Asia FX By Cornelius Luca - Sun 22 Jul 2012 17:17:09 CT (Source:CME/www.lucafxta.com)
The European and commodity currencies open under pressure in the Far East after tanking on Friday amid concern that the US economy is heading for another recession. All eyes remain on the euro and franc, which took their downtrends to new lows. The short-term outlook for the European and commodity currencies is sideways. The medium-term outlook for most of the foreign currencies is sideways. The LGR short-term model is short only the euro and franc. Good luck!
Overnight
Canada: The Consumer Price Index has contracted 0.4% in June after expanding 0.2% in May.
Today's economic calendar
Australia: Producer Price Index for the second quarter
Asia Stocks Fall for Second Day on China Slowdown, Greece (Source: Bloomberg)
Asian stocks dropped for a second day after a Chinese central bank adviser forecast an economic slowdown and on renewed concern that Greece may not meet its bailout targets, damping demand for riskier assets. Shimao Property Holdings Ltd. paced losses among Chinese developers in Hong Kong, falling 2 percent. Samsung Electronics Co. (005930), which gets 47 percent of its revenue in China and Europe, lost 2.7 percent in Seoul. China Pacific Insurance (Group) Co. slumped 7.3 percent in Hong Kong on a share sale plan. BHP Billiton Ltd. (BHP), the world’s largest mining company, lost 2.9 percent in Sydney as lower oil and metal prices weighed on growth-sensitive companies. Gauges of volatility in Asia rose, reflecting rising risk aversion among investors. The MSCI Asia Pacific Index lost 1.5 percent to 114.97 as of 11:40 a.m. in Tokyo with more than seven stocks dropping for each that gained. The measure rose 1.2 percent last week.
“There are many global macro headwinds,” said George Boubouras, Melbourne-based head of investment strategy at UBS AG’s Australian unit. The Swiss bank has about $1.5 trillion in assets under management. “Risk aversion persists for many investors. Cautious corporate guidance remains, given the many different macro and political challenges.” The MSCI Asia-Pacific Index fell 9.5 percent from this year’s high on Feb. 29 through last week amid concern China’s economy will slow and Europe’s sovereign-debt crisis will worsen. The regional benchmark trades at 11.8 times estimated earnings, compared with a multiple of 13.2 for the S&P 500 Index and 10.8 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.
Asian Stocks Drop With Euro as Treasuries Gain on Growth Concern (Source: Bloomberg)
Asian stocks fell, while the euro weakened to an 11-year low against the yen and Treasury 10-year yields dropped to a record as a Chinese central bank board member warned of slowing growth and on concern Greece may exit the currency bloc. Corn declined after touching a record. The MSCI Asia Pacific Index tumbled 1.5 percent at 11:14 a.m. in Tokyo as Hong Kong’s Hang Seng Index slid 2.6 percent. Futures on the Standard & Poor’s 500 Index dropped 0.4 percent. The euro touched a two-year low against the greenback, and the Australian and New Zealand dollars each fell 0.6 percent. The yield on the U.S. 10-year note slumped to 1.4348 percent, while Asian government bonds rallied. Corn lost 1 percent after climbing to an all-time high of $8 a bushel.
“It’s going to be volatile, it’s going to be difficult,” said Raymond Chan, chief Asia-Pacific investment officer at Allianz Global Investors, which oversees about $300 billion. “We’ve not seen any solutions to make sure that the euro stays intact.” In China, “we don’t expect a strong recovery but we’ve probably seen the worst already,” Chan said in a Bloomberg Television interview. China’s economic expansion may cool for a seventh straight quarter to 7.4 percent in the three months to September, said Song Guoqing, a member of the People’s Bank of China monetary policy committee. Greece’s creditors meet this week amid doubts that the country will meet its bailout commitments. German Vice Chancellor Philipp Roesler said he’s “very skeptical” that European leaders will be able to rescue Greece. A July 27 report may show the U.S. economy grew in the second quarter at the slowest pace in a year.
Japan Stocks Drop to One-Month Low on China, Euro Concern (Source: Bloomberg)
Japanese stocks fell, heading for their lowest close in a month, as a Chinese central bank adviser warned of slowing growth and after the yen rose to a 11-year high against the euro amid renewed concern Greece may exit the currency bloc, curbing the outlook for exporters. Komatsu Ltd. (6301), a maker of construction machinery that gets 14 percent of its sales in China, fell 2.6 percent. Ricoh Co. (7752), a producer of office equipment that counts on Europe for 21 percent of revenue, retreated 5.6 percent. Nippon Steel Corp. (5401) paced declines in the sector on a report the company will probably report an 80 percent fall in first-quarter profit. The Nikkei 255 Stock Average (NKY) slid 1.5 percent to 8,542.65 at the 11:30 a.m. trading break in Tokyo, the lowest since June 12. The broader Topix Index fell 1.1 percent to 725.82, with more than three shares declining for each that rose.
“There’s a lot of bad news to start the week with,” David Gaud, a senior portfolio manager at Edmond de Rothschild Asset Management in Hong Kong, said on Bloomberg Television. “The markets are facing a lot of negative news, a lot of uncertainty from Europe. Second quarter GDP in China was probably a little below what official numbers are stating.” Stocks fell on expectations China’s economic expansion may cool for a seventh straight quarter to 7.4 percent in the three months through September, according to Song Guoqing, an academic member of the People’s Bank of China monetary policy committee. Komatsu fell 2.6 percent to 1,667 yen. Taiyo Yuden Co., a maker of electronic parts that gets 30 percent of sales in China, slid 5.9 percent to 636 yen.
Profit Growth Doubts at Baidu Spur ADRs Tumble: China Overnight (Source: Bloomberg)
Chinese stocks fell for a third week in New York before Internet companies from Baidu Inc. to Ctrip.com International Ltd. (CTRP) report second-quarter earnings that analysts estimate will show slower profit growth. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. sank 1.9 percent last week to 86.11. Baidu, the nation’s largest online search engine, hit an 18- month low while online travel agency Ctrip capped the longest losing streak since 2008. New Oriental Education & Technology Group Inc. (EDU) fell the most on record after saying the U.S. regulator is investigating its accounting practices and Muddy Waters LLC questioned its ownership structure.
Analysts expect Baidu to report today that profit in the three months ended June 30 rose 52 percent, after growing at least 70 percent in the previous nine quarters, according to data compiled by Bloomberg. Government reports showed net income for state-owned companies dropped 12 percent in the first half while gross domestic product expanded last quarter at the slowest pace in three years. “They will give us very little upside surprise,” Michael Ding, lead manager of the China Region Fund (USCOX) at U.S. Global Investors Inc., which oversees $2.2 billion, said in a telephone interview from San Antonio, Texas on July 20. “Advertising sales of Internet companies slowed down amid a slowdown in consumption. Baidu’s growth is on the downside as it doesn’t have many new revenue sources.”
European Stocks Rise for Seventh Week on Company Earnings (Source: Bloomberg)
European stocks climbed for a seventh straight week, the longest winning streak in more than six years, as better-than-expected earnings offset concern that the euro area crisis is deepening. ASML Holding NV (ASML), Europe’s biggest semiconductor equipment maker, Akzo Nobel NV, the world’s largest paintmaker, and SEB AB (SEBA) all advanced this week after posting results that beat analyst estimates. The Stoxx Europe 600 Index climbed 0.8 percent to 258.17 this week, for the longest stretch of gains since January 2006 even after falling 1.4 percent on Friday. The gauge has rebounded 10 percent from this year’s low on June 4 as central banks from Europe to China eased monetary policy to help spur economic growth. “Investors have been given the rare opportunity to focus on companies as the earnings reporting season continued to filter through,” said Simon Reynolds, a fund manager at Octopus Investments in London. “Upbeat U.S. earnings have helped lift equity markets.”
Of the 46 companies on the Stoxx 600 that have reported earnings this quarter, 48 percent beat forecasts, according to data compiled by Bloomberg. On the Standard & Poor’s 500 Index, 73 percent of the 118 companies that have reported quarterly earnings have topped analyst estimates, the data show.
S&P 500 Has First Back-to-Back Weekly Gain Since June (Source: Bloomberg)
U.S. stocks rose for the week, giving the Standard & Poor’s 500 Index its first back-to-back gain since June, as results from International Business Machines Corp. (IBM) to Baker Hughes Inc. beat forecasts and Federal Reserve Chairman Ben S. Bernanke said he’s prepared to add stimulus. The benchmark index snapped a three-day rally on the final day amid concern Europe’s crisis is intensifying. Baker Hughes surged 16 percent to lead energy shares to the biggest weekly gain among 10 S&P 500 groups. Technology stocks rose 1.9 percent as IBM climbed 3.5 percent and EBay Inc. (EBAY) jumped 12 percent amid better-than-expected earnings. Financial companies had the biggest retreat after Bank of America Corp. (BAC) and Morgan Stanley (MS) sank more than 9 percent amid disappointing results. The S&P 500 added 0.4 percent to 1,362.66 during the week, extending its gain for the year to 8.4 percent. The Dow Jones Industrial Average climbed 45.48 points, or 0.4 percent, to 12,822.57, the biggest weekly gain since June 29.
“There is this euphoria that maybe things are starting to turn around,” Linda Bakhshian, a money manager with Federated Investors in Pittsburgh, said in an interview. Her firm oversees $363.6 billion. “Expectations were pulled back. Companies are beating and the market is happy again because things are not that bad.”
Recap Stock Index Market Report (Source:CME)
The September S&P 500 trended lower throughout the trading session and erased all of yesterday's gains and more. Fresh concerns over the European debt situation inspired a round of profit-taking after the recent run up and ahead of the weekend. Earnings this morning from General Electric came in slightly better than expected but revenues fell short of estimates. Some analysts indicated that while the recent earnings flow has been above expectations, there are signs that weakness in Europe was filtering through. Most of the major sector indices were lower, led by declines in technology and financial-related shares. The September S&P 500 finished the week with a fractional gain after breaking out to its highest level since May 3rd on Thursday.
FOREX-Euro seen vulnerable to selling on Spain concerns
LONDON, July 20 (Reuters) - The euro eased against the U.S. dollar and hovered near a record low versus the Australian dollar, looking vulnerable to further losses as investors fretted about Spain's fiscal woes and favoured currencies with a higher yield.
"We have still got a market that fundamentally does not believe Spain will be in a position to support itself going forward. The euro will probably stay in a range today but pressure will return to the downside," said Simon Derrick, head of currency research at Bank of New York Mellon.
Australian, N.Z. Dollars Fall Amid European Debt Concern (Source: Bloomberg)
The Australian and New Zealand dollars slid for a second day as Asian stocks extended a global equity rout amid concern Europe’s debt crisis is worsening, reducing demand for higher-yielding assets. The so-called Aussie dollar fell against the yen before data this week forecast to show Australian inflation eased, giving the Reserve Bank more room to consider reductions in borrowing costs. New Zealand’s currency, known as the kiwi, dropped versus most of its major peers after Spanish yields rose toward a euro-era record last week and on renewed prospects Greece will exit the currency union. “The European crisis is far from solved and those concerns are weighing on the market,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest- rate risk-management company. “Risk sentiment is very fragile and very volatile. You’ll likely to see the Aussie and the kiwi follow equities south.”
The Australian dollar fell 0.6 percent to $1.0319 as of 12:04 p.m. in Sydney from the close in New York on July 20, when it dropped 0.5 percent. The Aussie lost 0.8 percent to 80.81 yen. New Zealand’s dollar declined 0.6 percent to 79.48 U.S. cents. It dropped 0.8 percent to 62.25 yen. Australia’s government bonds advanced, pushing the yield on the benchmark 10-year security down by as much as 12 basis points, or 0.12 percentage point, to 2.81 percent, the lowest since June 5.
Euro Turns Carry Traders’ Favorite in Worst Year Since 2003 (Source: Bloomberg)
The euro’s strength against the U.S. dollar in the face of the region’s three-year banking and sovereign-debt crisis masks a nine-year low against other currencies, suggesting more weakness to come. While above a lifetime average of about $1.21, the 17- nation currency is at the lowest level since 2003 on a trade- weighted basis, according to a Deutsche Bank AG index that includes the yen, pound and Swiss franc. The European Central Bank’s July 5 reduction of its deposit rate to zero spurred investors to borrow euros to buy higher-yielding assets elsewhere, generating gains from the carry-trade for the first time in two years.
Even though the euro has slumped 24 percent from a high of $1.6038 in July 2008 as the debt crisis threatens to push the region into recession for a second time in three years, the drop is only about half the collapse versus Australia’s dollar. At the same time, the euro’s depreciation following ECB President Mario Draghi’s rate cuts is making exports more competitive and damping concern that the currency union will break up. “The euro has now joined the ranks of the funding currencies,” Ian Stannard, head of European currency strategy at Morgan Stanley in London, said in a July 20 telephone interview. “As far as safe havens are concerned, you can easily come to the conclusion that there are better alternatives to holding core European assets, which have negative yields, so you could see an outflow from Europe developing and the euro coming under broad pressure.”
Euro Drops to 11-Year Low Versus Yen Before Spain Auction (Source: Bloomberg)
The euro touched the lowest level in more than 11 years against the yen as concern escalated that Europe’s debt crisis is deepening. The 17-nation currency continued its decline against the dollar into a fourth day as a surge in Spain’s 10-year note yields toward a euro-era record last week dimmed the outlook for a bill sale tomorrow. The euro also weakened before data that economists said will show a gauge of consumer confidence hovered near a three-year low as Greece’s creditors assess the country’s progress in meeting its bailout targets. “The foreign-exchange market is going to be watching European bond market developments extremely closely this week,” said Ray Attrill, global co-head of foreign-exchange strategy at National Australia Bank Ltd. (NAB) in Sydney. “The euro-dollar rate will continue to go down.”
The common currency touched 94.75 yen, the lowest since November 2000, and traded at 94.80 as of 11:32 a.m. in Tokyo, 0.7 percent lower than the close in New York on July 20. It declined 0.3 percent to $1.2117 after sliding to as low as $1.2106, a level unseen since June 2010. The dollar fell 0.3 percent to 78.22 yen. Spain, the euro region’s fourth-biggest economy, will auction bills tomorrow maturing in three and six months. The nation’s benchmark 10-year yield climbed to 7.284 percent on July 20, almost matching the euro-era record 7.285 percent reached a month ago.
Treasury Yields Drop to Records (Source: Bloomberg)
Treasuries advanced, pushing 10- and 5-year yields down to record lows, before reports this week that may show growth in world’s biggest economy cooled and manufacturing and services output in the euro area stalled. Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., wrote on Twitter that real assets are a “better bet” amid negative real interest rates in the U.S. Treasuries have handed investors a 1.2 percent return this month after a 0.4 percent decline in June, according to data from Bank of America Merrill Lynch. “Soft data in the U.S. is pretty consistent with what’s been happening across the globe,” said Michael Turner, an economist at RBC Capital Markets Ltd. in Sydney. “Yields are pretty low and there’s probably a fair bit of safe haven-type flow into them.”
Ten-year yields touched a record 1.4347 percent and were at 1.44 percent as of 11:44 a.m. in Tokyo, two basis points below the close on July 20. The 1.75 percent security due in May 2022 rose 5/32, or $1.56 per $1,000 face amount, to 102 27/32. The five-year yield slid to an all-time low of 0.5555 percent, while the rate on two-year U.S. government debt declined to as low as 0.1933 percent, the least since September 2011. The U.S. economy probably grew 1.4 percent in the three months through June, according to the median forecast in a Bloomberg News survey before the Commerce Department releases the data on July 27. That would be the slowest pace since the quarter ended June 2011 and compares with a 1.9 percent pace in the previous period.
Treasury 5-Year Yields Fall to Record on Europe Crisis (Source: Bloomberg)
Five-year Treasury note yields fell to a record low as data showed the U.S. economic growth slowing and investor concern Europe’s debt crisis is worsening led to increased demand for the safest assets. U.S. government debt gained for a fourth consecutive week as yields on Spain’s bonds climbed to record highs relative to German bunds. The pace of economic expansion in the U.S. probably cooled, data next week may show. The Treasury will sell $99 billion of two-, five-and seven-year notes next week. “Europe remains a big question,” said Priya Misra, head of U.S. rates strategy at Bank of America Merrill Lynch in New York, one of the 21 primary dealers required to bid on the securities. “Flight-to-quality bids will remain. We’re pricing in weak growth in the U.S.”
The five-year note yield fell this week five basis points, or 0.05 percentage point, to 0.57 percent, according to Bloomberg Bond Trader prices. It touched 0.5684 percent yesterday, below the previous mark of 0.577 percent set July 16. The benchmark 10-year Treasury yield fell three basis points to 1.46 percent after touching 1.4403 percent on July 16. It set a record low of 1.4387 percent June 1. The two-year rate fell four basis points 0.2015 percent, the lowest level since Sept. 23. Spain’s 10-year benchmark bond yields yesterday climbed above the 7 percent threshold for the first time since Prime Minister Mariano Rajoy unveiled his fourth austerity package last week. That’s the level that prompted bailouts for Greece, Ireland and Portugal.
Nasdaq Increases Payout in Facebook IPO to $62 Million Cash (Source: Bloomberg)
Nasdaq OMX Group Inc., the second- biggest U.S. stock exchange owner, revamped its proposal to compensate brokers that lost money in the public debut of Facebook Inc. (FB), boosting the payout to $62 million cash. The amendment, which follows criticism from Wall Street market makers and exchanges about the original plan, increases the compensation pool from $40 million and does away with a proposal to credit most of the money through reduced trading costs, according to a submission with the Securities and Exchange Commission. Member brokers who accommodated customers for losses will get paid first, it said. “It’s an attempt by Nasdaq to show that they recognize that their clients are very unhappy,” Larry Harris, a professor of finance and business economics at the University of Southern California in Los Angeles and a former chief economist at the SEC, said in a phone interview. “Clearly, making it all-cash is more palatable for regulators and for competitors.”
Delays and malfunctions on the Nasdaq Stock Market were the first signs of trouble in the May 18 Facebook initial public offering that burned investors, spurred losses on Wall Street and prompted lawsuits against the company, its exchange and the underwriters. At yesterday’s close of $28.76, the stock remains down 24 percent from the price set by underwriters, although it has recovered from its low of $25.87 in June.
Bank of America Defends China’s GDP Data (Source: Bloomberg)
Bank of America Corp. has stepped in to defend China’s second-quarter economic-growth data after analysts from Barclays Plc to Mizuho Securities Co. said the figures may be overstated. Shen Jianguang of Mizuho said in a research report this week that deeper slowdowns in industrial and electricity output contradict the gross domestic product statistics. Lu Ting, a Bank of America economist in Hong Kong, said in a July 19 note that industrial production is in line with GDP and that electricity data may fail to capture some growth. The debate shows how China’s government is still struggling to win the trust of economists and investors for GDP statistics that contain a fraction of the data released by the U.S. and Germany. Vice Premier Li Keqiang said in 2007 that GDP figures were “man-made” and “for reference only.”
“No country’s economic data are absolutely reliable, but China’s economic data are particularly unreliable,” said Dong Tao, Credit Suisse Group AG’s Hong Kong-based head of Asia economics excluding Japan, who has been covering the Chinese economy for the Swiss bank since 1998. “It’s subject to political intervention from both local governments and the central government -- that’s why people are suspicious of the data.” Shen, Mizuho’s Hong Kong-based chief Asia economist, said in an e-mail that actual growth is probably around 7 percent when considering monthly data including electricity, housing, infrastructure projects and lending. China may enact a “larger- than-expected stimulus package,” he said.
Top 2% Not Job Creators or Millionaires in Tax Debate (Source: Bloomberg)
President Barack Obama describes them as “millionaires and billionaires” who can afford to pay higher taxes. Republicans call them “job creators” who need to keep their money so they can hire more workers. As the Democratic president and his Republican opponents debate whether to extend the George W. Bush-era tax cuts for the top 2 percent of U.S. taxpayers -- individuals earning more than $200,000 a year and married couples making more than $250,000 -- their poll-tested phrases obscure the truth about who would be affected. They are two-earner professional couples living on the East and West Coasts, doctors, lawyers, engineers and Wall Street executives. Few are billionaires or earn more than $1 million a year, and most are not employers. “The 2 percent, they’re people who are successful in their professions, but they’re not the absolute rock stars,” said Leonard Burman, an economist at Syracuse University in New York. “There’s a big difference between the 99th percentile and the 99.9th.”
Growth Cooled as Americans Curbed Spending: U.S. Economy Preview (Source: Bloomberg)
The U.S. economy probably expanded in the second quarter at the slowest pace in a year as a weaker labor market prompted Americans to cut back on their spending, economists said before a report this week. Gross domestic product, the value of all goods and services the nation produced, rose at a 1.4 percent annual rate after a 1.9 percent gain in the prior quarter, according to the median forecast of 70 economists surveyed by Bloomberg News. Factory orders softened and new-home sales were little changed, other data may show. Consumer purchases, which account for about 70 percent of the world’s largest economy, are weakening at a time Europe’s debt crisis and looming U.S. tax-policy changes threaten to further restrain corporate investment. The deceleration in growth, a concern Federal Reserve Chairman Ben S. Bernanke highlighted last week, will make it harder to trim unemployment stuck above 8 percent since February 2009.
“We’re seeing weak numbers pretty much across the board,” said Michael Hanson, a senior U.S. economist at Bank of America Corp. in New York. “Softening consumption is definitely a big part of the slowdown. The uncertainty over Europe and the fiscal cliff will impinge on business decisions and activity.” A projected 1.3 percent gain in second-quarter household spending would be the smallest in a year and follow a 2.5 percent rise in the January to March period, according to the median projection ahead of the GDP release by the Commerce Department on July 27.
Canada Growth Risks Lagging U.S. as Exports Cool: Economy (Source: Bloomberg)
Canada’s economic growth is at risk of falling behind the U.S. next year for the first time since 2006 as exports slow and spending by companies and consumers cools. A lower-than-forecast increase in consumer prices reported today by Statistics Canada adds to evidence of a slowdown. Data this month showed the trade deficit widened in May and factory sales fell. Bank of Canada Governor Mark Carney this week lowered his growth projection for the world’s 10th largest economy this year to 2.1 percent from 2.4 percent. Carney reiterated that it “may become appropriate” to raise the benchmark lending rate for the first time since September 2010, even as a slowing global economy prompts central banks from China to the U.S. to ease policy. Investors are skeptical of Carney’s outlook: trading based on overnight index swaps shows no chance of an increase through the end of the year. The median estimate of economists surveyed by Bloomberg is for the first increase to come in the second quarter of 2013.
While today’s report probably doesn’t fundamentally change the central bank’s outlook, it “does allow them to stay on hold for longer given that inflation has been surprising on the low side,” said Doug Porter, deputy chief economist at Bank of Montreal, by telephone. The consumer price index climbed 1.5 percent in June from a year earlier, compared with a 1.2 percent gain the prior month, Statistics Canada said today. The core rate, which excludes eight volatile products, increased 2.0 percent after a gain of 1.8 percent in May. Economists surveyed by Bloomberg projected a 1.7 percent gain for CPI and 2.3 percent increase for the core figure.
China Central Bank Adviser Forecasts Growth Slowdown to 7.4% (Source: Bloomberg)
A Chinese central bank adviser predicted the nation’s expansion may cool to 7.4 percent this quarter, adding to concern that the world’s second-biggest economy has yet to bottom out. Song Guoqing, an academic member of the People’s Bank of China monetary policy committee, also warned that a decline in producer prices in tandem with consumer inflation may hurt investment returns of industrial companies, damping their desire to expand. China’s economic growth slowed to 7.6 percent in the three months ended June, the sixth straight deceleration, as Europe’s fiscal crisis sapped exports and a crackdown on property speculation curbed domestic demand. Premier Wen Jiabao said the momentum for a recovery isn’t yet in place, according to a July 15 Xinhua News Agency report, and warned two days later that the labor situation will become more “severe.”
“The consensus is that China’s economic growth rate will be close to 8 percent in coming months, but I personally am more pessimistic because there are problems on the export side,” Song said at a forum in Beijing on July 21. With Europe’s debt crisis still unfolding, “there is a risk of insufficient government measures if Chinese exports fall more sharply than expected in coming months,” he said.
Aging Japan-Chinese Workers Drive Jobs to Southeast Asia (Source: Bloomberg)
Jose Winylito Tanquis has reason to be proud as he raises a flag to signal the launch of the 58,000- ton “Ocean Symphony” in the Philippines. Not only did he help build the cargo vessel, his son John now works at the yard. “Now, he can buy his own stuff, like shoes and clothes,” said Tanquis, 47, a foreman at Tsuneishi Holdings Inc.’s yard in Balamban on Cebu Island. At 21, John is the eldest of six siblings who will enter the workforce in the next decade. The so-called demographic dividend from a rising supply of young workers is one reason Japan’s second-largest shipbuilder expanded in the Philippines, where workers are on average half the age of its Japanese employees. Tsuneishi is considering Indonesia, the Philippines and Myanmar for another shipyard, said Hitoshi Kono, chief of the company’s local operation.
Asia’s manufacturing powerhouses -- Japan, South Korea and China -- are among the fastest-aging countries in the world, while developing nations in Southeast Asia are among the youngest in the region. As factories, jobs and investment flow south to tap cheaper labor, growth in the 10-member Association of Southeast Asian Nations is poised to accelerate, propelling the area’s currencies and fueling consumer and property booms, Bank of America Corp. says. “The demographic dividend is over for Japan and Korea, and it will be over for China soon,” said Yoshimasa Maruyama, chief economist at Itochu Corp., Japan’s third-largest trading company. “It’s happening now in the Asean area, and it will continue for some time.”
South Korea to Ease Mortgage Lending Rule to Spur Consumption (Source: Bloomberg)
South Korea will ease a rule on mortgage lending to stimulate the real-estate market and boost consumption as faltering global demand hurts the export-reliant economy, an adviser to President Lee Myung Bak said. “We have seen that there are many irrational aspects to the debt-to-income ratio limit” banks apply to residential mortgage borrowers, Kim Dae Ki told reporters yesterday in Seoul. “While we will maintain the basic framework of the regulation, we concluded that certain irrational parts of the rule should be eased,” he said, without elaborating. South Korea’s central bank unexpectedly cut its benchmark interest rate on July 12 for the first time in more than three years as policy makers stepped up measures to counter the impact of Europe’s debt crisis, a Chinese slowdown and muted U.S. job creation.
Growth in Asia’s fourth-largest economy may have slowed to 0.5 percent in the second quarter from the previous three months, according to the median estimate in a Bloomberg News survey ahead of a preliminary report due July 26. “We expect Korea’s export-oriented economy to continue to struggle amid tougher global economic conditions,” economists led by Mark Williams and Andrew Kenningham at London-based Capital Economics Ltd. wrote in a note dated July 23. “As a result, the Bank of Korea’s policy rate cut this month is likely to be followed up with more loosening soon,” they wrote.
Maruti Suzuki Imposes Lockout at India Plant After Riot (Source: Bloomberg)
Maruti Suzuki India Ltd. (MSIL), the country’s largest carmaker, locked out workers at a factory near New Delhi and ruled out restarting production until a probe is completed into rioting that led to the death of a manager. The automaker, majority owned by Suzuki Motor Corp. (7269), won’t import cars to make up for the loss of production at its Manesar factory, which accounts for about 40 percent of its total capacity, Chairman R.C. Bhargava told reporters in New Delhi on July 21. He didn’t say how long the investigation would take or when workers would return to the plant. The latest production stoppage is the fourth in the past year at Manesar factory. All 3,000 union workers at the plant will be charged with murder and attempted murder for the mob attack that caused the death of Awanish Kumar Dev, a human resources general manager, and at least 70 injuries, Indian police said July 19.
The Federation of Indian Chambers of Commerce and Industry, one of the nation’s two largest business lobbies, said that the violence threatens India’s investment reputation. “It’s a matter of deep concern for a country that seeks to project itself as offering an environment that is business- friendly,” R.V. Kanoria, president of the lobby, said in an e- mailed statement on July 21, calling for authorities to deal “firmly” with the situation. Maruti has no plans to relocate the plant out of Manesar in northern Haryana state, Bhargava said. A factory at Gurgaon, about 12 miles northeast of Manesar, is operating at full capacity, he said. Suzuki has said production facilities weren’t damaged by the unrest.
Rupiah Declines Most in a Week on China Slowdown; Bonds Steady (Source: Bloomberg)
Indonesia’s rupiah declined the most in a week on concern growth in the world’s second-largest economy may slow further, reducing appetite for emerging-market assets. Government bonds were little changed. The Bloomberg-JPMorgan Asia Dollar Index dropped to a one- week low after Song Guoqing, a Chinese central bank adviser, said July 21 the nation’s growth may slow to 7.4 percent this quarter from 7.6 percent in the previous period. Global funds withdrew 1.1 trillion rupiah ($116 million) from local bond holdings in the first three days of last week, finance ministry data show. China is the largest market for Indonesian exports. “Negative external sentiment still weighs on the rupiah,” said Gusti Kahari, a foreign-exchange dealer at PT Bank Artha Graha Internasional in Jakarta. “It is unlikely to fall below 9,500 as Indonesia’s fundamentals are still relatively good.”
The rupiah weakened 0.4 percent to 9,490 per dollar as of 9:02 a.m. in Jakarta, the biggest drop since July 12, prices from local banks compiled by Bloomberg show. One-month implied volatility, which measures exchange-rate swings used to price options, held at 8 percent.
Australia May Have One Rate Cut Left in Cycle, Deloitte Says (Source: Bloomberg)
Australia’s central bank may cut the benchmark interest rate once more in this cycle if China can maintain its growth outlook, Deloitte Access Economics said. China has “boosted the ability of banks to lend and accelerated the go-ahead on everything from steel mills to alternative energy, hospitals and railways,” the Canberra-based research company said in a report today. “That mix helps limit blowback on global growth, which may not be far below longer term trend. But the risks are real. Either Europe or China -- or, heaven forbid, both -- could upset the applecart.” The Reserve Bank of Australia kept borrowing costs unchanged this month as domestic economic growth and previous interest-rate reductions help the local economy weather global disruptions. The central bank reduced rates by a total of 75 basis points in May and June to help cushion the economy from the fallout in Europe and slower growth in China.
“Much still hinges on Europe and China,” Deloitte said today. “Provided neither generates worse news than already expected -- an admittedly key caveat -- then we’d stick to the view we’ve had for a while: that the overall outlook for Australian growth is still looking rather better than most people realize.” Australia’s core inflation probably slowed to 1.9 percent last quarter, below the central bank’s 2 percent to 3 percent target range, a survey of economists showed before a July 25 government report.
Argentine Factory Output Tumbles as Brazil Buys Fewer Cars (Source: Bloomberg)
Argentina’s industrial production fell more than 4 percent for a second straight month in June, the biggest two-month drop in a decade, as slowing growth in Brazil undermines automobile exports and steel production. Output fell 4.7 percent last month from a year earlier and 0.1 percent from May, the national statistics institute said today in Buenos Aires. The annual decline was steeper than forecast by eight economists surveyed by Bloomberg, whose median estimate was for a 4.5 percent fall. Auto production, which led industrial growth in recent years, dropped 34 percent in June, mainly because of lower demand from neighboring Brazil. South America’s second-biggest economy, which defaulted on $95 billion in late 2001, will expand 2.45 percent this year, the least since 2009, according to the median estimate of six economists surveyed by Bloomberg. Economic activity fell 0.5 percent in May from a year earlier, the first year-over-year decline since July 2009, the agency said.
Brazil’s economy is recovering more slowly than expected from a contraction in last year’s third quarter. Gross domestic product expanded at a 0.8 percent annualized rate in the first quarter, and economists in the latest central bank survey lowered their 2012 growth estimate for the 10th straight week, to 1.9 percent.
Brazil Inflation Unexpectedly Jumps, Ending Downward Trend (Source: Bloomberg)
Brazil’s inflation unexpectedly accelerated this month, reinforcing investors’ bets that the central bank will soon end a cycle of interest rate cuts that has taken borrowing costs to a record low.
Consumer prices as measured by the IPCA-15 price index rose 0.33 percent in the month through July 13, exceeding all 42 analyst estimates in a Bloomberg survey whose median forecast was for a 0.18 percent increase. The annual inflation rate accelerated for the first time in 10 months to 5.24 percent, the national statistics agency said in Rio de Janeiro today. Brazil’s central bank has cut the benchmark Selic rate by 450 basis points since August to a record low 8 percent, saying slower global growth will have a disinflationary effect on Latin America’s biggest economy. Traders pared bets that the central bank will cut the key rate to as low as 7.25 percent this year as today’s report showed inflation remains a concern. “The downward trend has run its course and you’re now going to see inflation hovering above 5 percent,” Newton Rosa, chief economist at SulAmerica Investimentos, said in a phone interview from Sao Paulo. “This is beginning to limit the central bank’s ability to keep cutting.”
U.K. Second-Quarter GDP Seen Declining 0.2% as Recession Deepens (Source: Bloomberg)
The U.K. economy probably contracted for a third consecutive quarter in the three months through June as a double-dip recession deepened, economists said. Gross domestic product fell 0.2 percent, according to the median estimate of 36 economists in a Bloomberg News survey. It shrank 0.3 percent in the first quarter and 0.4 percent in the last three months of 2011. The Office for National Statistics will publish the data on July 25. The Bank of England expanded its emergency bond-purchase program this month and introduced measures to boost lending. The International Monetary Fund said this week that the recovery has “stalled” and the government may need to consider easing its budget squeeze if central bank efforts fail to help the economy gather momentum.
“Tight fiscal policy and still significant problems for consumers” will “limit U.K. economic activity,” said Howard Archer, an economist at IHS Global Insight in London. “Ongoing euro-zone sovereign debt problems and weakened economic activity are expected to continue to weigh down on U.K. recovery prospects.” From a year earlier, the economy probably shrank 0.3 percent in the second quarter, according to a separate Bloomberg survey. Activity in the quarter was probably affected by the extra public holiday for the queen’s Jubilee in June. Bank of England policy makers expanded stimulus by 50 billion pounds ($78 billion) to 375 billion pounds on July 5. In the minutes of the meeting, they said they may review the merits of cutting their benchmark interest rate, currently at a record- low 0.5 percent.
Spain Insists $15 Billion Aid for Regions Won’t Swell Debt (Source: Bloomberg)
Spain’s plan to offer cash-strapped regional administrations emergency loans leaves the Treasury with 12 billion euros ($15 billion) of additional funding needs that the government says won’t affect its borrowing plans. The central government will tap the lottery for part of the 18 billion-euro fund for regions, leaving 12 billion euros for the Treasury to finance. While Economy Minister Luis de Guindos said yesterday that the plan won’t affect the nation’s borrowing program, economists including Jose Carlos Diez at Intermoney SA say it will be hard to sustain without selling more debt. “Where will it come from?” said Diez, chief economist at the Madrid-based brokerage, which is Spain’s biggest bond trader. “In the end it has to add to their financing needs.”
Spain’s Cabinet approved the creation of the fund on July 13 to help regions that have lost access to markets meet debt redemptions and finance deficits. The decree states that the facility will be funded with public debt and the Treasury’s borrowing program will “incorporate the amounts” needed. Valencia, the second-most indebted region, said today it was preparing to tap the fund as it faces a liquidity squeeze.
Greece Back at Center of Euro Crisis as Exit Talk Resurfaces (Source: Bloomberg)
Greece retakes its position at the heart of the European debt crisis this week as its creditors assess how far off course the country is from bailout targets, raising again the specter of its exit from the euro. Greece’s troika of international creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- will arrive in Athens tomorrow amid doubts the country will meet its commitments and reluctance among euro-area states to put up more funds should it fail. “If Greece doesn’t fulfill those conditions, then there can be no more payments,” German Vice Chancellor Philipp Roesler told broadcaster ARD yesterday, adding that he is “very skeptical” Greece can be rescued and that the prospect of its exit from the monetary union “has long ago lost its terror.”
After euro finance ministers failed to staunch a fresh low for the single currency last week with the approval of a 100 billion-euro ($122 billion) aid package for Spain, the troika will be tasked with determining the fiscal position of the nation where the crisis began almost three years ago. Greece is clamoring for more help as efforts to cut its debt to 120 percent of gross domestic product by 2020 fall short.
