20121012 1121 Global Market Related News.

Asia FX By Cornelius Luca - Thu 11 Oct 2012 19:13:03 CT (Source:CME/www.lucafxta.com)
The appetite for risk was fleeting on Thursday after another too-good-to-be true bit of US unemployment data left traders scratching their heads. The Australian dollar lead the European and commodity currencies higher in part because the People's Bank of China set its yuan midpoint stronger than expected, signaling it may tolerate slight appreciation of the currency. The US stock markets ended mixed, but the DJI fell again and suggests a double top formation for a second day in a row. Gold and oil and silver closed up. 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 short on all foreign currencies. Good luck!

Overnight
US: The initial jobless claims tumbled to 339,000 from the previous week's revised figure of 369,000 (from the 367,000 originally reported).
US: The trade deficit widened to $44.2 billion in August from a revised $42.5 billion in July.
Canada: The international merchandise trade posted a deficit of C$1.32 billion in August vs. a July's deficit at C$2.53 billion.
Canada: The new housing price index edged up to 0.2% in August from 0.1% in July.

Today's economic calendar
Japan:  Domestic Corporate Goods Price Index for September
Japan:  Tertiary Industry Index for August

GLOBAL MARKETS-Stocks steady, set for losing week on growth concerns
SINGAPORE, Oct 12 (Reuters) - Asian stocks and the euro steadied, but were on course for a losing week as worries about weak corporate earnings and slowing global economic growth limit the appeal of riskier assets.
"Later today in the U.S., J.P. Morgan  will release its earnings," said Kenichi Hirano, operating officer at Tachibana Securities in Tokyo. "Then we'll have more earnings next week, and the expectations are not high. If results are disappointing, stocks will sell off, so that makes it difficult to buy now.

Asian Stocks Rise on U.S. Data, Japan-China Dispute Talks (Bloomberg)
Asian stocks rose for the first time this week after U.S. jobless claims fell more than estimated and China and Japan agreed to hold talks over a territorial dispute that has disrupted trade. Honda Motor Co., a Japanese whose sales in China slumped last months after rioters torched dealerships in protests over disputed islands, added 2.3 percent. Mitsui O.S.K. Lines Ltd., Japan’s No. 1 shipping company, gained 1.1 percent as commodity freight rates rose in London. Softbank Corp. sank 16 percent as Japan’s third-largest mobile-phone company said it’s in talks to invest in Sprint Nextel Corp. Billabong International Ltd. slumped 16 percent after TPG International LLC withdrew its bid for the Australian surfwear maker.
The MSCI Asia Pacific Index gained 0.7 percent to 121.13 as of 11:20 a.m. in Tokyo, with more than twice as many stocks rising as falling. The measure is poised for its biggest weekly drop since August after the International Monetary Fund cut its global growth forecasts and Japanese car sales fell in China. The two countries have agreed to hold talks to reduce tensions. “It will take a while to fully recover the pre-dispute situation, but at least we’re seeing some gradual improvement in the China-Japan relations,” said Yoji Takeda, who oversees about $1.2 billion as head of Asian equities at RBC Investment Management (Asia) Ltd. “As investors see more positive earnings reports, people may start to turn confident. We’re seeing moderate growth in the U.S. and the stock market there has held up quite well.”

China’s Stocks Rise to Four-Week High; Publishing Shares Rally (Bloomberg)
China’s stocks rose to a four-week high as falling U.S. jobless claims bolstered the outlook for exports to the world’s biggest economy and publishing companies rallied after Mo Yan won the Nobel Prize in Literature. China Construction Bank Corp., the nation’s second-largest lender by assets, led banks higher after officials at the top four lenders said they are resisting government pressure to lower borrowing costs to maintain the profitability of lending operations. Shanghai Xinhua Media Co. surged by 10 percent on speculation Mo’s award will spur book sales. “The U.S. economy is doing better and psychologically, it creates positive sentiment for investors here, who believe the global economy is improving,” said Zhang Gang, a strategist at Central China Securities Holdings Co. in Shanghai. “Also there’s expectation economic data will start to look good and stabilize. With the change of leadership soon, investors are eyeing more reforms to boost the economy.”
The Shanghai Composite Index rose 0.8 percent to 2,119.79 at 9:55 a.m. local time, the highest since Sept. 10 and adding to this week’s gain of 1.6 percent. The CSI 300 Index climbed 0.9 percent to 2,322.40, led by financial companies. The Shanghai index has fallen 3.6 percent this year on concern the government isn’t loosening monetary policy or introducing stimulus policies fast enough to counter the slowdown in the economy. The gauge is valued at 9.9 times estimated earnings, compared with the 17.8 average since Bloomberg began compiling the weekly data in 2006. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong rose 1.2 percent today. The Bloomberg China- US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, gained 1.5 percent yesterday.

Japan Stocks Swing Between Gains, Losses on China Talks (Bloomberg)
Japanese stocks swung between gains and losses after the Nikkei 225 Stock Average recorded its biggest three-day slump since June. Automakers rose after China and Japan agreed to hold talks over a territorial dispute that led to mainland protests and boycotts of Japanese products. Nissan Motor Co., the leading Japanese carmaker in China, rose 2.1 percent. Canon Inc., a camera manufacturer that gets 27 percent of sales in the Americas, gained 2.8 percent after U.S. jobless claims fell more than expected. Softbank Corp., Japan’s third-largest mobile-phone company, plummeted 16 percent on a report it may invest in loss-making Sprint Nextel Corp. Fast Retailing Co. plunged 10 percent after its profit forecast missed estimates. The Nikkei 225 was little changed at 8,546.96 at the 11:30 a.m. trading break in Tokyo after falling as much as 0.2 percent. The gauge has dropped 3.6 percent this week, headed for a four-week decline. The broader Topix added 0.7 percent to 719.04.
“The market is rebounding after it fell a good amount without many decisive factors,” said Isao Kubo, a Tokyo-based equity strategist at Nissay Asset Management Corp., which oversees about 5 trillion yen ($64 billion). The diplomatic dispute “is weighing on China as much as on Japan. I think the both sides will try to seek some form of compromise.” The Topix dropped 2 percent this year through yesterday as a slowdown in the global economy boosted demand for the yen as a haven and as a territorial dispute with China saw Japanese production there disrupted, weighing on earnings. Policy makers in Asia, the U.S. and Europe have introduced a series of stimulus measures to support growth.

U.S. Stocks Erase Gains as Optimism on Jobless Data Fades (Bloomberg)
U.S. stocks erased gains as optimism about a drop in jobless claims faded and a slump in Apple Inc. (AAPL) dragged down technology shares. The Standard & Poor’s 500 Index pared an advance of 0.8 percent as Apple extended its retreat from a September record to more than 10 percent. Bank of America Corp. (BAC) and Morgan Stanley advanced at least 1.4 percent as energy and financial stocks posted the biggest rallies out of 10 groups in the S&P 500. Sprint Nextel Corp. (S) jumped 14 percent as it said it’s in talks with Japan’s Softbank Corp. about a potential transaction. The S&P 500 increased less than 0.1 percent to 1,432.84 at 4 p.m. in New York. The benchmark gauge fell to the lowest level in a month yesterday on concern that the global economy is slowing down. The Dow Jones Industrial Average lost 18.58 points, or 0.1 percent, to 13,326.39. More than 6 billion shares traded hands on U.S. exchanges today, in line with the three- month average.
“Weakness in Apple continues to be watched and traders are eyeing the S&P 50-day moving average as we slowly slip back towards that level,” Ryan Larson, the Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in an e-mail. His firm oversees $250 billion in assets. The S&P 500 (SPX) has slipped 2.3 percent since reaching an almost five-year high of 1,465.77 on Sept. 14. The benchmark index is less than 1 percent higher than its 50-day moving average of 1,427.11. Apple, the world’s most valuable company, sank 2 percent to $628.10, erasing an earlier rally of as much as 1 percent and helping to reverse gains for technology companies as a group in the S&P 500. The iPhone maker is down 11 percent since reaching its all-time high of $702.10 on Sept. 19.

European Stocks Rise First Day in Four; Burberry Gains (Bloomberg)
European stocks advanced for the first time in four days as U.S. jobless claims fell to a four- year low and Burberry Group Plc (BRBY) led luxury-goods makers higher. Burberry jumped the most in more than 10 years as it reported second-quarter same-store sales that topped analyst estimates. Carrefour SA (CA) climbed 3.7 percent after the world’s second-largest retailer posted third-quarter sales that beat estimates. Banco Popular Espanol SA (POP) led Spanish banks lower after Standard & Poor’s downgraded the country’s debt to one level above junk. The Stoxx Europe 600 Index (SXXP) climbed 0.8 percent to 270.84 at the close of trading. The measure has still lost 1.2 percent so far this week as the International Monetary Fund cut its global growth forecasts and European Union leaders met to discuss the region’s debt crisis.
“The U.S. jobless report was very positive,” said Pierre Mouton, a portfolio manager who helps oversee $6 billion at Notz Stucki & Cie. in Geneva. “These numbers are encouraging and should help the market recover.” Jobless claims in the world’s biggest economy fell unexpectedly to the lowest since February 2008. Applications for unemployment benefits dropped 30,000 to 339,000 in the week ended Oct. 6 from 367,000 for the prior period, Labor Department data showed. Economists forecast 370,000 claims, according to the median estimate in a Bloomberg survey.

Emerging Market Stocks Snap Three Days of Declines (Bloomberg)
Emerging-market stocks increased for the first time in four days as central banks in Brazil and South Korea cut rates to bolster growth and a unit of China’s sovereign wealth fund vowed to support banking shares. The MSCI Emerging Markets Index (MXEF) rose 0.4 percent to 995.95. Brazil’s Bovespa index gained with oil company Petroleo Brasileiro SA (PETR4) fueling the advance. Turkey’s benchmark stock index jumped to the highest level since May 2011, while equity gauges in India, Hungary, Mexico and South Africa also surged. Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, climbed to a five-month high in Hong Kong. South Korea cut interest rates hours after Brazil as economies around the world shield themselves from the risk of a deeper slowdown driven by weakness in China and austerity measures in Europe. First-time jobless claims in the U.S. dropped to the least since February 2008, adding to signs of improvement in the labor market.
“Investors tend to perceive the rate cut as a positive in the short term,” Michael Henderson, an economist at Capital Economics, said in a phone interview from London. “A lot of people were expecting a little more easing to happen and this move has been welcomed.” The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF (EEM) tracking developing-nation shares, rose 0.9 percent. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, dropped 4.9 percent.

Aussie Trades Near Week-High on Commodity Price Gains (Bloomberg)
Australia’s dollar rose, trading 0.1 percent from its highest level in more than a week as gains in commodity prices boosted demand for the currency. The so-called Aussie strengthened versus most of its 16 major counterparts this week after prices for iron ore, Australia’s top export, climbed to the most in more than two months. A report yesterday showed claims for jobless benefits in the U.S. fell to the least since February 2008. Figures today may show confidence in the world’s biggest economy remained near the strongest level since May. New Zealand’s currency, nicknamed the kiwi, rose as Asian stocks advanced. “Iron ore prices have improved,” said Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney. “The labor market may be picking up a touch in the U.S. It’s positive for the Aussie and it’s positive for risk.”
The Australian dollar added 0.2 percent to $1.0283 as of 1:11 p.m. in Sydney from $1.0264 yesterday, when it reached $1.0294, the highest since Oct. 2. It gained 0.4 percent to 80.69 yen. New Zealand’s currency strengthened 0.3 percent to 82 U.S. cents. It bought 64.33 yen, 0.5 percent higher than the close in New York. Australia’s 10-year yield rose one basis point to 3.04 percent. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 2.615 percent.

Yen Falls on U.S. Stability Signs; Singapore Dollar Gains (Bloomberg)
The yen declined against its major counterparts as signs that the U.S. economy is stabilizing curbed demand for safer assets. Japan’s currency fell versus the euro for a second day before data today forecast to show confidence among U.S. consumers hovered near the highest since May. A report yesterday showed applications for jobless benefits fell to the fewest since February 2008. The euro headed for a weekly drop before figures that economists said will show industrial production in the currency bloc decreased. Singapore’s dollar rose after the central bank kept its monetary policy unchanged. “There are certainly some signs of improvement in terms of U.S. data,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “Market sentiment is pretty stable at the moment.”
The yen slid 0.2 percent to at 78.46 per dollar as of 11:09 a.m. in Tokyo from 78.34 yesterday, when it lost 0.2 percent. It dropped 0.3 percent to 101.53 per euro, after sliding 0.6 percent to 101.27 in New York. The 17-nation euro fetched $1.2940 from $1.2928, set for a 0.8 percent decline this week. The MSCI Asia Pacific Index of shares rallied 0.6 percent today. The MSCI World Index of developed-nation shares gained 0.3 percent yesterday, snapping a three-day decline. The Thomson Reuters/University of Michigan preliminary sentiment index was probably 78.0 in October, little changed from 78.3 in September, the highest since May, according to the median forecast of economists in a Bloomberg News survey before the data today. Labor Department figures yesterday showed applications for jobless benefits in the world’s largest economy decreased 30,000 to total 339,000 in the week ended Oct. 6, the fewest in more than four years.

G-7 Discusses Potential Fiscal Measures If Growth Falters (Bloomberg)
Some Group of Seven nations raised the possibility of extra fiscal measures if the global recovery weakens, Canadian Finance Minister Jim Flaherty said after a G-7 meeting in Tokyo yesterday. “There has been some discussion by some of the participants along those lines, generally relating to the European situation,” Flaherty said on a conference call with reporters today. “The continent is in recession and there’s rising unemployment.” Europe’s woes are at the center of this week’s meetings of the World Bank and International Monetary Fund in Tokyo as finance chiefs work to sustain a flagging global recovery. The Washington-based lender said this week that failure to remedy them was helping to generate an “alarmingly high” risk of a steeper slowdown. Flaherty also said it’s worth considering proposals by IMF Managing Director Christine Lagarde to give Greece and other troubled European countries more time to meet fiscal targets.
“I think it’s certainly worth considering,” Flaherty said. “The challenge in Europe now is the European economy is in a recession and there is some interest in trying to create some economic growth in the euro zone.”

Jobless Claims in U.S. Fall to Four-Year Low (Bloomberg)
Fewer Americans than forecast filed first-time claims for unemployment benefits last week, which may reflect difficulty adjusting the data for seasonal swings at the start of a quarter. Applications for jobless benefits dropped 30,000 to 339,000 in the week ended Oct. 6, the fewest since February 2008, Labor Department figures showed today. Economists forecast 370,000 claims, according to the median estimate in a Bloomberg survey. One state accounted for most of the plunge in claims, a Labor Department spokesman said as the data were issued to the press. A decline in dismissals may mean employers are seeing enough demand to maintain current staff, a necessary first step to bigger gains in hiring. At the same time, a slowing global economy that is hurting exports and concern over looming changes in U.S. fiscal policy remain hurdles to a pickup in employment.
The report “is consistent with a labor market that is gradually getting better,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who had predicted a decline in claims. “Layoffs are at a low level and don’t seem to be going anywhere. Hiring is still very muted.” Last week’s decline in claims may be short-lived. Before adjusting the data for seasonal variations, claims typically surge at the start of a quarter as people receiving benefits reapply in order for the government to recertify their applications, the Labor Department spokesman said. The unadjusted increase in claims last week was smaller than projected because one large state showed a drop rather than an increase, said the spokesman, who declined to name the state. The breakdown by state will show up in next week’s report.

Fed Presidents Dismiss Allegation of Job Data Tampering (Bloomberg)
Presidents of two Federal Reserve district banks dismissed a suggestion that the Bureau of Labor Statistics manipulated the September employment report to aid the re-election campaign by President Barack Obama. “I can’t imagine that’s the case,” Charles Plosser, president of the Federal Reserve Bank of Philadelphia, told reporters after a speech today in Avondale, Pennsylvania. “I don’t think there is a conspiracy,” St. Louis Fed President James Bullard said to reporters in St. Louis. The two regional Fed bank chiefs commented on suggestions by Jack Welch, the former chief executive officer of General Electric Co., that an Oct. 5 report from the bureau showing an unexpected decline in the jobless rate had been altered. The report showed the jobless rate fell in September to 7.8 percent, the lowest level since President Barack Obama took office in January 2009, from 8.1 percent in August. The rate was forecast to rise to 8.2 percent, according to the median estimate of economists surveyed by Bloomberg.
“The statisticians and the people that work on this stuff have a lot of integrity,” Plosser said. Bullard said that while unemployment and other economic reports can have “measurement error,” it’s wrong to suspect anything improper. “There are lots of people involved,” he said. “They have done it the same way for years and years.” Welch, 76, in a Twitter message immediately after the report, suggested the numbers were phony. “Unbelievable jobs numbers ... these Chicago guys will do anything ... can’t debate so change numbers,” he wrote. Obama administration officials denounced Welch’s claims as baseless. Welch revisited his criticism later in a column in the Wall Street Journal. “The coming election is too important to be decided on a number,” Welch wrote. “Especially when that number seems so wrong.”

Bullard Backs Limiting Banks’ Size to Proportion of GDP  (Bloomberg)
Federal Reserve Bank of St. Louis President James Bullard said he would back limiting the size of individual U.S. banks to a proportion of gross domestic product, while warning of the risks from “too-big-to-fail” firms. “Scaling by GDP would make sense,” Bullard said to reporters today in St. Louis. “Of course, the devil is in the details of exactly how you would do that.” Fed Governor Daniel Tarullo said yesterday that the U.S. Congress should weigh capping the size of the largest financial institutions. U.S. law permits the biggest banks to grow to such an extent that they increase “perceptions of at least some residual too-big-to-fail quality,” he said in a speech. “I appreciate that Governor Tarullo is entertaining the idea of size restrictions,” Bullard said. “This is something I do back. We would be better served by putting size restrictions generally on financial firms.”
Tarullo told the University of Pennsylvania Law School that “it would be most appropriate for Congress to legislate on the subject” of limiting size. The idea “that seems to have the most promise would limit the non-deposit liabilities of financial firms to a specified percentage of” GDP, he said. Fed presidents including Richmond’s Jeffrey Lacker, Philadelphia’s Charles Plosser and Richard Fisher of Dallas have said the Dodd-Frank Act enacted in 2010 won’t necessarily end taxpayer bailouts because it gives regulators discretion to provide rescues. Plosser has called for a bankruptcy law that would set rules for the wind-down of a large financial company.

Transport Shares Showing U.S. Slowdown Due for Surprise: Freight (Bloomberg)
Investors have driven down transportation stocks on concern a recession is looming in the U.S. That may be an opportunity for those who see the industry getting a fresh boost from holiday sales. Landstar System Inc. (LSTR) and Old Dominion Freight Line Inc. (ODFL) were among companies making early announcements of results that fell below forecasts after activity in the third quarter was slower than anticipated. Carriers were working through a small inventory glut, creating “sluggishness,” said John Larkin, managing director in Baltimore at Stifel Nicolaus & Co. Still, there’s no indication the “economy is cratering,” said Larkin, who has been covering or involved in transportation since 1977. “The slowdown appears to have been more of a mid- course correction, similar to others we have experienced since the economic trough formed in early 2009.”
While volume since June has been consistent with a “very slow-growth” expansion, more recently there’s been a “modest pre-holiday peak” for transportation companies carrying imports from the west coast, Larkin added. His favorite picks are Swift Transportation Co. (SWFT), Ryder System Inc. (R), Celadon Group Inc. (CGI) and CSX Corp. (CSX) These companies became more attractively valued after the earnings announcements, he said. U.S. gross domestic product is forecast to grow at a 1.8 percent annual rate in the third quarter and 1.9 percent in the three months ending Dec. 31, based on the median estimates of economists surveyed by Bloomberg News. That suggests a rebound from the second quarter’s 1.3 percent annual rate.

Consumer Comfort in U.S. Stayed Near Three-Month High Last Week (Bloomberg)
Consumer confidence in the U.S. stayed near a three-month high last week, with more Americans saying it was a good time to make purchases even as they grew more pessimistic about the economy. The Bloomberg Consumer Comfort Index fell to minus 38.5 in the week ended Oct. 7 from minus 36.9 in the prior period. The drop was within the gauge’s margin of error of 3 percentage points and ended a six-week upswing that was the longest since early 2006. The measure has been higher than minus 40, a level associated with recessions and their aftermath, for the last three weeks. “Consumer sentiment appears to have stabilized, albeit at historically low levels,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. A drop in gasoline prices since the mid-September “likely boosted household perceptions of the buying climate despite clear signs of discontent over the direction of the economy,” he said.
Labor Department figures last week that showed the U.S. jobless rate at a three-year low of 7.8 percent in September may help explain an 8.9-point rise in the sentiment index since mid- August. At the same time, further improvement in the labor market may be needed to shore up confidence in an economy that 86 percent of those surveyed said was bleak. Fewer Americans than forecast filed first-time claims for unemployment benefits last week, the Labor Department reported today. Applications for jobless benefits dropped 30,000 to 339,000 in the week ended Oct. 6, the fewest since February 2008. Economists forecast 370,000 claims, according to the median estimate in a Bloomberg survey. One state accounted for most of the plunge in claims, a Labor Department spokesman said.

Trade Deficit in U.S. Widened in August as Exports Dropped (Bloomberg)
The U.S. trade deficit widened in August as slower global growth reduced demand for American exports. The gap grew 4.1 percent to $44.2 billion from $42.5 billion in July, Commerce Department figures showed today in Washington. Exports decreased to the lowest level since February. A separate report showed the cost of goods shipped to the U.S. rose more than forecast in September. A stagnant Europe and slower growth in China and other emerging markets may curtail demand for American products, which had been a source of strength for U.S. manufacturers earlier this year. At the same time, the pickup in energy costs may push up the nation’s import bill, keeping the trade gap elevated. “For the first time, the U.S. economy is gradually feeling the impact from the global growth slowdown,” said Harm Bandholz, chief economist at UniCredit Group in New York, who forecast the deficit would widen to $44 billion. “In the third quarter, the weaker global economy will leave its mark also on the U.S.”
The median forecast in a Bloomberg survey of 73 economists projected the deficit would expand to $44 billion. Estimates ranged from a gap of $41 billion to $47.5 billion. July’s deficit was revised from an initially reported $42 billion. Fewer Americans than forecast filed first-time claims for unemployment benefits last week, which may reflect difficulty adjusting the data for seasonal swings at the start of a new quarter, figures from the Labor Department also showed today.

China’s Banks Said to Resist Cutting Lending Rates (Bloomberg)
China’s biggest banks are resisting government pressure to lower borrowing costs amid an economic slowdown as they seek to maintain the profitability of their lending operations, officials at the top four lenders said. The banks are limiting discounts for their best corporate clients to 10 percent of the benchmark lending rate, the officials said, asking not to be identified as they’re not authorized to speak publicly. The central bank in July began allowing lenders to offer credit at 30 percent less than the benchmark rates. Keeping borrowing costs high may blunt efforts to revive growth that has decelerated for six straight quarters in the world’s second-largest economy. Credit expansion is also limited by the central bank’s loan quotas, the officials said, highlighting the conflicting efforts within China to curb bad debts while boosting funding for local governments’ infrastructure projects.
“Banks can no longer afford to ramp up lending recklessly, as they’ve learned a lesson from the past and their operating environment has deteriorated significantly,” said Rainy Yuan, a Shanghai-based analyst at Masterlink Securities Corp. “The lack of consensus from the top on whether and how to fund local governments’ stimulus projects strengthens our view that China’s economic recovery will be L-shaped.”

China Room to Ease Seen Fading as Inflation Lull Set to End (Bloomberg)
A U.S. drought that pushed soybean and corn prices to records is adding to the risk of a rebound in inflation in China, where consumer-price gains were probably close to the slowest in two years in September. Inflation was 1.9 percent last month, according to the median forecast in a Bloomberg News survey before a report on Oct. 15. Credit Agricole CIB says the rate may approach 4 percent by year-end and Citigroup Inc. estimates a pace of about 3.5 percent. The prospect of faster price gains in coming months may encourage policy makers to refrain from cutting interest rates for a third time this year, contrasting with reductions in Brazil, South Korea and Australia and adding to the risk economic growth will be the weakest since 1999. Increased grain costs are feeding into pork prices and the government is also battling to prevent a rebound in the housing market.
“Inflation will rise in the fourth quarter as pork and other food prices are expected to climb and housing costs are creeping up,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. “This means there is no room for the central bank to cut interest rates.” The benchmark one-year lending rate is now 6 percent and the one-year deposit rate stands at 3 percent after reductions in June and July.

Singapore Refrains From Monetary Easing as Economy Shrinks (Bloomberg)
Singapore’s central bank unexpectedly refrained from easing monetary policy even as the economy contracted last quarter, saying inflation will remain elevated for some time. The island’s dollar climbed. Gross domestic product fell an annualized 1.5 percent in the three months through September from the previous quarter, when it expanded a revised 0.2 percent, the Trade Ministry said in a statement today. The median estimate of 16 economists in a Bloomberg News survey was for a 1.6 percent contraction. The central bank, which uses the currency to manage inflation, said it will maintain a modest and gradual appreciation of the dollar.
Singapore joins Asian nations from China to India in limiting monetary stimulus as they guard against inflation risks even as fiscal austerity in the euro area to fight the region’s debt crisis weighs on the world economy. The International Monetary Fund this week cut its projections for global expansion this year and next, saying it sees “alarmingly high” risks of a steeper slowdown. “The monetary authority is in a policy quagmire where it has sticky inflation on one hand and on the other, it is dealing with unknown but downside risks from the external economy,” said Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd. “It’s judging that it’s too premature to send out dovish signals. Growth will remain sub-par and bumpy, with many blind corners.”

Australia to Hit Gas as Record Rate Cuts Fail: Mortgages (Bloomberg)
Australia’s central bank is set to extend the developed world’s steepest interest rate cuts after banks failed to match its reductions, blunting their impact. The Reserve Bank of Australia probably will lower its cash rate to a record-low 2.75 percent by February, from the current 3.25 percent, interest-rate swap prices show. The nation’s four biggest lenders, accounting for 85 percent of the bank mortgage market, have withheld about a quarter of the RBA’s 1.5 percentage points of cuts since November. The efforts of RBA Governor Glenn Stevens to stimulate the economy with lower borrowing costs are also being hampered as Australians boost savings to a record and repay debt instead of increasing spending. Recent economic releases have suggested lower borrowing costs are needed as newly built homes fell to the lowest on record in August and mortgage lending is growing at the weakest pace since records began in 1977.
“The fall in the cash rate has overstated the degree to which monetary policy has eased,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. in Sydney. “The easing we’ve seen so far has just involved the Reserve Bank taking its foot off the brake, it hasn’t actually put its foot on the accelerator until perhaps now.” National Australia Bank Ltd. (NAB) and Commonwealth Bank of Australia (CBA) passed on 20 basis points of the RBA’s latest 25 basis point cut last week. Westpac Banking Corp. (WBC) cut by 18 basis points, while Australia & New Zealand Banking Group Ltd. (ANZ) is scheduled to respond on Oct. 12. A basis point is 0.01 percentage point.

U.K. Home Values Drop as Olympic Knock-On Extends Summer Lull (Bloomberg)
U.K. house prices fell for a third month in September as mortgage availability remained constrained and a lull during the London Olympics the previous month reduced sales, Acadametrics Ltd. said. The average cost of a home in England and Wales fell 0.1 percent from August to 225,374 pounds ($362,000), Acadametrics and LSL Property Services Plc (LSL) said in a report in London today. Transactions fell 24 percent to 50,000, the second-lowest level for a September since records began in 1995, it said. “A lethargic mortgage market and the knock-on impact of reduced buyer activity in August took its toll,” David Brown, LSL’s commercial director, said in a statement. “The lack of lending, especially to first-time buyers, is choking off first- time buyer sales outside of prime London.”
The Bank of England and the Treasury started a program in August to boost bank lending to households and help the economy. A central bank report last month showed that secured credit to U.K. households rose “significantly” in the three months through September and may increase further, suggesting mortgage availability is set to improve. “If this is the case and the cheaper finance reaches those waiting to purchase their first home, it could provide a welcome new impetus for transactional activity, and a new source of optimism for would-be buyers,” Brown said. From a year earlier, house prices rose 2.2 percent in September, Acadametrics said. While values have increased on an annual basis for the past six months “due to a shortage of properties,” the rate of increase is slowing, it said.