Asia FX By Cornelius Luca - Wed 25 Jul 2012 16:24:35 CT (Source:CME/www.lucafxta.com)
The appetite for risk improved on Wednesday after European Central Bank policymaker Ewald Nowotny suggested the enhancement of the Eurozone's new bailout fund by giving it a banking license. The European and commodity currencies generally recovered after sliding since Friday. Only the pound marked time because of the return of the UK economy to recession. Meanwhile, the yen remained firm. The US stock indexes were mixed. Gold, oil and silver advanced. 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: New home sales tumbled 8.4% to a seasonally adjusted annual rate of 350,000 in June, while the surge in May sales was revised upward to 382,000 from 369,000,
Asia Stocks Snap 4-Day Loss as Home Sales Fuel Fed Bets (Source:Bloomberg)
Asian stocks rose, with the regional benchmark index set to snap a four-day loss, after a drop in U.S. new home sales fueled speculation the Federal Reserve may take new steps to spur growth. Gains were limited as Japanese companies such as Canon (7751) Inc. slumped on earnings results. Newcrest Mining Ltd. (NCM), Australia’s biggest gold producer, paced gains among material shares as metal and commodity prices rose. Canon, the world’s No. 1 camera maker, slumped 11 percent after cutting its net-income forecast. Olympus Corp. (7733) rose 6.5 percent after Terumo Corp., a Japanese medical device maker, proposed to invest 50 billion yen ($640 million) in the camera maker and merge with it. The MSCI Asia Pacific Index rose 0.3 percent to 113.23 as of 9:57 a.m. in Tokyo, with almost three stocks rising for each two that fell. Markets in Hong Kong and China are yet to open. Utility, finance and material firms led gains in the measure, which closed yesterday at the lowest level since June 12.
“Company-specific news is driving us, but the market is generally a bit more positive based on the QE3 expectation,” Matt Riordan, a portfolio manager who helps manage about $6.5 billion in Sydney at Paradice Investment Management Pty., said, referring to a third-round of quantitative easing in the U.S. “Europe is lurching and no closer to a solution.” The MSCI Asia Pacific Index fell about 12 percent from this year’s high on Feb. 29 through yesterday amid concern China’s economy is slowing and Europe’s sovereign-debt crisis will worsen. The regional benchmark index traded at 11.5 times estimated earnings as of yesterday, compared with 13 for the Standard & Poor’s 500 Index (SPXL1) and 10.5 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.
Japan Stocks Swing From Gains, Losses on Earnings, China (Source:Bloomberg)
Japanese stocks swung between gains and losses on positive earnings from Fanuc (6954) Corp. and after the International Monetary Fund said China may refrain from additional easing. Fanuc, the world’s largest maker of factory robotics, advanced 4.2 percent after reporting an increase in first- quarter profit. Canon slumped the most since 2008 after cutting its earnings forecast on expectations for weaker global growth. Sharp Corp., an electronics maker that gets 20 percent of its sales in China, fell 2.3 percent. Olympus Corp. led gains on the Nikkei 225 (NKY) Stock Average as Terumo Corp. moved to merge with the optics maker, aiming to scupper a tie-up with Sony Corp. The Nikkei 225 advanced 0.1 percent to 8,372.89 at 9:32 a.m. in Tokyo. The broader Topix Index (TPX) slid less than 0.1 percent to 706.11 after rising as much as 0.5 percent.
“We’re probably going to see this first quarter for fiscal 2012 posting the first positive sequential rise in profitability for corporate Japan,” said Kathy Matsui, the chief Japan strategist at Goldman Sachs Group Inc. in Tokyo, in a Bloomberg TV interview. “That average will mask two very differentiated trends within the market. On the one hand you’re going to see a lot of weakness from global cyclical export companies. On the other hand you’re going to see surprisingly resilient results coming from domestic demand orientated companies.”
S&P 500 Erases Advance as Apple’s Plunge Offsets Banks (Source:Bloomberg)
The Standard & Poor’s 500 Index (SPX) erased gains in the final hour of trading as a rally in bank and industrial shares wasn’t enough to overcome disappointing results at Apple (AAPL) Inc. and an unexpected drop in new home sales. A gauge of homebuilders in S&P indexes slumped 3.2 percent. Apple tumbled 4.3 percent as iPhone sales missed forecasts. Netflix Inc. (NFLX), the largest video-subscription service, plunged 25 percent after raising doubts on user growth. JPMorgan Chase & Co. (JPM) and Citigroup Inc. rose at least 1.2 percent. Boeing Co. (BA) and Caterpillar Inc. (CAT) added more than 1.4 percent, pacing gains in industrial shares, after raising their earnings forecasts.
About five stocks rose for every four falling on U.S. exchanges at 4 p.m. New York time. The S&P 500 slid less than 0.1 percent to 1,337.89, after gaining 0.4 percent earlier. The benchmark gauge has lost 2.8 percent in four days. The Dow Jones Industrial Average rose 58.73 points, or 0.5 percent, to 12,676.05. Volume for exchange-listed stocks in the U.S. was 6.6 billion shares, or about in line with the three-month average. “There’s a huge amount of uncertainty out there,” Rob McIver, co-portfolio manager at Jensen Investment Management in Lake Oswego, Oregon said in a phone interview. His firm manages $5.5 billion. “It’s a somewhat anemic U.S. recovery. And you see that starting to be reflected in corporate results. It’s certainly a difficult environment for investors.”
German Stocks Rise as Carmaker Rally Offsets Confidence (Source:Bloomberg)
German stocks advanced, rebounding from the biggest three-day drop since November, as a rally in carmakers offset a worse-than-expected decline in business confidence in July and lower-than-forecast U.S. new home sales. Daimler AG (DAI) rose 4.1 percent as it reported increased sales and stuck to its goal of keeping earnings steady. Volkswagen AG (VOW), the world’s second-largest carmaker, added 1.3 percent. Deutsche Bank AG (DBK) slumped 4.1 percent as second-quarter profit missed analysts’ estimates. The DAX Index (DAX) gained 0.3 percent to 6,406.52 at the close in Frankfurt, after earlier rising as much as 1.3 percent. The measure has increased 7.3 percent from its 2012 low on June 5 as euro-area leaders eased repayment terms for Spanish lenders and central banks took measures to support growth. The broader HDAX Index also added 0.3 percent today.
“Technically, today’s rise is just a firewall as the index corrects upwards but the bad news just keeps on coming,” said Duarte Caldas, a market strategist at IG Markets in Lisbon. “I do not expect a reversion of the negative trend in equities markets.” German business confidence fell for a third straight month in July to the lowest in more than two years as the worsening sovereign debt crisis damped the outlook for economic growth and company earnings.
European Stocks Drop as U.K. GDP Shrinks (Source:Bloomberg)
European (SXXP) stocks retreated for a fourth day as reports showed the U.K. economy shrank the most in three years last quarter and U.S. new-house sales unexpectedly dropped last month. BT Group Plc (BT/A) slid 3.3 percent after the U.K.’s largest fixed-line phone company posted falling sales. Drax Group Plc (DRX) tumbled 15 percent after the U.K. government revised its subsidies for renewable energy. Daimler AG (DAI) jumped 4.1 percent after forecasting that operating profit will not drop in 2012. The Stoxx Europe 600 Index slid 0.1 percent to 250.39 at the close of trading. The benchmark measure has slipped 4.4 percent over the last four days on concern that Greece will default and more Spanish regions will follow Valencia in seeking a bailout from the central government.
“The U.K. gross domestic product number was a bit of a startler,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd. in London. “After three quarters of negative growth, the U.K.’s now firmly in the European camp of stagnation. Decent earnings results, particularly from the big international companies, are providing some support.” In the U.K., the economy shrank the most since 2009 in the second quarter, deepening the country’s double-dip recession. Gross domestic product fell 0.7 percent from the first quarter, the Office for National Statistics said today. Economists had forecast a 0.2 percent drop, according to the median of 36 estimates in a Bloomberg News survey.
Emerging Stocks Fall to 7-Week Low on China, Earnings (Source:Bloomberg)
Emerging-market stocks declined, sending the benchmark index to the lowest level in a month, on concern a global economic slowdown will erode developing nations’ earnings. The MSCI Emerging Markets Index dropped for a fourth day, losing 0.4 percent to 905.65 at 5:52 p.m. in New York. Technology companies, which make up 13 percent of the gauge, slid 1.4 percent, after Apple Inc. (AAPL) reported lower-than-estimated earnings. Brazil’s Bovespa (IBOV) stock index fell for a fourth day with port developer LLX Logistica SA (LLXL3) and iron-ore producer Vale SA (VALE3), the heaviest-weighted stocks on the gauge, declining.
Earnings for emerging-market companies have trailed forecasts by 4.6 percent on average since July 1, according to data compiled by Bloomberg. Demand for new U.S. homes dropped in June from a two-year high, indicating the country’s housing recovery will be uneven. European Central Bank council member Ewald Nowotny suggested the bank may boost the region’s bailout fund to curb the worsening European debt crisis. “A slowdown in emerging markets has meant that corporate profitability is being hit and remains vulnerable with little visibility ahead,” Kunal Vora, an analyst at FM Capital Partners Ltd. in London, wrote in a note to clients. “All in all, clouds of a global recession seem to be getting darker.”
FOREX-Euro jumps on ESM comments, outlook still bleak
LONDON, July 25 (Reuters) - The euro recovered from a two-year low against the dollar, jumping sharply higher on comments from European Central Bank policymaker Ewald Nowotny that he could see grounds for giving the euro zone bailout fund a banking licence.
"The market is desperate and jumping on anything that even looks remotely positive. The squeeze higher will fade now and we'll probably print a fresh negative later on today," said Geoff Kendrick, currency strategist at Nomura.
Treasuries Decline on Concern Low Yields to Reduce Demand (Source:Bloomberg)
Treasuries fell on concern a plunge in yields to record lows will erode demand, as investors prepared to bid at the last of three note auctions being held this week. A valuation measure shows U.S. sovereign securities are close to the most costly levels ever. The term premium, a model created by economists at the Federal Reserve, dropped on July 24 to negative 1.02 percent, most expensive level on record. It was negative 0.99 today. A negative reading indicates investors are willing to accept yields below what’s considered fair value. “The market might grind a little bit lower,” said Ali Jalai, who trades U.S. debt in Singapore at Scotiabank, a unit of Bank of Nova Scotia (BNS), one of the 21 primary dealers authorized to deal with the Fed. Demand for the safety of U.S. debt will maintain support for Treasuries, he said.
The yield on benchmark 10-year notes climbed two basis points, or 0.02 percentage point, to 1.42 percent as of 10:05 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.75 percent security due in May 2022 fell 5/32, or $1.56 per face amount, to 103 1/32. The rate slid to 1.379 percent yesterday, the least ever. The Treasury Department is scheduled to sell $29 billion of seven-year debt today. It auctioned $35 billion of five-year notes yesterday and the same amount of two-year securities on July 24.
Central Banks Search Toolbox for Ideas as Growth Slows (Source:Bloomberg)
Central banks are digging deeper into their tool kits in search of innovative ways to unclog bank lending and keep a weakening world economy afloat. With the fifth anniversary of the financial crisis approaching in August, policy makers from the Federal Reserve, the European Central Bank and the Bank of England all meet within 24 hours next week. Central banks, facing a global recovery that’s sputtering even after they delivered trillions of dollars of liquidity and near-zero interest rates, are having to consider fresh strategies to combat the slowdown. “Central banks are thinking hard about other ways to spur their economies and get credit into corners of the economies that need it and aren’t getting it,” said Nathan Sheets, global head of international economics at Citigroup Inc. in New York and director of the Fed’s international finance division until last year.
Among the options up for consideration by the monetary authorities in addition to potentially doubling-down on previous policies: taking some of the credit risk of new lending onto their own balance sheets and forcing commercial banks to pay for parking cash in central banks’ coffers. The likelihood of even easier policies leaves John Stopford, head of fixed income at Investec Asset Management in London, advising investors to buy the bonds of traditionally safe economies such as the U.S. U.S. Treasury 10-year notes yesterday traded at a record low yield of 1.3790 percent. He suggests steering clear of cash.
Sales of New U.S. Homes Decrease From Two-Year High: Economy (Source:Bloomberg)
Sales of new U.S. homes unexpectedly dropped in June from a two-year high, a sign the market is being held back by a lack of inventory after builders curtailed projects. Purchases fell 8.4 percent to a 350,000 annual rate, the weakest since January, the Commerce Department reported today in Washington. The median estimate in a Bloomberg News survey of 74 economists was 372,000. The decline was led by a record plunge in the Northeast, where the number of properties available last month was the fewest for any June. “A dearth of construction has led to a very significant inventory shortage,” said Carl Riccadonna, a senior U.S. economist at Deutsche Bank Securities Inc. in New York, who forecast sales would drop to a 345,000 rate, the lowest of those surveyed. “If you want to buy a newly built home, good luck finding one.”
Record-low mortgage rates and stabilizing home prices have spurred buyer traffic, even as unemployment and strict lending standards remain obstacles for the industry that precipitated the last recession. Among companies betting that construction will pick up is Caterpillar Inc. (CAT), which today raised its full- year earnings forecast on improving sales of excavators, scrapers and dozers as builders replace aging equipment.
Caterpillar Echoing Wall Street Rebuts Gross’s Pessimism (Source:Bloomberg)
Caterpillar Inc. (CAT), among the first companies to ring warning bells about the recession in 2007, isn’t subscribing to the pessimism of investors such as Bill Gross even while moderating its global growth projections. A U.S. recession this year is unlikely and the economy will probably grow slightly more than 2 percent, down from an April forecast for about 3 percent, Caterpillar said yesterday in its second-quarter earnings statement. The climate is different than in 2008 because short-term interest rates are lower, central banks are prepared to inject more liquidity and the U.S. housing market is slowly improving rather than falling off a cliff, the company said
“The good news is, this doesn’t feel like 2008,” Chief Executive Officer Doug Oberhelman said in the statement. Caterpillar has a track record of accurate forecasts. In October 2007 it said the U.S. may fall into a recession, in contrast to the outlook of companies including Ford Motor Co., DuPont Co. and Intel Corp. at the time. Caterpillar, considered a U.S. bellwether because it’s the world’s largest maker of construction and mining equipment, proved to be correct as the economy experienced a slump that began in December 2007 and ended in June 2009.
China May Refrain From More Easing, IMF Official Says (Source:Bloomberg)
China may refrain from stepping up its monetary stimulus or increasing spending because measures now in place are sufficient to support growth, the International Monetary Fund’s top official in the nation said. Authorities will probably maintain the “status quo” after already shifting their monetary stance to a “more neutral or accommodating one” and may forgo expanding this year’s budget, Il Houng Lee, 54, the IMF’s senior resident representative in China, said in an interview yesterday in the fund’s Beijing office. Lee’s comments reflect confidence at the IMF, which last week cut its China growth forecasts three months after releasing updated projections, that the pace of expansion will accelerate in the second half of 2012. Premier Wen Jiabao’s government enacted two interest-rate cuts in a month and accelerated approval of investment plans to stem six quarters of deceleration in the world’s second-largest economy.
“Broadly what they have been doing has already been adequate to ensure that the economy is bottoming out,” said Lee, head of the IMF’s China office since 2010. “They most likely maintain the current status quo,” he predicted. Authorities “will most likely allow credit growth to continue to increase,” while avoiding the record scale of lending in the aftermath of the global financial crisis, Lee said.
Japan Flags Yen-Sales Impact as BOJ Eyes More Easing: Economy (Source:Bloomberg)
Japan’s Finance Ministry said its record foreign-exchange intervention last year was effective and central bank Deputy Governor Hirohide Yamaguchi indicated officials won’t hold back on easing. The comments highlight the possibility of further action by policy makers to counter gains in the yen. The currency rose against the dollar this week and was near an 11-year high versus the euro today as Japan reported an unexpected trade surplus and the International Monetary Fund said China faces challenges in securing a “soft landing.” 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. The Bank of Japan (8301) “will not hesitate” to loosen monetary policy should the world’s third-biggest economy face shocks that weaken the outlook, Yamaguchi told business executives today in Hiroshima, western Japan.
“Given the deepening global slowdown, the BOJ will remain in easing mode,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former central bank official. “We can’t rule out the chance that the BOJ will expand easing measures next month, depending on the level of yen and discussions with new board members.” The Japanese currency traded at 78.14 per dollar as of 3:55 p.m. in Tokyo while the euro was at 94.20 yen. Japanese Finance Minister Jun Azumi yesterday indicated increased concern at the yen’s advance as Europe’s crisis bolsters the currency’s appeal as a haven.
South Korea’s Growth Slows as Europe Caps Export Demand (Source:Bloomberg)
South Korea’s economy grew at the slowest pace in almost three years as Europe’s sovereign debt crisis capped demand for exports and weakened confidence. Gross domestic product expanded 2.4 percent in the three months through June from a year earlier, the slowest pace since the third quarter of 2009, the Bank of Korea said today. That compares with the median 2.5 percent estimate of 15 economists surveyed by Bloomberg News. From the previous quarter, Asia’s fourth-largest economy grew 0.4 percent. Europe’s debt woes and a slowdown in China are rippling through Asia, forcing policy makers from Japan to Thailand to respond. Bank of Korea Governor Kim Choong Soo said yesterday that growth is losing steam and HSBC Holdings Plc forecasts that the central bank will add this quarter to a July 12 interest- rate cut. “The big tide from Europe is engulfing Asia and leaving many policy makers helpless,” said Lee Sang Jae, a senior economist at Hyundai Securities Co. in Seoul.
“They will try whatever is possible to stave off a global recession but little can be done amid the fiscal debt crisis.” The Bank of Japan (8301) “will not hesitate” to loosen monetary policy should the world’s third-biggest economy face shocks that weaken the growth outlook, Deputy Governor Hirohide Yamaguchi said yesterday. Two new BOJ board members said July 24 they may be willing to consider new forms of monetary easing.
Thailand Signals Room to Ease Policy as Growth Forecast Cut (Source:Bloomberg)
Thailand’s central bank signaled it has room to cut interest rates to protect the economy from a global slowdown as it lowered the country’s growth and inflation forecasts after keeping borrowing costs unchanged. The Bank of Thailand is ready to do more to support growth if risks escalate, Assistant Governor Paiboon Kittisrikangwan said today, after the monetary authority held its benchmark one- day bond repurchase rate at 3 percent as predicted by all 14 economists in a Bloomberg News survey. It cut its growth forecast for the year to 5.7 percent from 6 percent. The Southeast Asian country has refrained from joining nations from Brazil to China in easing monetary policy as the economy recovers from floods last year that disrupted the supply chains of companies including Toyota Motor Corp. Europe’s sovereign-debt crisis has hurt demand for exports from Thailand, which this month marks 15 years since its baht devaluation sparked the Asian financial crisis.
“If Europe’s situation worsens further, it’s possible Thailand will cut interest rates,” said Satoshi Ushijima, the Bangkok-based vice president of the treasury division at Mizuho Corporate Bank Ltd. “If the BOT moves before the end of this year, rather than holding rates, it will be a cut, as they lowered the growth forecast.” The Thai baht rose 0.2 percent to 31.72 per dollar as of 3:29 p.m. in Bangkok. The benchmark SET index was little changed, having gained about 15 percent this year. The currency has declined 0.6 percent.
U.K.’s Bigger-Than-Forecast Slump Pressures Cameron (Source:Bloomberg)
The U.K. economy shrank the most since 2009 in the second quarter and more than economists forecast, increasing pressure on Prime Minister David Cameron to abandon Britain’s biggest budget squeeze since World War II. Gross domestic product fell 0.7 percent from the first quarter, when it dropped 0.3 percent, the Office for National Statistics said in London today. Economists forecast a 0.2 percent decline, according to the median of 36 estimates in a Bloomberg News survey. Second-quarter data were hurt by record rainfall and an extra public holiday which may have masked an underlying better performance, the ONS said.
Signs of a deepening recession may add to calls for the government to do more to boost growth even after the Bank of England started a credit-easing program and increased emergency bond purchases. The International Monetary Fund said last week Chancellor of the Exchequer George Osborne might have to ease his fiscal squeeze and the central bank should expand stimulus further if efforts to kick-start the economy fail to deliver. “It is looking very unlikely that growth on average for this year can get on the right side of zero -- more likely a small contraction,” said Alan Clarke, an economist at Scotiabank in London. “Can the coalition government or the BOE do anything about the rain or lost working days? No, but that won’t stop claims that austerity is to blame and the BOE should do more.”
German Business Confidence Fell More Than Forecast in July (Source:Bloomberg)
German business confidence fell more than economists forecast in July to the lowest in more than two years as the worsening sovereign debt crisis damped the outlook for economic growth and company earnings. The Ifo institute in Munich said its business climate index, based on a survey of 7,000 executives, dropped to 103.3 from 105.2 in June. That’s the third straight decline and the lowest reading since March 2010. Economists predicted a retreat to 104.5, according to the median of 35 forecasts in a Bloomberg News survey. Moody’s Investors Service on July 23 lowered the outlook on Germany’s Aaa credit rating to negative, citing the risk that Greece could leave the euro and an “increasing likelihood” that countries such as Spain and Italy will require support. While the Bundesbank said this week that the German economy probably grew moderately in the second quarter, aided by domestic demand, latest data show the manufacturing and service industries are contracting.
“The crisis costs Germany money,” said Christian Schulz, senior economist at Berenberg Bank in London. “Not because of the bail-outs it guarantees, not because of a potential ratings downgrade and its impact on borrowing costs, but because the economy is growing much more slowly than it otherwise would. It could stagnate or even fall into recession.”
Spain Debt Costs Seen Unjustified in Berlin Crisis Talks (Source:Bloomberg)
Spanish borrowing costs surged after crisis talks in Berlin late yesterday produced a statement saying bond yields don’t reflect the strength of Spain’s economy. “The current levels of interest rates on sovereign debt markets don’t correspond to the fundamentals of the Spanish economy,” German Finance Minister Wolfgang Schaeuble and Spanish Economy Minister Luis de Guindos said after their meeting in a joint decalaration that also praised Spain’s deficit-cutting efforts. Their words failed to provide market support as the plunge in Spanish securities extended into a 10th day. Spain’s two-year note yield climbed 20 basis points to 7.09 percent at 7:43 a.m. London time, breaching the 7 percent level for the first time. The five-year yield rose 14 basis points to 7.74 percent while the rate on 10-year bonds added 9 basis points to 7.71 percent.
The Spanish government today denied an El Economista report that Germany is urging Spain to request a 300 billion-euro ($363 billion) bailout package that would erase the need to sell debt to investors for as many as two years. 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.
N.Z. Holds Rate at Record Low on EU Risks, Tame Inflation (Source:Bloomberg)
New Zealand’s central bank extended a pause in the nation’s benchmark interest rate, citing risks from Europe’s fiscal crisis and an outlook for tame inflation in holding borrowing costs at a record low. The decision to keep the official cash rate at 2.5 percent for an 11th straight meeting, spanning almost 17 months, was forecast by all 16 economists in a Bloomberg News survey. The Reserve Bank of New Zealand’s last change in borrowing costs was a cut in March 2011. “New Zealand’s trading partner outlook remains poor, with several euro-area economies in recession,” Governor Alan Bollard said in a statement in Wellington. “There remains a limited risk that conditions in the euro area deteriorate very significantly.” The domestic economy should “grow modestly over the next few years,” Bollard said, with the rebuilding of earthquake-hit Christchurch expected to boost the construction industry. Fiscal consolidation and a strong exchange rate were offsetting that by constraining demand, he said.
New Zealand’s dollar strengthened after Bollard’s comments. It bought 79.10 U.S. cents at 10:16 a.m. in Wellington from 78.90 cents immediately before the statement. The so-called kiwi has gained 1.8 percent this year, the best performer among the Group of 10 currencies tracked by Bloomberg.
