Asia FX By Cornelius Luca - Mon 09 Jul 2012 17:02:23 CT (Source: CME/www.lucafxta.com)
The appetite for risk was limited on Monday after imploding on Friday as a result of the weak non-farm payrolls report. The foreign currencies edged marginally higher after the European and commodity currencies sank on Friday. The US stock indexes declined slightly. The short-term outlook for most of the European and commodity currencies is sideways. 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 consumer credit surged by $17.1 billion in May following an upwardly revised increase of $10 billion in April.
Today's economic calendar
UK: BRC retail sales monitor in June
UK: RICS Housing price balance in June
China: Trade balance in June
Australia: National Australia Bank's business confidence in June
Japan: Consumer confidence index In June
Asian Stocks Snap Three-Day Drop As Alcoa Tops Estimates (Source: Bloomberg)
Asian stocks rose, with the benchmark regional index rebounding from its biggest drop in a month yesterday, as mining companies and trading houses gained after metal prices rose and industry bellwether Alcoa Inc. reported better-than-expected profit. Alumina Ltd. (AWC), an Australian maker of the material used to produce aluminum, rose 1.3 percent in Sydney. Itochu Corp., a Japanese trading company, climbed 1.1 percent in Tokyo. Iluka Resources Ltd. sank 1.1 percent in Sydney after Goldman Sachs Group Inc. removed the zircon producer from a buy list. Agile Property Holdings Ltd. may be active today in Hong Kong after its June sales contracts jumped 43 percent from a year earlier. The MSCI Asia Pacific Index (MXAP) rose 0.3 percent to 117.19 as of 9:34 a.m. in Tokyo, with more than three stocks gaining for each that fell. The index advanced before the open of markets in Hong Kong and China.
Alcoa, the largest U.S. aluminum producer, started the earnings season for companies in the Dow Jones Industrial Average, posting profit and sales that beat analysts’ estimates after an increase in orders from the auto and aerospace industries. Mining companies advanced after the London Metal Exchange Index of prices for six industrial metals climbed 0.8 percent yesterday, its first gain in four days.
Inflation at Two-Year Low Spurs Commodity Slump: China Overnight (Source: Bloomberg)
Chinese stocks traded in the U.S. fell the most in two weeks as energy and commodity producers slid, after inflation in the world’s second-largest economy eased to the lowest level since January 2010. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in New York slid 1.7 percent to 89.55, the most since June 25. Aluminum Corp. of China Ltd. dropped the most in two weeks as the metal’s prices retreated. PetroChina Co. and Cnooc Ltd. (883) tumbled for a third day. Yanzhou Coal Mining Co. (YZC), the country’s fourth-largest miner, posted the longest losing streak in a month as the price of thermal coal in the nation declined for a ninth week.
Government data showing the consumer price index rose 2.2 percent in June, the slowest pace in more than two years, follows the second interest-rate cut in a month last week. Premier Wen Jiabao said downward pressure on the economy is still “relatively large” and the government will intensify policy fine-tuning, the state-owned Xinhua News Agency reported on July 8. Economists estimate the Chinese economy expanded at the slowest pace in three years during the second quarter. “Investors in Chinese equities are stepping back,” Derrick Irwin, who helps manage $2.5 billion in the Wells Fargo Advantage Emerging Markets Equity Fund, said in an interview at Bloomberg’s New York headquarters yesterday. “It’s difficult to make money by betting around the margins of consensus, and the consensus is that China is slowing.”
Japan Stocks Advance as ECB Weighs Interest-Rate Cut (Source: Bloomberg)
July 10 (Bloomberg) -- Japanese stocks rose, snapping a three-day loss, after European Central Bank President Mario Draghi signaled policy makers may be open to another interest- rate cut. Canon Inc. (7751), a camera maker that gets 31 percent of its revenue in Europe, rose 0.7 percent. Furukawa-Sky Aluminum Corp. added 1.3 percent after industry bellwether Alcoa Inc. reported better-than-expected profit as it opened U.S. earnings season. Japan Prime Realty Investment Corp. lost 2.8 percent after announcing a share sale. The Nikkei 225 Stock Average (NKY) gained 0.5 percent to 8,938.86 as of 9:15 a.m. in Tokyo with about four stocks advancing for each that fell. The broader Topix Index advanced 0.4 percent to 767.28 after dropping 1 percent yesterday, the most since June 8. Gains may be limited as rising borrowing costs in Spain stoked concern about Europe’s debt crisis.
In Europe, “they come out with nice, encouraging things, and the market has a bit of rally,” said Matt Riordan, who helps manage about $6.5 billion at Paradice Investment Management Pty. in Sydney. “Then, immediately it becomes clear that there’s a long-term frame and you tend to find disagreements among different countries.”
S&P 500 Buy Ratings at High as Valuations Offset Profit (Source: Bloomberg)
The same securities analysts warning of the first decline in quarterly earnings since 2009 are also more bullish than ever on U.S. stocks. A total of 247 companies in the Standard & Poor’s 500 Index (SPX) have more buy ratings than sells and holds, a record in Bloomberg data starting in 2000. Bullish recommendations have been expanding even as Wall Street firms cut their forecast for second-quarter net income in the U.S. to a decrease of 1.8 percent from a gain of 2 percent in April, more than 10,000 estimates compiled by Bloomberg show. Earnings season began today with a report from Alcoa Inc. (AA) Bears say rising equity volatility, declining profits and the approaching U.S. presidential election mean the 4.5 percent drop in the S&P 500 since April will continue. Bulls say analysts are advising clients to buy because earnings are still on track to reach a record this year and the index is trading 16 percent below its average valuation since the 1950s.
“My picks aren’t based on one quarter,” Howard Rubel, a New York-based equity analyst at Jefferies & Co., said in a July 5 phone interview. “It’s not always captured in a headline how many pieces of judgment one needs to incorporate into a stock recommendation, and a quarterly earnings report is only one item. You have to look at things over a period of time.”
U.S. Stocks Post Longest Slump in 1 Month on Europe Woes (Source: Bloomberg)
U.S. stocks fell, giving benchmark indexes the longest slump in more than a month, after a jump in Spanish bond yields above 7 percent intensified concern about Europe’s crisis and as investors awaited Alcoa Inc.’s results. Alcoa advanced 0.2 percent at 5:46 p.m. New York time after earnings and revenue analysts’ beat estimates. Exxon Mobil Corp. (XOM) and DuPont Co. dropped more than 1.3 percent to pace losses among the biggest companies. The largest payment networks Visa Inc. (V) and MasterCard (MA) Inc. slumped at least 1.3 percent after being downgraded at UBS AG. Patriot Coal (PCX) Corp. plunged 72 percent before it filed for bankruptcy protection. The Standard & Poor’s 500 Index slid 0.2 percent to 1,352.46 at 4 p.m. New York time. The measure dropped 1.6 percent in three days for the longest slump since June 1. The Dow Jones Industrial Average lost 36.18 points, or 0.3 percent, to 12,736.29. Volume for exchange-listed stocks in the U.S. was 5.1 billion shares, 24 percent below the three-month average.
“It’s very concerning,” said Jeff Savage, regional chief investment officer for Wells Fargo Private Bank in Portland, Oregon. His firm manages $169 billion. “Seven percent is not a sustainable level of interest rates for Spain. That’s scary stuff. We can’t have one of our best trading partners going through terrible economic times and not having an effect on U.S. corporate earnings,” he said, referring to Europe.
European Stocks Fall for Fourth Day; Metro Leads Losses (Source: Bloomberg)
European stocks declined for a fourth day as Japanese machinery orders tumbled the most in a decade and Spanish bonds dropped before euro-area finance ministers meet in Brussels. Metro AG (MEO), Germany’s biggest retailer, sank to a three-year low as Chief Executive Officer Olaf Koch said restrained spending will have a “significant impact” on business. Telecommunications companies rallied as Nomura Holdings Inc. upgraded the industry. The Stoxx Europe 600 Index (SXXP) slipped 0.4 percent to 253.46 at the close of trading as the yield on Spain’s 10-year bonds climbed to more than 7 percent. The equity gauge has risen for five straight weeks, the longest winning streak since January, as the region’s policy makers eased repayment rules for Spanish banks and relaxed conditions for possible aid to Italy.
“The main themes on the market remain the debt crisis and where southern European rates are heading,” said Michael Borre, the chief equity analyst at Nordea Private Banking in Copenhagen. “That’s why we continue to expect markets to stay nervous and volatile this week.”
Emerging Stocks Drop Most in 2 Weeks on China Concerns (Source: Bloomberg)
Emerging-market stocks tumbled the most in two weeks after Chinese Premier Wen Jiabao said the world’s second-largest economy faces “relatively large” downward pressure. The MSCI Emerging Markets Index (MXEF) Index lost 1.1 percent to 935.66 by the close in New York, the steepest drop since June 25. Technology companies led the retreat with HTC Corp. (2498), Asia’s second-largest smartphone maker, sliding to a two-year low after profit declined. Power company OAO E. On Russia slumped 2.8 percent in Moscow while OAO Magnit, Russia’s largest food retailer by market value, surged the most in a week. Brazilian markets were closed for a holiday.
China’s Wen said the government will intensify fine-tuning of policies, the state-owned Xinhua News Agency reported yesterday. The nation’s inflation eased to a 29-month low in June, the National Bureau of Statistics said today in Beijing. Spanish 10-year debt yields topped 7 percent. U.S. employers added fewer workers to payrolls than forecast in June, a July 6 report showed. “The disappointing U.S. jobs data, which is key for consumption, and lower price gains in China all point to slowing growth,” Chu Moon Sung, a Seoul-based fund manager at Shinhan BNP Paribas Asset Management Co., which oversees about $28 billion, said by phone today. “It’s inevitable some developing countries that highly depend on exports will feel the pinch.”
Japan Stocks Advance as ECB Weighs Interest-Rate Cut (Source: Bloomberg)
July 10 (Bloomberg) -- Japanese stocks rose, snapping a three-day loss, after European Central Bank President Mario Draghi signaled policy makers may be open to another interest- rate cut. Canon Inc. (7751), a camera maker that gets 31 percent of its revenue in Europe, rose 0.7 percent. Furukawa-Sky Aluminum Corp. added 1.3 percent after industry bellwether Alcoa Inc. reported better-than-expected profit as it opened U.S. earnings season. Japan Prime Realty Investment Corp. lost 2.8 percent after announcing a share sale. The Nikkei 225 Stock Average (NKY) gained 0.5 percent to 8,938.86 as of 9:15 a.m. in Tokyo with about four stocks advancing for each that fell. The broader Topix Index advanced 0.4 percent to 767.28 after dropping 1 percent yesterday, the most since June 8. Gains may be limited as rising borrowing costs in Spain stoked concern about Europe’s debt crisis.
In Europe, “they come out with nice, encouraging things, and the market has a bit of rally,” said Matt Riordan, who helps manage about $6.5 billion at Paradice Investment Management Pty. in Sydney. “Then, immediately it becomes clear that there’s a long-term frame and you tend to find disagreements among different countries.”
FOREX-Euro edges off 2-year lows but stays vulnerable
LONDON, July 9 (Reuters) - The euro steadied after hitting a two-year low against the dollar early on Monday, looking vulnerable amid concerns euro zone finance ministers meeting later will merely highlight the limitations of anti-crisis measures agreed last month.
"The euro has moved a great distance in a short period and there is a risk of a bit of a correction. But unless it rises through $1.2410 it will still be worth fading any rallies," said Jeremy Stretch, head of currency strategy at CIBC.
Euro Near 2-Year Low Before French, Italian Production (Source: Bloomberg)
The euro traded 0.5 percent from its lowest level in two years before reports forecast to show manufacturing in France and Italy is weakening as Europe’s debt crisis threatens growth. The 17-nation currency was 0.6 percent from a one-month low against the yen ahead of a meeting of European Union finance ministers in Brussels today. The dollar remained higher versus its Australian and New Zealand counterparts after global equity losses yesterday boosted demand for the relative safety of the world’s reserve currency. “The euro is going to stay quite weak, particularly against the U.S. dollar and the yen,” said Joseph Capurso, a strategist in Sydney at Commonwealth Bank of Australia (CBA), the nation’s biggest lender. “The euro-zone is still in recession and it’s probably getting even deeper.”
The euro was little changed at $1.2312 as of 9:11 a.m. in Tokyo after sliding to as low as $1.2251 yesterday, the weakest since July 2010. The shared currency was at 97.93 yen from 97.95 yesterday, when it touched 97.43, the lowest since June 5. The dollar was little changed at 79.54 yen. It fetched $1.0202 per so-called Aussie after a 0.1 percent gain yesterday and traded at 79.60 cents per New Zealand dollar after rising 0.2 percent in New York.
Most-Accurate Forecasters on Euro Clash With Options Sign (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 $1.2299 as of 12 p.m. New York time. 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.”
Euro Rises From Two-Year Low as Finance Ministers Meet (Source: Bloomberg)
The euro advanced from a two-year low versus the dollar as finance ministers from the 17-nation currency bloc met to discuss measures to ease its debt crisis. The shared currency rose from the weakest in more than a month against the yen as European Central Bank President Mario Draghi signaled policy makers may be open to another interest- rate cut if the economic outlook warrants it. The dollar and yen gained earlier as machinery orders in Japan plunged and inflation in China declined, adding to concern economic growth is faltering and fueling demand for refuge. “What we’ve seen today is a bit of short covering,” Shaun Osborne, chief currency strategist at Toronto-Dominion Bank’s TD Securities unit, said in a telephone interview. “Euro-dollar is going to continue to slip lower with monetary policy in the euro zone so loose.” Short covering is when investors end bets an asset will decline.
The euro rose for the first time in four days, gaining 0.2 percent to $1.2313 at 5 p.m. New York time, after falling earlier to $1.2251, the weakest level since July 2010. The 17- nation currency advanced 0.1 percent to 97.95 yen after earlier touching 97.43 yen, the lowest since June 5. Japan’s currency strengthened 0.1 percent to 79.56 per dollar.
Aussie Dollar Trades Near One-Week Low Before Chinese Trade Data (Source: Bloomberg)
Australia’s dollar traded 0.5 percent from a one-week low before data forecast to show growth in exports and import slowed in China, the nation’s biggest trading partner. The so-called Aussie maintained a two-day decline against the yen ahead of a report that economists said will show a drop in French industrial production, adding to signs the global economy is losing momentum. Demand for New Zealand’s dollar was supported after data showed the country’s house prices climbed to a record last month and card spending increased. “China is still slowing,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “Weak Chinese data will be negative for the Aussie dollar.” The Australian currency traded at $1.0208 as of 9:37 a.m. in Sydney, unchanged from the close in New York yesterday, when it touched $1.0155, the lowest since June 29. The Aussie was little changed at 81.22 yen, after falling 1.2 percent over the previous two days.
Speizer predicts the Australian dollar will drop below 99 U.S. cents over the next couple of months.
Consumer Credit in U.S. Rises by $17.1 Billion, Fed Says (Source: Bloomberg)
Consumer credit climbed more than forecast in May, led by the biggest jump in credit-card debt in almost five years that may signal Americans are struggling to make ends meet. The $17.1 billion increase, exceeding the highest estimate of economists surveyed by Bloomberg News and the largest this year, followed a $9.95 billion gain the previous month that was more than previously estimated, the Federal Reserve said today in Washington. Revolving credit, which includes credit card spending, rose by $8 billion, the most since November 2007. A pickup in borrowing coincides with a slowdown in hiring and declines in consumer confidence that indicate the job market is failing to spur enough gains in wages to cover expenses. Employers added fewer workers to payrolls than forecast in June while the jobless rate stayed at 8.2 percent.
“When the economy’s not doing well, that’s when you want the consumer to spend, and if it means borrowing to do that, then that certainly would be encouraged,” said Millan Mulraine, a senior U.S. strategist at TD Securities in New York, who projected credit would rise by $15 billion.
Fed Weighs Revamped Monetary Report as Guide to Policy (Source: Bloomberg)
Federal Reserve officials are discussing whether to start a quarterly monetary policy report to provide a clearer guide to their economic outlook and the likely course for policy. “We are talking a lot about it,” Philadelphia Federal Reserve Bank President Charles Plosser said in an interview on July 5. “The question is, can we put it together in a way that is coherent and makes sense and improves our communications?” Plosser serves on a committee created by Fed Chairman Ben S. Bernanke to consider how to better explain its decisions and policies to the public. Bernanke, who is scheduled to deliver his semi-annual testimony to U.S. lawmakers next week, has established an explicit inflation target and has started giving press conferences in a push to improve transparency.
“They have come a long way, and they need to complete the process,” said Frederic Mishkin, a Columbia Business School professor who served on the Fed board from September 2006 until August 2008. “You want to achieve accountability, but also have markets understand why you are doing what you are doing.” In another Bernanke innovation, Fed officials publish their forecasts for inflation, growth and unemployment four times a year, as well as their outlook for their key interest rate, albeit anonymously. For all their efforts, investors still have to guess how Fed policies will evolve as new data show the economy moving closer or further from their goals, Mishkin said.
Fed’s Lacker Sees ‘Tepid’ U.S. Growth, Not Recession Risk (Source: Bloomberg)
Federal Reserve Bank of Richmond President Jeffrey Lacker said that “some of the slowdown is real” for the U.S. economy though the reduction in growth isn’t severe enough to tip the economy back into a recession. “The numbers have been pretty tepid, we’re definitely experiencing a slowdown,” Lacker said today in a Bloomberg radio interview on “The Hays Advantage” with Kathleen Hays and Vonnie Quinn. “I don’t think this is fatal. I don’t think this is pushing us back into a recession right now.” Lacker, who has dissented from all four Federal Open Market Committee decisions this year, is at odds with colleagues on what the Fed should do to boost the economy. He said in a June 22 statement that he opposed the FOMC’s $267 billion extension of its Operation Twist program because it may spur inflation and won’t give the economy a significant boost. “We’re just in a situation where growth is going to fluctuate between somewhat satisfactory and disappointing,” Lacker, 56, said in today’s interview.
Lacker has said the Fed will probably have to raise rates in mid-2013, contradicting the FOMC’s statements this year that economic conditions will probably warrant “exceptionally low” levels of the federal funds rate at least through late 2014. U.S. central bankers cut the benchmark lending rate to a record- low range of zero to 0.25 percent in December 2008.
Fed’s Lacker Says U.S. May Be Close to Maximum Employment (Source: Bloomberg)
Federal Reserve Bank of Richmond President Jeffrey Lacker said the U.S. may already be close to maximum employment from a monetary policy standpoint and that policy makers can’t do much more to cut the jobless rate. “Given what’s happened to this economy, I think we’re pretty close to maximum employment right now,” Lacker said today in a Bloomberg radio interview on “The Hays Advantage” with Kathleen Hays and Vonnie Quinn. “That might be shocking. That might be surprising.” Fed policy makers believe the U.S. central bank has limited control over the jobless rate because the employment level is driven by “non-monetary factors that affect the structure and dynamics of the labor market,” according to the January statement from the Federal Open Market Committee. The jobless rate was unchanged at 8.2 percent in June.
Lacker, who has dissented from all four FOMC decisions this year, is at odds with colleagues on what the Fed should do to boost the economy. He said in a June 22 statement that he opposed the FOMC’s $267 billion extension of its Operation Twist program because it may spur inflation and won’t give the economy a significant boost.
Williams Says Slowdown Demands ‘Extraordinary’ Fed Vigilance (Source: Bloomberg)
Federal Reserve Bank of San Francisco President John Williams said the U.S. central bank must maintain “extraordinary vigilance” to see if the slowing economy requires additional monetary stimulus. “If further action is called for, the most effective tool would be additional purchases of longer-maturity securities, including agency mortgage-backed securities,” Williams said in a speech in Coeur D’Alene, Idaho today. Last month’s decision to extend the so-called Operation Twist program “will probably have a relatively modest impact.” Recent figures have fanned concern the economic outlook is dimming, with a Labor Department report last week showing employers added fewer workers to payrolls in June than forecast. The employment report may add to the case for more stimulus, after the Fed said last month that it’s “prepared to take further action” to reduce unemployment.
“The pace of growth has been frustratingly slow, and we’ve seen some loss of momentum in recent months,” Williams said at a joint convention of the Idaho, Nevada, and Oregon Bankers Associations. “I expect little progress toward maximum employment over the next year or more.”
Dealers Declining Bernanke Twist Invitation (Source: Bloomberg)
Wall Street banks are increasingly choosing to hoard their U.S. bonds rather than sell them to the Federal Reserve as speculation grows that a slowing economy and global financial turmoil will only make them more dear. The world’s biggest bond dealers offered an average of $7.2 billion in Treasuries a day to the central bank in June, down 40.5 percent from a high of $12.1 billion in October, data compiled by Bloomberg show. The amount tendered has fallen even as the dealers almost doubled their holdings of the securities. While the amount of marketable U.S. government debt outstanding has risen to more than $10.5 trillion, Treasuries are proving scarce in a world where five nations in Europe have sought bailouts, the U.S. economy is slowing again and China is weakening. That means interest rates on everything from mortgages to corporate bonds should remain at about record lows.
“People are not willing to sell Treasuries,” said Thanos Bardas, a managing director in Chicago at Neuberger Berman LLC, which oversees about $89 billion in fixed-income assets, in a June 28 telephone interview. “The data in the U.S. doesn’t look as good. The labor market has lost momentum. There will be more upside left in Treasuries despite the low levels of rates.”
Japan’s Once Dominant Finance Ministry Rises Again With Noda Tax (Source: Bloomberg)
Japan’s Ministry of Finance is back. The bureaucratic body that dominated the nation’s postwar boom before being stripped of powers in the 1990s amid corruption scandals and an economic slump, is regaining control thanks to a ruling party that promised to rein it in. The Democratic Party of Japan took office in 2009 pledging not to raise taxes and to curtail bureaucracy and devolve power to citizens. Last month, Prime Minister Yoshihiko Noda defied opinion polls and allowed the breakup of his own party to push through the ministry’s decade-old plan to double the sales tax. “The Ministry of Finance is not just on its way back to power, it’s already there,” said Yoichi Takahashi, a professor at Tokyo’s Kaetsu University and former finance ministry official. “Since the Democrats took over the administration, that has become obvious.”
The ministry’s tax victory is an echo of the influence it wielded when it helped orchestrate a 50-fold, export-led expansion in the economy between 1955 and 1990, in tandem with the trade ministry. The MOF’s diminished role during the stagnation of the two decades that followed is coming to an end as bureaucrats take advantage of the inexperience of DPJ lawmakers to expand influence on policy making, said Takahashi.
Luxembourg’s Mersch Appointed to ECB Six-Member Executive Board (Source: Bloomberg)
Luxembourg’s Yves Mersch, the euro region’s longest-serving central banker, was named to the European Central Bank’s Executive Board in a victory for German- style monetary rigor. Mersch, 62, was appointed by euro-area finance ministers at a meeting in Brussels yesterday, Guy Schuller, a spokesman for Luxembourg Prime Minister Jean-Claude Juncker, told Bloomberg News. He will move into the slot vacated by Spain’s Jose Manuel Gonzalez-Paramo, stripping Spain of its claim to a permanent seat on the Frankfurt-based central bank’s six-member Executive Board. Juncker chairs meetings of euro finance chiefs. After five months of wrangling, Mersch defeated a Spanish nominee, Antonio Sainz de Vicuna, head of legal services at the ECB, as well as Mitja Gaspari, former head of Slovenia’s central bank. As Luxembourg’s representative on the ECB’s wider policy- setting Governing Council, Mersch has earned a reputation as an inflation hawk. He is the only central banker in office continuously since the euro debuted in 1999. “Mersch will do his bit to reinforce the reputation of the ECB as an inflation fighter,” said Christian Schulz, senior economist at Berenberg Bank in London. “That could make markets nervous at times.”
Tucker’s Libor Testimony May Stoke Concerns About BOE Powers (Source: Bloomberg)
Bank of England Deputy Governor Paul Tucker’s account of his involvement in the Libor scandal stoked new criticism of the bank’s oversight failures as he struggles to stay in contention for its top job next year. Tucker told lawmakers on Parliament’s Treasury Committee yesterday that he didn’t follow up concerns about Libor rates in 2007 because it looked at the time like a “dysfunctional” market, not a “dishonest” one. Barclays Plc (BARC) was fined a record amount last month for manipulating Libor from as early as 2005. “My concern is that the BOE clearly couldn’t see the wood for the trees,” committee member Andrew Leadsom said in an interview after Tucker’s testimony in London. “The amount of talk there was about Libor, it’s slightly incredible that a central banker didn’t see it as something to investigate.”
As Parliament debates the bill that will hand the Bank of England control of financial regulation in the U.K., Tucker was drawn into the Libor scandal over a 2008 conversation he had with former Barclays Chief Executive Officer Robert Diamond. The issue has jeopardized his chances of replacing Mervyn King as governor of the Bank of England next year.
Draghi Signals ECB May Consider Another Rate Cut If Needed (Source: Bloomberg)
European Central Bank President Mario Draghi signaled policy makers may be open to another interest- rate cut if the economic outlook warrants it. “We have to look at what the situation is, the data and the developments, and then we will make up our minds on the Governing Council what to do,” Draghi told lawmakers in Brussels today when asked if the central bank could cut rates again. While the ECB never pre-commits, it will “do everything to maintain price stability -- from both sides -- in the euro area,” he said. The ECB last week cut its main interest rates by 25 basis points, taking the benchmark to a record low of 0.75 percent and the deposit rate to zero. Policy makers next decide on rates on Aug. 2. With the sovereign debt crisis threatening to tip the 17-nation euro economy into recession, some economists say the ECB may have to resort to unorthodox methods to stimulate growth.
“It would take a negative deposit rate, or the start of quantitative easing, to provide fresh stimulus,” said Nick Kounis, chief European economist at ABN Amro Bank NV in Amsterdam. “Both are areas where the ECB might not be willing to go at this stage.”
Tucker Says No Public Official Told Him to Lean on Barclays (Source: Bloomberg)
Bank of England Deputy Governor Paul Tucker said no government minister or official pressured him to instruct Barclays Plc (BARC) or any other U.K. commercial bank to lowball its Libor submissions during the financial crisis. “Absolutely not,” Tucker told lawmakers in London today, when asked if anybody from the civil service or the then Labour government leaned on him to ask banks to lower their Libor submissions. He also said some of a memo written by former Barclays Chief Executive Officer Robert Diamond after an October 2008 phone call between the two gave “the wrong impression.” Tucker’s two-hour testimony followed the record 290 million-pound ($449 million) fine imposed on Barclays last month for manipulation of the London interbank offered rate. The scandal, which Tucker described as a “cesspit,” has jeopardized his position as the front-runner to replace Mervyn King as governor of the Bank of England.
“I can’t be confident about anything after learning about this, this cesspit,” he said. “Self-certification is plainly open to abuse” and the government “should look at every single index that isn’t based on real transactions.”
Libor Scandal Seen Boosting NYSE Repo Futures (Source: Bloomberg)
The scandal impairing confidence in the London interbank offered rate, a benchmark for $360 trillion in securities, may drive demand for interest-rate futures that NYSE Liffe U.S. will start offering this month. The contracts on NYSE’s U.S. futures exchange will be tied to indexes that track movements in a $400 billion market where bond dealers that trade directly with the Federal Reserve finance securities holdings. The futures were developed to give banks a more direct method of hedging changes in the cost of those transactions, known as general collateral finance repurchase agreements, or GCF repos. Bankers and investors are debating whether alternatives to Libor exist as confidence in the benchmark diminishes following Barclays Plc (BARC)’s admission that it submitted false rates. Robert Diamond, who resigned as Barclays’s chief executive officer after the bank was fined 290 million pounds ($451.4 million), told British lawmakers last week that other banks lowballed their Libor submissions.
“Something like the GCF rate makes some sense to a lot of people because it is a prolific market, there are trillions of dollars in repo trades outstanding, and a lot of people use it,” Ira Jersey, an interest-rate strategist in New York at Credit Suisse Group AG, said in a telephone interview. “The futures have a pretty good chance” of succeeding, he said.
New Zealand House Prices Rise to Record, Card Spending Gains (Source: Bloomberg)
New Zealand house prices rose for a second month to a record in June while spending on debit, credit and store cards gained for a fourth month, adding to signs of a recovery in domestic demand. Prices gained 0.3 percent from May, when they increased 1.7 percent, according to an index published by the Real Estate Institute of New Zealand today. The value of transactions on electronic cards rose 0.4 percent from May, when it increased a revised 1 percent, Statistics New Zealand said in Wellington. Rising house prices and consumer spending last month indicate modest economic growth at the end of the second quarter after gross domestic product jumped 1.1 percent in the three months through March. Reserve Bank of New Zealand Governor Alan Bollard last month left the official cash rate unchanged at a record-low 2.5 percent and signaled interest rates may not change until next year, citing tame inflation and a weakened global outlook.
“The recovery in retail spending is likely to remain gradual,” Christina Leung, economist at ASB Bank Ltd. in Auckland, said in an e-mailed note. “We continue to expect the RBNZ will hold off raising the cash rate until at least March.”
Mexico’s Short-Term Rating Raised One Level to A-2 at S&P (Source: Bloomberg)
Mexico had its short-term foreign currency rating raised one notch to A-2 from A-3 at Standard & Poor’s as the company cited a change in critera. S&P affirmed Mexico’s BBB long-term rating, the second- lowest investment grade mark. The outlook is stable, the ratings company said today in a statement. The move “results from the revision of Standard & Poor’s criteria on the linkage between long-term and short-term ratings for sovereigns,” the company said in the statement. “The change in the short-term foreign currency rating on Mexico does not reflect an improvement in the sovereign’s short-term creditworthiness.” S&P said Mexico’s net debt is likely to hold at about 35 percent of gross domestic product, while economic growth will average 3.3 percent in the “following several years,” the statement said.
Mechel Leads Commodity Retreat on China Growth: Russia Overnight (Source: Bloomberg)
Russian stocks traded in New York posted the longest stretch of declines in a month, led by commodities producers, on concern the economic slowdown in China will erode demand for metals. The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies in the U.S. fell for a third straight day for the first time since June 1. OAO Mechel, the country’s biggest maker of coking coal, dropped for a third day, while OAO GMK Norilsk Nickel (NILSY), Russia’s largest mining company, tumbled to the lowest in two weeks. Futures expiring in September on Moscow’s dollar-denominated RTS Index rose 0.2 percent to 134,765.
Russia, the world’s biggest exporter of nickel and palladium, said China accounted for about 10 percent of the country’s foreign trade in the first four months of 2012. Economists forecast the Asian nation’s gross domestic product expanded at the slowest pace in three years during the second quarter. Premier Wen Jiabao said the world’s second-largest economy faces “relatively large” downward pressure, the state- owned Xinhua News Agency reported on July 8. “China is a price-defining factor when it comes to commodities,” Andrey Tretelnikov, an analyst at Rye MAN & Gor Securities, said by phone from Moscow yesterday. “Chinese demand is crucial for commodities overall and for Russian mining stocks in particular.”
