Asia FX By Cornelius Luca - Tue 02 Oct 2012 17:11:58 CT (Source:CME/www.lucafxta.com)
The appetite for risk was mixed on Tuesday after Spain didn't ask for a bailout, thus leaving unclear its next step in its debt crisis. The euro and franc ended with small gains, the pound was flat, and the commodity currencies and yen fell. The Australian dollar led the losses following the unexpected rate cut by the RBA. Re-positioning at the start of the fourth quarter remains the main theme, despite by Spain and other Eurozone peripherals' ongoing problems. The US stock markets ended mixed. Gold, oil and silver fell. The short-term outlook for the major foreign currencies is sideways. The medium-term outlook for most of the foreign currencies is slightly bullish. The LGR short-term model is short on all foreign currencies. Good luck!
Overnight
US: The ISM New York in the US rose to 52.9 in September from 51.4 in August.
Today's economic calendar
Australia: HIA new home sales for August
Australia: Trade balance for August
Asian Stocks Decline Amid Spain Bailout, Growth Concerns (Bloomberg)
Asian stocks fell amid speculation Spain will request a bailout even as Prime Minister Mariano Rajoy said there are no imminent plans to ask for aid and before the release of Chinese data on the services industry. Canon Inc. (7751), the world’s biggest camera maker that gets about 31 percent of sales from Europe, lost 0.2 percent in Tokyo. Daiichi Sankyo Co. dropped 4.5 percent as the Japanese drug maker and partner ArQule Inc. halted a study of a lung- tumor treatment. APN News & Media Ltd. retreated 8.1 percent after the Australian newspaper publisher said it has nothing to announce at this stage on an ongoing review of assets. The MSCI Asia Pacific Index (MXAP) fell 0.2 percent to 121.91 as of 9:43 a.m. in Tokyo. Markets in China and South Korea are closed today for holidays, while Hong Kong reopens for trading later following a long weekend.
“You’ve got a lot of uncertainty at the moment, and I think the market is going through a little bit of a consolidation phase,” said Cameron Peacock, a Melbourne-based market analyst at IG Markets, a provider of trading services for stocks, bonds and currencies. “Will Spain request a bailout? You’ve got U.S. presidential elections in five weeks and you’ve got a fiscal cliff looming at the end of the year.”
S&P 500 Erases Loss as Apple Recovery Overshadows Spain (Bloomberg)
The Standard & Poor’s 500 Index rose, erasing losses in the final hour of trading, as a rebound in Apple (AAPL) Inc. overshadowed disappointment after Spanish Prime Minister Mariano Rajoy said a bailout request is not imminent. Apple, the largest company by market value, reversed a 1.3 percent drop to end the day higher. Citigroup Inc. rose 1.6 percent as KBW raised its rating. MetroPCS Communications Inc. (PCS) rallied 18 percent after Deutsche Telekom AG said the companies are in talks to combine U.S. wireless units. Chipotle Mexican Grill Inc. (CMG) slid 4.2 percent after hedge fund manager David Einhorn recommended betting against the restaurant chain. Mosaic (MOS) Co. lost 3.9 percent amid disappointing earnings.
The S&P 500 rose 0.1 percent to 1,445.75 at 4 p.m. New York time, after dropping as much as 0.4 percent. The Dow Jones Industrial Average lost 32.75 points, or 0.2 percent, to 13,482.36. Volume for exchange-listed stocks in the U.S. was 5.8 billion shares, or 3.4 percent below the three-month average. “Spain took down the market, but people looked past it and found some good entry points in technology stocks,” Frank Ingarra, who helps manage $1.4 billion at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview. “Apple is such a big part of the market and it’s been on a downtrend for a couple of days, so it makes sense for the stock to get some relief and rebound which would translate into the indexes.”
Japan Stocks Retreat Amid Mixed Signals on Spain Bailout (Bloomberg)
Oct. 3 (Bloomberg) -- Japanese stocks swung between gains and losses after Spanish Prime Minister Mariano Rajoy denied the country is imminently seeking a bailout. Toyota (7203) Motor Corp. led carmakers higher on better-than-expected U.S. sales. Konica Minolta Holdings Inc. (4902), an imaging-equipment maker that gets 28 percent of its sales in Europe, dropped 0.8 percent. Toyota, Asia’s biggest carmaker by market value, rose 1.4 percent after its U.S. sales jumped 42 percent last month. Daiichi Sankyo Co. fell 4.8 percent after advisers recommended the drugmaker end the trial of a cancer drug being developing with ArQule Inc. The Nikkei 225 Stock Average (NKY) rose less than 0.1 percent to 8,793.22 as of 9:30 a.m. in Tokyo after falling as much as 0.4 percent. The broader Topix Index slid 0.1 percent to 730.74, headed for a fourth daily decline.
“You’ve got a lot of uncertainty at the moment, and I think the market is going through a little bit of a consolidation phase,” said Cameron Peacock, a Melbourne-based market analyst at IG Markets, a provider of trading services for stocks, bonds and currencies. “Will Spain request a bailout? You’ve got U.S. presidential elections in five weeks and you’ve got a fiscal cliff looming at the end of the year.”
European Stocks Decline; Alstom, Erste Drop (Bloomberg)
European stocks declined, after yesterday rallying the most in more than three weeks, as companies from Alstom SA to Erste Group Bank AG (EBS) sold shares. Alstom sank 4.9 percent after selling a 350 million-euro ($453 million) holding. Erste Group slipped 2.8 percent after the lender’s largest shareholder sold a 235 million-euro stake. PostNL NV (PNL) added 4.4 percent after the postal company said it will increase rates next year. The Stoxx Europe 600 Index (SXXP) slipped 0.3 percent to 271.62 at the close after earlier rising as much as 0.4 percent and falling as much as 0.7 percent. The equity benchmark has still rallied 16 percent from this year’s low on June 4 as central banks in the U.S. and the euro area turned to bond purchases to stimulate growth and ensure the transmission of record-low interest rates.
“It’s a difficult period for investors to place bets,” said David Hussey, who helps oversee $218 billion as head of European equities at Manulife Asset Management in London. “The global economy is going to recover, it’s just going to take a while. In the long term, we are bullish on equities, but that is really long term. In the interim, we will continue to have this horrible trading-range type mentality.” The Stoxx 600 and the Euro Stoxx 50 Index, the gauge of the largest companies in the euro area, have both failed to post back-to-back gains or losses for the last 10 days. European stocks yesterday rallied the most since Sept. 6 after stress tests bolstered confidence in Spain’s banking system and a report showed U.S. manufacturing unexpectedly expanded last month. The Stoxx 600 fell 2.7 percent last week amid concern the U.S. Federal Reserve’s bond-buying program will fail to encourage growth.
Emerging-Market Stocks Rise for a Fourth Day on U.S. Data (Bloomberg)
Emerging-market stocks rose for a fourth day, the longest winning streak in more than two weeks, after an unexpected rebound in U.S. manufacturing improved the outlook for exporters. The MSCI Emerging Markets Index (MXEF) climbed 0.1 percent to 1,006.23. Samsung Electronics Co. (005930), which got 20 percent of its sales from America last year, climbed to a five-month high in Seoul. Equity gauges in Indonesia, Turkey and Mexico increased. Brazil’s Bovespa index dropped with homebuilder Gafisa SA among the biggest decliners. U.S. manufacturing unexpectedly expanded last month and Chinese new export orders for September rose from the month before, reports showed yesterday. Federal Reserve Chairman Ben S. Bernanke pledged to maintain record economic stimulus, stoking appetite for riskier assets. The developing nations’ gauge pared some of its gains after Spanish Prime Minister Mariano Rajoy says he has no plans to request a bailout soon.
“The latest data from the U.S. showed manufacturing is back in expansionary territory and that was a nice upside surprise given that emerging markets are driven by exports for the most part,” Alec Young, a New York-based global equity strategist at S&P Capital IQ, said by phone today. “The liquidity rally needs to transition to a growth rally, and the PMI is evidence that growth is stabilizing. We need to see more of it but it’s a good first step.”
Aussie Dollar Falls as RBA Seen Cutting Interest Rates Further (Bloomberg)
Australia’s dollar fell to the lowest level in almost four weeks amid speculation the central bank will lower interest rates again following a quarter-point cut yesterday to cushion the impact of slowing global growth. The so-called Aussie remained lower against most of its major peers after a report showed the country’s services industry contracted by the most in five months and before data forecast to show the trade deficit widened. Swaps indicate an almost 90 percent chance the Reserve Bank of Australia will lower its benchmark rate from 3.25 percent to a record low 2.75 percent by the end of March next year, according to data compiled by Bloomberg. They show a 75 percent probability of a quarter-point reduction in November. “I think the Reserve Bank will cut again probably next month,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia in Sydney. “I don’t think the RBA will cut as much as the market is expecting, but those expectations have been one thing that has pushed the Aussie down.” Australia’s dollar touched $1.0251, the lowest level since Sept. 6, before trading at $1.0252 as of 10:40 a.m. in Sydney, 0.2 percent below yesterday’s close in New York. The currency also traded near a one-year low against the New Zealand dollar. It fetched NZ$1.2412, having fallen as low as NZ$1.2372 yesterday, the weakest since September 2011. The New Zealand dollar, nicknamed the kiwi, declined 0.2 percent to 82.60 U.S. cents. Australian bonds were little changed, with the 10-year yield at 2.97 percent.
FOREX-Euro steadies, seen vulnerable to Spain uncertainty
LONDON, Oct 2 (Reuters) - The euro recovered slightly from a three-week low against the dollar but still looked vulnerable to selling as uncertainty over when Spain may seek a bailout unnerved European financial markets.
"If Spain requests (aid) proactively, I think the euro would have a lot more upside, perhaps to $1.33," said Sim Moh Siong, FX strategist for Bank of Singapore.
‘Budgetary Crystal Meth’ Risks U.S. Haven Status, Gross Says (Bloomberg)
Pacific Investment Management Co.’s Bill Gross said the U.S. will no longer be first destination of global capital in search of safe returns unless the gap between spending and debt is addressed. Major nonpolitical organizations agree that “when it comes to debt and to the prospects for future debt, the U.S. is no ’clean dirty shirt,’” Gross wrote in his monthly investment outlook posted on the Newport Beach, California-based Pimco’s website today. “The U.S., in fact, is a serial offender, an addict whose habit extends beyond weed or cocaine and who frequently pleasures itself with budgetary crystal meth.” The International Monetary Fund, the Congressional Budget Office and the Bank of International Settlements compute a “fiscal gap,” which is a deficit that must be closed either with spending cuts, tax hikes or a combination of both, which keeps a country’s debt/GDP ratio under control, wrote Gross, the manager of the world’s biggest bond fund.
“Unless we begin to close this gap, then the inevitable result will be that our debt/gross domestic product ratio will continue to rise, the Fed would print money to pay for the deficiency, inflation would follow and the dollar would inevitably decline,” Gross wrote. “Bonds would be burned to a crisp and stocks would certainly be singed; only gold and real assets would thrive within the ‘Ring of Fire.’”
Bernanke Seeks Gains for Stocks in Push for Jobs: Economy (Bloomberg)
Chairman Ben S. Bernanke is increasingly aiming for gains in stock prices as the Federal Reserve reaches for new tools to spur the three-year recovery and reduce unemployment stuck above 8 percent. Bernanke, setting the stage for a third round of quantitative easing in an Aug. 31 speech in Jackson Hole, Wyoming, said the strategy works in part by boosting the prices of assets such as equities. In a speech yesterday in Indianapolis he said higher stock and home prices would provide further impetus to spending by businesses and households. “It’s pretty clear that the stock market is the most important transmission mechanism of monetary policy right now,” said Peter Hooper, chief economist at Deutsche Bank AG in New York. “That’s where you’re getting most of the action in terms of lift to the economy. It’s the stock market that’s going to have to be carrying the load.”
The Fed’s large-scale asset purchases will probably lift stocks by 3 percent over the two years following the Sept. 13 announcement of QE3 as low yields on government bonds push investors into risker assets, according to a Sept. 27 report by Deutsche Bank economists. They also estimate that QE will lift home prices by 2 percent over two years, assuming the Fed maintains purchases of Treasuries and mortgage debt through 2013. The gains in stocks and real state could boost economic growth by 0.5 percentage point over the next two years, enough to add about 500,000 jobs and cut the unemployment rate by 0.3 percentage point, according to Hooper, who worked for 26 years as an economist at the Fed board in Washington.
Investors Doubt QE3 Lift to U.S. Discretionary Spending (Bloomberg)
Investors are proving skeptical that the Federal Reserve’s announcement of additional quantitative easing will get Americans to spend more. The Consumer Discretionary Select Sector SPDR Fund -- which includes Amazon.com Inc. (AMZN) and Macy’s Inc. (M) --has lagged behind the Consumer Staples Select Sector SPDR Fund by 2.8 percent since Sept. 14, the day after the Fed unveiled plans to buy mortgage- backed securities at a pace of $40 billion a month until the labor market improves. During the preceding six weeks, the discretionary exchange-traded fund outpaced its defensive counterpart, which includes Procter & Gamble Co. (PG) and Coca-Cola Co. (KO), by 9.2 percent.
The relative performance between these funds since August suggests investors “bought the rumor and sold the news,” said Peter Cook, chief investment officer at Performance Trust Investment Advisors in Chicago. Still, “aggressive” monetary policy, such as QE3, probably will have a limited impact on consumer spending for nonessential goods and services, so the economy will continue to slow, he said. U.S. gross domestic product expanded at a 1.3 percent annual rate in the second quarter, less than the previous estimate of 1.7 percent and below the first quarter’s 2 percent pace, data from the Commerce Department show. The recent weakening in discretionary stocks relative to staples differs from 2010, when Fed Chairman Ben S. Bernanke’s speech at the annual Jackson Hole, Wyoming, conference in late August foreshadowed QE2, setting off almost six months of outperformance, said Jack Ablin, who helps oversee about $65 billion of assets as chief investment officer at BMO Private Bank in Chicago.
Top 1% Got 93% of Income Growth as Rich-Poor Gap Widened (Bloomberg)
Since 2009, Anita Reyes’ wages have been as frozen as Lake Minnetonka in January. While the U.S. economy was recovering from the Great Recession, Reyes, 52, a casino dealer from Minneapolis, was dining on $1.67 cans of soup and searching for a way to keep her house, which was foreclosed on last October. “I went backwards,” Reyes said. “Two years ago, three years ago, I didn’t know I’d be looking at being homeless.” Stephen Hemsley’s salary has been frozen too. His income hasn’t. The chief executive officer of Minnetonka, Minnesota-based health insurer UnitedHealth Group Inc. (UNH) earned $1.3 million in salary every year since 2007. Still, as the economic recovery took hold from 2009 to 2011, Hemsley, 60, exercised stock options worth more than $170 million and made at least $51 million from share sales, making him the object of an “Occupy Lake Minnetonka” protest on the ice outside his lakeside home each winter.
The divergent fortunes of Reyes and Hemsley show that the U.S. has gone through two recoveries. The 1.2 million households whose incomes put them in the top 1 percent of the U.S. saw their earnings increase 5.5 percent last year, according to estimates released last month by the U.S. Census Bureau. Earnings fell 1.7 percent for the 96 million households in the bottom 80 percent -- those that made less than $101,583. The recovery that officially began in mid-2009 hasn’t arrived in most Americans’ paychecks. In 2010, the top 1 percent of U.S. families captured as much as 93 percent of the nation’s income growth, according to a March paper by Emmanuel Saez, a University of California at Berkeley economist who studied Internal Revenue Service data.
Manufacturing in U.S. Expands Unexpectedly as Orders Rise (Bloomberg)
Manufacturing unexpectedly expanded in September after three months of contraction, reflecting stronger orders that ease concern the U.S. economy will slow further. The Institute for Supply Management’s factory index rose to 51.5 last month from 49.6 in August, the Tempe, Arizona-based group said today. Readings above 50 show expansion, and the September measure exceeded the most optimistic forecast in a Bloomberg survey. Stocks extended gains after the figures showed American factories are holding up in contrast to their counterparts in Europe and Asia. Sustained strength in motor vehicle sales and a rebound in demand for home construction materials are helping cushion manufacturers from weaker exports and cutbacks in business investment.
“Housing is definitely supporting,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “The economy still seems to be expanding, even if modestly, and that should keep overall manufacturing growing.” Still, “it’s hard to see things materially accelerating from here.” The median forecast in the Bloomberg survey was 49.7, and estimates from the 76 economists surveyed ranged from 48 to 51.2. A reading above 42.6 generally indicates an expansion in the overall economy, the ISM said. The gauge averaged 55.2 in 2011 and 57.3 a year earlier.
SEC Leads From Behind as High-Frequency Trading Shows Data Gap (Bloomberg)
The U.S. Securities and Exchange Commission, stung by criticism that it lacks the knowledge to analyze the computerized trading that has come to dominate American stock markets, is planning to catch up. Initiatives to increase the breadth of data received from exchanges and to record orders from origination to execution are at the center of the effort. Gregg Berman, who holds a doctorate in physics from Princeton University, will head the commission’s planned office of analytics and research. “What we will focus on is trying to shed more light on some of the big outstanding questions about market structure,” Berman said in an interview in Washington. “What is the impact of high-frequency trading? What’s the effect of high rates of order cancellations? What’s the connection between exchange- traded funds and individual stocks? How might different rules impact the market?”
Berman’s team will assess how market behavior has been altered after 15 years of regulatory reform and advances in technology that have left trading fragmented across 13 competing exchanges, 10 options markets and dozens of venues operated privately by brokerages. SEC Chairman Mary Schapiro, spurred into action by the stock rout of May 6, 2010, has made improving data collection a priority.
Obama Lead Over Romney Similar to 2008 Margin Over McCain (Bloomberg)
President Barack Obama’s advantage over Republican challenger Mitt Romney among female voters is similar to his pre-election margins four years ago, though Obama’s edge among all voters is smaller than at a similar point in 2008. Obama leads by 56 percent to 38 percent among women in a survey of likely voters released today by Quinnipiac University. Romney leads among men, 52 percent to 42 percent. The president had a four-percentage-point advantage among all voters. The president was favored similarly among women four years ago, while Romney is faring better among men than the 2008 Republican nominee, Arizona Senator John McCain, polls showed. An NBC News/Wall Street Journal poll released tonight gives Obama a 49 percent to 46 percent lead among likely voters, a narrowing from his 50 percent to 45 percent advantage in a comparable survey from two weeks ago. Obama’s lead grows over Romney, 48 percent to 43 percent, when third-party candidates are included.
The poll of 832 likely voters was taken Sept. 26-30 and has a margin of error of plus or minus 3.4 percentage points. In questions asked of 1,000 registered voters, 43 percent said Romney would do better at creating jobs and improving the economy, while 42 percent picked Obama. Among these voters, Obama was viewed favorably by 52 percent and unfavorably by 42 percent, while Romney was rated unfavorably by 44 percent and unfavorably by 41 percent. The error margin for this sample was plus or minus 3.1 percentage points.
Hong Kong Builders Set for Busiest Month in 6 Years on Low Rates (Bloomberg)
Hong Kong developers, seeking funds to tap an expanding government land supply, are this month preparing to sell the most homes in six years as expectations for prolonged low-interest rates fuel demand. Real estate companies led by New World Development Co., this year’s best performer in Hong Kong’s benchmark property gauge, may sell more than 3,300 units from eight new projects in October, according to Buggle Lau, chief analyst at Midland Holdings Ltd. (1200), the city’s biggest publicly traded realtor. That would be the highest monthly figure since August 2006, Lau said. Hong Kong Chief Executive Leung Chun Ying, who took over in July, has expanded property curbs initiated by his predecessor, including boosting home supply and raising mortgage downpayment requirements, to rein in an asset bubble exacerbated by the U.S. Federal Reserve’s third round of quantitative easing. Home prices have surged almost 90 percent since early 2009 on a shortage of new supply and an influx of mainland Chinese buyers.
“We have a combination of a red-hot market and a government trying to make more units available to buyers quicker,” said Wong Leung-sing, an associate director of research at Centaline Property Agency Ltd., the city’s biggest closely held realtor. “Of course, developers are rushing in.”
RBA Cuts Rate to 3.25% as Mining-Driven Growth Wanes: Economy (Bloomberg)
Australia’s central bank resumed cutting its benchmark interest rate to revive demand outside of a resource boom that may crest at a lower level than previously expected, sending the nation’s currency to a three-week low. Governor Glenn Stevens and his board lowered the overnight cash-rate target by a quarter percentage point to 3.25 percent, the Reserve Bank of Australia said in a statement in Sydney today. The decision to end a three-meeting pause was predicted by nine of 28 economists surveyed by Bloomberg News, while the majority had forecast no change. “The peak in resource investment is likely to occur next year, and may be at a lower level than earlier expected,” Stevens said. “As this peak approaches it will be important that the forecast strengthening in some other components of demand starts to occur.”
Stevens’s gloomier outlook marked a reversal for a central bank governor who said after a June speech that he felt the need to do some “cheerleading” on the economy to rebut vocal pessimists. The RBA chief today signaled weaker growth at home and abroad, reflected in lower prices for the nation’s key exports of iron ore and coal, as Europe’s fiscal crisis weighs on global growth. “The RBA has rejoined other central banks around the world in what is becoming an increasingly coordinated policy response to anemic growth,” said Jarrod Kerr, director of Australia rates strategy at Credit Suisse Group AG in Singapore. “We continue to forecast further easing in this cycle.”
Portugal Tolerance for Higher Taxes Reaching Limit: Euro Credit (Bloomberg)
Prime Minister Pedro Passos Coelho’s tax increases during Portugal’s two-year recession may be about to backfire. Coelho said last week that income taxes probably will climb after he scrapped a proposal to raise the social-security tax rate. The CGTP labor group said Sept. 29 at a demonstration against austerity policies in central Lisbon that it may call a general strike. Portugal already has Western Europe’s poorest population in terms of output per capita. “It will be very difficult for the Portuguese middle class to continue to bear increases in income tax,” Rogerio Fernandes Ferreira, president of the Portuguese branch of the International Fiscal Association and a former secretary of state for fiscal affairs, said during a Sept. 25 interview in Lisbon. “What’s going to be attacked once again is tax on income.”
Coelho, like his counterparts in Spain and Greece, is stoking social unrest by bowing to demands from creditor countries for better fiscal controls. Portugal’s progress in meeting terms of its 78 billion-euro ($100 billion) bailout from the European Union and International Monetary Fund has helped the nation’s bond market. Borrowing costs dropped to the lowest since 2010 during a Sept. 19 sale of 1.29 billion euros of 18-month bills, while the difference in yield that investors demand to hold Portugal’s 10- year bonds instead of German bunds has narrowed to 7.5 percentage points from 16 percentage points on Jan. 31. The 10- year Portuguese bond rate is now about 8.9 percent, while two- year debt yields 5.1 percent.
Spain ready for bailout, Germany signals "wait"-sources
MADRID, Oct 1 (Reuters) - Spain is ready to request a euro zone bailout for its public finances as early as next weekend but Germany has signalled that it should hold off, European officials said on Monday.
The latest twist in the euro zone's three-year-old sovereign debt crisis comes as financial markets and some other European partners are pressuring Madrid to seek a rescue programme that would trigger European Central Bank buying of its bonds.
U.K. Home Prices Will Stagnate at Best, Nationwide Says: Economy (Bloomberg)
U.K. house prices fell in September and will at best stagnate over the next year as a weak labor market undermines confidence, Nationwide Building Society said. The average cost of a home dropped 0.4 percent from August, the Swindon, England-based lender said in a statement today. From a year earlier, values fell 1.4 percent to an average 163,964 pounds ($264,700). Separately, construction output fell for a second month in September, the first back-to-back contraction in almost three years. The data add to evidence of an uneven recovery after reports this week showed lending fell in August and manufacturing shrank in September. A report tomorrow will show growth in services probably slowed last month and the Bank of England is seen maintaining its bond-purchase plan a day later as policy makers assess the outlook for the U.K. economy and the euro-area debt crisis.
“Given the fragile nature of the economy, the huge squeeze on real incomes and offsetting impact of ultra-low interest rates, this gradual downward drift in house prices makes sense,” Ed Stansfield, an economist at Capital Economics Ltd. in London, said in a research note. “Boosting confidence will take a much stronger growth in the economy and real incomes, both of which seem some way off.” Bank of England Markets Director Paul Fisher said last week that third-quarter economic growth will be “very strong.” Still, that will partly reflect a rebound from the impact of an extra public holiday on gross domestic product in the second quarter. The British Chambers of Commerce said today that “U.K. economic performance remains weak and inadequate.”
