Asia FX By Cornelius Luca - Tue 24 Jul 2012 16:50:54 CT (Source:CME/www.lucafxta.com)
The appetite for risk was limited on Tuesday amid renewed concerns about the Eurozone debt crisis and US economic weakness. The European and commodity currencies resumed losses after failing their attempt to stabilize since late on Monday. The yen remained in demand. The US stock indexes sank and the gold/oil ratio rose. 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
US: The manufacturing PMI slipped to 51.8 in July from 52.5 in June.
US: The Housing Price Index rose 0.8% in May after expanding 0.7% n April.
Canada: Retail sales rose 0.3% in May after falling 0.6% in April.
Today's economic calendar
Japan: Merchandise trade balance for June
Australia: Conference Board Leading Index for May
Australia: Consumer Price Index for the second quarter
Asia Stocks Retreat Fourth Day on Greece, China as Apple Misses (Source:Bloomberg)
Asian stocks fell, with the regional benchmark index headed for a four-day loss, amid concern Europe’s crisis is worsening and as the International Monetary Fund said China’s economy faces significant downside risks. Suppliers to Apple Inc. (AAPL) tumbled after the company reported earnings that missed estimates. Canon Inc. (7751), the world’s biggest camera maker that gets 31 percent of its revenue in Europe, lost 1.9 percent. Samsung Electronics Co. (005930), South Korea’s biggest exporter of consumer electronics, paced losses among Apple suppliers. Sony Corp. (6758), Japan’s No. 1 exporter of consumer electronics, dropped to the lowest since 1980 as the yen rose against its major counterparts after a report showed Japan had an unexpected trade surplus in June. The MSCI Asia Pacific Index dropped 1.1 percent to 112.82 as of 10:35 a.m. in Tokyo. About five stocks dropped for each that rose, with nine out of the 10 groups declining.
“Signals coming out of Greece are not positive in terms of implementing agreements, and so Europe is going to remain a key negative for markets for quite some time to come,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “The outlook remains very difficult for major economies and therefore for equity markets.”
Japan Stocks Fall Amid European Debt Crisis Concerns (Source:Bloomberg)
Japanese stocks fell, dragging the Nikkei 225 Stock Average (NKY) lower for a fourth day, as the yen traded near an 11-year high against the euro amid concern Europe’s debt crisis is worsening. Canon Inc. (7751), a camera maker that gets 31 percent of sales in the debt-stricken region, slid 2 percent. Murata Manufacturing Co. (6981), a supplier of smartphone parts for Apple Inc. (AAPL)’s iPhone, tumbled 3.9 percent after profit and sales at Apple missed analysts’ estimates. Sony Corp. (6758), Japan’s No. 1 exporter of consumer electronics, dropped 3.6 percent as the yen rose against its major counterparts after a report showed the country had an unexpected trade surplus in June.
The Nikkei 225 Stock Average lost 1.4 percent to 8,371.29 at 10:15 a.m. in Tokyo. The broader Topix Index slipped 1.3 percent to 708.51. The gauge fell for the 13th time in 14 days and has slumped 19 percent from this year’s highest level in March amid concern Greece won’t meet its debt-reduction targets and as growth slowed in China and the U.S. “The risks of a deeper European recession have increased,” said Matthew Sherwood, Perpetual Investments’ head of investment markets research in Sydney. Perpetual manages about $23 billion. “Clearly Greece is in no position to ask for further concessions considering the pressure on governments in Spain, Portugal and Ireland to cut spending.”
U.S. Stocks Fall Third Day Amid Europe Concern; UPS Slips (Source:Bloomberg)
U.S. stocks slumped, sending the Standard & Poor’s 500 Index down for a third straight day, amid concern Europe’s debt crisis is worsening and after United Parcel Service Inc. lowered its earnings forecast. Equities pared losses amid speculation the Federal Reserve may act to boost growth. UPS, the largest package-delivery company and considered an economic bellwether, tumbled 4.6 percent. AT&T Inc. (T), the biggest U.S. phone company, lost 2.1 percent amid sluggish sales after signing up fewer wireless customers. Apple Inc. (AAPL), the most valuable company, sank 5 percent at 4:51 p.m. New York time on disappointing results.
More than three stocks fell for each rising on U.S. exchanges at 4 p.m. New York time. The S&P 500 slipped 0.9 percent to 1,338.31, paring a loss of 1.6 percent. The benchmark measure decreased 2.8 percent in three days. The Dow Jones Industrial Average lost 104.14 points, or 0.8 percent, to 12,617.32. Volume for exchange-listed stocks in the U.S. was 6.8 billion shares, or about in line with the three-month average.
European Stocks Slide as Germany Outlook Lowered (Source:Bloomberg)
European stocks retreated for a third day as Moody’s Investors Service lowered its credit outlook for Germany and a measure of manufacturing in the Richmond region of the U.S. plunged. Elan Corp. tumbled 11 percent after the results of a study for an Alzheimer’s drug failed to show that patients’ symptoms improved. Royal KPN NV (KPN) fell 7.3 percent as the company cut its dividend forecast by 61 percent after quarterly net income missed analysts’ estimates. Swatch Group AG (UHR) gained 2.3 percent after posting sales and profit that increased. Man Group Plc (EMG) surged 4.1 percent after saying it will double its cost cuts. The Stoxx Europe 600 Index (SXXP) slipped 0.5 percent to 250.57 at the close of trading in London. The gauge slumped 2.5 percent yesterday as concern mounted that Greece will default and more Spanish regions will follow Valencia in seeking a bailout from the country’s central government.
“I would have expected the markets to recover from yesterday’s losses especially since it seems to be quieter on the Spanish front, but the Moody’s news plus the purchasing managers’ index are dragging the markets down,” said Theodore Krintas, managing director of Attica Wealth Management in Athens in a telephone interview.
U.K. Stocks Fall for Third Day as German Debt Outlook Cut (Source:Bloomberg)
U.K. stocks fell for a third day as Moody’s Investors Service cut Germany’s credit outlook and a U.S. manufacturing gauge compiled by the Federal Reserve Bank of Richmond dropped more than forecast. Vodafone Group Plc (VOD) dropped 1 percent after Dutch peer Royal KPN NV cut its dividend forecast. Elan Corp. plunged the most in two years in Dublin after its experimental Alzheimer’s drug failed a trial. Man Group (EMG) Plc rallied 4.1 percent as the biggest publicly traded hedge fund manager said it will double cost cuts and reduce reliance on products with steeper commissions. The FTSE 100 Index retreated 34.64 points, or 0.6 percent, to 5,499.23 at the close in London, extending the three-day drop to 3.8 percent. The gauge has still climbed 4.5 percent from its 2012 low on June 1 as central banks announced measures to support the economy. The broader FTSE All-Share Index lost 0.6 percent today and Ireland’s ISEQ Index sank 1.7 percent.
“Growth in the euro zone is very hard to come by nowadays and this is affecting Germany’s activity too,” said Simon Denham, managing director of Capital Spreads in London. “With question marks over the prized triple-A credit rating of Europe’s largest economy, the markets are likely to remain on the back foot.”
Emerging Stocks Fall for Third Day on Worsening Europe Crisis (Source:Bloomberg)
Emerging-market stocks dropped for a third day as concern Europe’s debt crisis is worsening overshadowed signs of improvement for China’s manufacturing. The MSCI Emerging Markets Index (MXEF) fell 0.3 percent to 909.43 in New York, its lowest close since June 28. Brazil’s Bovespa (IBOV) index also dropped for a third day as Vale SA, the world’s biggest iron-ore producer, fell the most since October. OAO Gazprom, the world’s biggest natural gas exporter, declined 1.8 percent in Moscow, leading energy companies lower on the emerging markets index. Moody’s Investors Service cut the outlook to negative for the Aaa credit ratings of Germany, the Netherlands and Luxembourg, citing “rising uncertainty.” A preliminary reading of manufacturing in China was 49.5 in July, which if confirmed would be the highest since February, according to a purchasing managers index compiled by HSBC Holdings Plc and Markit Economics. A reading under 50 indicates contraction.
“It’s going to take more than one decent Chinese number to heal perceptions of an uncertain global economic outlook,” Alec Young, a global equity strategist at S&P Capital IQ, said in a telephone interview from New York. “Until the growth outlook for Europe and the U.S. becomes clearer, it will be very difficult to get a sustained rally in emerging markets.”
FOREX-Euro steadies after China PMI, Aussie perks up
TOKYO, July 24 (Reuters) - The euro steadied against the yen and the U.S. dollar in Asia, as investors' risk appetite perked up after data showed signs of improvement in China's manufacturing output.
"More bad news has been emerging from Europe, but it's not surprising bad news, just new developments on the same problems," said Masafumi Yamamoto, chief FX strategist at Barclays in Tokyo.
Euro Is Near 11-Year Low Versus Yen Before German Data (Source:Bloomberg)
The euro maintained the longest losing streak in two months versus the dollar before data that may show German business confidence was the weakest since 2010, fueling concern the debt crisis is hurting the region’s economy. The 17-nation currency was 0.2 percent from an 11-year low versus the yen after Italy’s borrowing costs rose yesterday, boding ill for the nation’s debt auctions this week. Moody’s Investors Service lowered the rating outlook for the European Financial Stability Facility to negative from stable. The yen extended gains from yesterday versus all 16 major peers after Japan unexpectedly posted a trade surplus in June. “The economic weakness in Europe is spreading from the periphery to Germany, and I think tonight’s data is going to show further evidence of that,” said Mike Jones, a currency strategist in Wellington at Bank of New Zealand. “Even the engine of European growth is starting to lose steam, and that’s undermining European sentiment. That’s going to keep the euro weak.”
The euro traded at $1.2057 as of 9:19 a.m. in Tokyo from $1.2061 in New York yesterday. Its five-day drop through yesterday was the longest since May. The common currency declined to 94.17 yen from 94.31 yesterday, when it touched 94.12 yen, the lowest since November 2000. The yen was at 78.09 per dollar, having strengthened 1.1 percent over the past five days to 78.18.
Aussie, Kiwi Dollars Fall as Europe Concern Damps Risk Appetite (Source:Bloomberg)
The Australian and New Zealand dollars declined for a fourth day as declines in Asian stocks and concern Europe’s debt crisis is worsening weighed on risk appetite. The South Pacific currencies were weaker against most of their 16 major peers after borrowing costs for Spain and Italy climbed and speculation mounted that Greece may miss debt- reduction targets. The so-called Aussie remained lower against the yen following data that showed Australian inflation slowed in the second quarter, increasing scope for the Reserve Bank to reduce interest rates. “The Aussie looks a bit pricey given the slowdown in the global economy, weaker commodity prices and weaker equity markets,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. (WBC) in Sydney. The Australian and New Zealand dollars “are very sensitive to the deterioration in global risk appetite.”
The Australian dollar slid 0.1 percent to $1.0210 as of 11:46 a.m. in Sydney from yesterday, when it declined 0.4 percent. It touched 79.54 yen, the lowest since June 29, before trading at 79.68, 0.1 percent below yesterday’s close. New Zealand’s dollar, known as the kiwi, fell 0.3 percent to 78.20 U.S. cents. It earlier dropped to 78.08, the lowest since June 14. The currency lost 0.3 percent to 61.13 yen, after touching 61.01, the weakest since June 12.
U.S. Yields Extend Drop to Record Lows as Gross Warns (Source:Bloomberg)
Treasury yields extended their decline to record lows and investors cut bets on inflation as Bill Gross, who runs the world’s biggest bond fund, warned the U.S. economy may stop growing. The difference between yields on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, narrowed to 2 percentage points. It was the lowest level since January and compares with the average of 2.15 over the past decade. The U.S. plans to sell $35 billion of five-year debt today. Benchmark 10-year yields were as low as 1.3824 percent, the least ever, in early Asia trading. The rate was 1.384 percent as of 9:17 a.m. in Tokyo. The price of the 1.75 percent security due in May 2022 was 103 11/32, little changed from yesterday in New York, according to Bloomberg Bond Trader data.
A report from the Federal Reserve Bank of Richmond implies economic growth is “inching close to 0,” Gross, who is based in Newport Beach, California, at Pacific Investment Management Co., wrote on Twitter yesterday.
Geithner Says Extending Tax Cut for Wealthy Irresponsible (Source:Bloomberg)
U.S. Treasury Secretary Timothy F. Geithner said President Barack Obama is “absolutely committed” to letting tax cuts for the wealthiest Americans expire as scheduled at the end of this year. “If the president were to say now, ‘I’m prepared to extend the taxes for the top 2 percent of Americans,’ it’s a deeply irresponsible thing to do fiscally and economically,” Geithner said in an interview yesterday on the “Charlie Rose” show broadcast on PBS and Bloomberg Television. “It would hurt our credibility. It would leave us with no capacity to address these long-term fiscal problems.” Lawmakers remain deadlocked over long-delayed budget decisions including the future of the George W. Bush-era income tax cuts that expire Dec. 31, automatic spending cuts set to take effect in January and raising the federal debt limit. The end-of-year tax and budget impasse has led to warnings the U.S. could careen off a “fiscal cliff” if Congress doesn’t act.
Geithner said it wouldn’t be “responsible” to push back deadlines including defense sequestration. The cuts are set to occur because talks failed last year on a bipartisan plan to curb the nation’s debt.
Student Loan Debt Tied to U.S. Home Sales Lag, Soss Says (Source:Bloomberg)
U.S. student loan debt totaling more than $900 billion may be hurting home sales, said Neal Soss, chief economist at Credit Suisse in New York. Soss, in a radio interview on “Bloomberg Surveillance” with Tom Keene, said higher requirements for down payments and rising debt of college graduates are preventing younger potential buyers from entering the housing market. “We are trying to migrate towards a much safer underwriting standard, with let’s say 20 percent down payments required,” Soss said today. “It takes a certain amount of time for people to save that up, and the more they’re burdened with student loans the less possible it is for them to accumulate that chunk of liquid capital that allows them to make that.”
Sales of previously owned U.S. homes unexpectedly declined in June to an eight-month low, showing the recovery in residential real estate will take time to develop. In 2011, first-time home buyers, with a median age of 31, fell to the smallest percentage of total home purchasers since 2006, according to data from the National Association of Realtors. Their median income climbed 6.5 percent from 2006 to 2010, compared with a 13 percent gain for repeat buyers, the figures show.
Tourists From Beijing to Buenos Aires Buoy U.S. Exports: Economy (Source:Bloomberg)
For Leon Goldberg, the used clothes piling up at the lost-and-found at the New York Marriott Marquis hotel on Times Square are the latest sign tourists are spending. “People come over with empty suitcases, and we see them leave with full suitcases,” while abandoning their older garments, said Goldberg, the director of sales and marketing at the 1,957-room hotel. Spending by overseas visitors on everything from airfares to hotel stays climbed 8.1 percent over the 12 months ended in May to $13.9 billion, figures from the U.S. Commerce Department show. The increase was almost double the 4.2 percent gain in total exports. Purchases by foreign tourists count as exports, which have been among the mainstays of the three-year economic expansion.
More Latin American and Asian visitors are offsetting a slowdown in trips from Europe, where a weaker euro is making travel to the U.S. more expensive. The pickup in tourism, which Federal Reserve Chairman Ben S. Bernanke called a “bright spot” in the economy, is benefiting companies such as Marriott International Inc. (MAR), City Pass and San Francisco Shuttle Tours and bolstering the labor market.
UPS Cuts 2012 Forecast as Slowing Economy Press Profit (Source:Bloomberg)
United Parcel Service Inc. (UPS), the world’s largest package-delivery company, cut its full-year forecast after a drop in international package sales dragged quarterly profit below analysts’ estimates. Earnings for 2012 may be $4.50 to $4.70 a share, down from a previous projection of $4.75 to $5, the Atlanta-based company said. Second-quarter profit of $1.15 a share trailed the $1.17 average estimate from analysts as sales in the International Package and Supply Chain & Freight businesses fell. UPS, an economic bellwether because it moves goods ranging from financial documents to pharmaceuticals, projects the U.S. economy will expand 1 percent in the rest of the year. Premium- product growth will slow as customers choose cheaper shipping options, Chief Financial Officer Kurt Kuehn said on a call with analysts and investors.
“International volume is particularly weak,” Kevin Sterling, an analyst at BB&T Capital Markets in Richmond, Virginia, said in a telephone interview. “They are not immune from China softening and everything happening in Europe.”
Japan Flags Yen-Sales Impact as BOJ Newcomer Sees Easing Scope (Source:Bloomberg)
Japan’s Finance Ministry judged its record foreign-exchange intervention last year to have proved effective, while a newcomer to the central bank’s board said it may be able to do more to stabilize the currency. The comments highlighted the risk of further action by policy makers to counter gains in the yen, which has climbed for four straight weeks against the dollar. Europe’s debt crisis is undermining demand for Japanese exports and drove the currency to an 11-year high against the euro this week. A Ministry of Finance official involved with international affairs said yesterday that he would challenge any assertion that last year’s intervention wasn’t effective. He spoke on condition of anonymity. Former Nomura Securities Co. economist Takahide Kiuchi, appointed to the Bank of Japan (8301)’s policy board yesterday, said “new forms of monetary easing” may be needed and the central bank could play a bigger role in connection with the currency.
“The likelihood of intervention by the government depends on what happens with the euro-zone sovereign debt crisis,” said David Rea, an economist at London-based Capital Economics Ltd. “Verbal warnings” may persist, he said. The euro fell 0.5 percent to 94.56 yen as of 8:13 p.m. in Tokyo last night. The Japanese currency rose 0.3 percent to 78.15 per dollar.
Japan Unexpectedly Posts a Trade Surplus as Oil Prices Drop (Source:Bloomberg)
Japan posted an unexpected trade surplus in June as lower oil prices contributed to the first drop in imports since December 2009. Imports fell 2.2 percent from a year earlier, resulting in a trade surplus of 61.7 billion yen ($789 million), the Finance Ministry said in Tokyo today. Exports dropped 2.3 percent. The median forecast in a Bloomberg News survey of 29 analysts was for a shortfall of 140 billion yen. Japan’s petroleum imports more than doubled in the fiscal year ended March as the nation closed down nuclear reactors in the aftermath of last year’s Fukushima disaster. While falling oil prices are a boon, weaker global demand and a stronger yen may squeeze exports and cap growth in the world’s third-largest economy. “It’s still not clear whether Japan can sustain a trade surplus,” said Yoshiki Shinke, chief economist at the Dai-Ichi Life Research Institute in Tokyo. “There’s no clear sign of a recovery in exports as the European economy remains weak and China’s growth is slowing.”
New BOJ Board Members Signal Willing to Mull More Easing (Source:Bloomberg)
The Bank of Japan (8301)’s two new board members signaled their willingness to consider fresh forms of monetary easing to help end more than a decade of deflation. The central bank may need to consider “new forms of monetary easing” as it’s unclear whether the BOJ’s 1 percent inflation target can be reached, Takahide Kiuchi told reporters in Tokyo today after his appointment. Takehiro Sato, also starting today, said buying foreign bonds would be one option. The two former economists are joining the BOJ as it struggles to generate inflation and deal with a strengthening yen threatening exporter profits. The central bank, which has kept interest rates near zero since October 2010 and has an asset-buying program aimed at fueling private demand, has forecast that consumer-price increases will stay below its 1 percent goal for the next two years.
“I don’t think the two new members will drastically change monetary policy but when votes are split, they are likely to support easing,” said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting Co. “If the yen appreciates further and stocks continue to decline, the BOJ will probably have to bolster stimulus.” The yen traded at 94.62 per euro at 10:52 a.m. in London today, after rising to 94.24 yesterday, the strongest since November 2000. The Japanese currency traded at 78.19 per dollar, after yesterday appreciating above 78 for the first time since June 4. The Topix Index of Japanese shares fell to the lowest level in more than a month today.
Korean Won Falls, Bond Yields Drop to Record-Low on Europe Woes (Source:Bloomberg)
South Korea’s won weakened and government bonds rose, sending yields to all-time lows, on concern Europe’s debt crisis will slow global economic growth. The Kospi (KOSPI) Index of shares dropped 1.6 percent after estimates by Markit Economics showed yesterday that euro-area services and manufacturing output contracted for a sixth month in July. South Korean consumer confidence dropped to a five- month low in July, central bank figures showed today. The Finance Ministry said in a report to parliament yesterday that conditions are deteriorating in the global economy. “Europe’s weak manufacturing data and stocks declining are putting downward pressure on the won,” said Jeon Seung Ji, a Seoul-based currency analyst for Samsung Futures Inc. “Steep declines in the won may be limited as investors short the euro and buy the won.” A short position is a bet that a currency will decline.
The won fell 0.6 percent to 1,153.15 per dollar as of 9:15 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,153.24 earlier, the weakest since July 13. The currency’s one-month implied volatility, a measure of exchange- rate swings used to price options, advanced 14 basis points, or 0.14 percentage point, to 8 percent. The yield on the 3.25 percent bonds due June 2015 fell five basis points to 2.78 percent, Korea Exchange Inc. prices show. Three-year debt futures rose 0.16 to 106.27 and the one-year interest-rate swap declined three basis points to 2.76 percent.
Korea’s Consumer Confidence Falls to 5-Month Low on Europe (Source:Bloomberg)
South Korean consumer confidence dropped to the lowest level in five months as officials cautioned that a protracted European debt crisis is hurting the growth outlook for Asia’s fourth-largest economy. The sentiment index was at 100 in July, down from 101 in June, the Bank of Korea said in an e-mailed statement today. A reading of 100 indicates there are an equal number of optimists and pessimists. Growth momentum is weak and the global outlook is worsening, the Finance Ministry said in a report to parliament yesterday. South Korea’s economy probably expanded 0.5 percent in the second quarter from the previous three months, when it grew 0.9 percent, according to 13 economists surveyed by Bloomberg News before data due tomorrow. “We wake up every morning with more bad news about the economy,” said Yoon Yeo Sam, a fixed-income analyst at Daewoo Securities Co. in Seoul. “It’s hard to consume or invest when the future looks gloomy.”
South Korea’s won weakened 0.6 percent to 1,152.75 per dollar at the 9 a.m. open in Seoul, according to data compiled by Bloomberg. The Kospi Index fell 1.9 percent.
Spain Debt Costs Seen Unjustified in Berlin Crisis Talks (Source:Bloomberg)
German Finance Minister Wolfgang Schaeuble and his counterpart from Madrid said Spain’s borrowing costs don’t reflect the strength of its economy as they pledged to work toward deeper integration to fight the debt crisis. “The current levels of interest rates on sovereign debt markets don’t correspond to the fundamentals of the Spanish economy,” Schaeuble and Spanish Economy Minister Luis de Guindos said after meeting in Berlin yesterday in a joint statement that also praised Spain’s deficit-cutting efforts. Spain’s bank bailout and agreements made among European leaders at the end of June to build a so-called banking union should be implemented “quickly,” they said. Schaeuble starts his three-week vacation today, while de Guindos visits Paris for talks with his French counterpart, Pierre Moscovici.
Spanish 10-year bond yields surged to a euro-era record of 7.64 percent yesterday, prompting policy makers to deny an international bailout was being prepared for the euro region’s fourth-largest economy. After taking on as much as 100 billion euros ($121 billion) of bailout loans to aid banks, Spain’s government is struggling to maintain access to markets.
Hungary’s IMF Talks Create July Rate-Cut Room: Officials (Source:Bloomberg)
Hungary held off on cutting the European Union’s highest benchmark rate, opting for caution amid concern about inflation and possible delays in loan talks with the International Monetary Fund and the European Union. The Magyar Nemzeti Bank kept the two-week deposit rate at 7 percent today for a seventh month, matching the forecast of 20 economists in a Bloomberg survey. One expected a cut to 6.75 percent. The Monetary Council backed keeping rates on hold with a “substantial majority’ after considering a quarter-point cut in the benchmark rate, Governor Andras Simor said at a press conference in Budapest today. The country’s risk perception and inflation outlook ‘‘warrant a cautious policy stance,” rate-setters said in a statement. A rate cut would require a “persistent” fall in the risk premium and an improvement in the inflation outlook, the policy makers said.
Central bankers have signaled divisions on when to start easing borrowing costs. While some have said the start of aid talks offers a chance to cut the main rate as early as this month to help growth as the economy sinks into its second recession in four years, others have warned that easing too early may erode the bank’s credibility.
Germany Pushes Back After Moody’s Lowers Rating Outlook (Source:Bloomberg)
Chancellor Angela Merkel’s government said Germany will remain Europe’s haven during the financial crisis, pushing back against Moody’s Investors Service’s decision to lower the outlook on the country’s top credit rating. The risks in the euro zone are “not new” and Germany remains “in a very sound economic and financial situation,” the Finance Ministry said. In counterpoint to Moody’s, it cited the verdict of financial markets that have rewarded Germany with record low borrowing costs. “Germany will, through solid economic and financial policy, defend its ‘safe haven’ status and continue to responsibly maintain its anchor role in the euro zone,” the Berlin-based ministry said in an e-mailed statement. “Together with its partners, it will do everything to overcome the sovereign debt crisis as rapidly as possible.”
Euro-area bonds fell today after Moody’s lowered the outlook to negative for the Aaa credit ratings of Germany, the Netherlands and Luxembourg. Moody’s cited “rising uncertainty” over Europe’s debt crisis. It left Finland as the only country in the 17-nation euro region with a stable outlook for its top ranking.
Spain Edges Toward Rescue as Regions Aided: Euro Credit (Source:Bloomberg)
Spain’s bailout of its regions risks pushing the nation closer to a full international rescue after investors charged the nation more to borrow for five years than for a decade, threatening its access to debt markets. Spain’s five-year borrowing costs briefly rose above 10- year yields today, and traded 5 basis points below the 7.57 percent rate on benchmark 10-year debt at 11.30 a.m. in Madrid. Bonds issued by Catalonia continued to fall after the region said it may tap the government’s rescue fund. “It’s almost a waiting game now until they seek a sovereign bailout,” Lyn Graham-Taylor, a fixed income strategist at Rabobank in London, said in a telephone interview. The regional bailout plan was “the straw that broke the camel’s back,” he said.
Economy Minister Luis de Guindos will visit Berlin today for crisis talks with German counterpart Wolfgang Schaeuble. After taking on as much as 100 billion euros ($121 billion) of bailout loans to aid banks, the risk for Prime Minister Mariano Rajoy’s government is that the additional burden of helping regions pushes bond yields to unaffordable levels.
Hollande Transaction Tax Drives Investor Quest for Loopholes (Source:Bloomberg)
French President Francois Hollande’s transaction tax is set to take effect Aug. 1. Not all investors will be paying it. To escape the tax, many institutional investors will turn to so-called contracts for difference, or CFDs, offered by prime brokers that let them bet on a stock’s gain or loss without owning the shares. Traders have used it successfully to skirt the U.K.’s stamp duty. “We’ve never purchased U.K. stocks without using a CFD,” said Fabrice Seiman, co-chief executive officer of Lutetia Capital, a merger-arbitrage fund in Paris that oversees $100 million. “Now we’ll do the same for French stocks. It is individual investors who are going to pay.”
France will become the first European country to impose a transaction tax on share purchases, including high-frequency trading and credit default swaps. The levy, aimed at curbing market speculation, will be paid on transactions involving 109 French stocks with market values of more than 1 billion euros ($1.2 billion), including Pernod Ricard SA and Vivendi SA. (VIV) The U.K., home to Europe’s biggest financial center, has a stamp duty while opposing a transaction tax. German Chancellor Angela Merkel said on June 22 that she and the leaders of France, Italy and Spain agree on the need for such a levy. The other countries have yet to put one in place. Investors buying U.K. shares pay a stamp duty of 0.5 percent on their purchase.
