20121217 1052 Global Markets Related News.

Asia FX By Cornelius Luca - Sun 16 Dec 2012 17:16:35 CT (CME/www.lucafxta.com)
The European currencies open further up in the Far East after all major foreign currencies but the Canadian dollar advanced on Friday. The yen fell to the lowest level in over a 1 ½- year after Japan's conservative LDP party, pledged to hyper-easy monetary policy, won a landslide victory at an election. The financial markets remain focused on the "fiscal cliff" politics. While this should surely end in lifting the debt ceiling, the mangled process re-emphasizes the polarized psych in the US and politicians' lack of eagerness to cooperate despite the dire straits of the US and world economies. As of Saturday, President Barack Obama was not ready to accept a new offer from the Republican leader of the US House of Representatives to raise taxes on top earners in exchange for major cuts in entitlement programs.
The short-term outlook for the financial currencies is sideways with various biases. The medium-term outlook for most of the foreign currencies is sideways. The LGR short-term model is long on all European and commodity currencies and short yen. Good luck!

Overnight
US: Industrial production surged 1.1% in November after falling by a downwardly revised 0.7% in October. The rate of capacity utilization climbed to 78.4% in November from a revised 77.7% in October.
US: The consumer price index fell by 0.3% in November following a 0.1% increase in October. The core CPI inched up 0.1% in November after rising by 0.2% in October.

Asia Stocks Swing Between Gains, Losses on Japan Election (Bloomberg)
Asian stocks swung between gains and losses on signs the market may be overbought, while Japanese shares jumped after a party that backs more economic stimulus returned to power, spurring a drop in the yen.
The MSCI Asia Pacific Index was little changed at 127.45 as of 10:28 a.m. in Tokyo after falling as much as 0.3 percent. The MSCI Asia Pacific excluding Japan Index fell 0.2 percent to 464.06.
The 14-day relative strength index of the MSCI Asia Pacific Index climbed to 77 on Dec. 14, rising above the 70 threshold that some traders say signals equities are overheating.

China’s Stock Futures Rise, Signaling Shares Will Extend Rally (Bloomberg)
China’s stock-index futures rose, signaling shares will extend a rally that was the biggest in three years.
Futures on the CSI 300 Index (SHSZ300) expiring in December gained 0.5 percent to 2,372.40 as of 9:18 a.m. local time. Shanghai Electric Group Co. may be active after pulling a private share placement application. Zoomlion Heavy Industry Science & Technology Co. may advance after its Hong Kong-listed shares were upgraded at Credit Suisse Group AG. China’s annual central economic work conference concluded over the weekend with a target of higher “quality and efficiency” of growth next year.
The Shanghai Composite Index (SHCOMP) climbed 4.3 percent to 2,150.63 on Dec. 14, with trading volumes more than double the 30-day average, amid speculation state-backed institutions were buying shares as a manufacturing survey added to optimism the world’s second-largest economy will rebound. The CSI 300 Index jumped 5.1 percent to 2,355.86.
The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong advanced 1.5 percent. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S gained 1.4 percent.
The Shanghai Composite has dropped 2.2 percent this year, heading for a third straight annual loss. The measure trades at 11.9 times reported earnings after valuations fell to 10.8 this month, the lowest level since at least 1997, data compiled by Bloomberg show.

China’s Stocks Advance, Extending Biggest Rally in Three Years (Bloomberg)
China’s stocks rose, extending the benchmark index’s biggest rally in three years, led by industrial and consumer discretionary companies.
Zoomlion Heavy Industry Science & Technology Co. advanced 2.8 percent after its Hong Kong-listed shares were upgraded at Credit Suisse Group AG. Great Wall Motor Co. climbed to a record. China’s annual central economic work conference concluded over the weekend with a target of higher “quality and efficiency” of growth.
The Shanghai Composite Index (SHCOMP) added 0.4 percent to 2,159.99 at 9:52 a.m. local time. The gauge jumped 4.3 percent on Dec. 14, the most since October 2009, amid speculation state-backed institutions were buying shares as a manufacturing survey added to optimism the world’s second-largest economy will rebound. The CSI 300 Index (SHSZ300) climbed 0.5 percent to 2,367.85. The Hang Seng China Enterprises Index (HSCEI) advanced 0.3 percent in Hong Kong.
“We may see some profit taking along the way but the overall sentiment has improved,” Zhang Lei, an analyst with Minsheng Securities Co., said by phone from Beijing. “The rally looks likely to stay.”
The Shanghai Composite has rebounded 10 percent since slumping to an almost-four year low on Dec. 3. The gains have pared this year’s drop to 1.8 percent, which would be a third straight annual loss. The measure trades at 11.9 times reported earnings after valuations fell to 10.8 this month, the lowest level since at least 1997, data compiled by Bloomberg show.
Trading volumes on the Shanghai Composite were three times the 30-day average for this time of day.

Nikkei 225 Advances to Eight-Month High on LDP Victory (Bloomberg)
Japanese shares gained, with the Nikkei 225 Stock Average heading to its highest close in eight months, after the Liberal Democratic Party reclaimed power in a landslide yesterday, lifting optimism for an economic recovery.
Fast Retailing Co., Asia’s biggest clothing retailer, gained 3.5 percent. Honda Motor Co. (7267), an automaker that counts North America as its biggest market, gained 1.3 percent after the yen weakened against the dollar. Tokyo Tatemono Co., a property developer, increased 7 percent. Asahi Glass Co. sank 2.7 percent after the Nikkei newspaper said the company may miss its profit forecast.
The Nikkei 225 rose 1.4 percent to 9,877.07 as of 9:46 a.m., its highest since April 3. The measure has gained 14 percent since Nov. 14, when elections were announced. The LDP has called for more monetary easing and a doubling of the nation’s inflation goal. The broader Topix Index climbed 0.9 percent to 808.48, with all but one of its 33 industry groups gaining.
“The market hasn’t priced in this kind of a landslide win,” said Hideyuki Ishiguro, senior strategist at Okasan Securities Co. in Tokyo. “There’s more certainty that LDP will make progress in deflation-fighting agenda. This could be a turning point for Japanese stocks.”
The LDP yesterday captured 294 seats in the 480-member lower house of parliament, while Prime Minister Yoshihiko Noda’s Democratic Party of Japan lost three-fourths of its lawmakers, according to public broadcaster NHK’s vote count. LDP leader Shinzo Abe, 58, is set to replace Noda, returning to the office he left five years ago for health reasons.

U.S. Stocks Fall for Week as Budget Talks Overshadow Fed, Growth (Bloomberg)
U.S. stocks had their first weekly decline in a month as budget talks dragged on, overshadowing the Federal Reserve’s plan to expand bond purchases and better-than- estimated economic data.
Consumer companies fell the most among 10 groups in the Standard & Poor’s 500 Index as analysts cut ratings for Family Dollar Stores Inc. (FDO) and Priceline.com Inc. Apple Inc. (AAPL) sank 4.4 percent after UBS AG and Jefferies & Co. lowered their share- price estimates. Berkshire Hathaway Inc. (BRK/A) and DuPont Co. each climbed 2.1 percent amid optimism over share buybacks. An index of steelmakers rallied 7 percent as economic data beat forecasts in China, the world’s biggest buyer of industrial metals.
The S&P 500 fell 0.3 percent to 1,413.58, snapping a three- week gain. The Dow Jones Industrial Average declined 20.12 points, or 0.2 percent, to 13,135.01 for the week.
“The market would love for a fiscal cliff deal to be announced, then it would trend back to really the fundamentals, which are actually looking better,” David Chalupnik, head of equities at Nuveen Asset Management in Minneapolis, said in a phone interview. His firm manages $112 billion. “Time is running out here pretty quickly for certainly a grand bargain type of deal.”
President Barack Obama and Republican House Speaker John Boehner remained deadlocked during their third White House meeting on next year’s budget. More than $600 billion in tax increases and spending cuts are scheduled to start taking effect in January unless Congress acts to avert them.

European Stocks Little Changed This Week; Peugeot Rallies (Bloomberg)
European stocks were little changed this past week, following three weeks of gains, as concern U.S. lawmakers won’t agree on a budget before the holiday offset optimism that the euro area will get a single banking regulator.
PSA Peugeot Citroen SA soared 16 percent, the biggest rally on the Stoxx Europe 600 Index (SXXP) this past week, as the carmaker said it will cut another 1,500 jobs. Alcatel Lucent SA jumped 6.4 percent after winning a financing deal. Deutsche Bank AG declined 5.5 percent after Germany’s biggest lender said fourth- quarter profit will fall short of analysts’ estimates.
The benchmark Stoxx Europe 600 Index rose 0.1 percent to 279.4 this past week. The equity benchmark has rallied 19 percent from this year’s low on June 4 as the European Central Bank and the Federal Reserve introduced bond-buying programs.
“Investors have had a good year with good results and don’t want to take on more risk until the end of the year,” said Paulo Goncalves, financial assets manager at Banco Popular Portugal SA in Lisbon. “The market is hitting very close to resistance levels, so it’s now beginning to move sideways as we reach the end of the year.”
European stocks will struggle to extend their rally this year as the region’s benchmark measure trades close to a key resistance level. The Stoxx 600 remains stuck near the 50 percent Fibonacci retracement level of the slump between July 2007 and March 2009 in the aftermath of the financial crisis.


Korea Won Rises Toward 15-Month High as Abe Wins in Japan (Bloomberg)
South Korea’s won rose toward a 15- month high and government bonds fell on speculation Japan will step up monetary easing after Japan’s Liberal Democratic Party reclaimed power in yesterday’s elections.
The yen fell to its weakest level since April 2011 versus the dollar, while the won appreciated against the yen for a ninth day. Shinzo Abe’s LDP is proposing a “large scale” supplementary budget to stimulate the economy, according to election pledges posted on its website. South Korea’s central bank Governor Kim Choong Soo said last week that “appropriate” action on won volatility will be taken if needed.
“Investors are doing cross trades of selling the yen and buying the won, and expectations for further monetary easing by Japan are also supporting the won on inflows optimism,” said Byeon Ji Young, a Seoul-based currency analyst for Woori Futures Co. “Still, won appreciation is being limited near the 1,072 per dollar level on government intervention concerns.”
The won appreciated 0.2 percent to 1,073 per dollar as of 9:33 a.m. in Seoul, according to data compiled by Bloomberg. The currency touched 1,071.08 on Dec. 13, the strongest level since Sept. 8, 2011. One-month implied volatility, a measure of expected moves in exchange rates used to price options, slid 10 basis points, or 0.10 percentage point, to 4.75 percent.
The yield on South Korea’s 2.75 percent bonds due September 2017 increased one basis point to 3.01 percent, Korea Exchange Inc. prices show. The one-year interest-rate swap was little changed at 2.82 percent.
South Koreans vote Dec. 19 to replace President Lee Myung Bak, whose five-year term ends in February. Candidate Lee Jung Hee abandoned the race yesterday, providing a boost for main opposition contender Moon Jae In as he trails the front-runner from the ruling New Frontier Party by less than 1 percentage point.

Yen Falls to Weakest Since April 2011 on Abe Victory (Bloomberg)
The yen fell to its weakest level since April 2011 versus the dollar as Shinzo Abe’s victory in Japan’s general election adds to the case for the nation’s central bank to expand stimulus as early as this week.
The yen tumbled to an almost nine-month low against the euro after Abe’s Liberal Democratic Party captured 294 seats in the 480-member lower house of parliament yesterday, while Prime Minister Yoshihiko Noda’s Democratic Party of Japan lost three- fourths of its lawmakers, according to public broadcaster NHK’s vote count. Japan’s stocks rose and government bonds slid.
The election results would mean “the monetary policy which Abe has been advocating will become a real possibility,” said Yuji Saito, director of the foreign-exchange department in Tokyo at Credit Agricole SA. (ACA) “The market may try to weaken the yen beyond the psychological level of 85” per dollar, he said.
The yen declined to as low as 84.48 per dollar, the weakest since April 12, 2011. It was at 84.07 as of 9:04 a.m. in Tokyo, 0.7 percent below the close in New York on Dec. 14. Japan’s currency fell 0.7 percent to 110.63 per euro, after touching 111.32, the weakest since March 21. The dollar was little changed at $1.3162 per euro.
The Nikkei 225 Stock Average jumped 1.5 percent to 9,886.76. The nation’s 10-year bonds declined, pushing yields on the benchmark 10-year note up by 1 basis point, or 0.01 percentage point, to 0.735 percent.

Australian, N.Z. Dollars Gain Against Yen on Abe Victory (Bloomberg)
The Australian dollar rose to the strongest in 19 months versus the yen after Japan’s Liberal Democratic Party, led by Shinzo Abe, reclaimed power in yesterday’s elections.
New Zealand’s dollar touched a four-year high versus the Japanese currency amid speculation the election results add to the case for more Bank of Japan (8301) stimulus as early as this week. Gains in the so-called Aussie were limited before the Reserve Bank of Australia releases minutes tomorrow from this month’s meeting, at which the central bank cut interest rates by 25 basis points. Australian bond yields touched three-month highs.
“We had a very large lift in the dollar-yen and yen crosses after the election result,” said Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank of Australia, the nation’s biggest lender. “The RBA minutes are likely to put a little bit of downward pressure on the Aussie because they’re likely to indicate the RBA is still open to further easing.”
The Australian dollar gained 0.4 percent to 88.58 yen as of 12:42 p.m. in Sydney from Dec. 14, after earlier touching 89.13, the highest since May 2, 2011. The Aussie fell 0.2 percent to $1.0544. The currency touched NZ$1.2455, the lowest since Oct. 9, before trading at NZ$1.2465.
New Zealand’s dollar, known as the kiwi, reached 71.51 yen, the strongest since October 2008, before trading at 71.06, 0.5 percent above the close in New York. The currency was little changed at 84.58 U.S. cents from 84.63 on Dec. 14.

Treasuries Fall for Second Week Amid Inflation Concern (Bloomberg)
Treasuries fell for a second week, the first back-to-back losses in three months, as the Federal Reserve’s expansion of a bond-buying program spurred speculation inflation will increase.
Thirty-year yields touched a five-week high after the Federal Open Market Committee announced plans to buy $45 billion of Treasuries a month and took the unprecedented step of linking stimulus measures to unemployment and inflation. Losses were tempered by concern a budget standoff in Washington may push the economy into recession. The U.S. sold $66 billion in notes and bonds, and said it will auction $113 billion of notes next week.
“The Fed’s message was one of higher tolerance for inflation, and they are purchasing less on the long end, which has been bearish for bonds,” said Gary Pollack, head of fixed- income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. “Still, the driving force in the market is the uncertainty around the fiscal cliff, and until that’s resolved we won’t stray far from the range.”
The 30-year bond yield increased five basis points, or 0.05 percentage point, to 2.86 percent this week in New York, according to Bloomberg Bond Trader prices. It touched 2.93 percent on Dec. 13, the highest level since Nov. 2. The price of the 2.75 percent security due in November 2042 sank 1 2/32, or $10.63 per $1,000 face amount, to 97 23/32. The last time it fell two consecutive weeks was in September.
The yield on the benchmark 10-year note climbed eight basis points to 1.7 percent.

Industrial Production in U.S. Jumps on Rebound From Sandy (Bloomberg)
Industrial production jumped in November by the most in two years as U.S. manufacturers began to rebound from the damage inflicted by superstorm Sandy.
Output at factories, mines and utilities increased 1.1 percent last month, the most since December 2010, after a 0.7 percent drop in October that was larger than previously estimated, the Federal Reserve reported today in Washington. Other data showed consumer prices fell last month as fuel costs retreated.
Manufacturing, which stumbled in the second half of the year, is stabilizing as housing recovers, auto sales improve and growth in countries such as China shows signs of picking up. The deadlock over the federal budget remains a hurdle for American factories as a failure to avert tax increases and spending cuts is projected to trigger a recession in world’s largest economy.
“The outlook for the back half of 2013 is actually not that bad,” as long as lawmakers reach a budget deal, said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York, one of the top industrial-production forecasters over the past two years according to Bloomberg Rankings. “We do have decent job gains, decent income gains, consumer spending is holding up and housing is turning around. You could easily see a constructive profile for the economy.”
Stocks fell, extending yesterday’s drop, as a slump in Apple Inc. and budget-talk concerns overshadowed the rise in industrial production and data showing China’s manufacturing may expand at a faster pace. The Standard & Poor’s 500 Index decreased 0.4 percent to 1,413.58 at the close in New York. Treasury securities rose, sending the yield on the benchmark 10- year note down to 1.70 percent from 1.73 percent late yesterday.

Spending Probably Rose in U.S., Home Sales Climbed (Bloomberg)
Consumer spending probably rose in November as Americans set aside the threat of higher taxes next year while shopping for the holidays, economists said before reports this week.
Household purchases increased 0.4 percent last month after declining 0.2 percent in October, according to the median estimate from 66 economists surveyed by Bloomberg before Dec. 21 figures from the Commerce Department. Other reports may show home sales and demand for long-lasting goods climbed.
“The economy is holding in,” said Jim O’Sullivan, chief U.S. economist for High Frequency Economics Ltd. in Valhalla, New York. “For the household sector, the housing numbers have been quite good. The labor-market numbers are OK.”
A jump in auto sales last month is among the evidence that the world’s largest economy is rebounding from the damage caused by superstorm Sandy. Improving property values and falling fuel costs are helping brace consumers against the more than $600 billion in tax increases and government spending cuts that will take effect in January without action from Congress.
“There is a lot of nervousness about the fiscal cliff, so I think how that gets resolved will be important to what happens next,” O’Sullivan said.
Retail sales rose 0.3 percent last month after a 0.3 percent decrease in October, the Commerce Department reported last week. Ten of 13 major categories showed gains, led by a 1.4 percent increase at auto dealers, a 2.5 percent jump at electronics outlets and a 0.9 percent pickup at clothing stores.

China Signals Tolerance of Slower Growth After Meeting (Bloomberg)
China said it will seek a higher “quality and efficiency” of growth next year, signaling new leaders may accept a reduced pace of expansion in exchange for a more sustainable model.
There was no mention of seeking “relatively fast” growth, a policy in place since 2006, in a report yesterday by the state-run Xinhua News Agency after the annual central economic work conference in Beijing. Leaders vowed to target “sustained and healthy development” as they maintain a “prudent” monetary policy and “proactive” fiscal stance, Xinhua said.
Chinese leaders assuming power in a once-a-decade handover to be completed in March must decide the pace of market-driven change to boost consumer demand and rein in the role of exports and investment. Communist Party chief Xi Jinping, who made the case for restructuring during a visit to the southern Guangdong province this month, faces an economy likely to have grown this year at the weakest rate since 1999.
“Now the focus is firmly on reform for next year and the future,” said Shen Jianguang, Hong Kong-based chief Asia economist at Mizuho Securities Asia Ltd. “The key to watch is how fast the new leadership will proceed with the real tough structural change and reform. Many of these are easier said than done.”
Even so, “next year is considered a vital year for the new leadership,” so the government will not allow a so-called hard landing in growth, Shen said.

China Scraps QFII Limit on Sovereign Funds, Central Banks (Bloomberg)
China scrapped a ceiling on investments by overseas sovereign wealth funds and central banks in its capital markets, part of government efforts to encourage long-term foreign ownership and shore up slumping equities.
SWFs, central banks and monetary authorities can now exceed the $1 billion limit that still applies to other qualified foreign institutional investors, according to revised regulations posted Dec. 14 on the State Administration of Foreign Exchange’s website.
The Shanghai Composite Index (SHCOMP) jumped the most since October 2009 on Dec. 14 after the head of the Hong Kong Monetary Authority said Dec. 13 that China may relax or abolish a rule that requires Renminbi Qualified Foreign Institutional Investors to keep most of their funds in bonds. The China Securities Regulatory Commission has cut trading fees, pushed companies to increase dividends and allowed trust companies to buy equities since Guo Shuqing took over as chairman last year.
Introducing more long-term funds from abroad will help improve market confidence, promote stable growth in capital markets and provide “robust” investment returns to domestic investors, the regulator said in May, a month after the government more than doubled the total quota for QFIIs to $80 billion from $30 billion.
The benchmark Shanghai Composite has lost 2.2 percent this year, while the MSCI China Index of mostly Hong Kong-traded shares, open to overseas investors, has gained 18 percent as U.S. bond purchases spurred foreign funds to pour money into emerging markets.

Singapore’s Exports Unexpectedly Fell on Slump in Electronics (Bloomberg)
Singapore’s exports unexpectedly fell for the third time in four months in November as shipments of electronics slumped and companies sold fewer goods to U.S. customers.
Non-oil domestic exports fell 2.5 percent from a year earlier, after a 7.9 percent gain in October, the trade promotion agency said in a statement today. The median of 11 estimates in a Bloomberg News survey was for a 1.7 percent increase.
Singapore lowered its 2012 forecasts for export growth and economic expansion last month, as a global slowdown weighs on demand for its goods and services. A report last week showed U.S. companies are keeping inventories lean amid concern a recovery could stall if the country fails to avert a package of government spending cuts and tax increases set to take effect next year.
“We expect electronics exports to underperform in 2013,” Chester Liaw, a Singapore-based economist at Forecast Pte, said before the report. “We only expect a 2 percent rise in non-oil domestic exports over 2013, and that’s coming on the back of a series of low base effects in electronics.”
Singapore’s exports are forecast by the Trade Ministry to rise 2 percent to 3 percent in 2012, and as much as 4 percent next year.
Electronics shipments by companies such as Venture Corp. fell 16.5 percent in November from a year earlier, after slipping 0.8 percent the previous month, according to the report.
Non-electronics shipments, which include petrochemicals and pharmaceuticals, climbed 6.3 percent. Petrochemical exports gained 4.1 percent, while pharmaceutical shipments increased 29.6 percent after rising 2.7 percent in October.
Singapore’s non-oil exports fell a seasonally adjusted 0.3 percent last month from October, when they dropped 1.2 percent, today’s report showed.

Mario Monti’s Resignation May Slow Year of Euro Agreement (Bloomberg)
Italian Prime Minister Mario Monti’s looming resignation this week may threaten progress in fighting the three-year debt crisis even as European leaders wrap up the year with newly won breathing room.
Monti, under pressure from euro-area and business leaders to enter the Italian election campaign, plans to quit once parliament passes his budget this week. Former Prime Minister Silvio Berlusconi withdrew support from Monti’s government of non-politicians Dec. 6. The Italian upper house starts debate today on the budget, which will then pass to the lower house.
The European Union summit last week closed out a year in which policy makers bolstered the 17-nation single currency by setting up fiscal rules for indebted states, a permanent bailout fund, a central-bank bond-buying program and a road map for tighter banking and fiscal union. Work was overshadowed this month when Berlusconi pulled his support and pledged to return to power for the fourth time, only to backtrack as long as Monti forms what he called a “coalition of moderates.”
“None of the likely outcomes will derail last year’s reform process,” Erik Nielsen, London-based chief global economist at UniCredit SpA (UCG), wrote in a note to clients yesterday, referring to the Italian Italian election, which will probably be held in February. “That said, it requires close monitoring.”

European Union, Singapore Complete Free Trade Pact Negotiations (Bloomberg)
The European Union and Singapore concluded negotiations on a free-trade agreement after almost three years of talks, boosting the bloc’s efforts to increase commerce with Asian nations to revive economic growth.
The EU will eliminate tariffs on all imports from Singapore over five years, while the island will allow duty-free access for all incoming shipments from the region immediately, the city’s Ministry of Trade and Industry said in a statement today. The deal will help companies from both signatories to bid for government contracts in the other’s market.
“Both Singapore and the EU will make extensive commitments guaranteeing access to each other’s services markets,” the ministry said. The tariff removals “will benefit Singapore exporters of electronics, pharmaceuticals, chemicals, and processed food products.”
European and Asian leaders last month called for unfettered commerce and warned against protectionism as the sovereign debt crisis threatens to undermine trade ties between the world’s fastest and slowest-growing regions. The 27-member EU has seen talks lag with China, Japan, India and Southeast Asian countries since 2007. Negotiations with Singapore began in March 2010.
The International Monetary Fund forecasts the euro area’s economy will contract 0.4 percent this year, while that of the developing Asian region may grow 6.7 percent.
The EU suspended in 2009 trade talks with the 10-member Association of Southeast Asian Nations, a bloc with about 600 million people, and is now negotiating separate agreements with individual countries such as Malaysia and Vietnam. Similar discussions with India that kicked off in 2007 are stalled.

Gilts Fall as Reports Signal U.K. Economy Strengthening (Bloomberg)
U.K. government bonds fell this week, with 10-year yields rising the most since October, as data signaled the economic recovery is gaining strength, weakening the case for more bond-buying by the Bank of England.
Ten-year gilts dropped for a sixth straight day yesterday, the longest stretch of declines since October 2011. Standard & Poor’s lowered the U.K.’s credit-rating outlook to negative from stable on Dec. 13, citing weak economic growth and a worsening debt profile. An industry group yesterday predicted house prices will increase next year and a Bank of England official said the economy will improve in 2013.
“It’s more to do with the economy” rather than the rating outlook, said Annalisa Piazza, a strategist at Newedge Group in London, referring to the rise in yields. “The rating agencies are obviously concerned that there will be a cyclical impact on the fiscal consolidation given the reduced receipts because of the lower activity. That’s why they need to be alert.”
The 10-year gilt yield climbed 12 basis points, or 0.12 percentage point, this week to 1.86 percent at 5 p.m. in London yesterday. That’s the biggest increase since the period ended Oct. 19. The 1.75 percent bond due in September 2022 declined 1.06, or 10.60 pounds per 1,000-pound ($1,614) face amount, to 99.005.

Spanish Bonds Rise After Debt Sale, EU Agreement on Greek Aid (Bloomberg)
Spanish bonds advanced for a third week in four as borrowing costs fell at a debt sale and after European leaders signed off on the next aid tranche for Greece, stoking optimism the euro-region debt crisis is being contained.
Greece’s 10-year debt rose for a sixth week after the nation said it had reached a deal to buy back some of its sovereign securities. Similar-maturity German bunds fell as European Union leaders approved the payout of 49.1 billion euros ($64.3 billion) of loans for Greece through March and laying the groundwork for a supra-national bank supervisor, damping demand for the safest assets. Spain sold 2.02 billion euros of government debt.
“A lot of event risks have now passed, the Italian and Spanish bond auctions have gone through without any hiccups, the Greek tranche has been signed off and that paves the way for limited event risks for the remainder of the year,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. “The periphery is on a firmer footing as a result,” he said referring to lower-rated euro-area nations.
Spanish 10-year yields slid seven basis points, or 0.07 percentage point, in the week to 5.39 percent at 5 p.m. London time yesterday. The 5.85 percent bond due January 2022 rose 0.465, or 4.65 euros per 1,000-euro face amount, to 103.225. Two-year yields fell eight basis points to 2.88 percent.
German 10-year yields climbed five basis points to 1.35 percent as demand for the region’s safest assets waned.