Asia FX By Cornelius Luca - Tue 14 Aug 2012 17:07:23 CT (Source:www.lucafxta.com/CME)
The appetite for risk dwindled later on Tuesday because better than expected economic data in the US and Germany was countered by ongoing concern about the sustainability of the global economy. The European currencies made little progress on Tuesday, while the yen fell. The US stock indexes consolidated. The gold/oil ratio fell. 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 yen. Good luck!
Overnight
US: Retail sales rose 0.8% in July, but the June retail sales figures were revised down to -0.7% from -0.5%.
US: PPI rose by 0.3% in July following a 0.1% increase in June. The core PPI rose by 0.4% in July after edging up by 0.2% in each of the two previous months.US: Business inventories edged up a 0.1% in June, down +0.3% in May. Business sales sank 1.1% for June.
Today's economic calendar
Australia: Westpac Consumer Confidence for August
Australia: Wage Price Index for the second quarter
Most Asian Stocks Rise on U.S. Retail, German GDP Reports (Source: Bloomberg)
Most Asian stocks gained after U.S. retail sales and German gross domestic product rose more than forecast, boosting the outlook for exporters. Toyota Motor Corp. (7203), Asia’s biggest carmaker by market value, rose 0.8 percent in Tokyo. Alacer Gold Corp. (ASR) slumped 7 percent in Sydney after the miner cut a production forecast. Anhui Conch Cement Co. may be active today in Hong Kong after profit fell at China’s biggest cement company. The MSCI Asia Pacific Index (MXAP) rose less than 0.1 percent to 120.41 as of 9:19 a.m. in Tokyo. About four stocks gained for every three that fell before the open of markets in Hong Kong and China. Asia’s benchmark index fell 6.7 percent from this year’s high on Feb. 29 through yesterday amid concern Europe’s debt crisis will worsen and China’s economy is slowing. The gauge traded at 12.4 times estimated earnings compared with 13.6 for the Standard & Poor’s 500 Index and 11.6 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.
The Nikkei 225 Stock Average gained 0.2 percent, and Australia’s S&P/ASX 200 Index (AS51) climbed 0.3 percent. South Korea’s markets are closed for a holiday today.
Japanese Stocks Advance on U.S. Retail Sales, German GDP (Source: Bloomberg)
Japanese stocks gained, with the Topix Index heading for a three-day advance, after U.S. retail sales and German gross domestic product rose more than estimated, boosting the outlook for exporters. Brother Industries Ltd., a maker of office equipment that gets half its sales in the U.S. and Europe, climbed 1.2 percent. Toyota Motor Corp., Asia’s biggest auto manufacturer, climbed 1 percent after the Nikkei newspaper reported Japan will offer subsidies for ultra-compact cars. Sharp Corp., the nation’s biggest liquid-crystal panel maker, sank 4.2 percent after trimming its sales forecast and having its equity rating cut to sell by Deutsche Bank. The U.S. economic data “would temporarily weaken the expectations for additional easing and is alleviating concerns of the yen’s strength against the dollar, which is a good factor for exporters,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc.
The Nikkei 225 Stock Average (NKY) gained 0.2 percent to 8,950.14 as of 9:15 a.m. in Tokyo. Volume on the gauge was 5.6 percent below the 30-day average with many traders off for O-bon holidays this week. The broader Topix rose 0.1 percent to 750.24, with about seven shares advancing for every six that fell.
S&P 500 Erases Early Gain as Tech, Financial Shares Slump (Source: Bloomberg)
U.S. stocks erased gains, sending the Standard & Poor’s 500 Index lower for a second day, as a slump in technology and financial shares reversed an earlier rally amid better-than-estimated retail sales. Hewlett-Packard Co. (HPQ) and Cisco Systems Inc. (CSCO) posted the biggest declines in the Dow Jones Industrial Average. The S&P 500 Financials Index slipped 0.1 percent after earlier rising as much as 0.7 percent. Alcoa Inc. (AA) retreated 1.6 percent, pacing losses among commodity stocks. Home Depot Inc. (HD) increased 3.6 percent after quarterly earnings topped analysts’ estimates. The S&P 500 dropped less than 0.1 percent to 1,403.93 at 4 p.m. in New York, after earlier rising as much as 0.4 percent. The Dow added 2.71 points, or less than 0.1 percent, to 13,172.14. Volume for exchange-listed stocks in the U.S. was about 5.2 billion shares today, 20 percent below the three-month average, according to data compiled by Bloomberg.
“The light volume demonstrates there’s just little conviction right now,” Peter Tuz, who helps manage about $800 million as president of Chase Investment Counsel Corp. in Charlottesville, Virginia, said in a telephone interview. “It is a symptomatic of the fact that people are just not that interested in the equity market.”
Stock Trading in U.S. Falls to Lowest Level Since 2008 (Source: Bloomberg)
U.S. equity volume reached the lowest level since at least 2008 excluding holidays and volatility slid to a five-year low as vacationing traders awaited policy clues from the Federal Reserve’s summit in Jackson Hole, Wyoming. About 4.5 billion shares changed hands on all venues, the lowest level in data compiled by Bloomberg going back four years that excludes the days surrounding New Year’s, Christmas, Thanksgiving and Independence Day. The Chicago Board Options Exchange Volatility Index, known as the VIX (VIX), lost 7.1 percent to 13.70, the lowest level since June 2007. U.S. equity volume has fallen as investors speculated on whether the European Central Bank will start buying bonds to lower borrowing costs and if the Fed will take steps to deliver more stimulus. The VIX, which tracks the cost of protecting against a drop in U.S. stocks, has slumped as Standard & Poor’s 500 Index (SPX) reached the highest level since April last week.
“We’re getting to a point where everybody is going to be on hold waiting for some action out of the ECB and the Fed,” Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a telephone interview. “At this time of the year, there are fewer people in the office.” Daily volume on U.S. equity exchanges has averaged 6.67 billion this year, 15 percent less than the average from last year, according to data compiled by Bloomberg. That compares with 8.5 billion in 2010.
Recap Stock Index Market Report (Source:CME)
The September S&P 500 trended higher during the initial morning hours, climbing to their highest level since April 2nd. The upside action in the stock market was fueled by German GDP data that was slightly better than expected, then from US July Retail Sales that beat consensus estimates. There were also a number of US retail-related companies that posted upbeat quarterly results earlier this morning, and that seemed to support the notion of a healthy consumer. The index struggled to hold into positive territory during the afternoon session and posted new lows into the close. Most of the major S&P sectors were lower on the session, with material-related shares as the downside leader.
European Stocks Rise on German GDP Report (Source: Bloomberg)
European stocks gained, rebounding from a two-day decline, as a report showed German growth slowed less than forecast, while minutes revealed that several Bank of Japan policy makers are prepared to stimulate the economy. Standard Life Plc (SL/) rallied 8.1 percent as first-half profit at Scotland’s biggest insurer rose 15 percent. A.P. Moeller- Maersk A/S advanced 3.2 percent after increasing the full-year forecast for its container-shipping unit. CRH Plc (CRH) plunged 4.8 percent after saying a European sales decline will worsen. The Stoxx Europe 600 Index (SXXP) gained 0.7 percent to 270.54 at the close. The gauge has rallied 16 percent from this year’s low on June 4 as European Central Bank President Mario Draghi said that he will do anything to protect the 17-nation currency.
“While not great in any way, German and French GDP numbers were better than expected, which adds to the scenario that there is no risk of an imminent euro break up,” said Alexander Kraemer, a cross-asset strategist at Commerzbank AG in Frankfurt. “It shows global growth is not collapsing, which also helps reduce investment risks.”
China Bear Market Lures Record Foreign Bids as Locals Pull Funds (Source: Bloomberg)
International money managers are lining up to buy stocks in mainland China at a record pace, even as a third year of equity losses spurs local investors to empty trading accounts like never before. While overseas firms were granted $6.9 billion of quotas to purchase mainland securities since December, more than in any full year since the government program began, the number of Chinese stock accounts containing funds dropped by 788,000 to 56.3 million in the year to Aug. 3, the most for a 12-month period. A record 110 million are empty or frozen, according to regulatory data compiled by Bloomberg. Foreign funds from Taiwan Life Insurance Co. to Shinhan BNP Paribas Asset Management Co. say the 54 percent discount for companies in the Shanghai Composite Index to their 10-year average, and the lowest valuations relative to MSCI Inc.’s developing-nations measure make China shares irresistible.
Local individuals, companies and institutions, which hold about 99 percent of mainland shares, are turning more bearish as the world’s second-largest economy slows. “The value story is clearly emerging in China,” Kim Jun Sung, the chief investment officer for equities at Samsung Asset Management Co., which oversees about $100 billion and received a $150 million quota to buy mainland securities in 2010, said in an Aug. 7 interview in Seoul. “The economic outlook continues to be negative so the catalyst for growth is not yet there.”
Recap Interest Rate Market Report (Source:CME)
September 30-Year Bonds traded lower throughout the session, making an exact test of last week's low of 147-10. Treasury markets were on the defensive following GDP data from France and Germany that came in slightly better than expected. Bonds broke down to their low of the session in response to US Retail Sales data that came in stronger than expected. July Producer Prices jumped at their fastest clip in five months, and that might have put further pressure on prices. Some traders indicated that the push higher in yields during the session came on diminished prospects for the Fed to take policy action at their September meeting.
U.S. 10-Year Yield Highest Since May After Retail-Sales Gain (Source: Bloomberg)
Treasuries fell after U.S. retail sales rose for the first time in four months in July and exceeded forecasts, damping demand for the safety of U.S. government debt. Benchmark 10-year note yields reached the highest level since May as the consumer-spending data and the Aug. 3 report of stronger-than-forecast jobs gains reduced speculation the Federal Reserve will add to its monetary stimulus. U.S. debt fell earlier after the German economy expanded in the second quarter at a faster pace than analysts forecast and the French economy unexpectedly avoided a contraction. “Today’s data, combined with the employment report, makes it harder for the Fed to do another round of quantitative easing,” said Gary Pollack, who manages $12 billion as head of fixed-income trading at Deutsche Bank AG’s Private Wealth Management unit in New York. With the Fed buying so much long- term debt “yields are much lower than they should be.”
The benchmark 10-year yield rose eight basis points, or 0.08 percentage point, to 1.74 percent at 5 p.m. in New York, according to Bloomberg Bond Trader prices. The 1.625 percent note due in August 2022 fell 21/32, or $6.56 per $1,000 face amount, to 98 31/32. The yield is the highest since May 29.
Dollar Near One-Month High Versus Yen Before U.S. Data (Source: Bloomberg)
The dollar was 0.2 percent from an almost one-month high against the yen before data today that may add to signs of economic recovery in the U.S., curbing chances for expanded monetary easing from the Federal Reserve. The greenback held gains versus most of major peers ahead of reports forecast to show improvements in the manufacturing sector of the world’s biggest economy. Demand for the euro was limited after figures yesterday showed gross domestic product contracted in the 17-nation region. “The U.S. economy is growing slowly, and I view that as a positive,” said Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney. The expansion is “at a sufficient pace for the Fed to hold fire. This lends support to the dollar.” The dollar bought 78.80 yen at 8:37 a.m. in Tokyo. It touched 78.93 yesterday, the strongest since July 18. The U.S. currency was unchanged at $1.2322 per euro. Europe’s shared currency traded at 97.11 yen from 97.02.
Industrial production in the U.S. probably rose 0.5 percent last month after a 0.4 percent gain in June, according to the median economist forecast compiled by Bloomberg News before today’s data. The New York Fed’s general economic index was probably at 7 in August, according to a separate survey. Readings greater than zero signal expansion in the region and the last negative reading was in October.
FOREX REPORT- Euro dips after German ZEW, euro zone GDP data (Reuters)
The euro dipped against the dollar after the German ZEW economic sentiment survey came in worse than expected while the euro zone economy contracted by 0.2 percent during the second quarter.
Retail Sales in U.S. Jumped More Than Forecast: Economy (Source: Bloomberg)
Retail sales in the U.S. rose more than forecast in July, reflecting broad-based gains that ease concern elevated unemployment will cause consumers to retrench. The 0.8 percent advance, the biggest since February and first gain in four months, followed a 0.7 percent decrease in June, Commerce Department figures showed today in Washington. Economists projected a 0.3 percent rise, according to the median forecast in a Bloomberg survey. Purchases climbed in all 13 categories, the first time that’s happened since 2005. Improved sales at merchants such as Gap Inc. (GPS) and TJX Cos. (TJX) indicate American households are looking beyond the global economic slowdown as hiring improves. At the same time, joblessness in excess of 8 percent is keeping consumer spending from surging, consistent with the Federal Reserve’s view that economic growth will “remain moderate over coming quarters.”
“The consumer hasn’t exactly thrown in the towel, which is encouraging because they’ve been battered and bruised in recent months with very slow job growth,” said Millan Mulraine, senior U.S. strategist at TD Securities Inc. in New York. “We’re off to good a start in the third quarter. I do question the sustainability of the current level of spending. It can only be sustained if employment growth accelerates beyond July.”
Romney-Ryan See Fed QE as Inflation Risk Amid Low Prices (Source: Bloomberg)
Representative Paul Ryan, writing less than a month after the Federal Reserve announced a new round of bond-buying in 2010, said the move to purchase another $600 billion in securities risked stoking inflation and pushing down the dollar. Since that prediction by Ryan, who has been chosen by presumptive Republican presidential nominee Mitt Romney to be his running mate, the dollar has risen against major currencies and inflation has stayed below the Fed’s goal of 2 percent. While off target so far, the warning by Ryan parallels Romney’s criticism of the unprecedented Fed program known as quantitative easing to spur growth by purchasing a total of $2.3 trillion in securities. Romney and Ryan oppose the policy even as Chairman Ben S. Bernanke says he stands ready to provide more accommodation if necessary to achieve a steady decline in the 8.3 percent U.S. unemployment rate.
A Fed led by a Romney-Ryan administration appointee “would be less inclined to frequently fiddle with the knobs” of economic policy, said Stephen Stanley, chief economist for Pierpont Securities LLC in Stamford, Connecticut. “There would be a strong sense in the markets that a different strategy is probably forthcoming,” with higher odds the Fed would raise interest rates and a lower probability it would buy more bonds.
California Sells $2.3 Billion in Notes to Raise Cash (Source: Bloomberg)
Individual investors bought almost a quarter of $10 billion in notes offered by California at yields of as much as 0.55 percent in the state’s largest short-term borrowing in two years, according to state Treasurer Bill Lockyer’s office. While individuals scooped up 23 percent of the issue, that’s less than half the 57 percent sold on the first day of the state’s last such sale. That $5.4 billion offering in September carried yields of 0.38 percent to 0.4 percent. The revenue-anticipation notes sold today offer yields ranging from 0.3 percent to 0.4 percent for those coming due in May and 0.4 percent to 0.55 percent for June maturities, according to a pricing memo e-mailed by Tom Dresslar, a Lockyer spokesman. The range is almost 12 basis points to about 37 basis points higher than yesterday’s 0.18 percent yield on benchmark AAA one-year tax-exempt debt, according to data compiled by Bloomberg. A basis point is 0.01 percentage point.
Borrowing costs for the most-populous U.S. state have declined as Governor Jerry Brown, a Democrat, has taken measures to curb borrowing and reduce the state’s reliance on fiscal maneuvers such as internal loans and delaying payments owed to schools and local governments. Both Standard & Poor’s and Moody’s Investors Service gave the notes top ratings.
China Reluctance on Reserve Cut Signals Inflation Concern (Source: Bloomberg)
China’s slower-than-forecast cuts in banks’ reserve requirements show authorities are reluctant to shake their concern inflation will quicken, three months after Premier Wen Jiabao shifted priorities to boosting growth. China has left the reserve ratio for the biggest banks at 20 percent since mid-May while lowering interest rates in June and July, bucking forecasts from HSBC Holdings Plc and Societe Generale SA that the government would build on three ratio reductions since Nov. 30. Industrial-production and loan data for July that missed estimates last week fueled further speculation the People’s Bank of China would cut the ratio as soon as Aug. 10. The hesitation risks increasing the odds that growth will decelerate for a seventh quarter just as Communist Party leaders gather for a once-a-decade power handover. The PBOC said this month that price gains may rebound after August and a newspaper published by the institution said more reserve-ratio cuts would backfire by increasing inflation expectations.
“The central bank is still concerned about a rebound in inflation, and it is reluctant to loosen too much on the liquidity side,” said Xu Gao, an economist with Everbright Securities Co. in Beijing who previously worked for the World Bank. “The key problem now is that banks have money but the money can’t be channeled to the real economy.”
China ‘Golden Years’ Are Gone as Growth Slows, Vale Says (Source: Bloomberg)
China’s “golden years” are gone as economic growth at the world’s second-biggest economy slows, said an official at Vale SA (VALE5), the top iron-ore producer. Vale, which shipped about 44 percent of its iron ore and pellets to Chinese steelmakers in the second quarter, expects the country to start to recover by the end of the year, said Roberto Castello Branco, the Rio de Janeiro-based company’s director of investor relations. Vale sees some “early signals” of recovery, which are still “very weak,” he said. “We are not going to see the spectacular growth rates of 10, 12 percent per year,” Castello Branco said at the Bloomberg Brazil Economic Summit in Rio today. “The golden years are gone.”
Iron-ore prices dropped to the lowest since Dec. 2009 yesterday on slower growth in China, the biggest user of the steelmaking ingredient, and a weaker outlook for the global economy. Vale said on July 25 that second-quarter profit plummeted 59 percent, missing analysts’ estimates for the fourth time in the past five quarters, after prices for minerals and metals declined. Chinese policy makers cut their expansion target to 7.5 percent from the 8 percent goal in place since 2005, Premier Wen Jiabao said on March 5. Wen, 69, is trying to reduce China’s reliance on exports and boost consumption as he hands power to a younger generation of leaders this year. The economy grew 7.6 percent in the second quarter, the slowest pace since 2009.
Hamburg Harbor Hurt as Europe Debt Crisis Hits China (Source: Bloomberg)
Growth in Hamburg is stalling as Europe’s fiscal crisis spreads into China and Russia, threatening the recovery of Germany’s biggest port. Hamburger Hafen und Logistik AG, which handles two thirds of containers in Hamburg, cut its forecast for 2012 on July 25, saying it now sees container throughput at the same level as last year, compared with an earlier 5 percent growth estimate. Such an increase would have led to volumes exceeding the record 7.3 million standard containers handled in 2008, the year before the global financial slump prompted a 33 percent drop. “The port of Hamburg’s Asian exposure is close to 60 percent, and obviously the euro crisis is now having an impact on the Asia-Europe trade line,” said Christian Cohrs, an analyst at M.M. Warburg & Co. KGaA in Hamburg, who has a sell recommendation on shares of Hamburger Hafen, also known as HHLA.
“With throughput growth of almost 5 percent in the first quarter and 1.5 percent in the second quarter, the guidance cut assumes nearly a 3 percent decline in volumes in the second half of this year.” Germany, Europe’s largest economy, is cooling as the euro area, its biggest export market, heads toward recession. Hamburg’s port, on which 275,000 people rely for jobs, largely had been shielded from Europe’s fiscal woes because of expanding trade with China and the countries around the Baltic Sea. Now these nations are feeling the impact of the debt crisis, and container-volume growth in Hamburg has slowed for six consecutive quarters.
German Growth Slowed Less Than Forecast in Second Quarter (Source: Bloomberg)
The German and French economies slowed less than forecast in the second quarter, fending off a debt crisis that has dragged at least six of their euro-area neighbors into recession. In Germany, gross domestic product rose 0.3 percent from the first quarter, when it gained 0.5 percent, the Federal Statistics Office in Wiesbaden said today. Economists predicted a 0.2 percent increase, according to the median of 40 estimates in a Bloomberg News survey. French GDP was unchanged in the quarter, better than the 0.1 percent decline economists had predicted. While the euro region’s two largest economies defied the debt crisis in the first half of the year, the worsening turmoil is starting to take its toll by eroding demand for their exports. Italy and Spain are in recession and euro-area GDP dropped 0.2 percent in the three months through June, the European Union’s statistics office in Luxembourg said today.
“For Germany, the outlook remains pretty robust,” said Christian Schulz, an economist at Berenberg Bank in London. “For France, the outlook is less rosy as a number of the components that have prevented it from contracting will be hit by austerity measures, plus the country is losing competitiveness.”
Hungary Joins Czechs in Recession on Budget Cuts, Crisis (Source: Bloomberg)
The Czech economy extended its decline and Hungary returned to a recession in the second quarter as government budget cuts sapped domestic demand and the euro-area crisis weakened exports. The Czech and Hungarian economies, the second- and third- largest among post-communist European Union members, each contracted 0.2 percent from the first three months of the year, according to preliminary data released by statistics offices in Prague and Budapest today. Gross domestic product declined 1.2 percent from a year earlier in both countries. The worsening economic performance is adding to the governments’ financial strains as they struggle to curb budget deficits with measures including tax increases, which depress consumer spending. Exports from factories including Skoda Auto AS, Daimler AG (DAI) and Audi AG (NSU) continue to support the Czech and Hungarian economies, even as the manufacturers face weakening demand from their main markets in the 17-nation euro area.
“For now, the drop in output in both countries seems to have been driven as much by domestic austerity as by weaker export demand from Europe,” Neil Shearing, chief emerging- markets economist at Capital Economics Ltd. in London, said in an e-mail. “But with external headwinds likely to build over the second half of this year and into 2013, the growth prospects for the entire region are pretty grim.”
Euro-Area Economic Output Contracted on Spain: Economy (Source: Bloomberg)
The euro-area economy shrank in the second quarter after the worsening debt crisis and tougher budget cuts forced at least six nations into recessions. Gross domestic product in the 17-nation currency bloc fell 0.2 percent from the first quarter, when it stagnated, the European Union’s statistics office in Luxembourg said today. That’s in line with the median estimate of 35 economists in a Bloomberg survey. The contraction was softened by stronger-than- forecast growth in Germany, the region’s largest economy. Europe’s slump is deepening as governments struggle to restore investor confidence and companies eliminate jobs. While Germany’s economy helped to support the euro region in the first half, surveys are weakening, with a gauge of investor confidence dropping in August. The Bank of Japan (8301) today cited the euro turmoil among risks to its economy.
“The ongoing recession in large parts of the periphery will continue to hold back euro-zone growth,” said Martin Van Vliet, an economist at ING Bank in Amsterdam. “Any recovery will likely remain sluggish and fragile. There are a lot of things that could go wrong on the crisis resolution that could derail the envisaged recovery.”
Euro zone economy shrinks despite German growth(Reuters)
The euro zone's debt-ravaged economy shrank in the second quarter, having flatlined in the first, despite continued German growth which economists said could soon be snuffed out.
