Asia FX By Cornelius Luca - Wed 22 Aug 2012 17:07:10 CT (Source:CME/www.lucafxta.com)
The appetite for risk was spotty on Wednesday. The market focused on the Fed's minutes and the weakness of the economy should sanction another round of quantitative easing measures at their next meeting in September. Just in time for the elections! All of the foreign currencies but the Canadian dollar surged on hopes that the Fed will ease (see above) and that the European Central Bank will act to curb surging peripheral Eurozone borrowing costs and find ways to keep Greece afloat. The US stock markets were mixed, but gold, oil and silver advanced. The short-term outlook for most foreign currencies is sideways. The medium-term outlook for most of the foreign currencies is sideways. The LGR short-term model is long across the board. Good luck!
Overnight
US: Existing home sales rose 2.3% to an annual rate of 4.47 million in July from 4.37 million in June. The report median existing-home price edged down 0.8% to $187,300 in July from $188,800 in June.
US: The FOMC minutes of the most recent policy meeting showed that many members of the Federal Reserve say additional monetary policy accommodation is likely warranted unless the economy improves substantial. This may signal another round of quantitative easing measures at their next meeting in September.
Canada: Retail sales declined by 0.4% in June after expanding 0.2% gains in May.
Today's economic calendar
China: Leading economic index
China: HSBC manufacturing PMI for August
Most Asian Stocks Drop Led by Exporters as Dollar Weakens (Source:Bloomberg)
Most Asian stocks declined led by Japanese and South Korean exporters as the U.S. dollar weakened after minutes from a Federal Reserve meeting showed many policy makers favored more monetary easing unless the economy shows signs of sustained growth. Honda Motor Co. (7267), a Japanese carmaker that gets about 44 percent of sales from North America, slipped 1.6 percent in Tokyo. Samsung Electronics Co., the world’s biggest mobile-phone maker by sales, lost 0.6 percent in Seoul as South Korea’s won rose toward a one-month high. QR National Ltd. advanced 1.9 percent after Australia’s largest coal-train operator posted full-year profit that topped estimates. Three shares fell for every two that rose on the MSCI Asia Pacific Index (MXAP), which gained 0.4 percent to 121.04 as of 9:39 a.m. in Tokyo. Investor optimism that global central banks will take action to stimulate economic growth has pushed the gauge up 11 percent from its June low.
“U.S. policy makers are frustrated with the anemic pace of the recovery and this increased the odds that some form of additional Fed easing will be implemented at the central bank’s September meeting,” said Matthew Sherwood, Perpetual Investments’ head of investment markets research in Sydney. Perpetual manages about $23 billion. “Some form of quantitative easing is coming soonish.” Japan’s Nikkei 225 Stock Average lost 0.5 percent, while South Korea’s Kospi Index slipped 0.3 percent. Australia’s S&P/ASX 200 Index gained 0.4 percent. Markets in Hong Kong and China have yet to open.
Japan Stocks Fall as Yen Strengthens on Fed Speculation (Source:Bloomberg)
Japanese stocks fell, with Nikkei 225 Stock Average (NKY) falling the most in almost two weeks, as the yen strengthened after minutes from a Federal Reserve meeting showed policy makers favored adding stimulus unless the world’s biggest economy shows signs of sustained growth. Nissan Motor Co. (7201), a carmaker that gets almost half of its sales in North America and Europe, sank 2.8 percent after the yen rose against the dollar and euro. Toshiba Corp. fell 0.7 percent after its joint venture with Samsung Electronics Co. was sued over technology patents by LG Electronics Inc. Sharp Corp. jumped 3.9 percent on a report the manufacturer of liquid- crystal display televisions may get additional loans from banks. The Nikkei 225 Stock Average fell 0.6 percent to 9,073.55 as of 9:58 a.m. in Tokyo, with volume almost 10 percent lower than the 30-day average. The broader Topix Index lost 0.6 percent to 758.28, with about three times as many shares declining as advancing.
“The dollar has dropped on speculation that the Fed may ease policy -- that’s not very good for Japanese stocks,” said Akio Yoshino, who helps oversee the equivalent of $32 billion as chief economist at Amundi Japan Ltd. in Tokyo. “You also have to look at why the Fed is easing policy. If the economy were in better shape we wouldn’t be having this conversation.”
S&P 500 Erases Loss as Fed Minutes Show Stimulus Support (Source:Bloomberg)
The Standard & Poor’s 500 Index erased earlier losses as minutes from the Federal Reserve’s last meeting showed many policy makers favored more stimulus soon. Apple Inc. rose 2 percent, pacing a recovery among technology companies. PulteGroup Inc. (PHM) jumped 3.9 percent as a report showed sales of existing homes climbed in July from an eight-month low. Dell Inc. (DELL) sank 5.4 percent after cutting this year’s profit forecast. Rival Hewlett-Packard Co. (HPQ) gained 1.6 percent in late trading after the world’s biggest computer maker reported profit and sales that matched analysts’ estimates. The S&P 500 rose less than 0.1 percent to 1,413.49 at 4 p.m. in New York, after dropping as much as 0.5 percent earlier. The gauge briefly topped a four-year high yesterday. The Dow Jones Industrial Average lost 30.82 points, or 0.2 percent, to 13,172.76. Volume for exchange-listed stocks in the U.S. was 5.4 billion shares, 14 percent below the three-month average.
“The Fed minutes point slightly more in the direction of QE,” Seth Setrakian, the New York-based co-head of U.S. equities at First New York Securities, said in a telephone interview, referring to an additional round of stimulus known as quantitative easing. “It’s certainly seems to have a dovish tone, just a little bit more than what people thought before.” He said, “The market’s have become much more favorably inclined since the minutes came out.” Many Federal Reserve policy makers said additional stimulus would probably be needed soon unless the economy shows signs of a durable pickup, according to the record of the Federal Open Market Committee’s July 31-Aug. 1 gathering released today in Washington. The S&P 500 has rallied 11 percent since June 1 on speculation global central banks will take action to stimulate growth.
European Stocks Fall on Japan Trade Deficit (Source:Bloomberg)
European stocks slid the most in almost three weeks as Japan reported a wider-than-expected trade deficit and investors awaited the outcome of meetings between the leaders of countries in the euro area. BHP Billiton Ltd. (BHP) slid 1.7 percent after the world’s biggest mining company put $68 billion of projects on hold. Heineken NV (HEIA), which last week increased its offer to gain control of Asia Pacific Breweries Ltd., lost 1.1 percent after posting first-half earnings that missed analysts’ estimates because of higher costs. Man Group Plc (EMG) sank 4.4 percent as the hedge-fund manager reported a drop in assets at its flagship fund. The Stoxx Europe 600 Index (SXXP) declined 1.2 percent to 269.27 at the close, its biggest retreat since Aug. 2. The equity benchmark has still rallied 15 percent from this year’s low on June 4 as European Central Bank President Mario Draghi pledged to protect the single currency.
“Everybody’s waiting for the September 6 ECB meeting to see if policy makers will deliver on what has so far been a verbal intervention,” said Morten Kongshaug, the chief equity strategist at Danske Bank A/S. “Markets have overreacted to those prospects and we could see a selloff before then. Economic data are far from good as the numbers from Japan showed this morning.” The volume of shares changing hands on the Stoxx 600 was 9.8 percent lower than the average of the last 30 days, data compiled by Bloomberg show. National benchmark indexes declined in every western-European market. The U.K.’s FTSE 100 Index fell 1.4 percent. France’s CAC 40 Index lost 1.5 percent and Germany’s DAX Index slid 1 percent.
Brazilian Stocks Rise as Fed Minutes Spur Stimulus Speculation (Source:Bloomberg)
Brazilian stocks rebounded from yesterday’s drop as Federal Reserve minutes spurred speculation that U.S. policy makers may provide additional stimulus, buoying the prospects for Latin America’s biggest economy. Oil producer Petroleo Brasileiro SA contributed the most to the benchmark Bovespa index’s gain, following crude higher. Usinas Siderurgicas de Minas Gerais SA, the steelmaker that had losses in three of the past six quarters, gained the most in two weeks after Deutsche Bank AG said it expects an increase in flat-steel prices. Wireless carrier Tim Participacoes SA sank after Sanford C. Bernstein & Co. lowered its recommendation to the equivalent of hold. The Bovespa gained 0.8 percent to 59,380.76 at the close of trading in Sao Paulo. Forty-seven stocks rose on the measure while 19 declined. The real weakened 0.1 percent to 2.0177 per U.S. dollar at 5:45 p.m. local time.
“It’s been a while that investors have been waiting for more stimulus in the U.S., and maybe today’s statement was a sign that something will be done in the next policy meeting,” Joao Pedro Brugger, a portfolio manager at Leme Investimentos in Florianopolis, Brazil, said in a phone interview. Many Fed policy makers said “additional monetary accommodation would likely be warranted fairly soon” unless the economy shows signs of a durable pickup, according to minutes of their July 31-Aug. 1 meeting released today.
FOREX-Euro near 7-week high, policy optimism persists
LONDON, Aug 22 (Reuters) - The euro held steady versus the dollar, trading close to Tuesday's seven-week high, and was expected to hold its gains on speculation euro zone policymakers are readying action to stem the debt crisis.
"Any comments that are constructive, giving Greece at least a chance to get an additional bailout package, is something that could support the euro further," said Ulrich Leuchtmann, head of FX research at Commerzbank.
Euro Remains Lower Before Manufacturing, Services Data (Source:Bloomberg)
The euro remained lower after its biggest one-day drop in more than a week against the yen yesterday before reports forecast to show continued contraction in the 17-nation region’s manufacturing and services industries. The euro failed to extend gains into a fourth day versus the dollar before the release of manufacturing purchasing managers’ indexes for Germany and France, the currency bloc’s two biggest economies. The U.S. currency was 0.3 percent from a one-week low versus the yen before Federal Reserve Bank of Chicago President Charles Evans speaks today. Minutes of the Federal Open Market Committee’s most recent meeting showed many policy makers favor additional stimulus, which could debase the greenback.
“The euro is being driven lower by fear of economic meltdown and financial market chaos,” said Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney. “But one has to weigh that against probabilities of U.S. quantitative easing in terms of currencies. There may be more surprise out of the FOMC than out of the European PMIs, so that tells me that the euro shouldn’t suffer too badly should the PMIs be softer.” Quantitative easing refers to the Federal Reserve’s asset- purchase program. The euro was little changed at 98.45 yen at 10 a.m. in Tokyo after dropping 0.4 percent yesterday, the biggest decline since Aug. 10. It was at $1.2533 from $1.2529, after gaining 1.6 percent in the previous three days. The dollar was little changed at 78.55 yen from 78.58 yesterday, when it slid to as low as 78.28, the weakest since Aug. 13.
Korean Won Rises as Fed Minutes Show Stimulus Support (Source:Bloomberg)
South Korea’s won rose toward a one- week high as minutes from the Federal Reserve’s latest meeting showed some policy makers favored further monetary stimulus that may bolster demand for emerging-market assets. Many participants at the Fed’s meeting said a new large- scale asset-purchase program “could provide additional support for the economic recovery,” according to the record released yesterday. The Kospi Index (KOSPI) fell for a fifth day as overseas funds cut holdings of Korean equities for the first time since Aug. 3. Government bonds advanced. “Some investors covered their short positions on the dollar yesterday expecting nothing much to come out from the Fed minutes, but today we’ll see the reverse,” said Jude Noh, a Seoul-based chief currency trader at Suhyup Bank. “With the end of the month nearing, we may see some exporters selling the greenback as well.” A short position is a bet an asset will decline in value.
The won appreciated 0.4 percent to 1,131.75 per dollar as of 9:30 a.m. in Seoul, data compiled by Bloomberg show. It touched 1,130.80 yesterday, the strongest level since Aug. 14. One-month implied volatility for the won, a measure of exchange- rate swings used to price options, fell 23 basis points, or 0.23 percentage point, to 7.30 percent. The yield on the government’s 3.25 percent bonds due June 2015 slid two basis points to 2.89 percent, the lowest in a week, Korea Exchange Inc. prices show. Three-year debt futures rose 0.10 to 105.89 and the one-year interest-rate swap fell three basis points to 2.91 percent.
Many on FOMC Favored Easing Soon if No Pickup in Growth (Source:Bloomberg)
Many Federal Reserve policy makers said additional stimulus probably will be needed soon unless the economy shows signs of a durable pickup, according to minutes of their most recent meeting. “Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery,” according to the record of the Federal Open Market Committee’s July 31- Aug. 1 gathering released today in Washington. U.S. stocks and bonds rose as investors saw greater odds the central bank will increase accommodation. Chairman Ben S. Bernanke will have an opportunity to clarify his views in an Aug. 31 speech at a forum for central bankers in Jackson Hole, Wyoming, where he signaled a second round of bond buying by the Fed in 2010. Fed officials next meet on Sept. 12-13.
“They’re closer to doing QE3 than I would have guessed,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, referring to a third round of bond purchases known as quantitative easing. “It may not be September. It could be October.” Many participants at the Fed’s meeting said a new large- scale asset-purchase program “could provide additional support for the economic recovery,” according to the minutes. Policy makers said in a statement after the meeting that they will step up record stimulus if needed to spur growth and cut a jobless rate stuck above 8 percent since February 2009.
Sales of U.S. Existing Homes Increase From Eight-Month Low (Source:Bloomberg)
Sales of existing homes climbed in July from an eight-month low, adding to signs U.S. housing may pick up in the second half. Purchases of previously owned houses, tabulated when a contract closes, increased 2.3 percent to a 4.47 million annual rate, figures from the National Association of Realtors showed today in Washington. The data were posted on the group’s website ahead of the usual 10 a.m. release time. The median forecast of 73 economists surveyed by Bloomberg called for a rise to a 4.51 million rate. Buoyed by cheaper properties and record-low mortgage costs, demand for real estate is bolstering the industry that helped trigger the recession. Minutes of the Federal Reserve’s latest meeting, due later today, will be a reminder that policy makers are monitoring data such as housing to determine whether the world’s largest economy needs more stimulus.
“This is a continuation of good news, but we’ve got to continue to build momentum,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who forecast sales would rise to 4.46 million. “The home sales numbers are going to continue to go higher. As much as the employment numbers aren’t great, they aren’t horrible either, so those that have jobs are feeling a little bit better about their situations.” Stocks were little changed, after the Standard & Poor’s 500 Index briefly topped a four-year high yesterday, as Japan’s exports slid and Greece sought more time on changes while investors awaited the Fed minutes. The S&P 500 Index fell less than 0.1 percent to 1,412.4 at 10:37 a.m. in New York.
U.S. Budget Deficit to Reach $1.1 Trillion in 2012, CBO Says (Source:Bloomberg)
The U.S. economy will probably tip into recession next year if lawmakers can’t break an impasse over the federal budget, according to a report. The nonpartisan Congressional Budget Office said today that scheduled tax increases and spending cuts in 2013 would reverse the modest economic recovery. Economic output would shrink next year by 0.5 percent, joblessness would climb to about 9 percent with “economic conditions in 2013 that will probably be considered a recession,” the agency said in a biannual report on the budget and economic outlook. “Whether lawmakers allow scheduled policy changes to take effect or alter them will play a crucial role in determining the path of the federal budget over the next decade and the outlook for the economy,” according to the report.
Congressional leaders have said they probably won’t consider until after the election the Bush-era tax cuts set to expire Dec. 31 or $1 trillion in automatic spending cuts that would begin taking effect in January. There is no sign of an agreement to avoid a so-called fiscal cliff, and the CBO report prompted partisan finger-pointing. The deficit will reach $1.1 trillion this year, about $100 billion less than CBO had projected in March, according to the report. That would be down from last year’s $1.3 trillion, in part because tax revenue has risen by almost 6 percent and spending is down by about 1 percent this year.
Confidence Returning as Revealed in Country Risk: Credit Markets (Source:Bloomberg)
From the U.S. to Germany and China, the risk of owning sovereign bonds has tumbled to the lowest in a year as the specter of another systemic crisis that drags down the world’s economy diminishes. The average cost of credit-default swaps insuring the debt of about 50 nations tracked by Bloomberg fell to 159 basis points, from as high as 250 basis points in November. Swaps on China are at the cheapest in five months, while Germany is at a 13-month low and the U.S. is at levels not seen since May. Confidence in government debt has improved since June amid mounting speculation that European policy makers will step up efforts to curb the region’s debt crisis and as reports from jobs to retail sales in the U.S. underpin growth. The rally strengthened when European Central Bank President Mario Draghi vowed on July 26 to do “whatever it takes” to save the euro and signaled that would include buying government bonds.
“All hopes are pinned very much on the ECB and that’s fueling the rally in sovereign credit,” said Nicholas Spiro, the managing director of Spiro Sovereign Strategy in London. “Europe is very much still the focal point for market anxieties and what happens in Europe has knock-on effects elsewhere.”
Zhou Signals China Rate Cut Possible After Injecting Cash (Source:Bloomberg)
People’s Bank of China Governor Zhou Xiaochuan said adjustments to interest rates and banks’ reserve requirements are still possible after the central bank stepped up temporary cash injections this month. “Use of either tool can’t be ruled out,” Zhou said to reporters today in Beijing when asked whether the recent frequent use of reverse-repurchase transactions means the PBOC will make less use of reserve-ratio and interest-rate tools. He didn’t elaborate. The remarks leave the door open for further monetary stimulus after the PBOC added 220 billion yuan ($34.6 billion) to the banking system via reverse-repurchase agreements yesterday, tempering speculation the reserve-requirement ratio will be reduced. China lowered interest rates in June and July for the first time since 2008 and has made three cuts in the ratio starting in November as economic growth slowed.
Chinese Premier Wen Jiabao said last week that easing inflation allows more room to adjust monetary policy and positive signs are emerging in the economy, expressing confidence after July data showed a further slowdown in growth. State television reported Wen as saying there’s “growing room for monetary policy operation.” At the same time, the nation’s slower-than-forecast cuts in banks’ reserve requirements show authorities are yet to shake their concern inflation will quicken, three months after Wen shifted priorities to boosting growth. China has left the reserve ratio for the biggest banks at 20 percent since mid-May and signaled it will maintain property-market restrictions to curb home-price gains.
Singapore Rich Seen Luring Issuers After IDBI Bond: India Credit (Source:Bloomberg)
IDBI Bank Ltd. (IDBI)’s record Singapore- dollar bond sale will prompt more Indian companies to tap increasing demand from wealthy private investors, the city’s top underwriter said. The Indian state-owned lender sold S$250 million ($200 million) of three-year notes to yield 3.65 percent, in the first offering by an Indian issuer in the currency since April 2011, according to data compiled by Bloomberg. The average yield on Singapore dollar corporate debt declined 32 basis points this year to 2.6 percent, HSBC Holdings Plc indexes show. Three-year rupee company borrowing costs are 9.46 percent, according to data compiled by Bloomberg. “IDBI’s bond shows the continued diversification of issuer types in Singapore’s bond market,” Clifford Lee, head of fixed income at DBS Group Holdings Ltd., the biggest arranger of the debt this year, said yesterday. “It does a lot for price discovery for Indian banks in the market and will definitely lead to other issuers following suit.”
Indian borrowers are returning to the overseas markets as yield premiums narrow. They sold the most U.S. dollar debt last week in more than a year, according to data compiled by Bloomberg. Singapore dollar bond sales are set to increase to an all-time high this year as the second-best-performing currency in Asia increases the appeal of the assets to private-wealth clients. Private banks bought 65 percent of IDBI’s notes, a person familiar with the matter said.
Spain Bailout Request May Not Impact Credit Rating, S&P Says (Source:Bloomberg)
Any request by Spain for a full sovereign bailout is unlikely to directly affect the nation’s credit rating as any aid may help the country continue fiscal reforms, Standard & Poor's said. A request would “constitute an official acknowledgment that the government is facing ongoing risks to financing itself in the capital markets at sustainable rates,” the ratings company said in a statement in Frankfurt today. “However, we think that the potentially advantageous terms” could “enhance the chances of success of Spain’s already ambitious and politically challenging fiscal and economic reform agenda.” Prime Minister Mariano Rajoy is considering requesting more aid from European rescue funds to help lower the nation’s borrowing costs. Spain has urged unlimited support from the European Central Bank after ECB President Mario Draghi announced proposals earlier this month to re-enter the bond market.
Spain is rated BBB+ at S&P, three levels above non- investment grade. It has a BBB rating at Fitch Ratings -- two levels above junk, while its Baa3 grade at Moody’s Investors Service is the lowest investment grade rating. The yield on Spain’s 10-year benchmark bond was at 6.27 percent today, after reaching a euro-era high of 7.75 percent on Aug. 25.
Last Man Standing Means Europe Investment Banks Resist Cuts (Source:Bloomberg)
Europe’s failure to resolve its sovereign-debt crisis will force investment-banking chiefs in the region to consider shuttering entire businesses rather than rely on piecemeal job reductions to revive profit. Dealmaking fees may drop 25 percent this year from 2009, when the crisis began in Greece, research firm Freeman & Co. estimates. European banks, including UBS AG and Barclays Plc (BARC), have cut about 172,000 positions since then, according to data compiled by Bloomberg, the same strategy they used after Lehman Brothers Holdings Inc. collapsed in 2008.
The game plan won’t work again as rising capital requirements and declining business alter the investment-banking landscape, investors and analysts say. New rules will reduce return on equity by 6 percentage points from about 14 percent in the first half of 2011, according to consulting firm Bain & Co. Banks that relied on record low interest rates and a flood of cheap funding from the European Central Bank to delay deciding which units to close will be compelled to make choices. “Investment banks have to shrink and do more than cut a little bit here and there,” said Lutz Roehmeyer, who helps oversee 10 billion euros ($12.5 billion) at Landesbank Berlin Investment in Berlin. “There’s too much politics and too little economics going on. They want to keep certain businesses for as long as possible.”
South African Inflation Slows for Third Month to 4.9% (Source:Bloomberg)
South African inflation slowed more than economists expected in July, reviving speculation policy makers will cut interest rates for a second time this year to spur the economy. The inflation rate fell to a 14-month low of 4.9 percent from 5.5 percent in June, Pretoria-based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 18 economists was 5.2 percent. Prices rose 0.3 percent in the month. “It has opened up the chance for a September cut,” Peter Attard Montalto, an economist at Nomura International Plc. in London, said in a telephone interview today. “There is more disinflation to come from here.” The Reserve Bank cut its benchmark repurchase rate by half a percentage point to 5 percent last month, the first adjustment in 20 months, to help support growth in Africa’s biggest economy. Governor Gill Marcus said on July 29 further reductions are not automatic and should not be taken for granted, tempering expectations of another cut.
Today’s data has rekindled that speculation. The yield on the forward-rate agreement due in four months dropped 5 basis points to 4.88 percent after the data was published, indicating that traders are beginning to price in the chance of a cut in that period. The Monetary Policy Committee is set to make its next rate decision on Sept. 20.
Osborne Doing ‘Too Little’ to Boost Growth, U.K. Business Says (Source:Bloomberg)
U.K. business leaders urged Chancellor of the Exchequer George Osborne to do more to boost growth, arguing his government is doing “too little, too slowly.” A poll of 1,277 members of the Institute of Directors published today by the London-based business lobby group found a majority thought Prime Minister David Cameron and Osborne had been “ineffective” at reducing tax, tackling regulations on businesses and simplifying employment laws. The poll, which also found that more than four out of 10 companies have delayed at least one investment or employment decision this year due to uncertainty, was carried out between July 26 and Aug. 3. “We don’t want to see any slowdown in deficit reduction but we do want to see much more aggressive supply-side action,” IoD Chief Economist Graeme Leach told BBC 5Live radio today.
Osborne is under pressure after figures published yesterday showed Britain unexpectedly posted a budget deficit in July as corporation-tax receipts plunged, partly due to the closing of the Elgin gas field in the North Sea. While the drop in revenue was largely centered on company taxes, the U.K.’s struggle to climb out of a recession has raised concerns that the chancellor will miss his forecast for a deficit of 120 billion pounds ($190 billion) in the current fiscal year. Osborne has resisted demands to ease the pace of his fiscal squeeze, saying his plans have helped to insulate Britain from the euro-area debt crisis.
Spain debt costs drop as markets bet on ECB action (Reuters)
Spain's short-term borrowing costs dropped at auction on Tuesday as investors bet the European Central Bank will intervene on bond markets, but a lack of detail over when and how it will act meant yields remained punishingly high.
