Asia FX By Cornelius Luca - Mon 05 Nov 2012 16:11:40 CT (Source:CME/www.lucafxta.com)
The appetite for risk improved eventually on Monday ahead of the US presidential elections. While President Obama is likely to be re-elected, challenger Romney is close enough in the polls to potentially win, thus triggering market volatility. The foreign currencies traded divergently; the European currencies fell, the Canadian dollar was mixed, while the yen the Australian dollar advanced. The US stock markets ended mixed and the gold/oil ratio closed a little lower. The short-term outlook for the most of the foreign currencies is sideways. The medium-term outlook for most of the foreign currencies is still slightly bullish. The LGR short-term model is short on yen and Canadian dollar, and long European currencies and Australian dollar. Good luck!
Overnight
US: The ISM's non-manufacturing index dipped to 54.2 in October from 55.1 in September.
Canada: Building permits contracted 13.2% in September after expanding 9.5% in August.
Today's economic calendar
UK: BRC retail sales monitor - all for October
Australia: House price index for the third quarter
Australia: The RBA interest rate decision – possible rate cut from 3.25% to 3.00%
Japan: Leading economic index / coincident index for September
Asian Stocks Drop Before U.S. Election, RBA Decision (Bloomberg)
Asian stocks dropped for second day ahead of the U.S. presidential election and before the Reserve Bank of Australia releases an interest-rate decision. NTN Corp. (6472), a Japanese bearing maker, slumped 6.6 percent in Tokyo after it forecast a loss, reversing its previous estimate for a full-year profit. Sankyo Co. lost 7 percent as the slot- machine maker lowered cut its earnings forecast. Australia & New Zealand Banking Group Ltd., Australia’s third-largest bank by market value, gained 0.4 percent before the RBA statement. The MSCI Asia Pacific (MXAP) Index slid 0.1 percent to 122.18 as of 9:13 a.m. in Tokyo. U.S. voters decide today between giving President Barack Obama another four years in office or changing course with Republican challenger Mitt Romney.
“It’s literally a dead heat,” E. William Stone, chief investment strategist at PNC Wealth Management in Philadelphia, said in a Bloomberg Television interview. His firm manages about $112 billion. “The market in a lot of ways just reflects that. It frankly doesn’t know which way it’s going to go. That’s why everyone seems to be waiting more than normal on things.’ Asia’s regional benchmark gained 12 percent through yesterday from this year’s low on June 4 as central banks added stimulus amid a slowdown in global economic growth and the European debt crisis.
Japan Stock Futures Little Changed Before U.S. Election (Bloomberg)
Japanese stock futures and Australian equities were little changed ahead of a presidential election in the U.S. and before the Reserve Bank of Australia releases its interest-rate decision. American Depositary Receipts of Toyota Motor Corp. gained 1.7 percent as Japan’s largest manufacturer raised its profit forecast. Shares of NTN Corp., a bearing maker, may be active in Tokyo after it forecast a loss, reversing its previous estimate for a full-year profit. Australia & New Zealand Banking Group Ltd. (ANZ), Australia’s third-largest bank by market value, advanced 0.4 percent before the RBA statement. Futures on Japan’s Nikkei 225 Stock Average expiring in December closed at 9,015 in Chicago yesterday, down from 9,020 in Osaka, Japan. They were bid in the pre-market at 9,000 in Osaka at 8:05 a.m. local time. Australia’s S&P/ASX 200 Index was little changed today and New Zealand’s NZX 50 Index rose 0.4 percent in Wellington.
“Market participants are struggling to pick a direction ahead of the U.S. presidential elections,” said Stan Shamu, market strategist at IG Markets in Melbourne. “Whatever the outcome of today’s rate decision in Australia, the statement will probably carry more weight.” Interest-rate swaps data compiled by Bloomberg indicate traders see a 53 percent chance RBA Governor Glenn Stevens will lower the overnight cash rate target by 25 basis points today. Twenty of 27 economists in a Bloomberg survey forecast a quarter-percentage point reduction. The decision is due at 2:30 p.m. Sydney time.
U.S. Stocks Rise Before American Presidential Elections (Bloomberg)
U.S. stocks advanced, rebounding from an earlier decline in the Standard & Poor’s 500 Index, as Americans prepared to vote in the presidential election. Apple Inc. rose 1.4 percent as it sold 3 million units of its iPad mini and fourth-generation iPad during the debut weekend, saying demand for the smaller version of its tablet outstripped supply. KBW Inc. added 7.2 percent as Stifel Financial Corp. agreed to buy the boutique investment bank in a cash-and-stock transaction valued at $575 million. Time Warner Cable Inc. declined 6.4 percent amid disappointing earnings. The S&P 500 added 0.2 percent to 1,417.26 at 4 p.m. New York time. It fell 0.4 percent earlier today. The Dow Jones Industrial Average rose 19.28 points, or 0.2 percent, to 13,112.44. Volume for exchange-listed stocks in the U.S. was 5.1 billion shares, or 13 percent below the three-month average.
“People are more like holding their breath and turning blue,” said Madelynn Matlock, who helps oversee about $14.7 billion at Huntington Asset Advisors in Cincinnati. She spoke in a phone interview. “There’s the election in the U.S. That keeps investors on the sidelines.” U.S. voters decide tomorrow between giving President Barack Obama another four years in office or changing course with Republican challenger Mitt Romney. Earlier losses were driven by concern about a worsening of Europe’s debt crisis. Greek Prime Minister Antonis Samaras will this week battle to win political support for measures to obtain aid.
Recap Stock Index Market Report (CME)
After a gap lower open Sunday evening, the December S&P 500 showed positive recovery action throughout the US trading session. Some of the overnight weakness came amid soft Chinese service sector data, renewed concerns over Greek austerity and uncertainty ahead of the US presidential election. There were a couple of positive earnings from Humana and Transocean that offered early morning support. Shares of Apple were higher and lent support to the major indices following reports that it sold 3 million iPad minis and 4G iPads over the weekend. The major S&P sector indices were evenly split between gains and losses in late afternoon trade. The clear laggards on the session were utilities, with upside leadership coming from energy and material-related shares.
European Stocks Fall on Company Earnings; HSBC Retreats (Bloomberg)
European stocks dropped by the most in two weeks after HSBC Holdings Plc (HSBA) and CGGVeritas reported earnings that disappointed investors and amid concern that Greece will struggle to get further aid. HSBC lost 1.3 percent as Europe’s largest bank by value also said it will likely face criminal charges from U.S. anti- money laundering probes. CGGVeritas retreated 3.1 percent after third-quarter profit missed analyst estimates. PostNL (PNL) sank 11 percent after saying full-year earnings will be at the bottom half of forecasts and on concern the proposed sale of TNT Express NV (TNTE) may be held up by regulators. The Stoxx Europe 600 Index fell 0.6 percent to 273.21 at the close of trading, its lowest level since Oct. 23. The gauge has still climbed 17 percent from its low on June 4, boosted by stimulus program announcements from the European Central Bank and U.S. Federal Reserve as well as better-than-forecast economic data.
“There is no way really that you can paint a positive picture on third-quarter earnings,” Bob Parker, senior adviser at Credit Suisse Asset Management in London, said on Bloomberg Television. “That has been one of the reasons why we’ve had a stop-start market. Expectations for profitability for the third quarter both in the U.S. and Europe were extremely negative.” Profit has topped analysts’ forecasts at 53 percent of the companies on the Stoxx 600 that have reported results since Oct. 9, according to data compiled by Bloomberg. Revenue has beaten estimates at 50 percent of companies, down from 60 percent in the previous quarter, the data shows.
Emerging Stocks Slump as Brazil’s Eletrobras Leads Drop (Bloomberg)
Emerging-market stocks fell for the first time in five days, led by Brazilian utilities, as the government provided less compensation for power rate cuts than analysts predicted. Hyundai Motor Co. sank after promising to remunerate U.S. customers for overstating fuel efficiency. Centrais Eletricas Brasileiras SA (ELET6), South America’s largest power producer, slid to a seven-year low, the second-worst performer of the MSCI Emerging Markets Index. Hyundai Motor Co. and Kia Motors (000270) Corp. tumbled in Seoul after saying they will compensate U.S. customers for overstating the fuel efficiency of their latest models. Turkey’s lira and bonds rallied after Fitch Ratings upgraded the country to investment grade for the first time since 1994.
The MSCI gauge fell 0.4 percent to 1000.80 at the close of trading in New York, halting a four-day, 1.5 percent advance. Brazil’s government proposed compensating utilities a total of about 19 billion reais ($9.3 billion) for the renewal of electricity concessions due to end by 2017, trailing analyst estimates. Emerging stocks also declined as Americans prepared to vote for president. “Utilities are obviously weak in Brazil as they’ve been pressured by regulatory headwinds,” Tim Hall, who helps manage about $750 million at Deltec Asset Management, said by phone from New York. “You have a big election in the U.S. tomorrow, and people are not excited to do a lot ahead of that.”
Treasuries Advance, Euro Slips as U.S. Stocks Climb (Bloomberg)
Treasuries rose and the euro traded at an almost two-month low as the U.S. prepared to vote for president and concern grew Greece will fail to win a bailout. U.S. stocks closed higher after fluctuating during the day.
Treasury 10-year notes gained for a second day, with the yield dropping three basis points to 1.68 percent as of 4 p.m. in New York. The euro slid 0.4 percent to $1.2789, the lowest since Sept. 11. The Standard & Poor’s 500 Index increased 0.2 percent to 1,417.26 after losing 0.4 percent. Germany’s two-year yield reached minus 0.014 percent, negative for the first time since Sept. 6. Oil rebounded from a four-month low.
Trading volume for S&P 500 companies was 19 percent below the 30-day average before U.S. voters decide between giving President Barack Obama another four years in office or replacing him with Republican challenger Mitt Romney. U.S. service industries kept growing last month, a report showed. Greek Prime Minister Antonis Samaras will this week battle to win political support for measures needed to obtain aid.
“People are more like holding their breath and turning blue,” said Madelynn Matlock, who helps oversee about $14.7 billion at Huntington Asset Advisors in Cincinnati. She spoke in a phone interview. “There’s concern about Europe. The market is looking like there’s some worry in Greece. There’s also the election in the U.S. That keeps investors on the sidelines.”
Australian Dollar Stays Higher Before RBA Interest-Rate Decision (Bloomberg)
Australia’s dollar stayed higher as investors weighed whether the Reserve Bank will cut interest rates at a policy meeting today. The so-called Aussie maintained a gain versus the yen as swaps traders see a 52 percent chance that the central bank will lower the key rate a quarter percentage point to 3 percent. Twenty of 27 economists in a Bloomberg survey forecast a reduction. Demand for the Australian and New Zealand currencies was limited as the U.S. prepared to vote for the next president today and concern grew Greece will fail to win a bailout. “We are expecting a 25-point rate cut, but we certainly acknowledge that the decision is a line-ball call,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington. “The risks around the Aussie dollar are really symmetric going into the RBA decision.”
Australia’s dollar added 0.1 percent to $1.0373 as of 10:10 a.m. in Sydney from the close yesterday, when it rose 0.3 percent. The currency was little changed at 83.24 yen, following a 0.1 percent gain yesterday. The New Zealand dollar, nicknamed the kiwi, fetched 82.62 U.S. cents from 82.52. Australian bonds advanced for a second day, with the yield on the 10-year note falling three basis points, or 0.03 percentage point, to 3.13 percent.
G-20 Tells U.S. to Avoid Fiscal Cliff as Focus Widens (Bloomberg)
Global finance chiefs pressed the U.S. to avoid harming the fragile world economy with excessive austerity, widening their focus on fiscal challenges beyond concerns over Europe’s debt woes. On the eve of the U.S. presidential election, Group of 20 finance ministers and central bankers meeting in Mexico City pushed for swift action to prevent the $607 billion in tax increases and spending cuts that will hit in January unless lawmakers act. As President Barack Obama and Republican Mitt Romney tussle for the White House, the fear of foreign officials is that failure to limit the damage of the so-called fiscal cliff would tip the world’s largest economy into recession and drag their countries down with it. Europe, the subject of the G-20’s ire for the past three years, remained under pressure amid calls to take promised crisis-fighting steps.
“I expect each country to voice its hopes for firm efforts toward a resolution of the fiscal cliff problem,” Bank of Japan (8301) Governor Masaaki Shirakawa told reporters late yesterday. “It’s important for each country to work toward stabilizing its own economy.” A draft of the statement to be issued by the G-20 today identifies the potential for a sharp fiscal pullback in the U.S. and Japan as a danger to an already modest expansion, said an official from one of the countries who declined to be identified because the text hasn’t been finalized.
Service Industries in U.S. Show Expansion’s Resilience (Bloomberg)
Service industries in the U.S. kept growing in October, a sign the biggest part of the economy is withstanding a global slowdown. The Institute for Supply Management’s non-manufacturing index declined to 54.2 last month from 55.1 in September, the Tempe, Arizona-based group said today. A measure above 50 signals expansion in industries that account for almost 90 percent of the economy. The October figure exceeded the third- quarter average. A gauge of services employment rose to a seven-month high, corroborating a report last week that showed a stronger labor market may provide more fuel for the economy. Macy’s Inc. (M) and Kohl’s Corp. (KSS) are among those that stand to benefit from more hiring at the same time homebuilders enjoy a rebound in demand that’s helping make up for a slowdown in manufacturing.
“We should see continued modest improvement in the economy,” said Yelena Shulyatyeva, U.S. economist at BNP Paribas in New York, who correctly forecast the October non- manufacturing figure. “If you’re expanding you have to have manpower. If you can’t do it with more hours worked, you have to hire.” The Tempe, Arizona-based ISM’s services report is the last piece of economic data before tomorrow’s election, when voters decide between giving President Barack Obama another four years and changing course with Republican challenger Mitt Romney. Stocks gained following last week’s advance in the Standard & Poor’s 500 Index. The S&P 500 climbed 0.2 percent to 1,417.26 at the close in New York. The yield on the benchmark 10-year Treasury note dropped to 1.68 percent from 1.72 percent late Nov. 2.
Jack Welch Again Sees Something ‘Wacky’ in U.S. Jobs Data (Bloomberg)
Jack Welch isn’t backing down. One day before the presidential election, the former General Electric Co. chief executive officer again suggested that government figures on employment are being manipulated for political gain. “Every fact says we don’t have a booming economy,” Welch said today in an interview on CNBC. “Something’s wacky here. I didn’t think it was right.” An Oct. 5 Labor Department report showed the jobless rate dropped to 7.8 percent in September, the lowest since President Barack Obama took office in January 2009, from 8.1 percent the month before. Economists had forecast the rate would rise to 8.2 percent, according to the median estimate in a Bloomberg survey. “Unbelievable jobs numbers. . . these Chicago guys will do anything. . . can’t debate so change numbers,” Welch wrote in a Twitter message immediately after the report on Oct. 5. The Obama campaign is based in Chicago.
Welch renewed his criticism even after economists such as Charles Plosser, president of the Federal Reserve Bank of Philadelphia, and Douglas Holtz-Eakin, former director of the Congressional Budget Office, said the numbers are sound and defended the Bureau of Labor Statistics. Welch wasn’t available to comment further, said his assistant, Rosanne Badowski. The unemployment rate rose again last month to 7.9 percent, according to the Labor Department’s Nov. 2 report. Employers added 171,000 workers to payrolls, up from 148,000 in September and exceeding the most optimistic forecast in a Bloomberg News survey of economists.
Romney Threatens Pimco’s Gross With Bernanke-Dumping Plan (Bloomberg)
Mitt Romney’s pledge to dump Federal Reserve Chairman Ben S. Bernanke is threatening Bill Gross with losses on his Mexican bonds. Yields on peso bonds due in 2024 fell 1.04 percentage points this year to 5.62 percent as the Fed’s effort to suppress borrowing costs at record lows caused fixed-income investors to pile into the debt to boost returns. Gross’s Pacific Investment Management Co., the biggest holder of the notes, called Mexican debt one if its favorites Oct. 3, three months after he said he preferred them over German bunds. Mexican bonds returned 19.2 percent this year through last week, twice the average for emerging markets. Romney, the Republican Party candidate in tomorrow’s U.S. presidential election, has vowed to replace Bernanke when his term ends in January 2014 because “the amount of currency that he’s created” with his purchases of Treasuries and other debt securities have failed to create jobs.
Bank of America Corp. says that a Romney win could spark a selloff in Treasuries that will be mirrored in Mexican notes, the most correlated to U.S. government bonds of any debt in Latin America. “They’ll want a much tighter monetary policy, removing a lot of these accommodative measures which Bernanke has been putting in place, so that’s negative for Treasuries in the short term,” Kevin Daly, who helps oversee about $10 billion of emerging-market debt at Aberdeen Asset Management Plc, said by telephone from London. “The initial reaction to Treasury yields going up is that Mexican peso bond yields could go higher too.”
China Most Threatening Cyberspace Force, U.S, Panel Says (Bloomberg)
China is “the most threatening actor in cyberspace” as its intelligence agencies and hackers use increasingly sophisticated techniques to gain access to U.S. military computers and defense contractors, according to the draft of an annual report mandated by Congress. Chinese hackers are moving into “increasingly advanced types of operations or operations against specialized targets,” such as sensors and apertures on deployed U.S. military platforms, according to the report. “China’s persistence, combined with notable advancements in exploitation activities over the past year, poses growing challenges to information systems and their users,” the U.S.- China Economic and Security Review Commission said in the draft obtained by Bloomberg News. “Chinese penetrations of defense systems threaten the U.S. military’s readiness and ability to operate.”
A U.S. intelligence official, speaking on the condition of anonymity to discuss classified matters, described as relentless China’s efforts to blind or disrupt U.S. intelligence and communications satellites, weapons targeting systems, and navigation computers. The commission’s draft report bolsters warnings by U.S. officials that cyberattacks pose growing risks to the military and to critical industries such as electric utilities, pipelines, and telecommunications. Defense Secretary Leon Panetta cited Chinese and Russian capabilities in an Oct. 11 speech, saying cyber threats could become as devastating as the Sept. 11, 2001, terrorist attacks.
China’s Non-Manufacturing Industries Signal Rebound Ahead (Bloomberg)
China’s services industries rebounded from the slowest expansion in at least 19 months, adding to manufacturing gains that indicate the world’s second-biggest economy is recovering from a seven-quarter slowdown. The purchasing managers’ index rose to 55.5 in October from 53.7 the previous month, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing on Nov. 3. A separate services index released today by HSBC Holdings Plc and Markit Economics in Beijing fell to 53.5 in October from 54.3. Growth in services along with two reports last week that showed a pickup in manufacturing industries may ease pressure on China’s leaders to roll out more stimulus as they start a once- a-decade power transfer Nov. 8. The nation’s central bank said the economy is expected to maintain “steady and relatively rapid growth” as earlier government policies to support expansion take effect.
“Investors expecting a big stimulus package after the Party Congress will likely be disappointed, although the new leaders will probably introduce some new projects,” said Huang Yiping, chief economist for emerging Asia at Barclays Plc in Hong Kong. Indicators including employment and inflation “suggest that even today, growth is probably not significantly below its potential,” he said. The Shanghai Composite Index (SHCOMP), the nation’s benchmark stock gauge, fell 0.1 percent, snapping four days of gains, after the HSBC survey damped optimism for the economy. The MSCI Asia Pacific Index of stocks was down 0.3 percent as of 6:39 p.m. in Tokyo.
Xi Climbs to Power Mixing Father’s Capitalism With Mao Communism (Bloomberg)
Days after Xi Jinping became chief in 2002 of Zhejiang, China’s hotbed of private enterprise, he set out on a tour of the province. His message: more capitalism. Promoted five years later to the party’s top policy making body in Beijing, and heir-apparent to President Hu Jintao, Xi lectured students at the Communist Party’s main school, by the Imperial Summer Palace. His plea this time: more Marxism. His ascent to the country’s most powerful position, including becoming party general secretary later this month, will put the 59-year-old in a position where he has to reconcile those opposing faces of China’s transformation. On one side are businesses and politicians calling for a revival of the market- opening policies pioneered by Xi’s father in the 1970s. On the other are powerful state-owned monopolies and local governments that prospered under Hu and resist change.
“The next administration doesn’t have a lot of time to dilly-dally,” said James McGregor, author of the book “No Ancient Wisdom, No Followers: The Challenges of Authoritarian Capitalism,” published this month. “To keep this economy going and keep this restive population happy, reform is the only answer. The party’s entire legitimacy is based on growth and making people’s lives better.” Xi, scheduled to take over the presidency in March, may face economic growth of 7 percent in 2013, the slowest in 23 years, according to Pacific Investment Management Co., which runs the world’s largest bond fund. Standard Chartered Plc sees a risk of annual growth slumping to between 3 percent and 4 percent within 10 to 15 years without market-driven change to introduce more competition for state enterprises.
Hong Kong Volatility at Year Low Versus VIX: China Overnight (Bloomberg)
The cost of protecting against losses in Chinese stocks relative to U.S. equities fell to a one-year low on prospects the slowdown in the world’s second-largest economy will ease. The AlphaShares Chinese Volatility Index, derived from options on companies listed in Hong Kong, traded at 18.61 on Oct. 31, 1 percentage point above the Chicago Board Options Exchange Volatility Index and the smallest gap since September 2011. The premium has narrowed from as much as 1.43 percent on Sept. 9. Both the Hang Seng China Enterprises Index (HSCEI) and the iShares FTSE China 25 Index Fund, the biggest Chinese exchange- traded fund in the U.S., touched the highest level since May last week. The yuan strengthened to a 19-year high on Oct. 29 and monetary authorities in Hong Kong intervened to curb gains in their dollar as flows into Chinese equity funds surged to the most since 2008 in the week to Oct. 24, EPFR Global data showed.
Improving reports on industrial production, manufacturing and retail sales since Oct. 18 have bolstered prospects the world’s second-largest economy may be recovering after a seven-quarter slowdown. “The fear indexes such as volatility are down as some real optimism about the Chinese economy appears to be coming back,” Kevin Carter, co-founder and chief executive officer of Baochuan Capital Management LLC, which oversees about $325 million, said by phone from San Francisco on Nov. 2. “Over the last eight weeks a switch got turned on regarding China and as the market has gone higher, it reinforced a more favorable outlook.”
Unlimited Japan Lending May Help Weaken Yen, BOJ Executive Says (Bloomberg)
A senior Bank of Japan (8301) official said that a new unlimited lending program may help revive the yen carry trade and further weaken the nation’s currency after it sank to a six-month low against the dollar last week. A weaker yen “isn’t our main objective but it’s a common understanding that an accommodative policy eventually leads to the depreciating of one’s own currency,” Executive Director Hideo Hayakawa, 58, the official in charge of overseeing the financial system, said in an interview in Tokyo yesterday. The central bank unveiled a program of low-interest loans last week in a bid to boost demand for credit and spur growth as the nation’s economic recovery flags. The yen touched 80.68 per dollar on Nov. 2, three days after the announcement of the initiative and an 11 trillion yen ($138 billion) expansion of an asset-purchase program. The currency was at 80.23 as of 8:41 a.m. in Tokyo.
Hayakawa, the BOJ’s former Osaka branch manager and chief economist, said that the BOJ isn’t “100 percent confident yet” that the lending program will succeed, and is aware of the “possibility” that it will cut banks’ profits by lowering lending rates. Introducing the new program is part of BOJ efforts to prop up an economy hit by the global slowdown and currency gains as the government presses for “visible results” to end deflation.
Indonesia’s Economic Growth Exceeds 6% as Investment Climbs (Bloomberg)
Indonesia’s economic growth held above 6 percent for an eighth quarter as domestic consumption and rising investment countered an export slump, reducing the need for the central bank to cut interest rates. Gross domestic product rose 6.17 percent in the three months ended Sept. 30 from a year earlier, the Central Bureau of Statistics said in Jakarta today. That compares with a 6.37 percent gain in the second quarter, and matched the median estimate of 16 economists surveyed by Bloomberg News. Policy makers in Southeast Asia’s biggest economy have avoided adding to a February rate cut even as neighbors from Thailand to the Philippines extended monetary easing to counter faltering global growth. President Susilo Bambang Yudhoyono has pledged to build more highways, airports and ports to improve infrastructure and meet a growth target of an average 6.6 percent by the end of his second term in 2014.
“Indonesia remains resilient compared with other emerging countries,” Edimon Ginting, a deputy country director at the Asian Development Bank’s Indonesian resident mission based in Jakarta, said in a telephone interview. “We expect growth to improve slightly in the fourth quarter to bring 2012 growth to 6.3 percent to 6.4 percent, as the negative impact of declining exports experienced in the first three quarters will wind down gradually, and the government boosts infrastructure spending.”
Australia’s Swan Backs Major Economies’ Growth Revival Policies (Bloomberg)
Australian Treasurer Wayne Swan endorsed measures in Japan, Europe and the U.S. to revive domestic growth, undercutting claims that those efforts punish smaller countries by elevating their currencies. The European Central Bank, the U.S. Federal Reserve and the Bank of Japan (8301) “have brought stability and will help support growth,” Swan said in a statement at a Group of 20 finance ministers’ meeting in Mexico. “I know some question the spillover impacts from these central bank actions, but there is nothing more important to the global economy than to lift growth in the world’s major advanced economies.” With benchmark interest rates near record lows, the Fed, ECB and Bank of Japan have expanded their balance sheets since 2008 to try to resuscitate growth. The fallout from the measures has included surging currencies in export-driven economies from Scandinavia to South Korea.
The Swiss central bank imposed a ceiling on the franc for the first time in more than three decades in September 2011, a year after Brazilian Finance Minister Guido Mantega said the world faced a “currency war.” The Australian currency has soared 72 percent against the U.S. dollar from a 2008 low during the global financial crisis. Declines in the so-called Aussie in 2008, 2001 and 1998 helped Australia maintain its recession-free record since the early 1990s.
Europe, Asia Call for Open Markets to Boost Trade, Growth (Bloomberg)
European and Asian leaders called for unfettered commerce and warned against protectionism as the debt crisis threatens to undermine trade ties between the world’s fastest and slowest-growing regions. “We must open our markets,” French President Francois Hollande said today in a speech in Vientiane, Laos, where he is attending the Asia-Europe Meeting along with leaders from about 50 countries. “The biggest threat is protectionism.” Europe’s economic woes may exacerbate protectionist tendencies that make it harder to expand trade with its biggest commerce partner at a time when the U.S. and Australia are forging new agreements, according to Fredrik Erixon, head of the European Centre for International Political Economy in Brussels. Apart from a trade deal with South Korea, the 27-member European Union has seen talks lag with China, Japan, India and Southeast Asian countries since 2007.
“Europe needs to improve its policy toward the entire Asian region in order to take up a greater part of Asia’s economic expansion, but we’re not really seeing it,” Erixon said by phone. “The train is about to leave the station and Europe certainly isn’t on it.” Europe’s leaders face pressure to boost ties with Asia after U.S. President Barack Obama declared a pivot to the region and Australian Prime Minister Julia Gillard unveiled a strategy last week to make her country “a winner in the Asian century.” At stake is safeguarding links that European economies are increasingly counting on, with the 19 Asian nations participating in a summit starting in Laos today accounting for 38 percent of the EU’s total trade last year, up from 30 percent a decade ago.
BOE Tests Faith in Funding for Lending as QE Loses Bite: Economy (Bloomberg)
The Bank of England might need to take a leap of faith on an untested credit plan to do what quantitative easing is failing to achieve. With both of its deputy governors questioning the effectiveness of asset purchases, and economists forecasting a halt to that stimulus, that leaves the so-called Funding for Lending Scheme as officials’ primary policy tool. Policy makers begin a two-day meeting on Nov. 7 to decide on QE’s future. “We are in unchartered territory,” said Steven Bell, chief economist at hedge fund GLC Ltd. in London and a former U.K. Treasury official. “The search for alternatives to QE is gathering pace” and with the FLS, the central bank is “trying new ways as the economy fails to respond to the medicine.”
The Bank of England’s three-month-old plan encourages banks to provide cheap credit to companies and households, which contrasts with the trickle-down effect of gilt purchases through QE. A rethink by policy makers will reach a climax this week as they assess new forecasts and the impact of a program that’s left them with almost a third of the gilt market. The nine-member Monetary Policy Committee will probably leave the target for asset purchases at 375 billion pounds ($602 billion) on Nov. 8, according to 35 of 45 economists in a Bloomberg News survey. Six forecast a 50 billion-pound increase, and four anticipate a 25 billion-pound expansion.
Italian GDP to Shrink as Unemployment Gains, Istat Says (Bloomberg)
The Italian economy won’t start recovering until the second half of 2013 as foreign demand fails to offset the effect of a decline in household spending, the national statistics institute said. Gross domestic product will shrink 2.3 percent in 2012 and 0.5 percent in 2013, Rome-based Istat said today in an e-mailed report. In May, Istat projected a 1.5 percent contraction this year and a 0.5 percent expansion next. Household consumption will fall 3.2 percent in 2012 and 0.7 percent in 2013, Istat said today. The euro region’s third-biggest economy will experience an “easing of unfavorable pressures and a modest recovery in the second half” of next year, according to the report. Still, household “spending will remain negative due to the persistent difficulties in the labor market.”
Italy’s jobless rate will rise to 10.6 percent this year, before climbing to 11.4 percent in 2013, Istat said. Its GDP projections are subject to downward revisions should “global trade slow down and tensions on financial markets sharpen,” the statistics agency said. Istat’s forecast for this year is more optimistic than those of Prime Minister Mario Monti’s government. The Rome-based Treasury said on Sept. 20 that the economy will contract 2.4 percent in 2012 and 0.2 percent in 2013. The International Monetary Fund predicted last month in its World Economic Outlook the Italian economy will contract 2.4 percent this year and 0.7 percent next.
Greek Rally Derailed as Austerity Undermines Valuations (Bloomberg)
The four-month rally in Greek shares that turned the ASE Index (ASE) into the most expensive national benchmark in western Europe is ending as lawmakers squabble over austerity measures needed to ensure the flow of bailout funds. Greek stocks tumbled 8.3 percent last week, the biggest decline in five months. The ASE had surged 88 percent from a two-decade low on June 5 through Oct. 22 as Public Power Corp. and Eurobank Ergasias SA more than tripled, pushing the gauge’s valuation to 51 times estimated 2012 earnings, data compiled by Bloomberg show. That was the highest on record and compares with the five-year average of 11.7 times projected profit.
Politicians in Greece’s coalition government are debating debt-reduction measures demanded by the European Union as the nation completes its fifth year of recession. Inspectors from the so-called troika of the European Central Bank, the International Monetary Fund and the EU are negotiating with the government over budget cuts and economic reforms, before a Nov. 12 decision on whether Greece will win a bailout that allows it to stay in the euro. “Greece’s political problems have come back, and that’s what drives the market,” Gerard Lane, a strategist at Shore Capital Group Ltd., an investment bank and stockbroker in Liverpool, England, said by phone. “The economy shows limited sign of healing, if any, and the desire for austerity seems to be lacking.”
