Asia FX By Cornelius Luca - Thu 04 Oct 2012 16:49:15 CT (Source:CME/www.lucafxta.com)
All the European and commodity currencies ended higher and even the yen closed off its worst levels. The market will now focus on the US non-farm payrolls, particularly since it will be the second last before the presidential elections. The US stock markets advanced. Gold, oil and silver ended up as well. The short-term outlook for most of 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 initial jobless claims edged up to 367,000 from the previous week's revised figure of 363,000 (from the 359,000 originally reported).
US: Factory orders contracted 5.2% in August after expanding 2.8% in July.
Canada: The Ivey Purchasing Managers Index rose to 68.5 in September from 65.2 in August.
Today's economic calendar
Japan: The BoJ will leave interest rate at 0.1%
Japan: Coincident index / leading economic index for August
Asian Stocks Rise as U.S. Economic Data Beats Estimates (Bloomberg)
Asian stocks rose, with a regional benchmark index heading for its highest close in a week, as reports on U.S. jobs and service industries beat expectations, easing concern the world’s biggest economy is slowing. Toyota Motor Corp. (7203), the world’s largest carmaker by market value, climbed 3 percent in Tokyo. Fisher & Paykel Appliances Holdings Ltd. advanced 3.7 percent in Wellington after directors of the refrigerator maker rejected a bid from China’s Haier Corp., saying it is too low. Swire Properties Ltd. fell 2.9 percent after the controlling shareholder of the Hong Kong office landlord said it’s selling shares at a discount. The MSCI Asia Pacific Index (MXAP) increased 0.6 percent to 122.20 as of 6:05 p.m. in Tokyo, with almost two shares rising for each that fell. The regional index gained 4 percent in September amid speculation China will add to stimulus measures, following moves by central banks in the U.S. and Japan, to ease monetary policy through so-called quantitative easing.
U.S. jobs data “was a little bit better than expectations and that’s positive,” said George Boubouras, Melbourne-based head of investment strategy at the Australian wealth-management unit of UBS AG. The Swiss bank has about $1.5 trillion in assets under management. “Stimulus is there for a reason.”
Japan Stocks Rise on ECB Bond Pledge, U.S. Economic Data (Bloomberg)
Japanese stocks rose, with the Nikkei 225 (NKY) Stock Average heading for the first weekly gain in three weeks, after European Central Bank President Mario Draghi said it stands ready to buy bonds and on U.S. economic data that beat expectations. Brother Industries Ltd., an office-equipment company that gets almost 30 percent of its sales in Europe, climbed 2.8 percent. Bridgestone Corp., a tiremaker that counts on the Americas as its biggest market, rose 2 percent on U.S. jobless claims and factory orders that were better than forecast. EAccess Ltd., a telecom being bought by Softbank Corp., is poised to soar after the trading limit on the stock was raised. The stock has surged 118 percent this week. The Nikkei 225 gained 0.5 percent to 8,867.20 as of 9:26 a.m. in Tokyo, poised to rise less than 0.1 percent on the week. Volume on the gauge was more than 10 percent above the 30-day average ahead of the close of the Bank of Japan’s two-day policy meeting today.
The broader Topix Index rose 0.3 percent to 737.26, with about two shares rising for each that fell. “The market is telling us there won’t be an additional blowup or crisis in Europe in the near term,” said Donald Williams, Sydney-based chief investment officer at Platypus Asset Management Ltd., which oversees about $1 billion. “Equity markets are turning up. It almost doesn’t matter which market you look at.”
U.S. Stocks Rise on Economic Reports Amid Draghi Comments (Bloomberg)
U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a fourth day, as reports on jobless claims and factory orders were better than forecast and the European Central Bank said it stands ready to buy bonds. All 10 industry groups in the S&P 500 advanced. Financial and commodity shares rose the most, climbing at least 1 percent, as Bank of America Corp. (BAC) and Consol Energy Inc. (CNX) rallied more than 3.3 percent. Gap Inc. (GPS) and Target Corp. (TGT) gained among retailers after monthly same-store sales topped estimates. Ryder System Inc. (R) jumped 6 percent amid an analyst upgrade. The S&P 500 increased 0.7 percent to 1,461.40 at 4 p.m. in New York. The benchmark index for American equities has rallied 1.4 percent this week. The Dow Jones Industrial Average rose 80.75 points, or 0.6 percent, to 13,575.36 today. Volume for exchange-listed stocks in the U.S. was 6.1 billion shares, or 2.2 percent above the three-month average.
“In the last several weeks, we have coordinated global monetary stimulus, and that’s starting to show up in the change of trends in American economic statistics,” Douglas Cote, chief market strategist at New York-based ING U.S. Investment Management, said in a phone interview. His firm oversees about $165 billion. “Employment, manufacturing, services and consumer sentiment have all gone from weakening to strengthening.” U.S. stocks rose as Labor Department figures showed applications for jobless benefits increased 4,000 to 367,000 in the week ended Sept. 29. Economists forecast 370,000 claims, according to the median estimate in a Bloomberg survey. Orders placed with U.S. factories fell 5.2 percent in August, the Commerce Department said. The median forecast of economists in a Bloomberg News survey called for a decline of 5.9 percent.
Emerging Stocks Jump as ECB Bond Buying Plan Boosts Risk (Bloomberg)
Emerging-market stocks climbed from a one-week low as the European Central Bank’s commitment to buy government bonds buoyed the outlook for the global economy and boosted appetite for riskier assets. The MSCI Emerging Markets Index (MXEF) rose 0.3 percent to 1,005.52, rising for the fifth time in six days. The BSE India Sensitive Index (VXEEM) surpassed 19,000 for the first time since July 2011 as India considers more measures to attract foreign investment. Equity indexes in Hungary, Colombia and Mexico also gained. The Micex Index in Moscow slipped 1.1 percent as power company stocks retreated while the Bovespa stock gauge lost 0.3 percent in Brazil. The ECB is ready to purchase sovereign debt once necessary conditions are in place, President Mario Draghi said today, as the pan-European regulator seeks to ease borrowing costs for debt-saddled nations such as Spain.
A less-than-estimated increase in U.S. jobless claims also supported developing market equities, as the 21 countries in the MSCI gauge send about 13 percent of exports there, World Trade Organization data show. “To get a reassuring message from the ECB is viewed as a solid backdrop for risk,” Benoit Anne, the head of emerging- market strategy at Societe Generale SA, said by phone from London. “If we have growth fundamentals improving in America it’s a major signal that the global economy may bottom out soon.”
Canada Stocks Rise to Three-Week High as ECB Is Set to Buy Debt (Bloomberg)
Canadian stocks rose to their highest level in almost three weeks after European Central Bank President Mario Draghi said the bank is ready to buy government bonds as soon as the necessary conditions are fulfilled. Enbridge Inc. (ENB) rose 1.8 percent after analysts at BMO Capital Markets and UBS AG raised their rating on the stock on an improved company outlook. Dundee Industrial Real Estate Investment Trust jumped 9 percent in its first day of trading on the Toronto Stock Exchange. The Standard & Poor’s/TSX Composite Index (SPTSX) gained 88.21 points, or 0.7 percent, to 12,447.68 in Toronto. The benchmark index has risen 4.1 percent this year. Mining and telephone stocks led the advance today as eight of 10 industries rose.
“Draghi’s comments definitely help,” said Bruce Campbell, president of Campbell & Lee Investment Management Inc., in an interview from Oakville, Ontario. “It’s fairly obvious Spain needs some bailout help. We can argue what the number is, but because of what he’s said he’ll do and what he’s already done, it’s become self-fulfilling.” The ECB is ready to start buying government bonds as soon as the necessary conditions are fulfilled by any countries needing assistance, Draghi said today at a press conference in Ljubljana, Slovenia. The central bank is ready to undertake purchases “once all the prerequisites are in place,” Draghi said, after policy makers left the benchmark rate at a historic low of 0.75 percent.
European Stocks Close Little Changed; Halfords Rallies (Bloomberg)
European stocks closed little changed as the European Central Bank and the Bank of England left their benchmark interest rates on hold. Nobel Biocare Holding AG (NOBN) slid 4.3 percent as the health- care company said a deteriorating Japanese market will hurt full-year profit. ThyssenKrupp AG (TKA) gained 2.3 percent on a report that Korean steelmaker Posco submitted a letter of intent for its American unit. Halfords Group Plc (HFD) surged the most ever after saying earnings will be in the upper half of its forecast. The Stoxx Europe 600 Index (SXXP) decreased less than 0.1 percent to 271.33 at the close of trading, having fluctuated between gains and losses at least 20 times. The gauge has still climbed 11 percent this year as ECB policy makers agreed on an unlimited asset-purchase program to bring down borrowing costs in Spain and Italy and the Federal Reserve announced a third round of quantitative easing.
“In the absence of any positive news from Spain, or any news that might help set the direction, markets are languishing a bit,” said Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd. in London. “Looking ahead, we have the payrolls from the U.S. tomorrow that might help.” The ECB kept its benchmark interest rate at a record low of 0.75 percent, as predicted by 48 of 52 economists in a Bloomberg survey. The central bank is ready to start buying government bonds as soon as the necessary conditions are fulfilled, President Mario Draghi said today at a press conference in Ljubljana, Slovenia. The Bank of England maintained its bond-purchase target at 375 billion pounds ($604 billion) and held interest rates at 0.5 percent, as economists had forecast.
Yen Near 2-Week Low on Stimulus Bets Before BOJ Decision (Bloomberg)
The yen was 0.3 percent from the weakest level in more than two weeks before the Bank of Japan (8301) concludes a meeting today amid speculation policy makers will take steps to bolster growth. The Japanese currency slid versus most of its 16 major counterparts, extending a weekly decline, as economic data over the past week added to the case for the BOJ to expand stimulus after officials increased its asset-purchase program last month. The euro was within 0.1 percent of a two-week high after European Central Bank President Mario Draghi said the bank is ready to start buying government bonds as part of a program to help ease borrowing costs for debt-ridden nations in the region.
“There are expectations for further easing by the BOJ, leading to some selling in the yen,” said Takuya Kawabata, a researcher at Gaitame.com Research Institute Ltd. in Tokyo, a unit of Japan’s largest currency margin company. “The ECB’s bond-buying decision has been welcomed by the markets. The risk- averse trade has been receded and we’re seeing a firmer euro.” The yen fetched 78.49 per dollar as of 7:53 a.m. in Tokyo from 78.48 yesterday, when it touched 78.72, the weakest since Sept. 19. It was at 102.20 per euro from 102.17 yesterday, when it completed a six-day decline. The euro was little changed at $1.3021. It rose to as high as $1.3032 yesterday, the strongest since Sept. 21.
FOREX-Euro gains, yen falls before ECB, BOJ meetings
LONDON, Oct 4 (Reuters) - The euro rose, hitting two-week highs against the Japanese yen, the British pound and the Swiss franc before a European Central Bank policy meeting where rates are expected to be left on hold.
"For the next 24 hours going into the BOJ meeting the yen is the weak link, while people are hesitant to put on long dollar positions ahead of U.S. non-farm payrolls data," said Niels Christensen, currency strategist at Nordea in Copenhagen.
Consumer Confidence in U.S. Climbs for a Sixth Week: Economy (Bloomberg)
Consumer confidence in the U.S. climbed for a sixth straight week, the longest such stretch since early 2006, as Americans grew more secure about their finances. The Bloomberg Consumer Comfort Index rose in the week ended Sept. 30 to minus 36.9, a three-month high, from minus 39.6 in the previous period. Households were also less pessimistic about the buying climate and the economy. Another report showed claims for jobless benefits increased last week from a two-month low. Fifty percent of those surveyed had “positive” views of their finances, the most since July, helping explain a pickup in September chain-store sales that beat analysts’ forecasts. Higher home values, rising stocks and stable gasoline prices may be alleviating some of the anxiety caused by an unemployment rate stuck above 8 percent since February 2009.
“The improvement hasn’t been huge, but it’s definitely noticeable,” said Guy Berger, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut. “There feels like there’s a little more traction.” First-time jobless claims climbed by 4,000 to 367,000 in the week ended Sept. 29, according to a report today from the Labor Department. A Labor Department report tomorrow may show employers took on 115,000 workers in September, more than the prior month, while the jobless rate rose to 8.2 percent from 8.1 percent, according to the Bloomberg survey median.
Initial Jobless Claims in U.S. Increase From Two-Month Low (Bloomberg)
The number of Americans filing first- time claims for unemployment insurance payments rose last week, highlighting an uneven improvement in the labor market. Applications for jobless benefits increased 4,000 to 367,000 in the week ended Sept. 29, Labor Department figures showed today. Economists forecast 370,000 claims, according to the median estimate in a Bloomberg survey. The prior week’s reading was the lowest in two months. The pace of dismissals may clear the way for bigger hiring gains should U.S. lawmakers find a way to resolve the fiscal cliff of tax increase and spending cuts that will take effect next year if they fail to act. A Labor Department report tomorrow may show employers took on 115,000 workers in September, more than the prior month, while the jobless rate rose to 8.2 percent from 8.1 percent, according to the Bloomberg survey median.
“We’re not going anywhere quickly in the jobs market,” said Ryan Sweet, senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who predicted applications would rise to 368,000. “The job market is just more of the same. Layoffs aren’t the big problem, it’s the lack of hiring.” Stock-index futures held earlier gains after the report. The contract on the Standard & Poor’s 500 Index maturing in December climbed 0.5 percent to 1,452.4 at 8:42 a.m. in New York as investors awaited tomorrow’s employment report. Estimates for first-time claims ranged from 355,000 to 380,000 in the Bloomberg survey of 51 economists. The Labor Department initially reported the prior week’s applications at 359,000.
Jobless Data Seen Aiding Romney If Rate Soars From 8.1% (Bloomberg)
Only a dramatic shift in unemployment rates would alter the presidential campaign, though the jobs figures due this morning might slow or sustain Republican candidate Mitt Romney’s momentum coming out of the first debate. It would take a jarring signal, such as a surge in unemployment to 8.5 percent or a decline below 8 percent, to change the economic perceptions of significant numbers of voters so late in the campaign, said Alan Abramowitz, a political scientist at Emory University in Atlanta. “It probably matters less at this point, because so few voters are moveable,” said Abramowitz, creator of an election forecasting model based on economic indicators and polling data that has predicted the popular vote winner in the last six presidential elections.
Forecasters anticipate the September unemployment rate will rise to 8.2 percent from 8.1 percent in August and the economy will add 115,000 new jobs, according to the median prediction of economists surveyed by Bloomberg News. The jobless rate has fluctuated between 8.1 percent and 8.3 percent since the beginning of the year. Abramowitz’s “Time For Change” model forecasts a 67 percent probability President Barack Obama will be re-elected and projects a victory margin of 1.2 percentage points.
Romney Puts Race Against Obama Back on Track in Debate (Bloomberg)
Mitt Romney aggressively challenged President Barack Obama in their first debate, seeking to recharge his campaign after weeks of setbacks, while a subdued incumbent largely passed up chances to attack a rival he said was hiding his full plans. “I just don’t know how the president could have come into office, facing 23 million people out of work, rising unemployment, an economic crisis at the kitchen table, and spend his energy and passion for two years fighting for Obamacare instead of fighting for jobs for the American people,” Romney said, referring to the health-care overhaul the president championed. “It has killed jobs.” Working to present a moderate image to undecided voters and calm anxiety about his candidacy in Republican circles, the former Massachusetts governor offered no new specifics about his proposals on tax cuts, government regulations or health care. When Obama pressed him on that point during the debate, Romney accused the president of mischaracterizing his plans.
“You may keep referring to it as a $5 trillion tax cut, but that’s not my plan,” Romney said at one point. Later, sparring with Obama over the Dodd-Frank financial-regulation law, Romney responded to the president with: “That’s just not the facts.” Obama said Romney’s tax and health-care proposals would harm the middle class, and that voters should be concerned about the lack of details available to them before the election.
Bullard Says Investors Doubt Fed to Hold Inflation to 2% (Bloomberg)
Federal Reserve Bank of St. Louis President James Bullard said measures of inflation expectations indicate bond holders have doubts the central bank will hold price increases within its 2 percent goal. “Distant inflation expectations from the TIPS market seem to suggest that investors do not completely trust the Fed to deliver on its 2 percent inflation target,” Bullard said today in a speech in Memphis, Tennessee, referring to Treasury Inflation-Protected Securities. Bullard’s comments echoed Dallas Fed President Richard Fisher’s concern about rising expectations following the Federal Open Market Committee’s decision last month to start an asset purchase program. Policy makers said they could change the size of the central bank’s monthly asset purchases to reduce any risks from the program, including higher inflation or a disruption to financial markets, according to minutes of the Sept. 12-13 meeting released today.
The five-year, five-year forward break-even rate, which projects the pace of price increases starting in 2017, rose to 2.88 percent on Sept. 14, the day after the FOMC announced a third round of quantitative easing. That was up half a percentage point from July 26. It dropped to 2.77 percent on Oct. 2. Bullard, who doesn’t vote on monetary policy this year, said inflation “is sometimes seen as a way to partially default on existing nominal debts,” and said that approach would hurt savers, mostly older U.S. households, in his prepared remarks to the Economic Club of Memphis.
Hong Kong Luxury Sales Fall as Chinese Curb Spending (Bloomberg)
Shoppers from China’s mainland curbed spending at Hong Kong luxury stores during the Golden Week holiday, reflecting growing pressure on the city’s economy from faltering tourist demand. Purchase of luxury goods by mainland visitors in Hong Kong is set to fall at least 10 percent from a year ago during this week’s holiday, said Joseph Tung, executive director of the Travel Industry Council. The decline comes even as the number of tourists coming from China increases. Lower spending in Hong Kong hurts consumer companies from U.K.’s Burberry Group Plc. (BRBY) to luxury watchseller Hengdeli Holdings Ltd. (3389) that have invested in stores to profit from Chinese visitors to the city. Weaker retail sales add to the risk of a recession in Hong Kong, where the economy shrank 0.1 percent in the second quarter from the previous three months on declining exports.
“The number of big-ticket transactions has shrunk,” said CCB International Securities Ltd. analyst Forrest Chan, referring to holiday spending. “Fewer people will spend several hundred thousand bucks for a luxury watch. The macro-economic situation is dreadful.” The eight-day Golden Week national holiday, a shopping and travel season for Chinese consumers, began on Sept. 30. Shoppers are pulling back amid a slump in exports and a contraction in manufacturing in the world’s second largest economy.
IMF Won’t Disburse Greek Loan If Debt Not Sustainable (Bloomberg)
The International Monetary Fund won’t disburse its share of the Greek bailout if the country’s debt is not deemed sustainable or if other creditors don’t pledge to fill a financing gap in the aid package, a fund spokesman said. IMF Managing Director Christine Lagarde last week warned that the level of Greek debt would have “to be addressed,” pushing European policy makers to consider writing off some of the aid to the country. While the fund is sticking to a target of 120 percent of gross domestic product by 2020, the Greek government forecast this week that public debt will climb to 179.3 percent of GDP in 2013. For the loan “to move forward, we need two key elements -- we need the debt sustainability and the financing assurances and both of those things need to be in place,” IMF spokesman Gerry Rice told reporters in Washington today. “As to how these requirements will be fulfilled in the context of the current review, we still have to discuss this with the Greek authorities and the European partners.”
While Lagarde also said last week Greece faces a financing shortfall that won’t be solved with just the budget measures currently being discussed, the IMF has indicated that any additional aid will have to come from Europe. Rice said today he couldn’t give a date for the end of talks taking place in Athens, even though “urgency is of the essence.” His comments on the IMF’s requirements for disbursement suggest that an agreement on measures to reduce the deficit won’t suffice to unblock the funds as part of the 130 billion-euro package ($169 billion). Regarding Spain, Rice said that an IMF team will visit Madrid from Oct. 15 to Oct. 26 to monitor the country’s banking bailout and will submit its report to the government and the European Commission.
Draghi Says ECB Stands Ready to Start Buying Govt Bonds (Bloomberg)
European Central Bank President Mario Draghi said the bank is ready to start buying government bonds as soon as the necessary conditions are fulfilled, putting the onus on Spain to decide whether it wants a bailout.
The ECB is ready to undertake Outright Monetary Transactions “once all the prerequisites are in place,” Draghi said today at a press conference in Ljubljana, Slovenia, after policy makers left the benchmark rate at a historic low of 0.75 percent. The plan has “helped to alleviate tensions over the past few weeks” and “now it’s really in the hands of governments.”
A month after Draghi unveiled the unprecedented bond- purchase plan to lower yields on government debt, Spain, the country most likely to take up the offer, is still mulling whether it wants to accept the conditions attached. At the same time, the euro-area economy probably entered a recession in the third quarter as the sovereign debt crisis damped spending and investment.
“With the OMT, the ECB has tackled and exorcised fears of an imminent eurozone break-up,” said Carsten Brzeski, senior European economist at ING Group in Brussels. With governments now under pressure to act, “for the time being, the ECB can lean back, watch and twiddle thumbs.”
No Rate Cut?
The euro extended gains as Draghi spoke, rising to $1.2992 for a 0.7 percent advance on the day. Separately, the Bank of England held its bond-purchase target at 375 billion pounds ($603 billion) today and kept its key rate at 0.5 percent. Under Draghi’s OMT plan, a country must make a formal request to Europe’s bailout fund to buy its debt on the primary market before the ECB considers buying bonds on the secondary market. Spanish Finance Minister Luis de Guindos has said officials are still considering whether they need European Union aid. While bond markets have rallied since Draghi pledged on July 26 to “do whatever it takes” to preserve the euro, Spanish bonds fell for a second day today as the nation sold 3.99 billion euros ($5.2 billion) of two-, three- and five-year securities. Spain sold three-year notes at an average yield of 3.956 percent, up from 3.845 percent at the previous sale on Sept. 20.
Draghi Says Next Move Not His as Spain Resists Bailout (Bloomberg)
European Central Bank President Mario Draghi signaled European governments can’t expect much more help from him until they make the next move. Draghi said nine times during a 54-minute press conference in Slovenia yesterday that the ECB won’t start intervening in bond markets until governments like Spain request a bailout and agree to conditions. He also ruled out allowing the ECB to take losses in any further Greek debt restructuring and damped speculation of another ECB interest-rate cut. “Draghi’s message to governments was that he’s not going to do any more for the time being,” said Jacques Cailloux, chief European economist at Nomura International Plc in London. “The ECB is ready, if needed, but their preference is probably not to have to intervene at all.”
That message puts the onus firmly on Spain to request aid from Europe’s bailout fund and sign up to conditions -- a pre- requisite for the ECB to consider bond purchases. The prime ministers of Italy, Spain, and France may have Draghi’s imperative on their minds when they meet at a summit of Mediterranean leaders in Malta today. Draghi said his bond-purchase plan, called Outright Monetary Transactions, has already lowered borrowing costs for sovereigns across Europe. “Today we are ready with our OMT,” he said. “Now it’s really in the hands of governments.”
EU Doubts on Deficit Cutting May Hinder Spain’s Path to Bailout (Bloomberg)
European officials’ concern over’s Spain’s ability to reach its 2013 deficit-reduction target may obstruct Prime Minister Mariano Rajoy’s path toward a possible bailout. Olli Rehn, the European commissioner in charge of policing budget rules, told Spanish officials their plans to reduce the shortfall to 4.5 percent of gross domestic product next year are based on excessively optimistic assumptions about economic growth, two people familiar with the issue said. Central bank governor Luis Maria Linde, who met Rehn on his Oct. 1 visit to Madrid, echoed that view in comments to lawmakers yesterday. There’s “a potential slowdown in Spain’s application for a European program,” Thomas Costerg, an economist at Standard Chartered Bank in London, said yesterday by e-mail. “There is a rising fear that the 2013 budget and the stress tests may have been some sort of window dressing to get European assistance.”
While European Central Bank President Mario Draghi said yesterday the ECB is ready to start buying bonds of sovereigns that qualify for aid, Spanish officials have backed away from the offer this week. Rajoy on Oct. 2 denied reports a rescue request was imminent. Economy Minister Luis de Guindos last night said no bailout was needed. Spanish bonds have dropped for two days since Rajoy’s statement, with the yield on 10-year notes rising 15 basis points to reach 5.90 percent yesterday.
Poland Signals November Cut After Holding Borrowing Costs (Bloomberg)
Poland’s central bank signaled it may cut borrowing costs next month if the economy slows further after unexpectedly leaving them at the highest level since 2009 for a fourth meeting. The Narodowy Bank Polski kept the benchmark seven-day interest rate at 4.75 percent yesterday. Eight economists in a Bloomberg survey predicted no change, while 27 expected a 25 basis-point reduction that would have reversed a rate increase in May, the only one by a central bank in the European Union this year. The NBP last lowered the benchmark in June, 2009. While central banks around the world have eased monetary policy to avert a recession, Poland has kept rates at the highest in three years to tame inflation, even after Governor Marek Belka signaled the need to reduce them amid Europe’s debt crisis. Poland’s expansion eased in the second quarter to 2.4 percent from a year earlier, the slowest since 2009.
“Inflation is still high and we wanted to make sure the trend of weakening economic growth will persist,” Belka said at a news conference yesterday. The central bank “will ease monetary policy” next month should data show the economy slowing further and limited inflation risks, according to an e- mailed statement after today’s meeting. The zloty traded at 4.091 per euro at 3:39 p.m. in Warsaw, down from 4.081 yesterday, when it rose 0.7 percent to post the biggest one-day gain in three weeks. The five-year government bond yield climbed 3 basis points to 4.24 percent.
BOE Maintains Bond-Buying Plan as Split Over QE Looms: Economy (Bloomberg)
Bank of England officials voted to complete their latest round of stimulus amid intensifying dissent on inflation risks that threatens to cause a rift on future aid for the economy. Governor Mervyn King’s nine-member Monetary Policy Committee left the bond-purchase target at 375 billion pounds ($604 billion), as forecast by all 40 economists in a Bloomberg News survey. By next month’s meeting, they’ll have finished spending the 50 billion-pound round they started in July, forcing a decision on whether more stimulus is needed. Rising commodity costs are feeding price pressures, and policy maker Ben Broadbent has said the BOE’s capacity to add to quantitative easing is limited by faster-than-expected inflation. Chief Economist Spencer Dale warned last month of the risks from prolonged loose policy. Their stance may not be enough to overcome the views of a majority of officials who have said it’s likely that more stimulus will be required.
“Next month’s decision will take place against a background which might make members think a bit harder as to whether more QE is justified,” said Philip Shaw, an economist at Investec Securities in London. “We still expect the MPC to sanction a further 50 billion pounds, but the decision could be a close call.” Bank of England policy makers also left their key interest rate at a record low of 0.5 percent. The pound rose 0.4 percent against the dollar today and was at $1.6145 as of 2:35 p.m. Gilts declined, pushing the 10-year yield up 3 basis points to 1.71 percent. It fell to the lowest in more than three weeks yesterday as investors sought the relative safety of U.K. debt amid the euro-area turmoil.
ECB Holds Interest Rates as Spain Keeps Draghi Waiting (Bloomberg)
The European Central Bank kept interest rates on hold today as President Mario Draghi waits for Spain to decide if it needs his help. Policy makers meeting in Ljubljana, Slovenia, left the benchmark rate at a historic low of 0.75 percent, as predicted by 48 of 52 economists in a Bloomberg News survey. Four forecast a cut to 0.5 percent. Draghi will brief reporters on the decision, taken at one of the ECB’s twice-yearly meetings outside Frankfurt, at 2:30 p.m. A month after Draghi unveiled an unprecedented plan to buy the bonds of euro-area countries still mired in the sovereign debt crisis, Spain, the country most likely to take up the offer, is still mulling whether it wants to accept the conditions attached. At the same time, the euro-area economy probably entered a recession in the third quarter as the crisis damped spending and investment.
“From an economic perspective, we don’t need another ECB rate cut,” said Christian Melzer, an economist at Dekabank in Frankfurt. “The focus isn’t on rate changes but on Spain and a possible request for aid paving the way for the ECB bond program. It’s up to Spain to make a move now.”
Draghi Stares at Spain as Brinkmanship Keeps ECB Waiting (Bloomberg)
Mario Draghi is waiting for Spain to get back to him on whether his plan to save the euro is needed. One month after the European Central Bank president unveiled an unprecedented bond purchase program to rescue Europe’s embattled southern fringe, Spanish Prime Minister Mariano Rajoy is showing reluctance to ask for the aid he pushed for with Italy on concern about the terms attached to it. As ECB policy makers meet in Slovenia today, Spanish two-year note yields are more than 50 basis points higher than the five-month low touched on Sept. 7, the day following their last decision. “We’re back at this game of brinkmanship between the ECB and governments again, and it’s a case of who makes some concessions first,” said Nick Matthews, senior European economist at Nomura International Plc in London. “The markets will continue to play a significant role here and Draghi needs them to turn up the pressure.”
Spanish bonds extended losses today after an auction of two-, three- and five-year securities failed to exceed the maximum target of 4 billion euros ($5.2 billion) and the benchmark three-year yield rose. While Finance Minister Luis De Guindos has said officials are still considering whether they actually need ECB help, Catalan President Artur Mas urged Rajoy to ask for a bailout as he rejected the deficit limits for his region next year. Spain can’t overcome its economic crisis without help, Mas said in the statement published yesterday.
