Asia FX By Cornelius Luca - Sun 08 Jul 2012 17:14:59 CT (Source : CME)
The foreign currencies open little changed ahead of the Chinese economic data after the worse than expected nonfarm payrolls report sent the European and commodity currencies in a tail spin on Friday. While disappointing, this report is unlikely to tip the Fed's hand to further help the deteriorating US economy. After all, the Fed is running out of bullets. The short-term outlook for most of the European and commodity currencies is sideways with additional downside risk. The medium-term outlook for most of the foreign currencies is bearish. The LGR short-term model is short on the European currencies and yen. Good luck!
Overnight
US: The non-farm payroll employment rose by only 80,000 jobs in June, below expectations for an increase of 100,000 jobs. The report for May was revised to +77,000 jobs from 69,000 jobs originally reported, and the report for April was revised to +68,000 jobs from 77,000 jobs. The unemployment rate remained unchanged at 8.2%.
Canada: Building permits rose 7.4% in May after contracting -4.4% in April.
Canada: The unemployment rate slipped to 7.2% in June from 7.3% in May.
Canada: The Ivey PMI fell to 55.3 in June from 60.5 in May.
Today's economic calendar
China: Consumer Price Index in June
China: Producer Price Index in June
Japan: Machinery orders in May
Japan: Merchandise trade balance for May
Japan: Eco watchers survey
Asia Stocks Drop as U.S., Japan Data Fuels Growth Concern (Source: Bloomberg)
Asian stocks fell for a third day amid concern slower growth is damaging earnings after Premier Wen Jiabao said China’s economy faces “relatively large” downward pressure and Japanese machinery orders fell more than expected following a disappointing U.S. jobs report. Komatsu Ltd. (6301), a Japanese maker of construction equipment, lost 3.1 percent. BHP Billiton Ltd. (BHP), the world’s biggest mining company, slid 1.6 percent as metals prices dropped. Iluka Resources Ltd. (ILU) tumbled 18 percent after the Australian miner said revenue will miss estimates. Chinese developers traded in Hong Kong may be active after Wen pledged to stabilize home prices. The MSCI Asia Pacific Index (MXAP) declined 0.8 percent to 117.68 as of 9:40 a.m. in Tokyo before markets in China and Hong Kong opened. Four stocks dropped for each that rose. The gauge has fallen 8.8 percent from this year’s high in February amid concern economic expansion is faltering in China and the U.S. as Europe’s debt crisis deepens.
“Long-term growth issues remain,” said Masahiko Ejiri, a senior fund manager in Tokyo at Mizuho Asset Management Co., which oversees $39 billion. “I’m negative on the macro-economic environment and I’m staying defensively positioned. There needs to be more stimulus from authorities to address slowing growth.”
Japan Stocks Fall on U.S. Jobs, Japan Machinery Orders (Source: Bloomberg)
Japanese stocks fell for a third day after the U.S. added fewer jobs than expected, raising concern the world’s largest economy is slowing, and as a report showed Japan’s machinery orders in May fell more than expected. Nissan Motor Co. (7201), a carmaker that counts North America as its biggest market, slid 1.6 percent. Komatsu Ltd. (6301), a construction equipment maker, sank 3.1 percent. Daiei Inc. tumbled 6.8 percent after the retailer posted a first-quarter operating loss. Inpex Corp., the nation’s top oil explorer by market value, slid 2.2 percent after crude prices fell. The Nikkei 225 Stock Average (NKY) fell 1 percent to 8,934.64 as of 10:07 a.m. in Tokyo, with volume more than 20 percent below the 30-day average. The broader Topix (TPX) Index lost 0.8 percent to 765.74, with more than two shares falling for each that rose.
“Positive expectations toward the U.S. economy are falling off,” Tomomi Yamashita, a senior fund manager at Shinkin Asset Management Co. in Tokyo, which oversees $6.6 billion. Japan’s machine orders are “enormously bad. The global economy is moving in bad direction.” Japan’s machinery orders, an indicator of capital spending, fell 14.8 percent in May from the previous month, the Cabinet Office said, Economists had been expecting a 2.6 percent decline. The nation’s current-account surplus was the smallest in May since at least 1996.
U.S. Stocks Fall for Week as Jobs Data, ECB Damp Optimism (Source: Bloomberg)
U.S. stocks fell for the week, after the Standard & Poor’s 500 Index reached a two-month high, as jobs data heightened concern about a slowing economy and Europe’s efforts to tame its debt crisis disappointed investors. Industrial and financial stocks lost the most in the S&P 500 in the holiday-shortened week, sinking more than 1.2 percent, as eight out of 10 industries in the benchmark index retreated. JPMorgan Chase & Co. (JPM), Bank of America Corp. (BAC) and General Electric Co. (GE) led declines in the Dow Jones Industrial Average. Netflix Inc. (NFLX) surged 20 percent after an analyst said the company’s online audience exceeds cable and TV networks. The S&P 500 lost 0.6 percent to 1,354.68 for the week, trimming its gain for the year to 7.7 percent. The Dow dropped 107.62 points, or 0.8 percent, to 12,772.47. Global stocks surged the previous week, with the S&P 500 rallying 2 percent, amid optimism that an agreement by European leaders would help contain the region’s debt crisis.
“The jobs report is the single most important economic statistic and unfortunately it’s not showing signs of health, which is weighing down on stocks,” said Lawrence Creatura, who helps oversee $363.6 billion as a Rochester, New York-based fund manager at Federated Investors Inc. “Europe has become a multi- year yo-yo of increasing expectations and subsequent disappointment.”
European Stocks Advance for Fifth Week; Arkema Rallies (Source: Bloomberg)
European stocks rose for a fifth week as investors bet central banks would add to measures to stimulate economic growth, with the Stoxx Europe 600 Index paring some gains on concern that risks to a recovery remain. Arkema SA (AKE) jumped 15 percent after FT Alphaville reported the French maker of specialty chemicals and additives received takeover approaches. GKN Plc (GKN), the British maker of parts for Airbus SAS airplanes, surged 15 percent after buying Volvo AB’s aircraft-engine unit. The Stoxx 600 climbed 1.3 percent to 254.4 this week, for the longest stretch of gains since January. The benchmark measure has rallied 8.8 percent from this year’s low on June 4 after policy makers, meeting in Brussels last month, eased repayment rules for Spanish banks and relaxed conditions for possible aid to Italy.
“Monetary easing by the U.K., China’s anticipated rate cut and the lingering good sentiment after the EU summit supported the markets,” said Manish Singh, the London-based head of investment at Crossbridge Capital, which has more than $2 billion under management. “There’s an accepted view that bad news is also good news. So bad economic data made some investors think there’s help on the way.”
U.K. Stocks Drop as U.S. Jobs Report Misses Estimates (Source: Bloomberg)
U.K. stocks dropped from a two-month high as a report showed that the U.S. economy added fewer jobs last month than economists had estimated. Rio Tinto Group declined 2.8 percent as commodity producers retreated. Aviva Plc (AV/) rose 1.2 percent after selling more shares in Delta Lloyd NV than previously planned. The FTSE 100 Index (UKX) lost 30 points, or 0.5 percent, to 5,662.63 at the close in London. The gauge has still added 1.7 percent this week, its biggest weekly gain since the beginning of June as the Bank of England increased its bond-buying program and surveys of manufacturing in economies from China to the euro area beat economists’ estimates. The broader FTSE All-Share Index also dropped 0.5 percent today, while Ireland’s ISEQ Index slipped 1.6 percent.
“The U.S. numbers are disappointing, not just at the headline level, but also at the private employment level,” said Gerard Lane, a strategist at Shore Capital Group Ltd. in Liverpool, England. “The news is not bad enough to lead to quantitative easing, and it’s not good news.” A U.S. Labor Department report today showed that employers in the world’s largest economy hired fewer workers in June than economists had forecast. Payrolls rose 80,000 last month after increasing a revised 77,000 in May, the release showed. Economists had projected a 100,000 gain, according to the median estimate in a Bloomberg News survey. The unemployment rate remained at 8.2 percent.
U.S. Yield Is 11 Basis Points From Low on QE3 Outlook (Source: Bloomberg)
Treasury yields were 11 basis points from the record low on speculation the Federal Reserve will start a third round of bond purchases to sustain the economic expansion following a smaller-than-forecast June jobs gain. “The Fed is likely to ease further,” Jan Hatzius, the chief economist at Goldman Sachs Group Inc. in New York, wrote in a report yesterday. The company is one of the 21 primary dealers that underwrite the U.S. debt. The central bank bought $2.3 trillion of securities in two rounds of so-called quantitative easing, known as QE1 and QE2, from 2008 to 2011 to support the economy. U.S. payrolls rose by 80,000 last month, the Labor Department reported July 6, versus 100,000 projected by economists. “Friday’s data will bring QE3,” said Kim Youngsung, the head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $98.8 billion in assets. “Everybody wants to buy U.S. Treasuries” as a haven, he said. “The price will go higher.”
Benchmark 10-year yields were little changed at 1.55 percent as of 10:04 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.75 percent security due in May 2022 was 101 27/32. The all-time low yield was 1.44 percent set June 1. A basis point is 0.01 percentage point.
FOREX-Euro stays weak as market awaits U.S. jobs data
LONDON, July 6 (Reuters) - The euro stayed close to a five-week low against the dollar, a day after an interest rate cut by the European Central Bank further dampened the common currency's appeal and as the market awaited key U.S. jobs data.
"If non-farm payrolls are strong enough to suggest there will be no QE from the Fed, the dollar will strengthen. If they are weaker then the dollar will fall as the Fed will just be playing catch-up with the rest of the world," said ING head of currency strategy Chris Turner.
Aussie Dollar Weakens as Stock Declines Sap Yield Demand (Source: Bloomberg)
Australia’s dollar fell against most of its major peers as Asian stocks extended a global rout and amid concerns China’s economy is slowing, sapping demand for higher-yielding currencies. The Australian and New Zealand currencies dropped on July 6 after a report showed U.S. jobs growth last month was weaker than economists expected. China’s Premier Wen Jiabao said downward pressure on the nation’s economy is still “relatively large,” the official Xinhua News Agency said yesterday. China will report a series of economic figures this week, beginning with inflation data today that showed consumer prices rose 2.2 percent in June from a year earlier.
“In the near term, we could expect to see the Australian dollar continuing to come lower in what may be a fairly risk- averse market environment,” said Ray Attrill, global co-head of foreign-exchange strategy at National Australia Bank Ltd. (NAB) Wen’s comments “play to the view that when we get the latest China activity numbers this week, they may disappoint to the downside.” The so-called Aussie lost 0.3 percent to $1.0186 as of 11:34 a.m. in Sydney. It fell as much as 0.5 percent to 80.96 yen, the weakest since June 29, before trading 0.4 percent lower at 81.05 yen. New Zealand’s dollar slid 0.2 percent to 79.59 U.S. cents. The so-called kiwi dropped 0.3 percent to 63.35 yen after touching 63.30, the lowest this month.
Euro Touches 2-Year Low Before Finance Ministers Meet (Source: Bloomberg)
The euro touched its lowest level in two years before regional finance ministers gather in Brussels today to discuss crisis-fighting measures adopted by heads of government at a summit last month. The 17-nation currency weakened versus most of its 16 major counterparts before a bill sale in Italy this week. The yen advanced against all of its most-traded peers after Japan released trade data for May and as Asian stocks extended losses in global equity markets from last week, boosting demand for haven assets. Australia’s dollar fell for a second day after Chinese Premier Wen Jiabao said downward pressure on the economy is still “relatively large.” “The risk around the finance ministers’ meeting is that we see more cracks appearing in European unity and perhaps a delay in implementation of the measures agreed on at the summit,” said Mike Jones, a Wellington-based currency strategist at Bank of New Zealand Ltd. “That’s taking some toll on the euro.”
The euro earlier slid to as low as $1.2251, the weakest since July 2010, before trading at $1.2281 as of 9:12 a.m. in Tokyo, 0.1 percent lower than the close on July 6. The shared currency lost 0.3 percent to 97.65 yen. The yen gained 0.2 percent to 79.52 per dollar. The so-called Aussie declined 0.1 percent to $1.0205.
Most-Accurate Forecasters See Euro Bottom (Source: Bloomberg)
The world’s most-accurate foreign- exchange strategists say the worst is over for the euro this year, putting them at odds with traders who see more pain as the region’s economy shrinks and the sovereign debt crisis deepens. Led by Wells Fargo & Co. and Westpac Banking Corp. -- which correctly called the euro’s weakness last quarter -- the five best firms as measured by Bloomberg expect Europe’s 17-nation common currency to end the year at about $1.26, up from $1.2291 last week. That’s above the $1.24 median estimate in a survey of 55 strategists by Bloomberg News. After sliding in April and May, the euro’s drop slowed in June against a basket of currencies tracked by Bloomberg as European Union leaders approved measures making it easier for Spain and Italy to obtain aid, setting the stage for greater fiscal cooperation in a region where five nations have sought bailouts.
While strategists are optimistic, derivatives show traders are about the most bearish ever on the euro versus the dollar over the next 12 months compared with the next 90 days. “We expect within the ebb and flow of the European debt crisis that things will get better rather than worse this year,” said Nick Bennenbroek, the head of currency strategy in New York at Wells Fargo. “Not only were the decisions that were taken in June by European leaders positive, but we continue to see supportive movements from the central bank as well.”
China Must Prevent Rebound in Property Prices, Wen Says (Source: Bloomberg)
Chinese Premier Wen Jiabao said downward pressure on the economy is still “relatively large” and the government will intensify fine-tuning of policies even as measures taken since April are helping stabilize a slowdown. Wen’s comments, four days after the central bank announced the second interest-rate cut in a month, were made during an inspection tour of eastern Jiangsu province, the official Xinhua News Agency reported yesterday. The premier also pledged to “unswervingly” continue property controls and prevent prices from rebounding, Xinhua said. Asia’s largest economy probably grew at the slowest pace in three years in the second quarter, underscoring the risks to a global recovery already threatened by a worsening crisis in the euro area and faltering employment gains in the U.S. The International Monetary Fund next week will cut its world-growth estimate this year, with Managing Director Christine Lagarde warning the outlook has “regrettably become more worrisome.”
“The big downside risks to economic growth increase the pressure for monetary easing,” economists Peng Wensheng and Zhao Yang from Beijing-based China International Capital Corp. said in a July 6 note. “Based on the recent developments in the global economy, we believe major central banks will take more conventional and unconventional measures in coming months to loosen monetary conditions and encourage bank lending.”
Hong Kong May Revise Growth Forecast on Global Recovery (Source: Bloomberg)
Hong Kong and Vietnam signaled growth may fall short of government forecasts this year as Asian policy makers stepped up efforts to protect their economies and currency markets from the worsening global outlook. Hong Kong may revise its 2012 economic forecast next month, Financial Secretary John Tsang said on July 7. In Vietnam, Deputy Prime Minister Vu Van Ninh said the country may miss its growth target and the central bank told lenders to cut borrowing costs on existing loans to help businesses. The Philippines unveiled plans to contain currency gains that may hurt exports. Interest-rate cuts by central banks in China and Europe last week underscore the risks to the world economy as the euro area’s fiscal crisis deepens, U.S. employment gains falter and Asia’s expansion slows. The International Monetary Fund will reduce its estimate for global growth this year, Managing Director Christine Lagarde said July 6 ahead of the publication of the lender’s updated economic outlook next week.
“Given the ongoing deterioration in Eurozone and U.S. growth indicators in recent months, there is little prospect for a material improvement” in emerging market exports while domestic demand also “looks set to remain soft in the near- term,” Nick Chamie, global head of foreign-exchange strategy at Royal Bank of Canada in Toronto, said in a July 6 note. “We see further evidence that growth weakness will extend well into” the third quarter.
Japan Plan to Buy Disputed Islands Draws China’s Condemnation (Source: Bloomberg)
A Japanese government plan to buy uninhabited islands owned by a private investor provoked condemnation from China, which also claims it owns the rocky outcroppings, the latest flare-up in a dispute over territory and resources in the East China Sea. Prime Minister Yoshihiko Noda on July 7 said the government is considering a purchase of the islands, Kyodo News reported. China’s Foreign Ministry responded with a statement that the islets belong to China and “can’t be bought or sold.” The dispute over who controls the islands, known as Senkaku in Japanese and Daioyu in Chinese, escalated in April after Tokyo Governor Shintaro Ishihara said he wanted to use public money to buy them. Sovereignty over the area, which has undersea natural gas and oil fields, has been a flash point between the world’s second- and third-largest economies.
“Clearly the reason why the Senkaku Islands are a big bone of contention is the potential for resources,” said Jeff Kingston, head of the Asian Studies program at Temple University in Tokyo. “Governor Ishihara has caused a headache for the government and what they’re trying to do is engage in damage control by getting the islands out of the grips of Ishihara, who’s trying to politicize this for his own gain.”
Japan’s Current-Account Surplus Slides as Orders Point to Slump (Source: Bloomberg)
Japan’s current-account surplus was the smallest in May since at least 1996 and machinery orders fell the most in more than five years, adding to signs a slump in demand is threatening the nation’s rebound. The excess in the widest measure of the nation’s trade shrank 62.6 percent from a year earlier to 215.1 billion yen ($2.7 billion), the Ministry of Finance said in Tokyo today. The median estimate of 24 economists surveyed by Bloomberg News was for a surplus of 493.1 billion yen. Machinery orders, an indicator of capital spending, fell 14.8 percent in May from the previous month, the Cabinet Office said, the biggest drop since comparable data were made available in 2005.
Japan’s trade position has weakened due to growing energy imports after last year’s earthquake and nuclear meltdown and also the yen’s gain of 4.9 percent against the dollar since mid- March. Prime Minister Yoshihiko Noda gave approval for a restart of reactors at the Ohi nuclear plant, which resumed power generation last week, to avoid power shortages and rolling blackouts over the summer. “The restart of a Ohi nuclear reactor itself will only have limited impact on energy imports,” unless there will be more developments on a restart of other nuclear plants, Itochu’s Maruyama said.
Korean Government Bonds Advance, Won Falls, as U.S. Data Weakens (Source: Bloomberg)
South Korea’s government bonds rose, sending three-year yields to the lowest since 2010, and the won slid as U.S. payroll gains trailed estimates, heightening concern growth in the world’s biggest economy is slowing. The 80,000 gain in employment for June followed a 77,000 increase in May and compares with a 100,000 jump projected in a Bloomberg News survey, U.S Labor Department figures showed on July 6. The euro touched a two-year low and the Kospi (KOSPI) Index of shares fell for a second day. The Bank of Korea will probably hold the benchmark rate at 3.25 percent for a 13th month at the July 12 meeting, according to all seven economists surveyed by Bloomberg News.
“Demand for South Korean bonds is strong, and with global economy data deteriorating, it looks like some investors are betting the Bank of Korea will cut rates,” said Hwang Jae Hong, who oversees 12 trillion won ($10.5 billion) as head of fixed income at UBS Hana Asset Management in Seoul. “I don’t think the central bank will lower the benchmark rate as long as Europe comes up with ways to delay the crisis.” The yield on the government’s 3.25 percent bonds due June 2015 slid two basis points, or 0.02 percentage point, to 3.21 percent as of 9:21 a.m. in Seoul, Korea Exchange Inc. prices show. That’s the lowest rate for a benchmark three-year bond since December 2010. Ten-year government notes fell three basis points to 3.51 percent, a record low. Three-year debt futures advanced 0.06 to 104.98 and the one-year interest-rate swap slid one basis point to 3.31 percent.
North Korean Economy Rebounds on Farm Output, South Says (Source: Bloomberg)
North Korea’s economy rebounded last year on a recovery in agriculture, bolstering Kim Jong Un after he succeeded his father to lead the nation where a past famine killed an estimated 3 million people. Gross domestic product in the communist nation increased 0.8 percent in 2011 after a 0.5 percent decline in 2010, according to an estimate published by the Bank of Korea in Seoul. The nation’s economy has contracted during four of the last six years, the bank’s data show. “The manufacturing sector declined, but the agricultural industry enjoyed better weather and more use of fertilizer,” the Bank of Korea said in an e-mailed statement. North Korea is projected to keep growing under the new leader as its economic ties with China and Russia develop.
“Mineral exports to China and dollars brought in by North Korean workers sent to China and Russia would have driven the country’s GDP growth,” said Koh Yu Hwan, a professor of North Korean studies at Dongguk University in Seoul. “North Korea is expected to be economically stronger under Kim Jong Un as it continues to increase transactions with its allies.”
Franco-German Amity Needed for Strengthened Euro, Leaders Say (Source: Bloomberg)
French President Francois Hollande and German Chancellor Angela Merkel said friendship between their nations is critical to saving the common currency, putting aside until today their differences on solving the euro debt crisis. The leaders of the European Union’s two biggest economies met yesterday in the eastern French city of Reims to celebrate the moment 50 years ago when their predecessors, Charles de Gaulle and Konrad Adenauer, signed a reconciliation treaty and buried the enmity that had sparked three wars in 90 years. Resolving divisions between the two countries will be at the heart of euro-area finance ministers’ talks in Brussels today and during a subsequent gathering on July 20. The two meetings follow clashes between Hollande and Merkel at the June 28-29 European summit, where the German chancellor faced pressure from France, Italy and Spain to agree greater burden sharing for the currency zone’s debt burden.
“At each step of European construction, the German-French friendship was the base,” Hollande said outside Reims cathedral yesterday as he stood alongside Merkel under rainy skies. “I propose to you that we open a new door to even tighter friendship.” European Union leaders agreed at the June summit to ease the way to direct financing for troubled banks, to start work on Europe-wide bank supervision, and to ease access to the EU’s bailout mechanisms. Finance ministers have been asked to hammer out the details.
Moscovici Expects Tangible Progress on Euro Accord Execution (Source: Bloomberg)
French Finance Minister Pierre Moscovici said he expects euro area finance ministers to make “tangible progress” on implementing an accord reached by heads of government on June 29. “It’s very important that we give tangible signals that what was said at the European Council will be translated into action,” Moscovici told journalists in Aix-en-Provence, France. “I have no doubt that that will happen.” The euro group will begin work tomorrow on how to give support to Spanish banks, and will also consider matters of unifying euro area bank supervision and giving support to Italy in the bond market. Moscovici said he met with Italian Prime Minister Mario Monti this morning and that they agreed on the analysis of the situation. Asked whether France is ready to cede sovereignty to help end the European sovereign debt crisis, Moscovici said that he prefers to call it “sharing sovereignty.”
Norway Banks Under Pressure as Asset-Bubble Risks Swell (Source: Bloomberg)
Norway’s Finance Minister Sigbjoern Johnsen is putting pressure on the country’s banks to rein in mortgage lending to over-indebted households as the government grapples with the growing threat of a property bubble. Banks have “an obligation to say to people I think that by taking a loan this size you might get water over your head,” Johnsen said in an interview in Oslo. “Norwegian households have never had such a high proportion of debt compared to their net income, so that requires a keen eye and some concern.” The country’s financial regulator and economists including Yale University’s Robert Shiller have urged Norway’s government to take seriously the threat of a full-blown housing bubble and its disruptive potential. Europe’s second-largest oil and gas exporter has watched property values soar even during the euro area's debt crisis, as borrowers lean on near record-low interest rates and Europe’s lowest unemployment rate.
Norway’s housing market boom has seen property prices surge almost 30 percent since 2008, while the country’s household debt burden will surpass 200 percent of disposable incomes next year, according to central bank estimates.
Hollande Says Euro Banking Union is First Step to Budget Union (Source: Bloomberg)
French President Francois Hollande said the proposed banking union agreed at the June 29 European summit is the “first step to a budgetary union, which will open the way to stability, growth, and tighter ties.” He said France and Germany must defend the euro with “strict rules and powerful instruments.” Hollande spoke in the eastern French city of Reims alongside German Chancellor Angela Merkel at a ceremony commemorating the 50th anniversary of the German-French reconciliation treaty.
