies as domestic demand weathers a global slowdown that’s driving down the price of iron ore, the nation’s biggest commodity export. Reserve Bank of Australia Governor Glenn Stevens and his board left the overnight cash-rate target at 3.5 percent, according to a statement today in Sydney. While domestic consumption was “quite firm” in the first half of the year, commodity prices have fallen “sharply” in recent months and China’s growth outlook is more uncertain, he said. In Australia, “growth has been running close to trend, led by very large increases in capital spending in the resources sector,” Stevens said. “Labor market data have shown moderate employment growth, even with job shedding in some industries, and the rate of unemployment has thus far remained low.”
The currency rebounded from near a six-week low after the decision as investors pared bets on rate reductions. While Europe’s fiscal crisis is weighing on global growth and Chinese demand, Stevens’s 75 basis points of cuts in May and June helped spur domestic spending and stabilize the housing market in an economy that’s avoided a recession for 21 years. “It is clear that the Reserve Bank is happy to remain on the interest rate sidelines,” said Savanth Sebastian, an economist in Sydney at a unit of Commonwealth Bank of Australia. (CBA) “Policy makers seem comfortable with domestic economic conditions but continue to watch the global situation carefully. Europe, the U.S. and Asia have slowed and the central bank seems particularly focused on the slowdown in China.”

Merkel, Monti Step Up Diplomacy as ECB Comes in Focus (Bloomberg)
European leaders are stepping up shuttle diplomacy this week as details of a bond-buying plan emerged from the central bank, fueling a surge in some Spanish and Italian debt. European Union President Herman Van Rompuy traveled to Berlin for talks with German Chancellor Angela Merkel today as Italian Prime Minister Mario Monti hosts French President Francois Hollande in Rome. They were given a hint about what may be in store when European Central Bank President Mario Draghi said yesterday he would be comfortable buying three-year government bonds to aid nations struggling to fund themselves. The stewards of the single currency, who have sparred as borrowing costs diverged in the 17 nation-euro area, have a chance to fall in line behind Draghi. Merkel, whose country shoulders the largest cost of bailing out weaker governments, has indicated she would back a more active crisis-fighting role at the ECB and yesterday told a crowd of beer drinkers in Bavaria that Germany must show solidarity with Europe.
“I think there is broad agreement among these people,” said Luca Jellinek, head of European interest-rate strategy at Credit Agricole Corporate & Investment Bank in London. “Many people are realizing that monetary policy is broken in Europe, badly broken.”

Russian Inflation Quickens to 5.9% in August, Below Forecast (Bloomberg)
Russia’s inflation accelerated in August to near the upper limit of the central bank’s target as food prices grew after a three-month drought seared millions of hectares of cropland and pasture. Consumer prices rose 5.9 percent from a year earlier, the highest level since December, from 5.6 percent in July, the Federal Statistics Service in Moscow said today in an e-mailed statement. The median estimate of 14 economists in a Bloomberg survey was for 6 percent. Prices grew 0.1 percent from a month earlier, less than the 0.2 forecast in a separate poll. Breaching the 6 percent inflation target may force the hand of policy makers in Russia, the last major emerging economy to keep borrowing costs unchanged this year. A drought since May has curbed production and affected 5.99 million hectares (14.8 million acres) of plantings in 22 of Russia’s 83 regions, with 20 of them declaring an emergency.
“August’s data suggest that supply-side price pressures continue mounting on the back of rising food and commodity prices, which is at least partially being passed on by producers to consumers,” Johannesburg-based Tradition Analytics said in an e-mailed research note. “There is scope for CPI growth to continue edging higher.” The ruble is the fourth-worst performer of 25 emerging- market currencies tracked by Bloomberg over the past six months. The ruble strengthened 0.6 percent to 32.1726 per dollar at 4:44 p.m. in Moscow. Non-deliverable forwards, which provide a guide to expectations of currency movements, showed the ruble at 32.6283 per dollar in three months.

Poland Lowers 2013 Growth Forecast Amid Euro Debt Crisis (Bloomberg)
Poland’s government lowered its forecast for economic growth next year as the euro area’s debt crisis damps demand for the European Union’s biggest eastern economy’s exports. Gross domestic product will rise 2.2 percent instead of a previously forecast 2.9 percent, according to a new 2013 draft budget, the government in Warsaw said in an e-mailed statement yesterday. Employment will grow 0.2 percent, wages will increase 1.9 percent and inflation will average 2.7 percent, it said. “This change of macroeconomic assumptions means making them more realistic, but they still can’t be described as conservative in the context of the recent deterioration of the economic outlook,” Maciej Reluga, chief economist at Bank Zachodni WBK in Warsaw, said in an e-mail yesterday.
The slowing economy is putting pressure on Prime Minister Donald Tusk to ease deficit cuts to avoid the fate of other EU nations where austerity measures to tackle the debt crisis helped suffocate growth. While the Polish Cabinet still enjoys broad support in polls, governments across Europe have collapsed after protests against austerity policies that helped plunge economies from Romania to Spain into recession. Tusk, the first Polish premier to serve a second term since communism ended in 1989, must weigh EU deficit demands against concerns that further spending cuts may damp growth in the nation of 38 million people, whose GDP per capita is 40 percent below the 27-nation bloc’s average. Tusk has said he will give a parliamentary speech, probably next week, to outline measures aimed at tackling threats to the economy.

Slowing Polish Economy May Force Tusk to Ease Budget Cuts (Bloomberg)
Poland’s slowing economy is putting pressure on Prime Minister Donald Tusk to ease deficit cuts to avoid the fate of other European Union nations where austerity measures to tackle the debt crisis helped suffocate growth. Tusk’s Cabinet approved a revised 2013 budget after the economy expanded at the slowest pace in 11 quarters in the three months through June, the government’s office said in an e-mailed statement. Growth will ease to 2.2 percent instead of a previously forecast 2.9 percent, according to the statement, which didn’t release a new deficit target. While Poland will stick to a plan to cut the 2012 budget gap within the EU’s limit of 3 percent of output, keeping its 2.2 percent goal for 2013 would “mean we end up next year with zero growth or even a recession,” said Jakub Szulc, a member of Tusk’s Civic Platform who sits on Parliament’s Public Finances Commission.
“We can’t drop the long-term goal for a 1 percent deficit in 2015, but next year’s plan obviously needs to be adjusted,” Szulc said by phone from Warsaw today. “Foreign investors will understand this because it’s growth that matters for the international credibility of countries these days.” Tusk, the first Polish premier to serve a second term since communism ended in 1989, must weigh EU deficit demands against concerns that further spending cuts may damp growth in the nation of 38 million people, whose GDP-per-capita is 40 percent below the 27-nation bloc’s average. While his Cabinet still enjoys broad support in polls, governments across Europe have collapsed after protests against austerity policies that helped plunge economies from Romania to Spain into recession.

Hungary Surprise Rate Cut Sends Yield to Year-Low Before Auction (Bloomberg)
Hungary’s borrowing costs tumbled to the lowest level in a year before a bond auction tomorrow as investors bet on further interest-rate cuts after the central bank’s surprise reduction last week’s to fight recession. Yields on three-year government forint bonds dropped to 6.732 percent on Sept. 3, the lowest since September 2011, according to data compiled by Bloomberg. Investors demanded 6.75 percentage points more to hold Hungarian debt rather than similar-maturity German bunds on Sept. 3, the narrowest spread since the end of October. The Debt Management Agency is offering 45 billion forint ($200 million) of debt due in 2015, 2017 and 2022, according to data from the agency on Bloomberg. The Magyar Nemzeti Bank cut rates by 25 basis points to 6.75 percent on Aug. 28, citing Hungary’s slide into its second recession in three years.
Rate reductions may continue as the four Monetary Council members appointed by Prime Minister Viktor Orban’s government outvote central bank President Andras Simor and his two deputies, according to Peter Attard Montalto at Nomura International Plc. Traders are betting on additional cuts of as much as 50 basis points before year end, according to forward rate agreements. “The rate cut lifted the bond market,” Sandor Jobbagy, a Budapest-based analyst at Intesa Sanpaolo SpA’s CIB Bank unit, wrote in an e-mailed comments yesterday. “The move also strengthened expectations for further easing this year.”

ECB bond-buying would not breach rules-Draghi (Reuters)
Purchases of short term sovereign bonds by the European Central bank would not breach European Union rules, the ECB's President Mario Draghi told European lawmakers on Monday, according to a recording obtained by Reuters.

Germany in row with Brussels over banking supervision (Reuters)
Germany clashed with Brussels on Monday over plans to give the ECB new banking supervision powers, saying it was unrealistic for it to oversee more than the bloc's biggest institutions and wrong to expect the new body to be in place by year-end.

Moody's changes EU rating outlook to negative (Reuters)
Moody's Investors Service has changed its outlook on the Aaa rating of the European Union to negative, warning it might downgrade the bloc if it decides to cut the ratings on the EU's four biggest budget backers: Germany, France, UK and Netherlands.