Asia FX By Cornelius Luca - Wed 10 Oct 2012 15:29:27 CT (Source:CME/www.lucafxta.com)
The appetite for risk remained limited on Wednesday, as the theme of expectations for weak third quarter earnings in the US stayed with the market and the Fed acknowledged only modest improvement in the economic activity. Most of the foreign currencies ended off their lows; only the loonie fell. The US stock markets dived again. 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 Fed's Beige Book showed that the housing market has shown widespread improvement, but economic activity has improved only modestly in recent months.
Today's economic calendar
Japan: Bank lending for September
Japan: BoJ Monetary policy meeting minutes
Japan: Machinery orders for August
Japan: Consumer confidence index for September
Australia: Consumer inflation expectation for October
Australia: Unemployment rate for September
Asia Stocks Drop on Japan Machine Orders, Spain Downgrade (Bloomberg)
Asian stocks dropped, with the regional benchmark index heading for a fourth day of decline, after Japanese machinery orders fell and Standard & Poor’s downgraded Spain’s debt rating. Fanuc Corp. (6954), the world’s largest maker of controls that run machine tools, slipped 2.6 percent in Tokyo. Nippon Sheet Glass Co., a supplier of glass used in automobiles and buildings that gets about 41 percent of sales from Europe, decreased 1.7 percent. Lynas Corp. slumped 17 percent in Sydney after a court ruling further delayed the development of its rare-earth refinery in Malaysia.
The MSCI Asia Pacific Index (MXAP) slipped 0.2 percent to 120.39 as of 9:24 a.m. in Tokyo before markets in China and Hong Kong open. About three shares fell for every two that rose on the gauge. The measure is heading for its biggest weekly decline since August after the International Monetary Fund this week cut its global growth forecasts and warned of a steeper slowdown unless policy makers in the U.S. and Europe address threats to their economies. S&P’s downgrade of Spain “reminds people that the situation remains difficult,” said Angus Gluskie, managing director at White Funds Management in Sydney who manages more than $350 million. “Investors need to remain cautious, and it’s not a time to bet big. It’s worth keeping an eye on how the U.S. election is shaping up as well as how the European development is shaping up.”
Japan Stocks Fall on Spain Rating Cut, Machinery Orders (Bloomberg)
Oct. 11 (Bloomberg) -- Japanese shares fell, with the Nikkei 225 Stock Average (NKY) headed for an 11-week low, after Spain’s debt rating was cut by Standard & Poor’s and Japan’s machinery orders dropped the first time in three months, renewing concern about global demand. Nippon Sheet Glass Co. (5202), which gets 41 percent of its sales in Europe, dropped 3.4 percent. Fanuc Corp. (6954), Japan’s biggest maker of factory robotics, fell 2.3 percent. Sumitomo Metal Mining Co. slid 1.7 percent after metal prices dropped. The Nikkei 225 Stock Average dropped 0.6 percent to 8,547.99 as of 9:20 a.m. in Tokyo, its lowest since July 26. The broader Topix Index slid 0.5 percent to 713.54, with more than two stocks falling for each that rose.
S&P’s downgrade of Spain “reminds people that the situation remains difficult,” said Angus Gluskie, managing director at White Funds Management in Sydney who oversees more than $350 million. “Investors need to remain cautious, and it’s not a time to bet big. It’s worth keeping an eye on how the U.S. election is shaping up as well as how the European development is shaping up.”
U.S. Stocks Fall as Alcoa Slumps Amid Earnings Concern (Bloomberg)
U.S. stocks fell, sending the Standard & Poor’s 500 Index to the lowest level in a month, as Alcoa (AA) Inc.’s forecast fueled concern over corporate earnings and global economic growth. Alcoa, the largest U.S. aluminum producer, lost 4.6 percent after cutting its outlook for global demand for the metal. Chevron Corp. slid 4.2 percent after saying third-quarter earnings were “substantially” lower than the previous period. Wal-Mart Stores Inc. paced gains with consumer stocks, rising to a record price after saying it had a “very strong” back-to- school season and will add U.S. stores. Yum! Brands Inc. (YUM) rallied 8 percent after profit beat analyst estimates. The S&P 500 slipped 0.6 percent to 1,432.56 in New York. The benchmark gauge fell 1 percent yesterday, and is down 2 percent over four days. The Dow Jones Industrial Average lost 128.56 points, or 1 percent, to 13,344.97. More than 5.9 billion shares changed on U.S. exchanges today, about 1.5 percent below the three-month average.
“The fear is that this is going to be a really bad earnings season,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. His firm oversees $6.5 billion in assets. “If S&P 500 (SPX) earnings come in better than expectations, the markets are going to view that positively. We’re off to a good start but we’ve got a long way to go.”
European Stocks Decline for a Third Day; AB InBev Falls (Bloomberg)
European stocks declined for a third day as investors speculated that economic fundamentals don’t justify current stock valuations and Alcoa Inc. (AA) cut its forecast for global aluminum demand. Anheuser-Busch InBev NV slipped 1.2 percent after a report that the U.S. may block its $20 billion takeover of Grupo Modelo SAB. BAE Systems Plc (BA/) fell after abandoning plans to merge with European Aeronautic, Defence & Space Co. Imagination Technologies Group Plc (IMG) lost 9.4 percent as analysts recommended selling the shares. The Stoxx Europe 600 Index (SXXP) dropped 0.6 percent to 268.71 at the close of trading, the lowest level since Sept. 28. The benchmark gauge has still surged 15 percent from this year’s low on June 4 as the European Central Bank unveiled an unlimited bond-purchase plan and the Federal Reserve started a third round of quantitative easing.
“We are probably in the upper range in terms of equity indices and it is difficult to see the catalysts for further upside,” said Peter Garnry, an equity strategist at Saxo Bank A/S in Copenhagen. “The recent rally was not based on changes in the underlying economic expectations and as such something has to give.” The Stoxx 600 is trading at 11.9 times the estimated earnings of its companies, higher than its five-year average of 11.5, data compiled by Bloomberg show. The gauge last month reached a price multiple of 12.3, the highest since 2010.
Emerging Stocks Head for Two-Week Low on Europe Concerns (Bloomberg)
Emerging-market stocks slid to the lowest level in two weeks, led by technology companies, on concern Europe’s debt crisis and slowing global growth will hurt exporters’ earnings. The MSCI Emerging Markets Index (VXEEM) lost 0.5 percent to 992.09, the weakest close since Sept. 26. Technology companies sank the most among 10 industry groups. Usinas Siderurgicas de Minas Gerais slumped to the lowest in a month in Sao Paulo while Samsung Electronics Co. (005930) fell the most since August in Seoul, pacing declines by exporters. Russia’s Micex gauge retreated for a third day and South Korea’s Kospi slid to the lowest in a month.
European banks may need to sell as much as $4.5 trillion in assets through 2013 if policy makers fall short on pledges to stem the fiscal crisis, according to a report from the International Monetary Fund, which cut its 2012 global growth forecast yesterday to 3.3 percent. The projection compares with a $3.8 trillion estimate in April. China’s economic expansion slowed in the second quarter to 7.6 percent, as trade and manufacturing decelerated. The IMF report was “an official reminder” that global growth is faltering, Marc Chandler, the global head of currency strategy at Brown Brothers Harriman & Co., said by phone from New York today. “The IMF downward revisions to growth forecast, the pessimism that’s still near about Europe in a recession, China slowing -- those are still baked in the cake, and it weighs on sentiment.”
The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF (EEM) tracking developing-nation shares, slid 0.6 percent. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, rose 0.9 percent. The 21 nations in MSCI’s developing-nations gauge send about 30 percent of their exports to the European Union on average, according to data compiled by the World Trade Organization.
High Frequency Trading of High Concern, ASIC Says (Bloomberg)
Australian regulators are considering requiring all trading algorithms to have an inbuilt “kill switch” to immediately disable them if they malfunction, Australian Securities and Investments Commission Chairman Greg Medcraft said at a conference in Sydney. ASIC is also mulling a mandate that any trades done through a dark pool, an off-exchange venue that doesn’t display prices or the identity of buyers and sellers, have meaningful price improvement from public platforms, Medcraft said. Australia’s latest consultation paper on electronic trading closed for comments Sept. 14. Final rules are expected this month.
Electronic trading has come under scrutiny globally after the practice was blamed for a May 2010 incident that saw the Dow Jones Industrial Average briefly lose almost 1,000 points in less than 20 minutes. An algorithm malfunction on Aug. 1 cost Knight Capital Group Inc. (KCG) $440 million, driving the company to the brink of bankruptcy. Traditional exchanges worldwide are losing market share to dark pools and other alternative venues. “People are still looking for an answer on high-frequency trading,” Medcraft said. “While I know that some high- frequency trading provides liquidity, I also know that some senior bankers and fund managers have privately described it as providing phantom liquidity. The reason for that is that it’s phantom because it only stays there for a few seconds, or micro seconds.”
Euro Weakens Against Most Peers After S&P Lowers Spain’s Rating (Bloomberg)
The euro weakened against most of its major counterparts after Standard & Poor’s cut Spain’s debt rating to one level above junk. The 17-nation currency dropped for a fourth day versus the yen before Italy sells bonds today amid concern Europe’s debt crisis is deepening. Australia’s dollar fell before data today that may show payrolls aren’t growing enough to keep the nation’s unemployment rate from climbing to a three-month high. “I can see further weakness to the euro from here,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “If the fiscal outlook is much worse in Spain, it could fall to junk status.” Europe’s shared currency slid 0.2 percent to $1.2854 as of 9:12 a.m. in Tokyo from yesterday. It lost 0.3 percent to 100.36 yen. The dollar dropped 0.1 percent to 78.08 yen.
The single currency traded 0.1 percent from its lowest level in more than a week after S&P lowered Spain’s rating by two levels to BBB- from BBB+ and assigned a negative outlook to the country’s debt. Spain’s deepening recession is limiting the government’s policy options and social discontent is likely to intensify, the rating company said in a statement yesterday. Moody’s Investors Service on Aug. 30 said that Spain’s credit rating remains on review for possible downgrade from Baa3, the lowest investment grade. “Because of S&P’s downgrade, people can’t help thinking about Moody’s next action,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s third-largest banking group by market value. Italy will auction government bonds today maturing in 2015, 2016, 2018 and 2025.
In Australia, the jobless rate probably rose to 5.3 percent in September from 5.1 percent the prior month, according to the median estimate of economists surveyed by Bloomberg News. That would be the highest since June. Australia’s dollar slid 0.1 percent to $1.0222 and declined 0.3 percent to 79.81 yen.
Aussie Drops Before Jobs Report, After Spain Rating Cut (Bloomberg)
Australia’s dollar fell before data today that may show payrolls aren’t growing enough to keep the nation’s unemployment rate from climbing to a three-month high. The so-called Aussie slid versus most of its 16 major counterparts after Standard & Poor’s lowered Spain’s credit rating, adding to concern the euro area’s debt crisis is deepening. New Zealand’s currency, nicknamed the kiwi, failed to rally following a two-day drop after a gauge indicated that manufacturing contracted for a third-straight month. “There’s no doubt the Aussie labor market is softening; the key question is how much,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “The headwinds facing the Aussie are going to remain in place. We’re looking for a slow decline to parity by year-end.”
The Australian dollar lost 0.1 percent to $1.0222 at 10:22 a.m. in Sydney after rising 0.5 percent in the previous three days. It fell 0.2 percent to 79.85 yen. New Zealand’s currency bought 81.71 U.S. cents from 81.63 yesterday, when it completed a 0.4 percent two-day drop. It was little changed at 63.84 yen. Australia’s 10-year note yield dropped six basis points to 3.02 percent. New Zealand’s swap rate, a fixed payment made to receive floating rates, lost two basis points to 2.60 percent. The jobless rate in Australia probably rose to 5.3 percent in September from 5.1 percent in the previous month, according to the median estimate of economists surveyed by Bloomberg News before the statistics bureau releases the report today. If confirmed, that would be the highest since June. The number of people employed may have increased by 5,000 after falling by 8,800 in August, the poll showed.
S&P said in a statement yesterday it cut Spain’s credit score two levels to BBB- from BBB+, one level above junk. The ratings company assigned a negative outlook to the nation’s long-term rating and lowered the short-term sovereign level to A-3 from A-2, citing “significant risks to Spain’s economic growth and budgetary performance.”
Wholesale Inventories in U.S. Rose More Slowly as Sales Gained (Bloomberg)
Inventories at U.S. wholesalers rose in August at a slower pace as sales advanced from the previous month. The 0.5 percent increase in stockpiles followed a revised 0.6 percent rise in July, Commerce Department data showed today in Washington. The median forecast in a Bloomberg survey called for a 0.4 percent August gain. Sales increased 0.9 percent from a 0.2 percent drop the previous month. Companies are tempering stockpiles as the impasse over U.S. fiscal policy clouds the outlook for demand through the end of the year, showing inventories may contribute less to economic growth. Wholesalers had goods on hand to last 1.20 months at the current sales pace. “Business is usually pretty good about bringing inventories back in line pretty quickly” after an “involuntary buildup” in the last few months, Ryan Wang, an economist at HSBC Securities USA Inc. in New York, said before the report. “Slower inventory accumulation is another reason why growth will probably stay pretty modest in the second half of the year.”
The median forecast for wholesale inventories was based on a Bloomberg survey of 28 economists. Estimates ranged from no change to an increase of 0.8 percent.
Fed Says Economy Grows ‘Modestly’ on Housing, Autos (Bloomberg)
The Federal Reserve said today that the U.S. economy was expanding “modestly” last month, supported by improvements in housing and auto sales, even as the labor market showed little change. “Consumer spending was generally reported to be flat to up slightly since the last report,” the Fed said in its Beige Book business survey, which is based on accounts from the 12 district Fed banks. Conditions in manufacturing were “somewhat improved,” according to the report, which provides anecdotal evidence on the health of the economy two weeks before the Federal Open Market Committee meets in Washington on Oct. 23-24. The Beige Book provides support for Fed Chairman Ben S. Bernanke’s view that economic growth isn’t strong enough to bring about a quick healing of the labor market. A Labor Department report last week showed that while the unemployment rate unexpectedly declined in September, payroll growth slowed.
The Fed on Sept. 13 announced a third round of quantitative easing, with purchases of $40 billion a month of mortgage debt, and said its benchmark interest rate was likely to stay low through the middle of 2015. The report’s description of the economy is not as positive as Beige Books earlier in the year, which used the word “moderate” to describe the pace of expansion, said Dana Saporta, U.S. economist at Credit Suisse Group AG in New York. “In Fed parlance, modest is a step down from moderate,” she said.
Drop in Openings Signals Limited U.S. Job Growth: Economy (Bloomberg)
Job openings in the U.S. dropped for a second straight month in August, indicating companies are reluctant to beef up payrolls through year-end without faster economic growth. The number of positions waiting to be filled fell by 32,000 to 3.561 million from a revised 3.593 million the prior month that was less than previously estimated, the Labor Department said today in a statement. Hiring increased at the same time firings rose to a three-month high. Companies such as Foot Locker Inc. are facing a weakening global economy and the possibility of automatic tax increases and government cutbacks, helping explain limited payroll growth. At the same time, a jobless rate that fell below 8 percent last month for the first time in more than three years shows some progress in the labor market.
“A lot of firms may be back on their heels, reluctant to go out and expand,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida. “There is uncertainty due to the election, the fiscal cliff and Europe. We are definitely still adding jobs. The key question is how much more restraint we’re going to see from businesses.” Today’s report helps illuminate the dynamics behind the government’s monthly employment figures. Payrolls rose by 114,000 workers, the fewest in three months. While job openings eased in August, they were still 409,000 higher than the same month last year. In September, the jobless rate fell to 7.8 percent from 8.1 percent the prior month, the Labor Department said Oct. 5.
U.S. Sets Anti-Dumping Duties on China Solar Imports (Bloomberg)
The U.S. Commerce Department set anti-dumping duties ranging from 18.32 percent to 249.96 percent on solar-energy cells imported from China, reducing preliminary penalties imposed on Trina Solar Ltd. (TSL) and raising them slightly on Suntech Power Holdings Co. The duties, the result of a complaint brought by the American unit of Bonn-based SolarWorld AG (SWV), may worsen trade relations between the U.S. and China, the world’s largest economies. The countries have sparred over government support for clean energy as President Barack Obama and Republican challenger Mitt Romney each pledge tough action on China ahead of next month’s U.S. election. “Commerce’s decision raises the industry’s chances of reclaiming equal footing,” said Gordon Brinser, president of SolarWorld Industries America, based in Hillsboro, Oregon. “Only fair competition can provide sustainable gains in technological efficiency, cost reduction and end-user pricing.”
The Commerce Department said in a statement today that it will impose duties of 18.32 percent on the value of Trina Solar imports after finding its goods were sold -- or “dumped” -- in the U.S. below cost. The department in May set 31.14 percent preliminary penalties on the company’s merchandise. Suntech, the world’s largest solar-power equipment maker, faces anti-dumping duties of 31.73 percent, compared with a rate of 31.22 percent set in May.
China Economy to Improve After Leadership Change, BlackRock Says (Bloomberg)
China’s economic growth is poised to recover after the country’s once-in-a-decade leadership transition, bolstering the outlook for stocks across Asia, said BlackRock Inc., the world’s biggest money manager. Vice President Xi Jinping is forecast to succeed President Hu Jintao as head of the ruling Communist Party at a congress that starts Nov. 8 in Beijing. “Once we get through the leadership change, both in the U.S. and also in this part of the world, I think we’re going to see a much healthier base from which we can have growth within the expectations of China,” said Mark McCombe, BlackRock’s Asia-Pacific chairman, during Bloomberg Television’s Titans At The Table program which aired yesterday.
BlackRock joins Citigroup Inc. in saying policies to boost China’s growth, which was the slowest in three years in the second quarter, will be clearer after the leadership change. Other analysts, including Haitong Securities Co.’s Chen Ruiming and Bank of Communications Co.’s Hao Hong, say China will struggle to reverse the slowdown. China’s economy grew 7.6 percent in the April-June quarter as the European debt crisis sapped demand for exports and a campaign to rein in home prices eroded domestic consumption. The economy may expand 7.7 percent this year, according to the median forecast of 45 economists in a Bloomberg survey, which would be the slowest annual rate since 1999.
Noda Calls for China Talks as Island Dispute Threatens Growth (Bloomberg)
Japanese Prime Minister Yoshihiko Noda called for talks to contain economic damage from a diplomatic dispute with China as Japan’s largest trading partner downgraded its delegation to an annual gathering in Tokyo. “These are the second and third largest economies in the world and our interdependence is deepening,” Noda, 55, said yesterday in an interview at his office in Tokyo. “If our ties cool, particularly economic ones, then it isn’t a question of one or the other country suffering. Both countries lose out.” Noda’s call reflects rising concern that tensions over Japan’s nationalization last month of islands claimed by both nations will hurt trade. The International Monetary Fund, holding its annual meetings in Tokyo this week, said an escalation in strains may affect world growth. China’s central bank governor and finance minister are skipping the gathering.
China’s backlash against the move saw Toyota Motor Corp. (7203) and Nissan Motor Co. suffer their biggest month drop in Chinese car sales since at least 2008 in September. JPMorgan Chase & Co. sees a 0.8 percentage-point hit to Japan’s gross domestic product from the China dispute this quarter. “We need talks through various channels to make sure there is no effect on the broader relationship,” Noda said. “There has been an effect on individual industries. The overall effect will depend on the talks we have going forward and the efforts we make.”
Japan Calls China PBOC Chief Skipping IMF Meeting ‘Regrettable’ (Bloomberg)
A decision by the Chinese central bank chief and finance minister not to attend International Monetary Fund meetings in Tokyo this week is “regrettable,” Japan’s finance minister said, as tensions lingered over an island dispute. “We will take a wide view on communication with China,” Finance Minister Koriki Jojima said today after he was informed that his Chinese counterpart Xie Xuren and People’s Bank of China Governor Zhou Xiaochuan wouldn’t attend. He called China- Japan economic relations “very important.” The Chinese move follows Japan’s decision last month to buy the islands from their private owner, a purchase that sparked protests in China and clouded a $340 billion trade relationship. The protests occurred as China, which begins a leadership transition next month, has been more forceful in making its territorial claims across the region.
“It’s a signal that the dispute is very serious to China, and that it will impact relations with Japan in all areas,” said Dariusz Kowalczyk, senior economist and strategist at Credit Agricole CIB in Hong Kong. “China is becoming more assertive with the historical territorial issues.” Yi Gang, a deputy governor of the People’s Bank of China, and Vice Finance Minister Zhu Guangyao will lead the country’s delegation, the Xinhua News Agency reported last night. The Chinese central bank didn’t immediately respond to faxed questions today seeking comment, and calls to the Chinese finance ministry’s news department went unanswered. China’s four biggest state-owned banks have said they won’t go to the Oct. 9-14 meetings, which will be attended by about 10,000 participants, according to Xinhua. Zhou’s name was earlier listed on schedules to speak at IMF and Institute of International Finance events in Tokyo.
Brazil Cuts Rate to Record Low Amid Focus on Fueling Growth (Bloomberg)
Brazil reduced its benchmark interest rate for the 10th straight time as government officials increase stimulus to spur economic growth in the world’s second- largest emerging market. Policy makers led by central bank President Alexandre Tombini cut the Selic rate by a quarter-percentage point today from its previous record low to 7.25 percent, as forecast by 35 of 73 economists surveyed by Bloomberg. Thirty-eight analysts forecast no change. The bank board voted 5-3 to cut the rate. “Considering the balance of risks for inflation, the recovery of domestic activity and the complexity surrounding the global environment, the committee understands that the stability of monetary conditions for a sufficiently prolonged period of time is the most adequate strategy to guarantee the convergence of inflation to target, even if not in a linear fashion,” policy makers said in their statement posted on the central bank’s website.
President Dilma Rousseff’s administration has expanded policy actions aimed at reviving the $2.5 trillion economy, which is growing at the slowest pace among major developing countries.
Spain Downgraded to One Level Above Junk by S&P on Risks (Bloomberg)
Spain’s debt rating was cut to one level above junk by Standard & Poor’s, which cited mounting economic and political risks as the government considers a second bailout. The country was lowered two levels to BBB- from BBB+, New York-based S&P said in a statement yesterday. S&P assigned a negative outlook to the nation’s long-term rating and lowered the short-term sovereign level to A-3 from A-2. “The negative outlook on the long-term rating reflects our view of the significant risks to Spain’s economic growth and budgetary performance, and the lack of a clear direction in euro-zone policy,” S&P said. “The deepening economic recession is limiting the Spanish government’s policy options.”
Lagarde Signals IMF Role in Europe Rescues May Not Need Cash (Bloomberg)
The International Monetary Fund doesn’t need to lend money to Spain to help the country tackle its fiscal crisis, Managing Director Christine Lagarde indicated in an interview today. “Some people say unless you have skin in the game, meaning money, you are not really respected, you are not heard,” Lagarde said in a Bloomberg Television interview with Sara Eisen in Sendai, Japan. “I am not so focused on that as I am on the monitoring. I think we would rather act in our framework, use one of the tools that is frequently used, but as I said we can be flexible.” The fund is helping monitor a 100 billion-euro ($128.8 billion) bailout of Spanish banks and is co-financing rescue packages for Greece, Ireland and Portugal. While the European Central Bank has said the IMF should be involved in overseeing the economic programs of countries asking the central bank to buy their bonds, the fund’s exact role has not yet been defined.
Spain has been reluctant to ask for a bailout from Europe’s rescue mechanism, which comes with economic measures attached. The IMF said this week it sees a one-in-six chance of global economic growth slipping below 2 percent. Whether Europe can deal “proactively” with its debt crisis will in part determine the severity of any slowdown, the fund said in its World Economic Outlook report. The Stoxx Europe 600 Index slipped 0.3 percent at 7:22 a.m. in New York today on signs China is yet to reverse its slowdown.
