20121210 1001 Global Markets Related News.

Asia FX By Cornelius Luca - Sun 09 Dec 2012 17:28:51 CT (CME/www.lucafxta.com)
The appetite for risk is limited ahead of the Asian open. The European currencies open further down after diving on Friday, but the commodity currencies start higher. The US non on-farm payrolls report was mixed, so all eyes remain on the lack of progress in the "fiscal cliff" game of politics. The short-term outlook for the European and commodity currencies is sideways with various biases. The medium-term outlook for most of the foreign currencies is sideways. The LGR short-term model is short on all European currencies. Good luck!

Overnight
US: The non-farm payroll employment increased by 146,000 jobs in November following a downwardly revised increase of 138,000 jobs (171,000 jobs originally reported) in October. The unemployment rate fell to 7.7% in November from 7.9% in October.
US: The preliminary University of Michigan-Thomson Reuters consumer sentiment index fell to 74.5 in December from 82.7 in November.Canada: The unemployment rate declined to 7.2% in November from 7.4% in October.
Canada: Labor productivity came in at -0.5% in the third quarter vs. -0.4% in the second quarter.

Today's economic calendar
China: Consumer Price Index for November
China: Industrial production for November
China: Retail sales for November
Japan: Bank lending for November
Japan: BSI Large manufacturing for the third quarter
Japan: Current account for October
Japan: Gross Domestic Product for the third quarter
Japan: Consumer confidence index for November
Japan: Eco watchers survey: current for November AU Home loans for October
Australia: Investment lending for homes for October

Asian Stocks Rise to Eight-Month High on China, U.S. Data (Bloomberg)
Asian stocks rose, with the regional benchmark index extending its advance to an eight-month high, after China’s factory output and retail sales topped forecasts and the U.S. unemployment rate unexpectedly fell. Samsung Electronics Co., the world’s biggest maker of smartphones, gained 1.4 percent in Seoul. Rio Tinto Group (RIO), the world’s No. 2 mining company that gets about 31 percent of sales from China, climbed 1.8 percent in Sydney. Advantest Corp., the largest producer of semiconductor-testing devices, jumped 6.9 percent in Tokyo after its President Haruo Matsuno said he expects new orders to rise 20 percent this quarter. The MSCI Asia Pacific Index (MXAP) gained 0.2 percent to 126.33 as of 9:35 a.m. Tokyo time. Markets in China and Hong Kong have yet to open.
The measure advanced in the past three weeks, the longest such winning streak since the period ended Aug. 17., amid signs of recovery in the world’s two largest economies and optimism U.S. lawmakers will agree on a budget deal to avert the so-cal led fiscal cliff. “We could see a more sustained recovery in equity markets as China’s economy shows signs of gradual recovery,” said Yoji Takeda, who oversees about $1.2 billion as Hong Kong-based head of Asian equities at RBC Investment Management (Asia) Ltd. “There’s underlying uncertainties in Europe amid political maneuvering in Italy ahead of elections.” Italian Prime Minister Mario Monti said he intends to resign, renewing concern nations in the currency bloc are grappling with a deepening debt crisis.

Nikkei 225 Heads for Seven-Month High on U.S, China Data (Bloomberg)
Japan stocks rose, with the Nikkei 225 Stock Average headed for its highest close since April, after data in the U.S. and China added to signs of recovery in the world’s two biggest economies. Gains were limited as revised estimates showed Japan’s economy shrank last quarter. Komatsu Ltd. (6301), a maker of construction machinery that gets 37 percent of its sales in the Americas and China, added 1 percent. Advantest Corp. (6857), the world’s biggest maker of memory- chip testers, rose 6.4 percent after President Haruo Matsuno said he expects new orders to rise 20 percent this quarter. Panasonic Corp. (6752) advanced 3.3 percent on a report the electronics company is considering selling a building in Tokyo. The Nikkei 225 Stock Average (NKY) added 0.3 percent to 9,555.92 at 9:49 a.m. in Tokyo, headed for the highest close since April 26. The broader Topix Index advanced 0.1 percent to 790.93, with more than nine stocks rising for every six that fell.
“Speaking of the U.S., jobs and housing are recovering gradually and surely, providing confidence to the economy,” said Ichiro Yamada, general manager of equities who helps manages about 300 billion yen ($3.63 billion) at Fukoku Mutual Life Insurance Co. “There’s a sense that Japanese stocks will extend gains toward this year’s high around 10,200.”

U.S. Stocks Cap Longest Weekly Gain Since August on Jobs (Bloomberg)
U.S. stocks rose a third week, giving the Standard & Poor’s 500 Index its longest winning streak since August, as employment growth topped forecasts and investors weighed prospects for a budget agreement in Washington. Citigroup Inc. (C) surged 8.9 percent on plans to cut more than 11,000 jobs and scale back in some emerging markets to drive down costs. Netflix Inc. (NFLX) jumped 5.2 percent after the online video service signed a multi-year agreement with Walt Disney Co. Apple Inc. (AAPL) sank 8.9 percent, the most since 2010, on concern the company will lose ground in smartphones to Nokia Oyj (NOK) in China and give up market share to Google Inc. in tablets. The S&P 500 (SPXL1) increased 0.1 percent to 1,418.07 for the week. The benchmark measure for American equities extended its advance from a three-month low on Nov. 15 to 4.8 percent and finished at the highest level since Election Day. The Dow Jones Industrial Average added 129.55 points, or 1 percent, to 13,155.13.
“The market took the jobs report as an encouraging sign,” said Brad Sorensen, director of market and sector analysis at San Francisco-based Charles Schwab Corp. His firm has $1.9 trillion in client assets. “There’s also a bit of Washington fatigue. It seems like Congress and the administration have managed to come through with a deal at the last minute multiple times before. We’re relatively neutral at this point in time.” The S&P 500 is down 0.7 percent since President Barack Obama was re-elected on Nov. 6 as he seeks a deal with Republican lawmakers to prevent more than $600 billion of automatic tax increases and spending cuts from coming into effect next year.

European Stocks Rally for Third Week on China, U.S. Talks (Bloomberg)
European stocks rallied for a third week, climbing to an 18-month high, amid increasing optimism that China’s economy will sustain its recovery and U.S. lawmakers will reach a compromise to avoid a fiscal deadlock. Rio Tinto Group led commodity shares higher. Nokia Oyj (NOK1V) gained 14 percent after winning a deal to sell its flagship smartphone in China. European Aeronautic, Defence & Space Co. jumped 15 percent after announcing a new shareholder structure and unveiling a share buyback. GDF Suez (GSZ) SA slid to a record low after saying earnings will decline next year. The benchmark Stoxx Europe 600 Index (SXXP) advanced 1.2 percent to 279.17 this week, the highest since May 2011. The gauge has rallied 19 percent from this year’s low on June 4 as the European Central Bank and the Federal Reserve expanded bond purchases and U.S. economic data beat estimates.
“Markets are hopeful that a sensible conclusion can be reached on the U.S. fiscal cliff,” Jeremy Batstone-Carr, head of research at Charles Stanley Group Plc in London, said in a telephone interview. “There is a sense of investors adding to risk, but only mildly.”  Republican defectors joined Democrats in signing a letter that called upon President Barack Obama and House Speaker John Boehner to explore “all options” to end an impasse over taxes on top earners. Congress must strike a budget deal before the New Year to prevent $607 billion of automatic tax increases and spending cuts from coming into effect. Obama said he is willing to make concessions in the talks if Republicans agree to consider taxes on the rich. “We have the potential of getting a deal done,” he said in an interview on Bloomberg Television on Dec. 4.

U.S. Yields Are Highest Versus G-7 Peers in Eight Months (Bloomberg)
Treasury yields were the highest versus their Group-of-Seven peers in eight months on speculation quickening U.S. jobs growth and Federal Reserve bond purchases will support the world’s biggest economy in 2013. Bonds in an index of G-7 debt excluding Treasuries yielded 37 basis points more than U.S. government securities, according to data compiled by Bloomberg. The difference was the least since April. Data yesterday showed China’s factory output and retail sales topped economists’ forecasts last month. “Yields will start to rise,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc. “The two largest economies are recovering.”
Benchmark 10-year notes yields were little changed today at 1.62 percent as of 9:52 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in November 2022 was 100 2/32. The rate climbed four basis points, or 0.04 percentage point, on Dec. 7 after the Labor Department said the U.S. added 146,000 jobs in November, exceeding all estimates in a Bloomberg News survey of economists. Dealers that trade with the Fed expect the central bank to begin buying as much as $45 billion of Treasuries a month at its Dec. 12 meeting and keep benchmark interest rates about zero into 2015, Bloomberg surveys show. The purchases would come on top of the $40 billion per month of mortgage securities announced in September, under the central bank’s strategy of trying to fuel the expansion by putting downward pressure on interest rates.
China’s industrial production climbed 10.1 percent in November from a year earlier and retail sales growth accelerated to 14.9 percent, the statistics bureau said yesterday. U.S. 10-year yields will increase to 2.23 percent by the end of 2013, according to a Bloomberg survey of banks and securities companies, with the most recent projections given the heaviest weightings.

Euro Near 2-Week Low on Monti Resignation Plan (Bloomberg)
The euro traded 0.3 percent from its lowest level in two weeks after Italy’s prime minister said he intends to resign, rekindling concern that a change in government will upend efforts to rein in debt. The euro slid versus most of its 16 major counterparts ahead of a Dec. 13-14 summit of European Union leaders to debate a road map for the overhaul of the 17-nation currency bloc. Demand for the dollar was limited amid speculation the Federal Reserve may announce this week additional bond purchases. The yen remained lower after data showed Japan’s economy contracted more than economists estimated. The news out of Italy “impacts the euro because it’s evidence of more political instability within the zone,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC) “In the near term at least, it does look like the euro wants to go lower.”
The euro fell 0.2 percent to $1.2907 as of 9:36 a.m. in Tokyo after touching $1.2877 on Dec. 7, the weakest since Nov. 23. It slid 0.1 percent 106.56 yen. The dollar fetched 82.56 yen from 82.49 at the end of last week, when it climbed to 82.83, the highest since Nov. 22. Italy’s Mario Monti will try to corral his coalition, which includes his predecessor Silvio Berlusconi’s People of Liberty Party, for a vote to pass the budget before handing in his “irrevocable resignation,” Italian President Giorgio Napolitano’s office said in an e-mailed statement on Dec. 8. Monti, 69, will quit immediately if his allies won’t comply, the premier’s spokeswoman, Elisabetta Olivi, said in a telephone interview.

Aussie Dollar Holds Gains on China Rebound Signs; Kiwi Rises (Bloomberg)
Australia’s dollar traded 0.3 percent from the highest in more than two months amid signs economic growth in China is rebounding, boosting the South Pacific nation’s prospects for exports. The so-called Aussie held gains from last week before Chinese trade figures today, following reports that showed retail sales and industrial production topped economists’ forecasts. New Zealand’s kiwi dollar advanced against most major peers after data showed the nation’s manufacturing volumes rose. The South Pacific currencies touched the highest in more than three weeks against the euro after former Italian Prime Minister Silvio Berlusconi pledged to topple Mario Monti. “The data from China continues to show improvement and a gradual re-acceleration,” said Peter Dragicevich, a currency economist in Sydney at Commonwealth Bank of Australia. (CBA) “It hasn’t pushed the Aussie or the kiwi too much, but it is providing support to these currencies.”
The Australian dollar traded at $1.0482 as of 12:13 p.m. in Sydney from $1.0488 on Dec. 7, when it capped a 0.6 percent weekly gain. On Dec. 6, it touched $1.0516, the highest since Sept. 21. The Aussie slid 0.1 percent to 86.45 yen. It gained 0.1 percent to 81.22 euro cents, after touching 81.48, the strongest since Nov. 20. The kiwi rose 0.1 percent to 83.36 U.S. cents and 0.1 percent to 68.75 yen. New Zealand’s currency touched 64.63 euro cents, the highest since Nov. 13, before trading at 64.58, 0.3 percent above the Dec. 7 close. Australian government bonds fell, with the 10-year yield rising three basis points, or 0.03 percentage point, to 3.15 percent.

Fed Exit Plan May Be Redrawn as Assets Near $3 Trillion (Bloomberg)
A decision by the Federal Reserve to expand its bond buying next week is likely to prompt policy makers to rewrite their 18-month-old blueprint for an exit from record monetary stimulus. Under the exit strategy, the Fed would start selling bonds in mid-2015 in a bid to return its holdings to pre-crisis proportions in two to three years. An accelerated buildup of assets would also mean a faster pace of sales when the time comes to exit -- increasing the risk that a jump in interest rates would crush the economic recovery. “There is certainly an issue about unwinding the balance sheet” in a way that “is effective and continues to support the recovery without creating inflation,” St. Louis Fed Bank President James Bullard said in an interview in October. The central bank might have to “revisit” the 2011 strategy, he added.
The Fed is already buying $40 billion a month in mortgage- backed securities to boost the economy, and policy makers meeting Dec. 11-12 will consider whether to purchase more assets. John Williams, president of the San Francisco Fed, has proposed adding $45 billion of Treasury securities a month. The bigger the balance sheet, “the riskier the exit becomes,” Richmond Fed President Jeffrey Lacker said during a Nov. 20 speech in New York. “That is something we need to think carefully about.” Krishna Memani, director of fixed income at OppenheimerFunds Inc., said a too-rapid sale of assets risks disrupting the $5.2 trillion market for agency mortgage debt.

Retail Sales in U.S. Probably Rose on Automobile Demand (Bloomberg)
Sales at U.S. retailers probably rose in November as the holiday shopping season got under way and demand for automobiles rebounded after superstorm Sandy, economists said before a report this week. The projected 0.4 percent gain would follow a 0.3 percent drop in October, according to the median forecast of 60 economists surveyed by Bloomberg before Dec. 13 figures from the Commerce Department. Other reports may show a gain in industrial production, while cheaper gasoline helped push down the cost of living. Vehicle sales last month jumped to the fastest pace since February 2008 after slowing in the wake of Sandy’s destruction along the eastern seaboard. While job gains are helping sustain consumer spending, fiscal tightening slated for early next year threatens growth and may set back employment, one reason Federal Reserve policy makers will weigh increasing stimulus when they meet this week.
“A good holiday shopping season could be mitigated to some extent by the weakness observed early in the month,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York. “The path of economic activity is suggestive to us that the Fed will continue to upsize” its stimulus programs. Cars and light trucks sold in November at a 15.5 million annual rate, up from 14.2 million a month earlier when Sandy kept East Coast shoppers away during auto dealers’ busiest time of the month, according to Ward’s Automotive Group. Ford Motor Co. (F) deliveries of cars and light trucks climbed 6.4 percent and General Motors Co. (GM) sales gained 3.4 percent, the companies said Dec. 3.

Treasuries Trade in Tightest Range Since July on Fed Speculation (Bloomberg)
Treasury 10-year note yields traded within a quarter-percentage point of a record low as stronger- than-forecast job growth failed to blunt speculation the Federal Reserve will announce another round of bond purchases. Yields on benchmark 10-year notes rose from the least in more than two weeks yesterday after Labor Department figures showed the U.S. added 146,000 jobs in November and the unemployment rate fell to 7.7 percent. Fed officials, who said after September’s policy meeting that they will buy bonds until the job market improves substantially, gather for the final time this year Dec. 11-12. The Fed “easing is going to continue,” Mohamed El-Erian, chief executive officer at Newport Beach, California-based Pacific Investment Management Co., the world’s biggest manager of bond funds, said yesterday in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “We will see more balance-sheet operations and maybe even see a tweak to the communications. The Fed will remain hyper active.”
Ten-year note yields rose less than one basis point, or 0.01 percentage point, to 1.62 percent this week, according to Bloomberg Bond Trader data. The price of the 1.625 percent notes maturing in November 2022 fell 2/32, or 63 cents per $1,000 face value, to 100. The yield traded within a range of 9.3 basis points this week, the narrowest amount since the five days ended July 20. The yield, which dropped to a record low of 1.38 percent July 25, touched 1.56 percent on Dec. 6.

IMF’s Lagarde Says U.S. Fiscal Agreement Should Be Comprehensive (Bloomberg)
International Monetary Fund Managing Director Christine Lagarde said a political agreement on the U.S. budget should be comprehensive because a minimal deal would fail to provide certainty for investors. Markets would sink without measures to avoid more than $600 billion in spending cuts and tax increases due to come into force next year, Lagarde said, according to a transcript of a taped interview for today’s “CNN’s State of the Union” program. Still, an agreement that would only extend tax cuts for the middle class without addressing spending or entitlements would be insufficient to reassure the rest of the world, she said. “I don’t think that is enough because there is still that degree of uncertainty that fuels doubt, that prevents investors, entrepreneurs, households from making decisions, because they don’t know what tomorrow will be,” Lagarde said when asked about such an option. “It would be much better to actually have a more comprehensive approach and to deal with all the issues.”
U.S. House Speaker John Boehner and President Barack Obama appear no closer to a budget agreement with three weeks left to avert the so-called fiscal cliff. Obama this week insisted that no deal is possible without letting income tax rates rise for high earners, while Boehner said the administration needs to get “serious” about spending cuts. Lagarde, who at the IMF helm has been consumed by the European debt crisis, said the turmoil there is less of a risk for the U.S. economy than the fiscal cliff. The Washington-based IMF expects U.S. growth of about 2.1 percent next year, and no growth without a broad ranging fiscal agreement, she said. “The real threat that we have at the moment is really here with us,” Lagarde said. “We can be our own best friend or our own best enemy.”

China’s Factory Output Tops Forecasts as Rebound Picks Up (Bloomberg)
China’s industrial output and retail sales exceeded forecasts last month while inflation rebounded from a 33-month low in signs the economic recovery is accelerating. Factory production climbed 10.1 percent in November from a year earlier, the National Bureau of Statistics said today in Beijing, compared with the 9.8 percent median estimate of analysts surveyed by Bloomberg News. Retail sales growth accelerated to 14.9 percent, while the consumer price index rose 2 percent from a year earlier. Today’s reports may reassure China’s new leadership under Communist Party chief Xi Jinping that growth in the world’s second-largest economy, which has slowed for seven quarters, will exceed the government’s target this year. The data may also reduce the odds of additional fiscal or monetary easing to support expansion.
“The Chinese economy is now in a sweet spot and can stay in the sweet spot” through the first half of 2013, Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong, said in a note today. “The current macro backdrop should bolster asset prices from equities to commodities.” The nation’s benchmark stock gauge, the Shanghai Composite Index, rose 4.1 percent last week, the most in a year, on expectations the recovery will gather pace and as the ruling Politburo signaled an increased focus on urban development.

China Rebounding as Xi Confronts 8.1% Unemployment Rate: Economy (Bloomberg)
China’s factory output and retail sales topped forecasts last month in signs that an economic recovery is accelerating, improvements that may pare a jobless rate newly estimated at almost double the official figure. Industrial production climbed 10.1 percent in November from a year earlier and retail sales growth accelerated to 14.9 percent, while inflation was 2 percent, the statistics bureau said yesterday. Trade data is due today. The urban unemployment rate exceeded 8 percent this year, a central bank-backed research center said yesterday in Beijing, citing a survey. China’s economic revival and inflation running at half the pace of this year’s target may help the Communist Party’s new leadership maintain public support after a once-a-decade power transition. Xi Jinping, the party chief who last week retraced a 1992 tour by Deng Xiaoping that spurred economic opening, faces a wealth gap that is now 50 percent higher than a risk level for social unrest, according to the same survey.
“China’s economy has bottomed and is rebounding, with expansion likely to reach 8 percent this quarter,” said Ren Xianfang, a Beijing-based analyst with IHS Global Insight. “A stabilizing economy is a prerequisite for the new leadership to push reform and tackle social problems such as the public discontent about the widening wealth gap.” The MSCI Asia Pacific Index rose 0.1 percent as of 9:54 a.m. in Tokyo.

China Survey Shows Wealth Gap Soaring as Xi Pledges Help  (Bloomberg)
China’s wealth gap is now 50 percent higher than a risk level for social unrest, according to a central bank-backed survey, underscoring new Communist Party chief Xi Jinping’s warning that corruption may endanger its rule. The Gini coefficient, an index measuring income inequality, was 0.61 in 2010, based on a survey of 8,438 households by the Survey and Research Center for China Household Finance, a body set up by the Finance Research Institute of the People’s Bank of China and Southwestern University of Finance and Economics. The survey also estimated the urban jobless rate in July 2012 was 8.05 percent, almost double the official figure. The ruling Communist Party pledged during a once-a-decade power transition last month to narrow the gap between rich and poor and address corruption that’s fueling discontent in the world’s second-biggest economy.
Reducing inequality is one of the main challenges facing China, the World Bank said in a February report that outlined policies to help the nation make the transition to a high-income country. “China’s wealth gap is so prevalent between regions, sectors, and urban and rural that it’s impossible to see a meaningful decline in the Gini coefficient in the short term,” Gan Li, director of the Chengdu-based center and a professor at Texas A&M University in College Station, Texas, said at a briefing in Beijing today. “Depending on market forces alone can’t resolve the gap and China must change the structure of income distribution and rely on massive fiscal transfers to narrow such a yawning disparity.”

Xi Travels to China’s Guangdong Echoing Deng Xiaoping 1992 Visit (Bloomberg)
Xi Jinping visited the southern province of Guangdong in his first trip since taking over the Communist Party, drawing parallels to a 1992 tour by paramount leader Deng Xiaoping that spurred economic opening. The visit included stopping Dec. 8 to lay a wreath at a statue of Deng built in the city of Shenzhen to commemorate the late leader’s visit two decades earlier, according to footage broadcast by Phoenix Television. Xi was shown telling members of his entourage, which Phoenix said included retired officials who had accompanied Deng on his trip, that China’s reforms were correct and must continue. Xi, 59, who succeeded Hu Jintao as the Communist Party’s general secretary last month, confronts economic growth this year forecast to be the lowest since 1999. The trip may signal that his tenure will follow that of Deng, whose 1992 visit to Guangdong was credited with helping rekindle China’s push to overhaul its economy after growth plummeted following the 1989 Tiananmen Square crackdown.
“Now is the time to remind people that only by continuing the Deng-style reform can China continue to cross the river by touching on the next stone,” said Huang Jing, a political science professor at the National University of Singapore, in reference to a phrase Deng made famous at the outset of his push to open China’s economy starting in 1978. Deng, who oversaw China’s economic rise after Mao Zedong’s death in 1976, championed the idea of testing policies locally and adopting them more broadly if they succeeded.

Japan Sinks Into Technical Recession With Two Contractions (Bloomberg)
Japan unexpectedly maintained its estimate for the economy’s contraction in the third quarter, against forecasts for a smaller drop, underscoring opposition calls for stronger measures to stoke demand. Gross domestic product shrank an annualized 3.5 percent in the three months through September, the Cabinet Office’s second estimate showed in Tokyo today, matching a preliminary reading. The median estimate of 21 economists surveyed by Bloomberg News was for a 3.3 percent drop. The government revised down the previous quarter’s figure to a annualized 0.1 percent contraction, matching the textbook definition of a recession. The figures add to evidence that the world’s third-largest economy will shrink again this quarter as exports fall and domestic demand stays weak. Opposition leader Shinzo Abe, whose party is leading in polls to win national elections on Dec. 16, has called for more fiscal stimulus and “unlimited” monetary easing to boost growth.
“There’s almost no doubt that Japan’s economy will contract again this quarter,” Yoshimasa Maruyama, chief economist at Itochu Corp. (8001) in Tokyo, said before the report. “Exports and consumer spending remain weak, and companies may find it difficult to increase investment in this environment.” The yen was trading at 82.58 per dollar at 9:15 a.m. in Tokyo after touching 82.64, an eight-month low, earlier in the day. The Nikkei 225 Stock Average was 0.4 percent higher, heading for its highest close since April after U.S. and Chinese data showed signs of recovery in the world’s two biggest economies.

Abe Says Japan Sales Tax Increase Depends on April-June Economy (Bloomberg)
Japan’s Liberal Democratic Party Leader Shinzo Abe said he would decide whether to increase a sales tax next year based on economic conditions in the second quarter. “It’s impossible to raise the tax if deflation deepens,” Abe said during a Fuji television program today. A decision will be made after data on economic conditions from April to June become available next August, he said. Polls show the LDP, the largest opposition party, is on track to return to power it lost in 2009 after the Dec. 16 election, with an absolute majority in the Diet’s lower house. Abe, in line to become prime minister, has called for “unlimited” monetary easing to end more than a decade of falling prices. Japanese Prime Minister Yoshihiko Noda won parliamentary approval in August for his bill to raise the country’s sales tax for the first time in 15 years.
The bill raises the tax to 8 percent in April 2014 and to 10 percent in 2015, and a clause allows for implementation to be canceled based on an assessment of economic conditions. The last sales tax increase in 1997 contributed to pushing the economy into a 20-month recession, costing then-premier Ryutaro Hashimoto his job.

Italy Vote Will Test EU Nobel Winners After Greek Buyback (Bloomberg)
The imminent end of Italian Prime Minister Mario Monti’s government threatens to open a new front in Europe’s crisis fight before a year-end summit, as Greece wraps up a six-month effort to secure a new bailout payment. European Union leaders, gathering in Oslo today to collect the Nobel Peace Prize, were set to check an item off their to-do list with the completion of a 10 billion-euro ($13 billion) Greek debt buyback. At the same time, former Italian Prime Minister Silvio Berlusconi’s pledge to topple Monti with his German-skeptic, anti-austerity message may rattle investors. Greece is using bailout funds to repurchase bonds with a face value of about 30 billion euros in a move that EU leaders said puts the nation on the path to debt sustainability. In Italy, where 10-year bond yields widened last week for the first time in nearly a month, Monti said Dec. 8 he will resign due to parliamentary opposition from Berlusconi and his allies, who’d previously backed the government.
“The underlying cracks within the euro zone are actually widening,” Georg Grodzki, head of credit research at Legal & General Investment Management in London, which has about $290 billion of bond funds, said in an interview yesterday. “Investors will be reading Italian politicians’ lips very, very closely.”

Italian Bonds Decline as Berlusconi Threatens Government (Bloomberg)
Italian 10-year government bonds posted their first weekly drop in four after former Premier Silvio Berlusconi threatened to withdraw his party’s support for Prime Minister Mario Monti’s coalition government. Declines yesterday pushed the yield to the most since Nov. 28 as Berlusconi’s top political deputy called for an “orderly end” to Monti’s government, saying the administration failed to develop a strategy to halt the recession. Germany’s two-year notes advanced amid speculation the European Central Bank will cut interest rates after a report yesterday showed the country’s industrial production declined in October. Finnish and Dutch two-year yields fell below zero yesterday. The drop in Italian bonds “gives us a good clue as to how much the market doesn’t like the idea of the politicians being back in power,” said Marc Ostwald, a rates strategist at Monument Securities Ltd. in London. There may be “a drift higher in yields,” he said.
Italian 10-year yields rose three basis points, or 0.03 percentage point, to 4.53 percent at 5 p.m. London time yesterday, after being as high as 4.65 percent. The 5.5 percent bond due November 2022 dropped 0.23, or 2.30 euros per 1,000- euro ($1,294) face amount, to 108.11. German yields fell as three officials with knowledge of ECB deliberations said a majority of policy makers were open to a rate cut. The central bank lowered growth forecasts this week.

Greece Is Close to Reaching Debt Buyback Target, Official Says (Bloomberg)
Greece is near to reaching its target in a buyback of sovereign debt that will unlock aid from the International Monetary Fund and the European Union, according to a Greek government official. The amount offered in the buyback of Greece’s bonds is close to 30 billion euros, the official at the Finance Ministry said on condition of anonymity, referring to the face value of the securities. The transaction went “very well,” Prime Minister Antonis Samaras told reporters in Munich late yesterday after meeting leaders of the German state of Bavaria. Domestic and overseas investors offered to sell back to Greece as much as 27 billion euros of their holdings of the nation’s bonds, state-run NET TV reported. Greek banks submitted offers of around 10 billion euros, while foreign investors, including hedge funds, offered as much as 16 billion euros, Kathimerini newspaper said.
Greece is using a 10 billion-euro loan from Europe’s bailout fund to repurchase debt it sold earlier this year and secure funds that have been blocked since June as the government tries to get its bailout program back after two elections and a deepening recession. The buyback was part of a package of measures approved by euro-area finance ministers on Nov. 27 to lower the nation’s debt to 124 percent of gross domestic product by 2020 from a projected 190 percent in 2014.