Asia FX By Cornelius Luca - Sun 09 Sep 2012 17:18:46 CT (Source:CME/www.lucafxta.com)
The foreign currencies open little changed in the Far East after surging on Friday, as the weak US non-farm payrolls report encouraged hopes for a new round of quantitative easing. Of course, the ECB already agreed on a new bond-buying programme to lower struggling euro zone countries' borrowing costs, so the ball is in the court of the Fed. 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 all foreign currencies. Good luck!
Overnight
US: The non-farm payrolls increased by 96,000 jobs in August following a downwardly revised increase of 141,000 jobs in July. The unemployment rate fell to 8.1% in August from 8.3% in July due to a notable decrease in the size of the workforce.
Canada: Labor productivity declined to -0.4% in the second quarter from 0% in the first quarter.
Canada: The unemployment rate remained unchanged at 7.3% in August.
Canada: Ivey Purchasing Managers Index rose to 65.2 in August from 58.8 in July.
Today's economic calendar
China: Consumer Price Index for August
China: Producer Price Index for August
China: Industrial Production for August
China: Retail sales for August
China: Trade balance for August
Japan: Bank lending for August
Japan: Gross Domestic Product for the second quarter
Japan: Current account for July
Japan: Consumer Confidence Index for August
Japan: Eco Watchers Survey: Outlook for August
Australia: Home loans for July
Australia: Investment lending for homes for July
Most Asian Stocks Decline on Economic Growth Concerns (Bloomberg)
Most Asian stocks fell after reports from the U.S., China and Japan added to signs of a deepening slowdown in the world’s biggest economies ahead of this week’s the Federal Reserve policy meeting. The MSCI Asia Pacific Index (MXAP) slipped 0.1 percent to 119 as of 9:26 a.m. in Tokyo, with three shares falling for every two that rose. The MSCI Asia Pacific Excluding Japan Index added 0.2 percent. Markets in Hong Kong and China are yet to open.
Japan Stocks Drop as Second-Quarter Economic Growth Slows (Bloomberg)
Japanese stocks fell after the nation’s gross domestic product missed estimates, adding to concern growth is slowing in the world’s largest economies. Mitsubishi Estate Ltd. (8802) led property shares lower as Japan’s economy expanded in the second quarter at half the pace the government initially estimated. Tokyo Electron Ltd. and Nikon Corp., suppliers to Intel Corp. (INTC), lost more than 2.4 percent after the world’s biggest semiconductor maker cut its sales forecast. Toho Holdings Ltd. surged 9.8 percent as the maker of medical tools said it will spend 5 billion yen buying back its shares. The Nikkei 225 (NKY) Stock Average fell 0.3 percent to 8,846.36 as of 9:16 a.m. in Tokyo. The broader Topix Index slid 0.3 percent to 733.23, with about three shares declining for every one that rose. Japan’s data today adds signs of a global slowdown after a report yesterday showed China’s industrial production dropped and the U.S. last week reported weaker-than- estimated payrolls.
“The economic statistics are really bad and in the long run you’re going to have some real savage assessments of what needs to be done to revive growth,” said Philip Parker, chief investment officer at Parker Asset Management Ltd. in Sydney, where he manages about $200 million. “We don’t want to invest money until the markets have come down.”
S&P 500 Futures, Oil Retreat as China’s Industrial Output Slows (Bloomberg)
U.S. equity futures fell, oil dropped and the New Zealand dollar slid as China’s industrial output grew at the slowest pace in three years and President Hu Jintao said the economy faces “notable downward pressure.” Standard & Poor’s 500 Index futures lost 0.1 percent to 1,436.60 as of 7:16 a.m. in Tokyo after the equity gauge last week reached the highest level since 2008. Oil retreated 0.1 percent to $96.30 a barrel in New York. The New Zealand dollar depreciated 0.2 percent to 81.09 U.S. cents. Industrial production in China increased 8.9 percent in August from a year earlier and fixed-asset investment growth in the first eight months eased to 20.2 percent, the National Bureau of Statistics said yesterday in Beijing. Inflation accelerated for the first time in five months. The data underscore risks that full-year growth in the world’s second- biggest economy will slide to its lowest level in more than two decades.
The S&P 500 last week added 2.2 percent to 1,437.92, its biggest rally since June. It rose within 10 percent of its all- time high in October 2007. The Dow Jones Industrial Average finished at the highest level since December 2007. U.S. retail sales probably improved for a second month in August as consumers overcame a lack of jobs and stagnant wages, economists said before reports this week. A 0.7 percent increase in purchases would follow a 0.8 percent July advance, according to the median forecast of 66 economists surveyed by Bloomberg News ahead of Commerce Department figures on Sept. 14.
European Stocks Post Largest Weekly Gain in Three Months (Bloomberg)
European stocks posted the largest weekly advance since June as European Central Bank President Mario Draghi outlined an unlimited bond-buying program to regain control of interest rates and stem the sovereign debt crisis. Italian banks led a gauge of European lenders to the best performance on the Stoxx Europe 600 Index, with Banca Monte dei Paschi di Siena SpA and UniCredit SpA (UCG) rallying at least 16 percent. Ashtead Group Plc (AHT), a U.K. construction-equipment rental company, rose to a record after saying full-year earnings will be higher than forecast. Rhoen-Klinikum AG (RHK) sank 23 percent. The benchmark Stoxx 600 increased 2.3 percent to 272.30 this past week. The gauge has climbed 16 percent from this year’s low on June 4 amid speculation central banks around the world will take further measures to support an economic recovery.
The ECB deal “was a great victory for the periphery,” said Jean-Paul Jeckelmann, chief investment officer at Banque Bonhote & Cie. in Neuchatel, Switzerland. “It confirmed that Spain and Italy are too big to fail and that we will find all the resources to keep them alive. We have solved the liquidity side of the problem but if the economy continues to worsen, the discussion about solvency will rapidly come back. So it’s very good news in the short-term, but still holds some risk for the medium-term.” National benchmark indexes increased in all of the 18 western European markets this week. The U.K.’s FTSE 100 rose 1.5 percent, France’s CAC 40 added 3.1 percent and Germany’s DAX Index climbed 3.5 percent. Italy’s FTSE MIB rallied 6.7 percent, while Spain’s IBEX 35 jumped 6.2 percent.
Treasuries Snap Loss as China Data Fuels Growth Concern (Bloomberg)
Treasuries snapped a loss from last week as a slowdown in Chinese industrial production increased concern global economic growth is waning. China’s industrial output rose 8.9 percent in August from 12 months earlier, the slowest pace in three years, data from the National Bureau of Statistics showed yesterday. The Treasury Department is scheduled to sell $32 billion of three-year notes tomorrow, $21 billion of 10-year debt the next day and $13 billion of 30-year bonds on Sept. 13. Benchmark 10-year yields were little changed at 1.66 percent as of 9:55 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in August 2022 was 99 23/32. “Worldwide, the economic data are bad,” said Hajime Nagata, who helps oversee the equivalent of $131.8 billion as an investor in Tokyo at Diam Co., a unit of Dai-Ichi Life Insurance Co., Japan’s second-biggest life insurer. Diam is betting on gains in Treasuries, he said.
U.S. job growth slowed more than economists predicted, a government report showed Sept. 7, fueling bets the Federal Reserve will add stimulus to the economy through bond purchases as soon as this week. The central bank’s policy-setting committee meets Sept. 12-13. Treasuries fell last week as European officials announced plans to buy bonds to curb the euro region’s sovereign-debt crisis, easing demand for the safest securities. U.S. 10-year yields increased 12 basis points, or 0.12 percentage point.
Asia-Pacific Leaders Focus on Trans-Atlantic Danger to Recovery (Bloomberg)
The annual meeting of 21 leaders in the Asia-Pacific region spent much of the two-day event in Russia’s Far East focused on the other side of the planet, discussing threats to the world economy posed by the European debt crisis and a looming U.S. budget showdown. Heads of the Asia-Pacific Economic Cooperation Summit in Vladivostok, including Chinese President Hu Jintao and Chilean President Sebastian Pinera, spoke of the dangers the European debt crisis poses to their economies. International Monetary Fund Managing Director Christine Lagarde discussed the so-called U.S. fiscal cliff of tax increases and spending cuts at a lunchtime gathering of the leaders, who collectively oversee 56 percent of world economic output.
Asian leaders vowed to work together to counter the effects of the debt crisis in Europe and the tepid recovery in the U.S. The export-oriented countries of the Asia-Pacific region, where economic expansion in countries such as Chile and China exceeds global growth by several percentage points, are vulnerable to slowdowns in their biggest markets. “High public deficits and debts in some advanced economies are creating strong headwinds to economic recovery globally,” the APEC leaders said in a joint statement. “The events in Europe are adversely affecting growth in the region. In such circumstances, we are resolved to work collectively to support growth and foster financial stability, and restore confidence.”
Retail Sales Probably Increased in July: U.S. Economy Preview (Bloomberg)
Retail sales probably improved for a second month in August as consumers overcame a lack of jobs and stagnant wages, economists said before reports this week. A 0.7 percent increase in purchases would follow a 0.8 percent July advance, according to the median forecast of 66 economists surveyed by Bloomberg News ahead of Commerce Department figures on Sept. 14. Other reports may show inflation accelerated and manufacturing stagnated. Rising food and fuel prices and disappointing gains in payrolls may further damage household finances, making it a challenge for retailers such as Gap Inc. (GPS) and Macy’s Inc. (M) to keep luring customers in the second half of 2012. Widespread labor- market weakness bolsters the case for Federal Reserve policy makers to take additional action to spur growth when they gather this week.
“It’s going to be difficult,” said Gus Faucher, a senior economist at PNC Financial Services Group Inc. in Pittsburgh, whose retail sales forecast matched the median estimate. “Income is basically flat, and at the same time people are spending more for food and energy. If job growth remains flat like this, we are going to see weak growth in consumer spending.” The economy added 96,000 workers last month, less than the 130,000 projected by the median forecast of economists surveyed by Bloomberg, figures from the Labor Department showed last week. The unemployment rate fell to 8.1 percent after 368,000 Americans left the workforce. More than 12.5 million Americans remain unemployed.
U.S. Fiscal Cliff Endangers World Economy, Lagarde Tells APEC (Bloomberg)
U.S. tax increases and spending cuts set to take effect by the beginning of next year pose one of the biggest risks to the global economy, International Monetary Fund Managing Director Christine Lagarde said today. While Lagarde has warned about the U.S. fiscal situation before, this time she took her case directly to leaders attending the Asia-Pacific Economic Cooperation Summit in Vladivostok, Russia. She said the fiscal cliff was one of “three key risks” -- the other two being the euro crisis and medium-term public financing. “We discussed over lunch with the leaders of APEC, the global economic situation, with the three key risks that we see on the horizon,” Lagarde told reporters today. She said there are a “combination of factors that could also increase the vulnerabilities of emerging economies.”
Lagarde made the comments to an organization whose membership oversees 56 percent of global economic output. The more than $480 billion so-called fiscal cliff of automatic spending cuts and revenue changes would probably cause a recession if left unchanged, the nonpartisan Congressional Budget Office said in a report last month. Among the leaders attending the summit were Russian President Vladimir Putin, Chinese President Hu Jintao, Secretary of State Hillary Clinton and Japanese Prime Minister Yoshihiko Noda. Lagarde also restated the IMF’s support for the European Central Bank’s plan to buy the bonds of member nations such as Italy and Spain. Lagarde said the IMF, if it were involved, would want to help in both the design and the monitoring of any program. “Clearly when we get involved we want to be involved both in the design and monitoring of programs,” Lagarde said. “We don’t particularly like to do monitoring without having participated actively in the design.”
U.S. payroll growth seen tepid, may force Fed's hand
WASHINGTON, Sept 7 (Reuters) - The U.S. labor market likely took a step back in August, an outcome that could compel the Federal Reserve to pump additional money into the sluggish economy.
Growth in nonfarm payrolls is expected to have slowed last month to 125,000 from 163,000 in July, according to a Reuters survey of economists. The unemployment rate is seen holding steady at 8.3 percent.
Clinton Advice on Working With China: First Be Yourself (Bloomberg)
Hillary Clinton has some advice for the next secretary of state on negotiating with Chinese leaders: “You have to be yourself, you have to be America, you have to stand up for American values, interests and security.” In an interview with Bloomberg Radio after her sixth -- and probably last -- visit to China as the top U.S. diplomat, Clinton reflected on the lessons of 3 1/2 years trying to resolve issues with a rising power that is the world’s second- largest economy. Along with growing investments and influence around world, China has a key vote on the most important crises before the United Nations Security Council.
Clinton, who has said she will step down within months regardless of whether President Barack Obama wins re-election, was in Beijing last week trying to persuade Chinese leaders to adopt a code of conduct to resolve territorial disputes that have sparked skirmishes with its neighbors in the South China Sea. She also wanted China to support the West in backing tougher action against President Bashar al-Assad in Syria. Her meetings with almost every top Chinese leader or leader-in-waiting were both friendly and frank, by all accounts, though neither issue was resolved. At a joint press conference on Sept. 5, Clinton and Chinese Foreign Minister Yang Jiechi said they remained divided over how to address the maritime claims and the violence in Syria. At the same time, each took pains to highlight U.S.-China unity on other issues, including economic recovery measures and diplomacy to avert nuclear threats from Iran and North Korea.
China Slower Output Gains Complicate Easing Policies (Bloomberg)
China’s industrial output grew at the slowest pace in three years and President Hu Jintao said economic expansion faces “notable downward pressure,” signaling that officials may need to add further to stimulus after approving subway and road projects. Production increased 8.9 percent in August from a year earlier and fixed-asset investment growth in the first eight months eased to 20.2 percent, the National Bureau of Statistics said yesterday in Beijing. Inflation accelerated for the first time in five months. The data underscore risks that full-year growth in the world’s second-biggest economy will slide to its lowest in more than two decades and undermine support for the ruling Communist Party during its once-a-decade power transition to a new generation of leaders later this year. The rebound in inflation, excess capacity in some industries and banks’ bad loan risks from past monetary easing highlight the potential cost of ramping up stimulus efforts.
“Politicians want a benign backdrop for their party congress gathering and slumping stock prices and a worsening growth slowdown could spoil the party,” said Lu Ting, chief China economist at Bank of America Corp. in Hong Kong. “Putting together the economic fundamentals and the timing of major political events, there will be a second round of policy easing including cuts to banks’ reserve requirements and some fiscal stimulus.”
Hu Says China’s Growth Is Facing ‘Notable Downward Pressure’ (Bloomberg)
Chinese President Hu Jintao said a slowdown in exports is putting downward pressure on the world’s second-biggest economy, and he pledged to boost domestic demand and promote more balanced growth. “Economic growth is facing notable downward pressure, some small and medium enterprises are facing a hard time and exporters are facing more difficulties,” Hu said yesterday at the Asia-Pacific Economic Cooperation CEO Summit in Vladivostok, Russia. “We have an arduous task of creating jobs for new entrants to the labor force.” The slowdown is increasing pressure on Hu as China tries to ensure a smooth once-a-decade transition of power to a new generation of leaders at a Communist Party Congress this year. Europe’s debt crisis and anemic U.S. growth may hinder a rebound in exports while at home a slump in earnings is deterring companies from spending and banks face rising bad debts.
“The Chinese government has been trying to reduce the share of investments as a share of GDP and in the meantime accelerate private consumption,” Jing Ulrich, Hong Kong-based chairman of global markets for China at JPMorgan Chase & Co., said in an interview in Vladivostok. “But here comes more stimulus, mainly targeted at fiscal spending and infrastructure. What does this mean for the rebalancing of the overall growth drivers for the economy?”
Japan Halves Growth Estimate for Past Quarter to Annual 0.7% (Bloomberg)
Japan’s economy expanded in the second quarter at half the pace the government initially estimated, underscoring the risk of a contraction as Europe’s debt crisis caps exports. Gross domestic product grew an annualized 0.7 percent in the three months through June, the Cabinet Office said in Tokyo today, less than a preliminary calculation of 1.4 percent. The median forecast of 26 economists surveyed by Bloomberg News was for a revised 1 percent gain. The current-account surplus fell 41 percent from a year earlier to 625.4 billion yen ($8 billion) in July, a finance ministry report showed. Gridlock in parliament may limit fiscal stimulus just as Japan’s expansion is restrained by weakness in global demand, strength in the yen, and the winding down of car-purchase subsidies. A slowdown in Asia may further curtail exports and add to pressure for monetary easing after Chinese data yesterday suggested the region’s biggest economy is losing steam.
“Europe’s debt crisis and the yen’s strength restrained companies from spending in the second quarter,” said Takashi Shiono, an economist at Credit Suisse Group AG in Tokyo. “Japan’s economy will probably contract in the third quarter as the boost from the government’s car subsidy program wanes and the downward pressure from weak external demand materializes.” The Nikkei 225 Stock Average fell 0.3 percent as of 9:26 a.m. local time after a 2.2 percent surge on Sept. 7.
Samaras’s Coalition Partners Balk at Cuts as Troika Disagrees (Bloomberg)
Greek Prime Minister Antonis Samaras failed to secure agreement from his coalition partners on 11.5 billion euros ($14.7 billion) of spending cuts required by the country’s lenders to release funds needed to keep the country in the euro. Democratic Left leader Fotis Kouvelis, whose party is one of the three in Samaras’s coalition government, said no decision had been taken on the package and that poorer Greeks must be protected from more austerity. The three leaders agreed to meet again on Sept. 12, two days before euro area finance ministers meet to be briefed on Greek progress. “The recession is deep and if these measures aren’t accompanied by growth measures, they will be ineffective,” Kouvelis said after the meeting with Samaras and Pasok leader Evangelos Venizelos in Athens yesterday. “Our European partners need to know that Greeks can’t take anymore. Nothing can be taken for granted.”
Samaras has said his two-year package of spending cuts contains unfair and painful decisions that are necessary to restore credibility and keep the country in the euro area. With his New Democracy party holding just 129 seats in the 300-seat chamber, he relies on Pasok’s 33 seats and Democratic Left’s 17 to secure parliamentary approval. Agreement on the cuts, which must be approved by the so- called troika of inspectors from the euro area, European Central Bank and International Monetary Fund, may allow the release of a 31 billion-euro payment that will mainly go to recapitalize the nation’s banks and boost liquidity in a cash-starved economy undergoing a fifth year of recession.
Hollande Sees Two-Year Time Frame to Fix French Economy (Bloomberg)
French President Francois Hollande said his government will set up a two-year agenda to fix the euro zone’s second-largest economy, including measures to overhaul labor contracts and state-sponsored jobs to ease unemployment. “I have a mission: bring this country on the path of recovery,” Hollande said today on TF1 television. “I am going to set a recovery agenda. We have two years to roll out a policy for jobs, a policy for competitiveness and a policy to rebuild public finances.” He promised to have unemployment falling by 2014.
Italy’s Grilli Welcomes Potential IMF Role in ECB Plan (Bloomberg)
Italian Finance Minister Vittorio Grilli praised the International Monetary Fund’s oversight of bailouts and welcomed a potential role for the institution in European Central Bank President Mario Draghi’s bond-buying plan. “It’s only natural and understandable that if the IMF can and would continue to be involved, that would be a positive element,” Grilli said yesterday in an interview with Guy Johnson of Bloomberg Television in Cernobbio, Italy. “The way the euro zone has been working through these years has been through the involvement of the European institutions and the IMF. And I think that collaboration and the expertise put together has worked very well.”
Grilli and Prime Minister Mario Monti are cutting Italy’s budget deficit in an attempt to lower borrowing costs without the help of rescue funds from Europe. Draghi, who announced his support program Sept. 6, said he would seek the involvement of the IMF to set conditions and monitor compliance for any country that requests help from the ECB. Grilli reiterated Italy’s intention to solve the crisis without outside support. “We’ve already said many times that we don’t have, today, the intention or a plan” to ask for any program, Grilli said.
Draghi gets ECB backing for unlimited bond-buying
The European Central Bank agreed on Thursday to launch a new and potentially unlimited bond-buying programme to lower struggling euro zone countries' borrowing costs and draw a line under the debt crisis. (Reuters)
