Asia FX By Cornelius Luca - Wed 05 Sep 2012 16:43:34 (Source:CME/www.lucafxta.com)
The appetite for risk reversed from weak to relatively strong for the European currencies and yen in the US on Wednesday after reports that the ECB will announce a new government bond buying program to stem the euro zone crisis. Details of the plan will be revealed by ECB President Draghi after Thursday's policy meeting. The commodity currencies fell on concern about the slowdown in the Chinese economy. The US indexes, gold, oil and silver made little progress. The short-term outlook for the European and commodity currencies is sideways. The medium-term outlook for most of the foreign currencies is slightly bullish. The LGR short-term model is long on most foreign currencies. Good luck!
Overnight
US: The final productivity was upwardly revised to +2.2% in the second quarter from the preliminary estimate of +1.6%.
Canada: The Bank of Canada left its interest rate at 1.0%, as widely expected.
Today's economic calendar
Australia: Unemployment rate for August
Most Asian Stocks Rise Ahead Of ECB Bond-Buying Program (Bloomberg)
Most Asian stocks rose as investors await the European Central Bank’s announcement on President Mario Draghi’s proposal for unlimited bond purchases to tame the region’s sovereign-debt crisis. Mobile phone maker LG Electronics Inc. (066570), which depends on Europe for 16 percent of its revenue, rose 2.5 percent in Seoul. Lynas Corp. surged 29 percent in Sydney after it said Malaysia issued a temporary operating license for a rare-earths refinery. Sharp Corp. (6753) fell 5.7 percent in Tokyo after its short-term ratings were cut to junk at Moody’s Investors Service. Billabong International Ltd., a surfwear maker, gained 7.9 percent in Sydney after receiving another takeover offer. The MSCI Asia Pacific Index was little changed at 115.82 as of 10:17 a.m. in Tokyo before markets in Hong Kong and China opened. The measure closed yesterday at the lowest level since July 26.
“Europe has been a source of tail risk for markets for the last two years,” said Prasad Patkar, a portfolio manager who helps manage about $1 billion at Platypus Asset Management Ltd. in Sydney. “If that risk is addressed in a credible manner, the scene could be set for a relief rally in risk assets.” The MSCI Asia Pacific Index fell 1.2 percent this quarter through yesterday as signs of a global economic slowdown overshadowed expectations for further stimulus measures. The Asian benchmark traded at 12.1 times estimated earnings, compared with 13.6 times for the Standard & Poor’s 500 Index (SPXL1) and 11.6 times for the Stoxx Europe 600 Index.
China’s Stocks Rise As Subway Plan Raises Stimulus Speculation (Bloomberg)
China’s stocks rose for the first time in three days as a government subway proposal stoked speculation policy makers will introduce more stimulus measures. China Rail Construction Corp. (601186), builder of more than half the nation’s rail links, climbed 2.8 percent after the National Development and Reform Commission approved development plans for subways in 18 Chinese cities. Shanghai Chaori Solar Energy Science & Technology Co. lost 1.1 percent after the European Union threatened to impose tariffs on Chinese solar panels. “The subway development plan boosts investors’ expectations of more spending by the government,” Xu Shengjun, an analyst at Jianghai Securities Co. in Shanghai, said by phone today. “Still, it’s widely expected the economic data to be released soon won’t be great and will drag on stocks.”
The Shanghai Composite Index (SHCOMP) gained 0.6 percent to 2,049.66 as of 9:38 a.m. local time after closing yesterday at its lowest level since February 2009. The CSI 300 Index added 0.8 percent to 2,216.28. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong advanced 0.3 percent. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. sank 1 percent to 86.29. Signs that China’s economic slowdown is deepening have dragged the Shanghai Composite down 7.9 percent this quarter. The gauge sank 2.7 percent in August, a fourth straight month of declines. That’s the longest streak since the five months through August 2004, according to data compiled by Bloomberg.
Japan Stocks Swing From Gains, Losses On ECB Plan, China (Bloomberg)
Japan stocks swung between gains and losses amid speculation European Central Bank President Mario Draghi will today announce unlimited bond purchases to tame the region’s debt crisis, and after growth estimates for China’s economy were cut by Goldman Sachs Group Inc. Hitachi Construction Machinery Co., which gets almost 17 percent of sales in China, dropped 0.4 percent. Roland Corp., a maker of musical instruments that gets more than a third of sales in Europe, gained 0.7 percent. Inpex Corp. (1605), Japan’s biggest energy explorer, advanced 0.7 percent after oil climbed. The Nikkei 225 Stock Average (NKY) slid 0.2 percent to 8,658.65 as of 10:22 a.m. in Tokyo after rising as much as 0.2 percent. The broader Topix Index declined 0.3 percent to 715.71, with more than twice as many shares falling as rising. Draghi will propose that the ECB buy government debt while refraining from a public cap on yields, according to two central bank officials briefed on the plan before the meeting today.
The bond plan “may be a constructive development for the markets,” Stephen Roach, Yale University professor and former non-executive chairman for Morgan Stanley in Asia, said in a Bloomberg TV interview. “But the jury is out on whether these types of unconventional actions really make a meaningful difference for the real economy. The action on Thursday in Europe is probably going to be quite close to the expectations that have already been discounted in the market.” The Topix dropped 18 percent from this year’s peak on March 27 through yesterday on concern Europe’s debt crisis is deepening and growth is slowing in China and the U.S. The gauge trades at 0.9 times book value, compared with 2.2 for the Standard & Poor’s 500 Index and 1.5 for the Stoxx Europe 600 Index. A number less than one means companies can be bought for less than the value of their assets.
Most U.S. Stocks Fall On FedEx, Economy Ahead Of ECB Plan (Bloomberg)
Most U.S. stocks fell, sending the Standard & Poor’s 500 Index lower for a second day, amid a slump in FedEx (FDX) Corp. and disappointing global economic data as investors awaited the European Central Bank’s plan to buy bonds. FedEx, a barometer for the economy because it delivers goods from mobile phones to pharmaceuticals, slid 2 percent after projecting its first decline in quarterly earnings in almost three years. Facebook Inc. (FB) jumped 4.8 percent after Chief Executive Officer Mark Zuckerberg said he won’t start selling his holdings for at least a year. The Bloomberg U.S. Airlines Index soared 3.4 percent amid carriers’ improved performances. The S&P 500 lost 0.1 percent to 1,403.44 at 4 p.m. New York time, after rising as much as 0.3 percent earlier. The Dow Jones Industrial Average added 11.54 points, or 0.1 percent, to 13,047.48. About five shares fell for every four that advanced on U.S. exchanges, with volume at 5.7 billion shares, or 6.4 percent below the three-month average.
“We’ve had this wait-and-see going on for three weeks now,” Bruce Bittles, chief investment strategist at Milwaukee- based Robert W. Baird & Co., which oversees $85 billion, said in a telephone interview. “The sellers are being held off from the anticipation of more quantitative easing. You don’t want to short or sell in front of that. On the other hand, the economy doesn’t seem to be able to make it -- either domestically or globally. It’s really a stand-off.” The S&P 500 in August climbed to its highest level on an intraday basis in more than four years, then failed to close at that milestone. The index has fluctuated near the 1,400 level for three weeks as European leaders worked to tame the region’s debt crisis and Federal Reserve Chairman Ben S. Bernanke said in Jackson Hole, Wyoming, last week he wouldn’t rule out more stimulus.
European Stocks Swing Between Gains, Losses Before ECB (Bloomberg)
European stocks closed little changed, after swinging between gains and losses, as investors await tomorrow’s European Central Bank meeting. Cie. Financiere Richemont SA advanced 1.5 percent after the maker of Cartier jewelery reported five-month sales rose 23 percent. BP Plc (BP/) fell 2.9 percent after the U.S. Department of Justice reiterated it will pursue charges of gross negligence for the worst U.S. oil spill two years ago. Nokia Oyj sank the most in almost three months after unveiling two Microsoft Corp.- powered smartphones. The Stoxx Europe 600 Index rose less than 0.1 percent to 265.49 at the close of trade after swinging between gains and losses at least 16 times. The gauge pared losses of as much as 0.5 percent as officials briefed on the proposal said ECB President Mario Draghi’s bond-buying plans involve unlimited government debt purchases that will be sterilized to assuage concerns about printing money.
“We are coming into the eye of the storm with regards to event risk, and today will really be the last day traders can tweak portfolios ahead of the key ECB meeting and U.S. payrolls on Friday,” said Chris Weston, an institutional dealer at IG Markets in Melbourne, in a note to clients. “After last night’s adjustment to expectations to the upcoming ECB meeting, we feel the market has a more neutral approach to what is likely to be delivered.”
Emerging Market Stocks Decline On China, Europe Concerns (Bloomberg)
Emerging-market stocks fell, with the benchmark index (VXEEM) closing at the lowest level in six weeks, as concern deepened about economic growth in China and falling exports to Europe. The MSCI Emerging Markets Index (MXEF) dropped 0.8 percent to 939.51, the lowest since July 26. Sany Heavy Industry Co. (600031), China’s biggest maker of excavators, fell to a two-year low in Shanghai after the Securities Times reported the country’s industrial output growth may slow. South Korea’s Kospi Index tumbled 1.7 percent while Russia’s Micex lost 1 percent. Brazil’s Bovespa gauge advanced 1.1 percent with steelmaker Usinas Siderurgicas de Minas Gerais SA leading the gains.
China’s 2012 industrial output growth may slow to about 10 percent, from 13.9 percent in 2011, the Securities Times said today, citing a joint report by the Ministry of Industry and Information Technology and the Chinese Academy of Social Sciences. Euro-area services and manufacturing contracted more than initially estimated in August, according to Markit Economics. The European Central Bank will decide tomorrow on a proposal to buy bonds as it seeks to stem the debt crisis. “The global risk sentiment is being affected by data coming from Europe,” Benoit Anne, head of emerging-markets strategy at Societe Generale SA, said by phone from London. “In addition, the growth picture tends to influence the equity markets and there is continued concern of growth dynamics weighing quite a bit on Asian markets.”
Treasuries Stay Lower On Bets ECB Will Announce Bond-Buying Plan (Bloomberg)
Treasuries stayed lower after two central bank officials said European Central Bank President Mario Draghi’s bond-buying proposal involves unlimited purchases of government debt that will be sterilized. Ten-year U.S. yields have climbed from a one-month low amid speculation the ECB will announce a plan to buy sovereign bonds of debt-saddled European nations at a policy meeting today, dimming the allure of refuge assets. Demand for Treasuries was supported before a private report forecast to show gains in U.S. employment slowed during August. “The ECB’s bond-purchase plan will ease concern about Europe’s debt crisis,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co. in Tokyo, which oversees about $76 billion. “With the ECB showing a more aggressive stance, markets are shifting from risk-off to neutral positions, so Treasury yields are struggling to fall.”
The benchmark 10-year yield was little changed at 1.59 percent at 9:49 a.m. in Tokyo after rising four basis points this week. It touched 1.54 percent on Sept. 4, the lowest since Aug. 6. The 1.625 percent bond due August 2022 was at 100 10/32. European officials are working to stem the region’s debt crisis, which is in its third year. The ECB blueprint, which may be called “Monetary Outright Transactions,” will focus on government bonds rather than a broader range of assets and will target maturities of three years or less, according to central-bank officials briefed on the proposal who requested anonymity. The ECB will sterilize its bond purchases by removing from the system elsewhere the same amount of money it spends, ensuring a neutral impact on money supply, the officials said. The ECB will also lower its benchmark interest rate today to 0.5 percent, from 0.75 percent, according to the median estimate in a Bloomberg News survey of economists.
U.S. corporate employment is estimated to have risen by 140,000, the least since May, according to a separate Bloomberg poll of economists taken before ADP Employer Services announces the figure today.
FOREX-Euro dips as scepticism over ECB action grows
LONDON, Sep 5 (Reuters) - The euro fell on scepticism among investors such as sovereign funds that steps by the European Central Bank to stem the debt crisis could fall short of market expectations.
"Many are concerned that the ECB may just give us bare bones while others are of the view that even if they give details to the plan, it would be a good time to sell the currency as the economic data from the region has been deteriorating," said Jane Foley, senior currency strategist at Rabobank.
Euro Trades Near Two-Month High On ECB Bond-Buying Plan (Bloomberg)
The euro traded 0.3 percent from a two-month high against the dollar after two central bank officials said European Central Bank President Mario Draghi is proposing unlimited, sterilized bond buying to stem the region’s debt woes. Sterilization involves draining money from other parts of the financial system to offset new funds added. The 17-nation euro maintained gains from yesterday against most of its 16 major peers amid speculation the ECB will announce measures to tackle the debt crisis at its meeting today. The Australian dollar traded near the lowest in more than seven weeks before a report forecast to show unemployment rose in August.
“The market is pleased by the fact that we have some details and that the ECB is going to follow through with what was hoped that they would do,” said Emma Lawson, a Sydney-based currency strategist at National Australia Bank Ltd., referring to the central bank’s bond-purchase program. “The euro can at least remain around current levels and possibly be a little bit supported into the ECB meeting.” The euro bought $1.2599 as of 9:58 a.m. in Tokyo from yesterday, when it gained 0.3 percent to $1.2601. It reached $1.2638 on Aug. 31, the strongest since July 2. The shared currency fetched 98.84 yen from 98.77. The yen added 0.1 percent to 78.45 per dollar. The so-called Aussie dollar was trading at $1.0188 from $1.0193 yesterday, when it dropped to $1.0167, the weakest since July 13.
Aussie Dollar Trades Near Seven-Week Low Before Jobs Data (Bloomberg)
Australia’s dollar was 0.2 percent from the lowest in more than seven weeks before a report predicted to show unemployment in the nation increased amid concern that global growth is slowing. The so-called Aussie remained weaker versus its U.S. peer following three days of declines as falling resources prices sapped demand for commodity currencies. The New Zealand dollar was near its lowest in six weeks. The South Pacific currencies were buoyed on the prospect European Central Bank President Mario Draghi will today announce unlimited, sterilized bond buying to quell the euro region’s debt crisis, supporting investor appetite for higher-yielding assets. “We’re not so bullish on the Aussie,” said Janu Chan, an economist at St. George Bank Ltd. in Sydney. “If the employment does come in in line with expectations, it would be confirmation” that the labor market is softening, she said.
The Australian dollar was little changed at $1.0188 at 11:09 a.m. in Sydney after touching $1.0167 yesterday, the weakest since July 13. It fetched 79.92 yen. New Zealand’s currency was unchanged at 79.47 U.S. cents from yesterday, when it dropped to 79.15, the lowest level since July 26. It was at 62.34 yen from 62.29. Australia’s unemployment rate probably rose to 5.3 percent in August from 5.2 percent in the previous month, according to the median estimate of economists surveyed by Bloomberg News before a report due at 11:30 a.m. Sydney time.
America Proves Nothing Like Europe As Joblessness Dips (Bloomberg)
Federal Reserve Board Chairman Ben Bernanke testifies before the Senate Banking, Housing and Urban Affairs Committee on Capitol Hill in Washington, on July 17, 2012. James Ensley of Rocky Face, Georgia, took a $10,000-a-year job last month as a school-bus driver after almost two years of unemployment benefits ran out. While that’s a third of his prior pay as a warehouse manager, the father of two says he’s content. “It feels great to go to work instead of having somebody tell you ‘I can’t help you,’” said Ensley, 51, whose former employer went bankrupt in the wake of the U.S. housing slump. “I miss my old job, but it is not coming back so I have to get over it.”
A surge in long-term U.S. unemployment, which Federal Reserve Chairman Ben S. Bernanke has cited as evidence of a “far from normal” labor market, finally is abating. That’s good news for American companies, which are taking advantage of a pool of 5.2 million people whose career hardships have made them eager to return to work. Most of the re-employed have had to settle for reduced pay, allowing businesses to keep labor costs low while boosting profits amid sluggish sales gains following the deepest recession since the 1930s. “The cost of labor is very cheap,” said James Paulsen, who helps oversee about $325 billion as chief investment strategist at Wells Capital Management in Minneapolis. “Nominal wage gains are very anemic,” so these costs “are down and will likely stay down for a while longer.”
The number of Americans out of work for 27 weeks or longer in July was 1.5 million fewer than the April 2010 peak, Labor Department data show. The total represented 41 percent of all jobless, the lowest share since 2009. The department will release August employment data Sept. 7.
Americans Say Better Off Since Obama Even As Slump Lasts (Bloomberg)
President Barack Obama greets a student during an unannounced stop at Sloopy's Diner on the Ohio State University campus before traveling to Capital University, in Columbus on Aug. 21, 2012. The typical middle-class family has less money than when Barack Obama entered the White House. Even so, in more cases than not, Americans still feel better off. The presidential election may hinge on whether Republicans can focus voters’ attention on the economic ground they have lost or Democrats can convince them that Obama has pulled them back from an even worse fate. It’s a central debate in the campaign: discontent with a diminished standard of living versus relief that the nation averted an economic meltdown. Polls show Democrats are beginning the messaging battle with an advantage.
When asked how they felt about their circumstances compared with the start of the Obama administration, 45 percent of Americans said better off versus 36 percent worse off, according to a Bloomberg National Poll taken June 15-18. The rest said their circumstances were about the same or they weren’t sure. The question has been fundamental to American presidential campaigns since Ronald Reagan posed it during a debate with President Jimmy Carter during the 1980 campaign, crystallizing discontent with the times. “Ask yourself,” Reagan said, “Are you better off now than you were four years ago?” Four years ago, Republican presidential candidate John McCain suspended his campaign and returned to Washington as fear of an economic disaster enveloped the nation while financial markets collapsed following the closing of Lehman Brothers.
Productivity In U.S. Grows More Than Previously Estimated (Bloomberg)
The productivity of U.S. workers rebounded more than initially estimated in the second quarter as employers tried to protect profits. The measure of employee output per hour climbed at a 2.2 percent annual rate, after a 0.5 percent drop in the prior three months, revised figures from the Labor Department showed today in Washington. The median forecast of 59 economists surveyed by Bloomberg called for a 1.8 percent increase. Expenses per worker climbed at a 1.5 percent rate, less than previously estimated. The biggest gains in productivity during the current expansion have probably already occurred as companies find they need to boost staff to further increase output and as investment in new equipment cools. At the same time, a weakening global economy is already hurting earnings, indicating businesses will continue to look for ways to operate more efficiently.
“Companies did a good job on productivity during the crisis, and they will continue to try to increase productivity to boost profits, but it’s not so easy to do that from here,” said Harm Bandholz, chief economist at UniCredit Group in New York. “Investment spending in the U.S. has been lackluster, and it’s certainly not getting better. The potential for increasing profits by cutting costs has come down quite a bit.” Stock-index futures trimmed earlier losses after the report. The contract on the Standard & Poors’ 500 Index maturing this month fell 0.2 percent to 1,403.7 at 8:45 a.m. in New York.
Christmas Cargo Boosts U.S. Rates As Europe Slumps: Freight (Bloomberg)
The shipping lanes of the Pacific and Indian Oceans show the diverging fortunes of U.S. and European consumers ahead of the busiest shopping season of the year. A.P. Moeller-Maersk A/S (MAERSKB), the world’s biggest container line, is among carriers raising rates on Asia-U.S. routes as three-month-high consumer confidence and job growth at the quickest pace in five months tempt retailers to stock up ahead of the holiday-shopping rush. By contrast, shipping lines are cutting capacity to Europe. “Christmas will come to America, but probably not to Europe,” Soeren Skou, chief executive officer of A.P. Moeller- Maersk’s container-shipping arm, said in an interview.
On Asia-Europe routes, Copenhagen-based Maersk and other lines are paring services as economic confidence at a three-year low and record euro-area unemployment damp demand. The slowdown has hit European retailers including Marks & Spencer Group Plc (MKS) and Carrefour SA (CA), while U.S. chains including Macy’s Inc. (M), Target Corp. (TGT) and Victoria’s Secrets’ parent Limited Brands Inc. (LTD) are predicting higher sales. “Europe is still on a downward trend,” said Wan Min, executive vice president at China Cosco Holdings Co. (1919), parent of the nation’s biggest container line. “The U.S. will see a mild growth in shipping demand in the third quarter.” Maersk expects full-year Asia-North America volumes to increase as much as 3 percent, compared with a 3 percent decline on Europe routes, Skou said. The company has pared capacity on Asia-Europe routes by about 10 percent and it will make cuts in the fourth quarter, he said.
FedEx Sees First Earnings Decline Since 2009 On Economy (Bloomberg)
FedEx Corp. (FDX) fell in U.S. trading after projecting its first quarterly earnings decline since 2009 as slowing economic growth hurt demand for the express packages that provide most of its sales. A slump in Europe and slowing growth in Asia may have exposed a weakness of FedEx’s express business, which was built around customers willing to pay more for speed of delivery, said analysts from Sanford C. Bernstein & Co. and Raymond James & Associates Inc. “The economy needs to get better,” said Arthur Hatfield, an analyst with Raymond James in Memphis, Tennessee. “We see some pent-up demand but corporations aren’t spending the money until they get clarity on where policies are going.” The shares slid 2 percent, the most since July 20, to $85.80 at the close in New York in the first day of trading after issuing the forecast. Memphis-based FedEx operates the world’s biggest cargo airline and is considered an economic bellwether because it moves goods ranging from financial documents to pharmaceuticals.
Profit for the quarter that ended Aug. 31 will be $1.37 to $1.43 a share, FedEx said yesterday in a statement. That was less than a June 19 forecast of $1.45 to $1.60 a share and year- earlier earnings of $1.46. It would be the first drop in adjusted per-share profit since the quarter ended November 2009. FedEx is set to release quarterly earnings on Sept. 18, with United Parcel Service Inc. (UPS), the world’s largest package- delivery company, to follow about a month later. Atlanta-based UPS dropped 2.4 percent to $71.94.
Canada Keeps 1% Key Rate With Language On Future Increase (Bloomberg)
The Bank of Canada kept its main interest rate unchanged and reiterated that an increase may be needed as domestic spending props up an economic recovery restrained by weak global demand for exports. The country’s expansion will pick up through next year on business investment and consumer spending as shipments abroad lag, the Ottawa-based central bank said. The decision to remain at 1 percent, where the rate has been for two years, was forecast by all 27 economists surveyed by Bloomberg News. “To the extent that the economic expansion continues and the current excess supply in the economy is gradually absorbed, some modest withdrawal of the present considerable monetary policy stimulus may become appropriate,” policy makers led by Governor Mark Carney, 47, said in a statement today, echoing language used since April.
Today’s decision keeps Canada an outlier among Group of Seven nations with an inclination to raise borrowing costs while other central banks consider new stimulus. Carney has been saying since April that Canada has almost used up its spare economic capacity, and a report last week showed the economy expanded at a 1.8 percent annual pace in the second quarter, matching the central bank’s forecast. “We continue to expect a longer wait for the first rate hike” with economic growth about about 2 percent too slow to bring the economy to full output next year, Canadian Imperial Bank of Commerce chief economist Avery Shenfeld wrote in a client note.
Hong Kong CEO Battles Chinese Over Affordable Housing (Bloomberg)
Hong Kong’s new leader is taking up the battle his predecessor failed to win, seeking to overcome record low mortgage rates and an influx of Chinese buyers to make housing in the world’s most expensive city more affordable. Leung Chun-ying, the property surveyor who took over as the city’s chief executive in July, on Aug. 30 said he’ll boost the supply of homes and start drafting laws giving preference to locals over buyers from mainland China. He’s trying to cool prices that surged 85 percent since 2009 even as predecessor Donald Tsang raised minimum mortgage deposits, added taxes and increased land sales in a losing bid to stem the boom. Like Tsang, Leung has had to tweak demand and supply through curbs and land releases rather than monetary policy as Hong Kong’s currency peg to the U.S. dollar pushes borrowing costs to a record low.
Banks, including HSBC Holdings Plc (HSBA) and Standard Chartered Plc (STAN), are charging homebuyers an average 2.17 percent, less than half that of six years ago, fueling demand along with the rising wealth of buyers from China’s mainland. “Whenever government measures were rolled out in the past few years, the market stabilized for a while and then regained the upward momentum,” said Lawrence Lam, Hong Kong-based director of sales and secured lending at Citigroup Inc. “Property prices are under pressure to climb as interest rates are still low.” That’s unlikely to change in the next couple of years. U.S. Federal Reserve Chairman Ben Bernanke has pledged to keep interest rates low until at least 2014 and on Aug. 31 made the case for further easing to reduce unemployment in the world’s largest economy. The Hong Kong Monetary Authority keeps its lending rate tied to the Fed to maintain the currency’s peg to the U.S. dollar.
South Korea Reduces Estimate Of Second-Quarter Expansion (Bloomberg)
South Korea’s economy expanded in the second quarter by less than the central bank initially estimated, building the case for another interest-rate reduction as exports wane and confidence slides. Gross domestic product grew 0.3 percent from the previous quarter, compared with a July calculation of 0.4 percent, the Bank of Korea said in Seoul today. In the first quarter, the expansion was 0.9 percent. South Korea is balancing the threat from Europe’s debt crisis against the need to preserve fiscal and monetary firepower for any deeper global slowdown. Barclays Capital and Credit Agricole CIB see the central bank cutting the benchmark rate by a quarter percentage point on Sept. 13, adding to a July reduction that was the first since 2009. “The economy is apparently losing steam and sees no sign of recovery yet,” said Lee Sang Jae, a senior economist at Hyundai Securities Co. in Seoul. “The Bank of Korea will likely come to its aid with a rate cut next week.”
The Kospi Index of stocks rose 0.2 percent as of 9:09 a.m. in Seoul ahead of a press conference today where European Central Bank President Mario Draghi may announce measures to help stem the euro region’s crisis. The benchmark is down about 8 percent from this year’s high in April. South Korea’s economy expanded 2.3 percent from a year earlier, less than the earlier estimate of 2.4 percent, today’s report showed. Domestic consumption and corporate investment were weaker than initial calculations.
ECB Plan Said To Pledge Unlimited, Sterilized Bond-Buying (Bloomberg)
European Central Bank President Mario Draghi’s bond-buying proposal involves unlimited purchases of government debt that will be sterilized to assuage concerns about printing money, two central bank officials briefed on the plan said. Under the blueprint, which may be called “Monetary Outright Transactions,” the ECB would refrain from setting a public cap on yields, according to the people, and a third official, who spoke on condition of anonymity. The plan will only focus on government bonds rather than a broader range of assets and will target short-dated maturities of up to about three years, two of the people said. The euro jumped half a cent on the report and traded at $1.2611 at 5:40 p.m. in Frankfurt. European stocks advanced. An ECB spokesman referred to an Aug. 20 statement in which the Frankfurt-based central bank said it was misleading to report on decisions that haven’t been taken yet.
Draghi told the European Parliament this week that the ECB needs to intervene in bond markets to wrest back control of interest rates in the fragmented euro-area economy and ensure the survival of the common currency. Policy makers are deliberating on the plan today and Draghi will announce whether it has been agreed to at a press conference tomorrow.
Draghi Credibility At Stake As ECB Tries To Save The Euro (Bloomberg)
European Central Bank President Mario Draghi’s task today is straight-forward: produce a plan to save the euro. Draghi pledged more than a month ago to do what’s needed to preserve the single currency; now he’s under pressure to follow through with details of a bond-purchase plan to lower borrowing costs in Spain and Italy and prevent a breakup of Europe’s monetary union. Expectations have built to such an extent that Draghi risks losing credibility unless he delivers at a press conference after today’s Governing Council meeting in Frankfurt, economists and investors said. “Draghi has put his credibility squarely on the line,” said Julian Callow, chief European economist at Barclays Capital in London. “He has made it his business to save the euro, so he is going to be called on that.”
Draghi told the European Parliament this week that the ECB needs to intervene in bond markets to wrest back control of interest rates in a fragmented euro-area economy and save the currency, according to a recording of a closed-door session obtained by Bloomberg News. His blueprint, sent to council members just two days ago and opposed by Germany’s Bundesbank, proposes unlimited buying of government debt with maturities of up to about three years, two central bank officials said yesterday on condition of anonymity.
BOE Struck By Lure Of Banks As U.K. Economist Quits (Bloomberg)
Bank of England official Robert Wood resigned as London’s finance industry lured a U.K. economic analysis manager from the central bank for the second time in less than a year. Wood, who led analysis of British data for policy makers, will join Berenberg Bank in London this month, said two people with knowledge of the matter who declined to be identified because the appointment is not yet public. He follows a string of economists who held the position known inside the central bank as Head of the U.K. Team, using it as a springboard for jobs in London’s finance industry. The move coincides with a second year of pay freezes for Bank of England staff, adding to the lure of more lucrative City posts. Governor Mervyn King, who implemented the salary policy last year, thanked employees in this year’s annual report for their forbearance and singled out the struggle to hire and keep staff as a potential risk to its monetary-policy analysis.
“There’s always a danger that the good ones get poached,” said Shamik Dhar, head of investment strategy at Aviva Investors in London, which oversees $409 billion, and a former Bank of England official. “In the past there’s been a tradition of guys moving to get in to the City as this job does equip you with the right sorts of skills to be a City economist.” Wood couldn’t be reached for comment. A Bank of England spokeswoman confirmed today that Wood has resigned and said that he will be replaced by Venetia Bell. A spokesman for Berenberg couldn’t immediately comment.
Hungary Surprise Rate Cut Sends Yield To Year-Low (Bloomberg)
Hungary’s borrowing costs tumbled to the lowest level in a year before a bond auction tomorrow as investors bet on further interest-rate cuts after the central bank’s surprise reduction last week to fight recession. Yields on three-year government forint bonds dropped to 6.732 percent on Sept. 3, the lowest since September 2011, according to data compiled by Bloomberg. Investors demanded 6.75 percentage points more to hold Hungarian debt rather than similar-maturity German bunds on Sept. 3, the narrowest spread since the end of October. The Debt Management Agency is offering 45 billion forint ($200 million) of debt due in 2015, 2017 and 2022, according to data from the agency on Bloomberg. The Magyar Nemzeti Bank cut rates by 25 basis points to 6.75 percent on Aug. 28, citing Hungary’s slide into its second recession in three years.
Rate reductions may continue as the four Monetary Council members appointed by Prime Minister Viktor Orban’s government outvote central bank President Andras Simor and his two deputies, according to Peter Attard Montalto at Nomura International Plc. Traders are betting on additional cuts of as much as 50 basis points before year end, according to forward rate agreements. “The rate cut lifted the bond market,” Sandor Jobbagy, a Budapest-based analyst at Intesa Sanpaolo SpA’s CIB Bank unit, wrote in e-mailed comments yesterday. “The move also strengthened expectations for further easing this year.”
Euro zone likely back in recession as PMIs slump (Reuters)
The euro zone is likely to have slipped back into recession in the current quarter, according to a survey published on Wednesday that showed a seventh month of contraction for the bloc's private sector as new orders dwindled.
Pressure mounts on ECB to bring down bond yields (Reuters)
France and Italy piled more pressure on the European Central Bank on Tuesday to agree steps this week to reduce crippling borrowing costs for southern euro zone states.
