Asia FX By Cornelius Luca - Thu 26 Jul 2012 16:52:51 CT (Source:CME/www.lucafxta.com)
The appetite for risk accelerated after European Central Bank President Mario Draghi said the central bank is prepared to take whatever measures needed to preserve the euro. That was a nice pep talk, obviously sufficient to trigger another short squeeze, but facts will need to back up the optimistic speech. More realistically, an economist at Citi said that there is a 90% chance of Greece leaving the euro zone over the next 12 to 18 months. The foreign currencies open little changed in the US after all but the pound recovered on Wednesday. The US stock markets, gold, oil and silver surged. 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 initial jobless claims fell to 353,000 from the previous week's revised figure of 388,000 (from 386,000).
US: New orders for durable goods rose 1.6% in June and May's figures were revised upward to +1.6% percent from +1.1%. Excluding transportation orders, the durable goods orders fell 1.1% after rising 0.8%.
US: The pending home sales index fell 1.4% to 99.3 in June.
Today's economic calendar
Japan: National Consumer Price Index for June
Japan: Tokyo Consumer Price Index for July
Japan: Retail trade for June
Asian Stocks Rise a Second Day on Draghi Pledge for Euro (Source:Bloomberg)
Asian stocks rose for a second day, with the regional benchmark index paring its weekly loss, after European Central Bank President Mario Draghi said policy makers will do whatever is needed to preserve the euro. Konica Minolta Holdings Inc. (4902), a maker of photographic film that gets 28 percent of its sales in Europe, rose 4 percent in Tokyo. LG Display Co., which makes digital products, gained 6.6 percent in Seoul on expectations earnings will improve. Hitachi Chemical Co., a Japanese manufacturer of chemical products, jumped 6.4 percent after raising its profit forecast. The MSCI Asia Pacific Index rose 0.9 percent to 114.87 as of 10:10 a.m. in Tokyo before markets in Hong Kong and China opened. About six stocks advanced for each that fell on the measure, which has lost 1.5 percent this week.
“There’s a fear things are getting out of control, and so Draghi came out with a very strong statement in support of the market that they are going to do everything necessary to support the euro,” said Cameron Peacock, a Melbourne-based market analyst at IG Markets, a provider of trading services for stocks, bonds and currencies. “We are looking at a fairly strong finish to the end of the week.” 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 11.6 times estimated earnings as of yesterday, compared with 13.2 for the Standard & Poor’s 500 Index (SPXL1) and 10.9 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.
Japan Stocks Advance on Draghi’s Pledge to Preserve Euro (Source:Bloomberg)
Japan shares rose for a second day, with the Nikkei 225 Stock Average headed for its biggest gain in a month, after European Central Bank President Mario Draghi said policy makers will do whatever it takes to preserve the euro. Makita Corp. (6586), a maker of power tools that generates 42 percent of sales in Europe, advanced 3.7 percent. Nomura Holdings Inc. (8604), Japan’s largest brokerage, climbed 2.7 percent after its net income topped estimates. Nippon Steel Corp. (5401) rose 2.7 percent after the Nikkei newspaper reported that the company agreed to cut material prices for Toyota Motor Corp. The Nikkei 225 gained 1.2 percent to 8,540.76 at 10:06 a.m. in Tokyo, paring this week’s decline to 1.5 percent as it heads for a third week of losses. The broader Topix Index advanced 1.1 percent to 723.06, with more than four shares rising for each that fell.
“There’s pressure on Draghi to act,” Tony Crescenzi, a strategist at Newport Beach, California-based Pacific Investment Management Co., said in a Bloomberg TV interview. “Draghi has created an expectation that must be followed through on.” The Topix fell 17 percent from this year’s high on March 27 amid concern the U.S. and Chinese economies are slowing and that Europe’s debt crisis will worsen. The decline has left shares on the Topix valued at 0.9 times book value, compared with 2.1 for the Standard & Poor’s 500 Index and 1.4 for the Stoxx Europe 600 Index. A number below one means investors can buy companies for less than the value of their assets. Stocks in Japan fell this week as the yen rose to a 11-year high against the euro amid concern Greece may exit the currency bloc, hurting the outlook for exporters.
Dow Caps Biggest Gain in One Month Amid Draghi’s Pledge (Source:Bloomberg)
The Dow Jones Industrial Average (INDU) capped its biggest advance in almost a month after European Central Bank President Mario Draghi pledged to defend the euro. 3M Co. (V), the maker of Post-It Notes, and Visa Inc., the world’s largest payments network, rose at least 2 percent amid better-than-estimated earnings. PulteGroup Inc. (PHM), the nation’s largest homebuilder by revenue, surged 18 percent on a jump in orders. Sprint Nextel Corp. (S) and MetroPCS Communications Inc. rallied more than 20 percent after their results. Facebook Inc. (FB) fell 9.8 percent at 5:23 p.m. New York time after posting a narrower profit margin as sales and marketing costs surged.
Seven stocks rose for every three falling on U.S. exchanges at 4 p.m. New York time. The Standard & Poor’s 500 Index added 1.7 percent to 1,360.02. It fell 2.8 percent over the previous four days. The Dow gained 211.88 points, or 1.7 percent, to 12,887.93. Volume for exchange-listed stocks in the U.S. was 7.7 billion shares, or 15 percent above the three-month average. “It is a big deal,” said Liz Ann Sonders, the New York- based chief investment strategist at Charles Schwab Corp., which has $1.8 trillion in client assets. “The markets have been looking for a more definitive acknowledgement by key people like Draghi that they are willing to do what they need to do. We feel that if they want to save the euro, it would involve true QE,” she said, referring to bond buying to stimulate the economy.
Global stocks rallied and the euro rose by the most in almost a month against the dollar after Draghi suggested policy makers may intervene in bond markets as surging yields in Spain and Italy threaten the existence of the 17-nation currency bloc. The ECB mothballed its bond-buying program in March as it pushed governments to do more to control their deficits.
European Stocks Rally as Draghi Pledges to Preserve Euro (Source:Bloomberg)
European stocks climbed the most in almost a month, halting a four-day selloff, after European Central Bank President Mario Draghi said policy makers will do whatever it takes to preserve the euro. Banco Santander SA (SAN) surged 11 percent and UniCredit SpA jumped 9.2 percent, leading a rally in bank stocks. Unilever (UNA) rose 5.4 percent to the highest price in more than 20 years after sales beat analyst estimates. France Telecom (FTE) SA added 6.4 percent after it also reported results that topped projections. The Stoxx Europe 600 Index (SXXP) jumped 2.5 percent to 256.58 at the close of trading, for its biggest gain since June 29. The gauge had dropped 4.4 percent the previous four sessions as a surge in Spanish bond yields above 7 percent reignited concern that Europe’s debt crisis is yet to be contained.
“Policy makers don’t want the euro to break up and ultimately will take the necessary decisions to ensure that it keeps together,” said Kevin Lilley, a fund manager at Old Mutual Asset Managers U.K. in London, which oversees about 4 billion pounds ($6.2 billion). “Spain really needs bond yields below 5 percent for the economy to be sustainable -- policy action has to follow.”
Emerging Stocks Rise Most in Week on Earnings, Stimulus (Source:Bloomberg)
Emerging-market stocks rose for the first time in five days as China announced measures to bolster growth in the world’s second-largest economy and investors bet central banks will take more actions to stimulate spending. The MSCI Emerging Markets Index (MXEF) gained 1.2 percent to 916.44 as of 5:10 p.m. in New York. Brazil’s Bovespa index advanced as pulp producer Fibria Celulose SA jumped after reporting a quarterly loss that was narrower than forecast. Mexican equities rose after Mexichem SAB (MEXCHEM*) reported earnings that beat estimates. Russian stocks gained 1.2 percent as oil, the nation’s chief export earner, rose for a third day. Local Chinese governments are expanding efforts to stimulate their regional economies after the country’s gross domestic product fell to a three-year low in the second quarter while growth in industrial production and retail sales slowed in June.
Stocks extended gains after European Central Bank President Mario Draghi said the ECB will do whatever is needed to preserve the euro. “These are indications that China’s government is going to stimulate, and they are in a better fiscal position than anyone to step on the gas,” Kevin Carter, co-founder and chief executive officer at Baochuan Capital Management LLC, where he helps oversee about $282 million, said by phone from Walnut Creek, California. “There’s been a lot of negativity in the market lately, and while sentiment could get worse, this is at least a short-term bounce.
Apple Sales Shortfall May Be Time to Buy Stock: Chart of the Day (Source:Bloomberg)
Anyone buying Apple Inc. (AAPL)’s stock after last quarter’s sales shortfall at the iPhone maker has history on their side, according to Gene Munster, a Piper Jaffray Cos. analyst. The CHART OF THE DAY shows how Apple performed after four earlier cases of disappointing quarterly revenue, as tracked by Munster. They occurred in fiscal 2006, 2007, 2008 and 2011, with iPhone sales trailing estimates in the latter case. Six months later, the shares were 23 percent higher on average. “It’s going to be an in-vogue stock again shortly,” Munster said yesterday in a Bloomberg Radio interview. He cited the pending introduction of the next iPhone model, known as the iPhone 5, which he expects in October. “We’re going to see a significant rebound in the December quarter, and that’s probably an understatement,” he said. The Minneapolis-based analyst rates Apple outperform, meaning he expects the stock to beat the median percentage change for companies he covers.
Apple’s revenue was $35 billion during the fiscal third quarter, which ended in June. Analysts expected $37.2 billion on average from the company, based in Cupertino, California, according to a Bloomberg survey. IPhone sales of 26 million trailed an average projection of 28.4 million.
Dollar Trades Near 2-Week Low Versus Euro Before U.S. GDP (Source:Bloomberg)
The dollar traded 0.4 percent from a two-week low against the euro before data today forecast to show the U.S. economy expanded at the slowest pace in a year. The greenback headed for a weekly loss versus most of its major peers as gains in global shares yesterday sapped demand for the currency as a refuge and amid speculation the Federal Reserve will engage in a third round of quantitative easing, or QE3. The euro maintained a two-day advance against the dollar and yen after European Central Bank President Mario Draghi said policy makers will do whatever is needed to preserve the 17- nation currency. “The combined possibility that the Fed begins to pave the way for QE3 and that we see, for instance, a reopening of the Securities Markets Program from the ECB would argue for a softer dollar and risk-on at least in the short-term,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. (WBC) in Sydney, referring to the respective asset-purchase programs of the U.S. and euro-area central banks.
The dollar was little changed at $1.2276 per euro as of 9:46 a.m. in Tokyo from the close in New York yesterday, when it touched $1.2330, the weakest since July 10. It has fallen 1 percent this week. The greenback fetched 78.22 yen from 78.21, set for a 0.3 percent loss since July 20. The euro traded little changed at 96.03 yen, after yesterday climbing 1.1 percent, the sharpest advance since June 29.
FOREX-Euro dips as Spain worries keep investors wary
LONDON, July 26 (Reuters) - The euro gave back some of the previous day's gains, with persistent worries about the possibility of Spain applying for a full bailout leaving investors inclined to sell the currency on any rally.
"The only thing that could change the downtrend in the euro is if the Fed launched further quantitative easing or some other additional policy measures. Otherwise it's all about what happens in the euro zone," said Richard Falkenhall, currency strategist at SEB in Stockholm.
Aussie Bonds Fall, Currency Holds Gains on Draghi Pledge (Source:Bloomberg)
Australia’s government bonds declined and the local currency maintained two days of gains against the dollar and the yen as Asian stocks extended a global rally, boosting investor appetite for riskier assets. The so-called Aussie dollar was poised for a second monthly advance after European Central Bank President Mario Draghi said policy makers will do whatever is needed to preserve the euro. ECB council member Ewald Nowotny said this week there were arguments in favor of giving the region’s rescue fund, the European Stability Mechanism, a banking license. Demand for the New Zealand dollar was limited on signs global growth is slowing. “The comments from ECB President Draghi echoed those from ECB council member Nowotny earlier this week about granting the ESM a banking license to increase its firepower,” said Gavin Stacey, chief rate strategist at Barclays Plc in Sydney. “You would expect the risk-on to last into the European session. The Australian dollar will benefit over the near term.”
Australia’s government bonds declined, pushing the yield on the 10-year security up by seven basis points, or 0.07 percentage point, to 2.90 percent as of 10:35 a.m. in Sydney. The three-year rate rose as much as 12 basis points to 2.37 percent, the highest since July 12.
Jobless Claims in U.S. Decrease, Extending July Volatility (Source:Bloomberg)
Fewer Americans than forecast filed first-time claims for unemployment insurance payments last week, extending the period of volatility typically seen in July. Applications for jobless benefits decreased by 35,000 in the week ended July 21 to 353,000, Labor Department figures showed today. Economists forecast 380,000 claims, according to the median estimate in a Bloomberg News survey. Changes in the annual auto plant shutdowns that occur this time of year have made it difficult to adjust the data for seasonal variations, the Labor Department has said. Statistical noise aside, slowing economies in Europe and China, which have reduced global demand for goods, may continue to curb employment. The U.S. presidential election and a looming battle over tax cuts and government spending may also be making businesses reluctant to hire.
“All in all, the labor market is gradually healing,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “We’ve got to take this report with a grain of salt. The jobs market is still tough and we’re setting ourselves up for a soft second half of the year.”
Orders Signal Slowdown in U.S. Business Spending: Economy (Source:Bloomberg)
A slump in June orders for equipment such as computers and machinery signals U.S. business investment will probably cool in the second half of the year and contribute less to the economic expansion. Bookings for non-defense capital goods excluding aircraft, a proxy for future corporate spending, dropped 1.4 percent, the third decrease in the past four months, according to Commerce Department data issued today in Washington. Another report showed claims for unemployment benefits declined more than forecast last week, which may have resulted from difficulty adjusting data for seasonal shutdowns of auto factories. Softening overseas demand, slowing U.S. consumer spending and gridlock in Washington over fiscal policy may prompt businesses to put off replacing old equipment, hurting profits at companies like Xerox Corp. (XRX) A report tomorrow is projected to show the world’s largest economy expanded in the second quarter at the weakest pace in a year.
“Business investment has definitely shifted lower,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York. The European debt crisis and fiscal cliff “will put downward pressure on orders, which will translate into weaker growth in the U.S.” Stocks jumped today as European Central Bank President Mario Draghi said the central bank will do whatever it takes to preserve the euro. The Standard & Poor’s 500 Index climbed 1.7 percent to 1,360.02 at the 4 p.m. close in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 1.43 percent from 1.40 percent late yesterday.
Pending Sales of U.S. Homes Unexpectedly Fell 1.4% in June (Source:Bloomberg)
Contracts to purchase previously owned homes unexpectedly dropped in June for the second time in the last three months, a sign of limited momentum in housing. The index of pending home resales decreased 1.4 percent to 99.3 after a revised 5.4 percent gain in May that was less than initially reported, figures from the National Association of Realtors showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 0.3 percent June increase. Slower job growth that’s holding down confidence and strict lending standards are restraining housing even with cheaper properties and mortgage rates at all-time lows. While acknowledging the improvement in housing, Federal Reserve Chairman Ben S. Bernanke said last week that policy makers are ready to take further action to boost an economy that faces a headwind from Europe’s debt crisis.
“One of the cruel facts of this current backdrop is that few people have really been able to take advantage of these historically low rates -- whether that’s by choice or force,” Tom Porcelli, chief U.S. economist for RBC Capital Markets LLC in New York, said before the report. “You really haven’t seen purchase applications pick up in any meaningful way at this stage.” Estimates in the Bloomberg survey of 34 economists ranged from a drop of 4 percent to a gain of 4 percent.
Democrats Exceed Republicans in Optimism for Record 18 Weeks (Source:Bloomberg)
Consumer confidence has been higher among Democrats than Republicans for a record 18 straight weeks, indicating that politics are driving perceptions of well-being. Confidence among Republicans fell to minus 45.1 in the week ended July 22, 47.9 points below their long-term average, according to the Bloomberg Consumer Comfort Index. Among Democrats, confidence was at minus 27.8, two points lower than their long-term average, although it did fall 4.2 points from the previous week. The current stretch of Democratic optimism surpassing that of Republicans is triple the previous record -- a six-week period encompassing the re-election of President Bill Clinton in November 1996. Republicans have been more hopeful than Democrats in data going back to 1990, in part because they tend to be more affluent, according to Gary Langer, president of Langer Research Associates in New York, which compiles the index for Bloomberg.
“Historically voters have looked at politics through an economic lens,” said Dan Schnur, director of the Jesse M. Unruh Institute of Politics at the University of Southern California in Los Angeles. “Now they’re looking at the economy through a political lens.” Regardless of political affiliation, tepid job growth and unemployment stuck above 8 percent since February 2009 are hurting confidence, making consumers less likely to spend. The overall Consumer Comfort Index last week declined to minus 38.5, a two-month low, from minus 37.9, the survey showed.
China Cities Roll Out Stimulus as Changsha Targets $130 Billion (Source:Bloomberg)
The central Chinese city of Changsha unveiled an 829.2 billion yuan ($130 billion) investment plan, joining peers seeking to shore up local economies as national growth slows. Changsha, the capital of Hunan province, is wooing banks to finance 195 projects, which include an airport and subway lines and will take several years to complete, the official China News Service reported yesterday. Local governments are stepping up efforts to bolster the economy, with the cities of Nanjing and Ningbo saying over the last two weeks that they will introduce measures including tax cuts and incentives to boost consumption. Premier Wen Jiabao said July 10 that promoting investment is the key to stabilizing China’s growth, which has slowed for six quarters.
“We expect Changsha, Nanjing and Ningbo to be the start of a wave of nationwide stimulus packages, with more announcements from other local governments to come,” Shen Jianguang, Hong Kong-based chief Asia economist for Mizuho Securities Asia Ltd., said in a note yesterday. “With the central government’s tight controls on local government lending previously, there has been widespread panic among local governments in regard to the recent downturn.” Changsha’s plan “will be spread over the next few years and eventually the actual amount of investment recorded could be discounted to a third of its original target,” said Shen, who previously worked for the International Monetary Fund. Fiscal stimulus will be the focus of policy easing in the second half and the central government will expedite approvals of infrastructure investments to stabilize the economy, he said.
South Korea’s Current-Account Surplus Widens to Record (Source:Bloomberg)
South Korea’s current-account surplus widened to a record in June as concern over slowing global growth capped consumer sentiment and demand for imports. The surplus was $5.8 billion, compared with a revised surplus of $3.6 billion in May, the Bank of Korea said in a statement in Seoul today. The current account is the broadest measure of trade, tracking goods, services and investment income. Asia’s fourth-largest economy grew at the slowest pace in almost three years last quarter, with BOK Governor Kim Choong Soo warning this week the nation risks failing to meet a 3 percent growth estimate for 2012. HSBC Holdings Plc and Citigroup Inc. have said policy makers may follow a July 12 rate cut with more easing this year.
“Imports declined across the board from capital goods to consumer goods, boding ill for the economy,” said Park Sang Hyun, chief economist at HI Investment & Securities Co. in Seoul. “The quality of trade is deteriorating fast with both exports and imports shrinking. We may see another rate cut as early as next month.”
Brazil Consumer Default Rate Falls First Time Since March (Source:Bloomberg)
Brazil’s consumer-loan default rate fell in June for the first time in three months, as the government’s drive to lower borrowing costs provides relief to indebted families. The consumer default rate declined to 7.8 percent from a revised 7.9 percent in May, the central bank said in a report distributed today in Brasilia. The company loan default rate slid to 4 percent from 4.1 percent over the same period. Lower interest rates, higher income levels and a more conservative selection process by banks have caused default rates to fall, the central bank’s head of economic research, Tulio Maciel, told reporters in Brasilia today.
Since August, Brazil has cut the benchmark Selic rate 450 basis points to the record low 8 percent and pressured banks to lower rates on loans to accelerate a sluggish economic recovery. Easier credit access, a drop in delinquency rates and record-low unemployment will help drive consumption in the world’s second- largest emerging market, central bank President Alexandre Tombini told reporters July 23. Policy makers have also implemented growth measures such as tax breaks on automobiles and consumer goods.
Greek Budget Talks Stumble as EU Urges Samaras to Deliver (Source:Bloomberg)
Greek political leaders struggled to clinch agreement on an 11.5 billion-euro ($14 billion) package of budget cuts, as international creditors began a review of Greece’s progress that may determine its future in the euro. Prime Minister Antonis Samaras and his coalition partners, Evangelos Venizelos of Pasok and Fotis Kouvelis of Democratic Left, are to meet again on July 30 to determine the savings required to receive the funds pledged under Greece’s two rescue packages totaling 240 billion euros. European Commission President Jose Barroso urged Samaras to make good on promises. “The key word here is deliver,” Barroso said after meeting the premier, the first visit to Greece by a senior European Union official in more than a year. “Deliver, deliver, deliver. The delays must end. Words are not enough.”
Greece, which held consecutive elections in May and June as public opposition to spending cuts grew, risks running out of money without the disbursement of 4.2 billion euros due last month as the first instalment of a 31 billion-euro transfer. Citigroup Inc. (C) said there’s now a 90 percent chance Greece will leave the euro in the next 12 months to 18 months. The coalition government leaders met after Finance Minister Yannis Stournaras held his first talks of the review with the “troika” of officials representing the euro area, the European Central Bank and the International Monetary Fund.
Draghi Says ECB Will Do What’s Needed to Preserve Euro: Economy (Source:Bloomberg)
European Central Bank President Mario Draghi said policy makers will do whatever is needed to preserve the euro, suggesting they may intervene in bond markets as surging yields in Spain and Italy threaten the existence of the 17-nation currency bloc. “To the extent that the size of these sovereign premia hamper the functioning of the monetary policy transmission channel, they come within our mandate,” Draghi said in a speech at the Global Investment Conference in London today. “Within our mandate, the ECB is ready to do whatever it takes to preserve the euro,” he said, adding: “believe me, it will be enough.” Financial markets surged on speculation the ECB will act to lower Spanish borrowing costs after yields on the nation’s bonds rose to levels that prompted bailouts for Greece, Portugal and Ireland. The ECB reluctantly started buying Spanish and Italian debt in August last year as part of its bond purchase program. The buying had little lasting effect and the ECB suspended the program in March.
Spain at 7% Stresses Inadequacies of Rescue Options: Euro Credit (Source:Bloomberg)
Money managers with more than $800 billion are betting European policy makers can only offer Spain a temporary respite from record borrowing costs. Yields on Spain’s two-, five-, 10- and 30-year government securities climbed to euro-era highs this week amid speculation the nation will need a bailout to backstop its regions and banks. While the Organization for Economic Cooperation and Development called for the European Central Bank to buy Spanish debt, investors including AllianceBernstein Ltd. and M&G Group Plc said policy makers are hamstrung in how to rescue an economy twice the combined size of Greece, Ireland and Portugal. “This crisis is unprecedented so the responses need to be unprecedented,” said Arif Husain, the London-based director of European fixed-income at AllianceBernstein, which oversees $407 billion. “Anything the ECB can do would prove temporary. The whole problem is that anything that’s happening at the moment is unconvincing, and markets hate uncertainty.”
Spain’s 10-year yield reached as much as 7.751 percent yesterday, and was at 7.05 percent as of 12:20 p.m. London time. Five- and 30-year yields also reached the most since the common currency was introduced in 1999 this week, while the cost of insuring against a default climbed to its highest ever.
