Asia FX By Cornelius Luca - Wed 28 Nov 2012 16:44:41 CT (Source:CME/www.lucafxta.com)
The foreign currencies ended either flat or higher after recovering early losses; the yen extended its recovery from last week's 7-1/2-month low. The US stock markets closed up. Gold, oil and silver ended down. The short-term outlook for the foreign currencies is sideways. The medium-term outlook for most of the foreign currencies is sideways. The LGR short-term model is short on all European currencies. Good luck!
Overnight
US: New home sales edged down 0.3% to an annual rate of 368,000 in October from the revised September rate of 369,000 (originally 389,000).
Today's economic calendar
Japan: Retail trade for October
Australia: HIA New Home Sales for October
Australia: Private capital expenditure for the third quarter
World Economy in Best Shape Since 2011 Investors (Bloomberg)
The world economy is in its best shape in 18 months as China’s prospects improve and the U.S. looks likely to avoid the so-called fiscal cliff, according to the latest Bloomberg Global Poll of investors. Two-thirds of the 862 surveyed described the global economy as either stable or improving. That’s up from just over half who said that in September and is the most since May 2011. The U.S. came out on top for the eighth straight quarter when investors were asked which markets will offer the best opportunities over the next year. China ranked second, reversing a decline to fourth in the September poll of investors, analysts and traders who are Bloomberg subscribers. The European Union, beset by a debt crisis, was seen offering the worst returns.
“The global economy is improving, recovering and healing, thanks to the U.S. and the emerging markets,” said Andrea Guzzi, a poll respondent and vice president of IST Investmentstiftung fuer Personalvorsorge, which manages money for Swiss pension funds. “More people are becoming wealthy, less and less are poor.” Stocks were seen as the asset of choice, with more than one in three of those surveyed on Nov. 27 forecasting equities would have the best returns in the coming year. Real estate came in second: Just less than one in five investors singled it out favorably, the best showing since the quarterly poll began in July 2009. Bonds were seen as offering the worst returns. The Federal Reserve is expected to provide continued support to the bond market after its Operation Twist program ends next month, according to the poll. About three in four said the U.S. central bank will begin outright purchases of Treasury securities after its plan for swapping short-dated securities for longer-dated ones expires.
Asian Stocks Rise on U.S. Budget Remarks, Japan Stimulus (Bloomberg)
Asian stocks rose as U.S. lawmakers said they’re optimistic for an agreement to avoid automatic spending cuts and tax increases and as Japan’s main opposition leader called for unlimited monetary policy easing. Toyota Motor Corp. Asia’s biggest carmaker, gained 1 percent. Sky Network Television Ltd., New Zealand’s largest pay TV operator, jumped the most in more than a year in Wellington after the company announced payment of a special dividend. Starpharma Holdings Ltd. (SPL) tumbled 34 percent in Sydney as the biotechnology company said it won’t file a drug application in the U.S. following a disappointing clinical trial for a new treatment. The MSCI Asia Pacific (MXAP) Index gained 0.5 percent to 123.62 as of 10 a.m. in Tokyo, before markets opened in China and Hong Kong. The gauge rose 13 percent through yesterday from this year’s low on June 4 as central banks added stimulus to spur growth and data showed a slowdown in China may be ending.
“Market expectations are that the U.S. cutbacks will be watered down and spread over several years,” said Matthew Sherwood, Perpetual Investment’s head of markets research in Sydney. Perpetual manages about $25 billion. “If the cliff is successfully flattened out over several years, the U.S. recession feared by markets is unlikely to occur.” Japan’s Nikkei 225 Stock Average (NKY) gained 0.4 percent, with trading volume 10 percent below its 30-day average for the time of day, according to data compiled by Bloomberg. The broader Topix Index rose 0.8 percent. The Topix may surge 19 percent in 2013 on compelling valuations and earnings, Goldman Sachs Group Inc. strategist Kathy Matsui wrote in a report today.
Japan Stocks Rose After Goldman Says Election May Help Shares (Bloomberg)
Japan stocks rose, with the Nikkei 225 (NKY) Stock Average poised to rebound from yesterday’s loss, after Goldman Sachs Group Inc. said shares will benefit from policy changes if the opposition wins next month’s election. Shikoku Electric Power Co. paced gains among utilities on expectations it will seek a 10 percent rate increase. Toyota Motor Corp. (7203), which gets a quarter of its sales in North America, rose 0.9 percent on optimism a budget agreement can be reached in the U.S. to avoid the so-called fiscal cliff. Nakayama Steel Works Ltd. fell 7.5 percent on a Nikkei newspaper report it’s seeking creditor-led restructuring. The Nikkei 225 gained 0.6 percent to 9,366.44 as of 10:09 a.m. in Tokyo after yesterday falling 1.2 percent, the biggest decline in three weeks. The broader Topix Index climbed 0.8 percent to 777.47, with more than three stocks advancing for each that fell.
“Investors are hoping the election will diminish frustration with politics following confusion in the wake of the earthquake,” said Koji Toda, chief fund manager at Tokyo-based Resona Bank Ltd., which oversees about 15 trillion yen ($183 billion). “People are buying Japanese shares because prices are too low, even with the economy in a rut.” The Topix advanced 6.8 percent through yesterday from Nov. 14, when Prime Minister Yoshihiko Noda called for a Dec. 16 election, causing the yen to drop on speculation the opposition Liberal Democratic Party may win and call for more monetary easing by the Bank of Japan.
U.S. Stocks Rise as Boehner, Obama Fuel Optimism on Talks (Bloomberg)
U.S. stocks rose, erasing an earlier loss for the Standard & Poor’s 500 Index, after comments by Speaker of the House John Boehner and President Barack Obama fueled optimism an agreement can be reached in budget talks. Costco Wholesale Corp. (COST) advanced 6.3 percent after saying it plans to pay a special dividend. J.C. Penney Co. rallied 4.6 percent as consumer staples and discretionary stocks posted gains among 10 groups in the S&P 500. Knight Capital Group Inc. (KCG) jumped 15 percent after receiving takeover offers from Getco LLC and Virtu Financial LLC. Cliffs Natural Resources Inc. (CLF) dropped 1.3 percent as commodities declined. The S&P 500 climbed 0.8 percent to 1,409.93 in New York, after erasing a decline of as much as 1 percent. The Dow Jones Industrial Average added 106.98 points, or 0.8 percent, to 12,985.11 today. About 6.1 billion shares traded hands on U.S. exchanges today, in line with the three-month average, according to data compiled by Bloomberg.
Obama “was confident of something being done by the end of the year,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., said in an e-mail. His firm oversees about $80 billion. “This is something that the market is worried about not getting done by year-end, so if they can get it done, it would provide some relief. The market doesn’t like uncertainty.” Equities reversed declines as Boehner, an Ohio Republican, said he is optimistic lawmakers engaged in budget talks can “avert this crisis sooner rather than later.” He made his remarks to reporters, while saying he continues to oppose the expiration of tax cuts for top earners and Democrats need to get “serious” on budget cuts. Obama said separately at the White House, “My hope is to get this done before Christmas.”
Recap Stock Index Market Report (CME)
The December S&P 500 grinded lower during the early morning hours, weighed down by concerns that lawmakers would be unable to reach a deal on budget negotiations. Weakness in the market was compounded by US New Home Sales data for October that came in below expectations. The morning weakness pushed the December S&P 500 to a new four day low and below 1385.00. Sentiment in the market took a positive turn in the wake of optimistic comments from US House Speaker John Boehner in averting the fiscal cliff. The positive remarks buoyed equity markets, inspiring a drive back toward unchanged levels at mid day. That tone gained more momentum following comments from President Obama that a resolution to the fiscal cliff could be reached by Christmas. There was also a measure of support coming into retail-related shares, driven by gains in Costco and favorable earnings from American Eagle Outfitters.
German Stocks Advance as Boehner ‘Optimistic’ on Budget (Bloomberg)
German stocks advanced for a second day, extending a three-week high, as U.S. Speaker of the House John Boehner said he is “optimistic” budget talks with President Barack Obama will continue. Bayer AG (BAYN), the maker of drugs and chemicals, gained 1 percent. Continental AG added 1.4 percent. ThyssenKrupp AG (TKA) slid 2.5 percent after a report that it may get as little as 1 billion euros ($1.29 billion) from the sale of its Steel Americas unit. The DAX Index (DAX) added 0.2 percent to 7,343.41 at the close of trading in Frankfurt, erasing an earlier decline. The equity benchmark has rallied 23 percent from this year’s low on June 5 as the European Central Bank approved an unlimited bond-buying program and euro-region finance ministers eased the terms of aid for Greece. The broader HDAX Index gained 0.1 percent today.
“Now that the Greek headlines are moving to the back burner, the U.S. fiscal-cliff debate is taking center stage,” Ion-Marc Valahu, co-founder and fund manager at Clairinvest in Geneva, wrote in an e-mail. “Markets will remain hostage to a decision, with volatility rising for the next few weeks.” The DAX earlier fell as much as 0.9 percent as Erskine Bowles, the co-chairman of Obama’s 2010 fiscal commission, said it’s unlikely the president and Congress will reach a deal by the end of this year.
Emerging Stocks Tumble on Outlook as Crude Sinks Russia (Bloomberg)
Emerging-market equities declined the most in two weeks, led by industrial and consumer stocks. Falling oil spurred declines in Russia’s benchmark index. Orascom Construction Industries (OCIC) plunged in Cairo after reporting a 31 percent drop in third-quarter net income, while Hankook Tire Worldwide Co. (000240) slid to a four-week low in Seoul. Citic Securities Co. (6030), China’s biggest-listed brokerage, sank for the first time in six days as equity trading shrank in China and the Shanghai Composite Index declined to its lowest level since January 2009. Russia’s Micex Index (VTBMICX) dropped the most in two weeks as crude tumbled in New York.
The MSCI Emerging Markets Index (MXEF) fell 0.5 percent to 991.27 in New York, its biggest one-day decline since Nov. 15. The global economic recovery will be “hesitant and uneven” over the next two years as a recession in Europe crimps demand, the Organization for Economic Cooperation and Development said in a report issued yesterday. The gauge pared losses as U.S. President Barack Obama floated a resolution to the country’s budget impasse by Christmas. “The OECD report focused on the deteriorating growth backdrop, and that certainly is going to weigh on emerging markets,” Nick Chamie, global head of emerging-markets and currency strategy at Royal Bank of Canada, said in a phone interview from Toronto. “This lingering concern over the fiscal cliff as well as the overhang of the downgraded growth prospects focused in on a number of risks that lie ahead.”
Dollar Trades Near November Low Before Geithner Discusses Cliff (Bloomberg)
The dollar was 0.5 percent from a four-week low against the euro before Treasury Secretary Timothy F. Geithner meets congressional leaders to discuss the so-called fiscal cliff. The Dollar Index (DXY) fell yesterday for the first time this week after comments from U.S. lawmakers fueled optimism the $607 billion combination of tax increases and spending cuts due to take effect in January will be avoided. The yen weakened against the majority of its counterparts as Asian stocks gained before U.S. data forecast to show that gross domestic product expanded faster than previously estimated. “The fiscal cliff can be a selling catalyst for the dollar regardless of whether risk is on or off,” said Kengo Suzuki, a currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “The U.S. GDP figure will be positive for risk sentiment, spurring yen selling.”
The dollar traded at $1.2946 per euro as of 10:02 a.m. in Tokyo from $1.2953 in New York yesterday. It touched $1.3009 on Nov. 27, the weakest since Oct. 31. The yen was little changed at 106.22 per euro and 82.06 per greenback. It was at 85.88 per Australia’s currency following a 0.2 percent drop to 85.99. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against currencies of six U.S. trading partners, was little changed at 80.304 after falling 0.1 percent to 80.336 yesterday. The MSCI Asia Pacific Index (MXAP) of shares rose 0.5 percent, sapping demand for lower-yielding, haven assets. Geithner will meet separately with each of the four top leaders in Congress today, accompanied by Rob Nabors, the administration’s director of legislative affairs. House Speaker John Boehner said yesterday he is “optimistic” lawmakers engaged in budget talks can avert the crisis.
The U.S. economy probably grew at an annualized 2.8 percent in the third quarter, according to the median estimate of economists surveyed by Bloomberg News. The initial reading from the Commerce Department last month showed a 2 percent increase.
Aussie Near 2-Month High on Stock Gains, U.S. Budget Optimism (Bloomberg)
Australia’s dollar traded 0.2 percent from a two-month high after global equities rebounded on speculation the U.S. will avoid the so-called fiscal cliff, boosting demand for higher-yielding assets. The New Zealand dollar remained higher after U.S. Republican House Speaker John Boehner said he is optimistic officials can “avert this crisis sooner rather than later.” Demand for the so-called Aussie was limited after a report showed Australia’s business investment grew at a slower pace in the third quarter, supporting expectations that the Reserve Bank of Australia will cut interest rates next week. “Everybody expects some resolution to the fiscal cliff,” said Hans Kunnen, the chief economist at St. George Bank Ltd. in Sydney. “The better the solution, the smoother it is, the easier it will be for the economies to grow, which is good for Australia’s dollar.”
The Australian currency was little changed at $1.0466 as of 11:39 a.m. in Sydney from yesterday, when it gained 0.3 percent. It touched $1.0490 on Nov. 27, the highest since Sept. 21. The Aussie fetched 85.97 yen after rising 0.2 percent yesterday to 85.99. New Zealand’s currency traded at 82.41 U.S. cents from 82.37 yesterday, when it advanced 0.4 percent. The so-called kiwi dollar added 0.1 percent to 67.69 yen. U.S. Treasury Secretary Timothy F. Geithner will meet today with congressional leaders amid negotiations to lower the nation’s budget deficit. If lawmakers fail to reach agreement, more than $600 billion in automatic spending cuts and tax increases are set to begin Jan. 1. The MSCI World Index (MXWO) of stocks rose 0.4 percent yesterday, rallying from a 0.4 percent decline over the previous two days.
Fiscal Cliff Avoided in Poll Seeing Market Gain on Limited Deal (Bloomberg)
Three out of four global investors expect President Barack Obama and congressional leaders to reach a short-term agreement to avert more than $600 billion in spending cuts and tax increases scheduled to begin on Jan. 1. Only 6 percent of investors anticipate a political impasse that would send the U.S. economy over the so-called fiscal cliff and into a recession, according to a Bloomberg Global Poll conducted on Nov. 27. “Both sides understand the importance of striking a deal, increasing taxes and cutting entitlements,” says Richard Salerno, director of fixed income for Kovitz Management Corp. in Chicago, in a follow-up interview. “The market just wants to know the rules going forward so they can move on and begin to lift us out of our fiscal mess.”
The survey of 862 Bloomberg customers who are investors, traders or analysts found that 40 percent expect financial markets to rise after a short-term tax-and-spending deal. An additional 28 percent forecast no significant market reaction while 26 percent say markets would fall, seeing a short-term deal as delaying an unavoidable day of reckoning with the country’s finances. On Nov. 20, Federal Reserve Board Chairman Ben S. Bernanke, who enjoys a 65 percent approval rating in the Bloomberg poll, warned that failure to reach an agreement before the end of the year “would pose a substantial threat to the recovery.”
Narrowing Trade Gaps Makes Bullish Case for Global Growth (Bloomberg)
In October 2010, the world’s top finance ministers and central bankers flew to the South Korean resort town of Gyeongju to discuss how to protect a fragile economic recovery. Treasury Secretary Timothy F. Geithner arrived from the U.S. with a goal in mind. He wanted an agreement to even out the imbalances in global trade -- reducing the surpluses of exporters such as China and Germany and cutting the deficits of the U.S. and other countries that are net buyers of the world’s goods. These so-called current-account imbalances grew before the financial crisis in 2008 and helped trigger the global recession. When trade gets far enough out of whack, something has to give, Bloomberg Markets magazine reports in its January issue. Those with the consumer demand that helps drive economic activity go deeper and deeper in debt, while exporters accumulate their IOUs and worry about getting paid. Look no further than China’s holdings of more than $1 trillion in U.S. Treasury securities to understand what can happen.
Geithner argued at the summit that addressing the imbalances would strengthen global growth and make it more likely to last. The U.S. pushed to commit each Group of 20 nation to keeping its surplus or deficit to less than 4 percent of gross domestic product. The agreement wasn’t to be, shot down by China, Japan and other countries with export might. Rainer Bruederle, then Germany’s economy minister, opposed the idea. “We should lean toward a market economy process and not a command economy,” he told his counterparts at the meeting. The Gyeongju talks ended with a tepid accord to pursue policies conducive to reducing excessive imbalances.
Sales of New U.S. Homes Fell 0.3% in October (Bloomberg)
Builders in the U.S. sold fewer new homes than forecast in October and purchases were revised down for the prior month, highlighting the hurdles facing a rebound in the industry at the heart of the financial crisis. Sales dropped 0.3 percent to a 368,000 annual pace following a 369,000 rate in September that was 20,000 lower than initially reported, figures from the Commerce Department showed today in Washington. The median estimate of 74 economists surveyed by Bloomberg projected a 390,000 pace. The report runs counter to recent data showing gains in residential construction, builder confidence and mortgage applications that indicate housing is on the verge of contributing more to economic growth. Easier access to credit and more employment are still needed to ensure the real-estate rebound is sustained -- one reason why Federal Reserve Chairman Ben S. Bernanke has pledged to maintain record stimulus.
“Better job growth is the key factor,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, who projected a 365,000 rate of sales. “We really have a lot of ground to make up from the recession.” Stocks rose, erasing early losses, as lawmakers said they are optimistic a budget agreement can be reached to avoid automatic spending cuts and tax increases in 2013. The Standard & Poor’s 500 Index climbed 0.8 percent to 1,409.93 at the 4 p.m. close of trading in New York. The yield on the benchmark 10-year Treasury note decreased to 1.63 percent from 1.64 percent late yesterday.
Brazil Ends Streak of 10 Straight Rate Cuts on Inflation (Bloomberg)
Brazil left its benchmark interest rate unchanged today at a record low, ending its second-longest streak of borrowing-cost reductions in an effort to prevent inflation from accelerating. Policy makers led by central bank President Alexandre Tombini held the Selic rate at 7.25 percent, after reducing it by 525 basis points in the previous 10 meetings. The decision, which was unanimous, was forecast by all 75 economists surveyed by Bloomberg. “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,” policy makers said in their statement, which was almost-identical to their October announcement.
Inflation, which accelerated to its fastest pace in nine months in mid-November, has remained above the central bank’s 4.5 percent target for more than two years even as Europe’s debt crisis and a slowdown in China ensnare Latin America’s biggest economy. Economists surveyed by the central bank expect the growth rate to more than double next year, to 3.94 percent, further stoking price increases. “A recovery in economic activity with inflation already at a fast pace creates more inflationary risk,” Roberto Padovani, chief economist at brokerage Votorantim CTVM, said before today’s decision.
Thailand Holds Policy Rate as Economic Data Signal Recovery (Bloomberg)
Thailand kept its policy interest rate unchanged today after an unexpected cut last month, and signaled it may be done with easing as data show the economy is improving after last year’s floods. The Bank of Thailand held its one-day bond repurchase rate at 2.75 percent, it said in Bangkok today. The outcome was predicted by 16 of 19 economists in a Bloomberg survey, while the rest called for a quarter-point reduction. The monetary policy committee’s decision was unanimous, the central bank said. Thai manufacturing and exports increased in October, adding to signs from the U.S. and China of a recovery in the global economy. While the central bank last month lowered its growth forecast for 2013, it said today risks to expansion have subsided, and that it doesn’t see much need for more rate cuts.
“Although the recovery seems to be slowing, the economy continued to expand,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB. “There’s no pressing reason for them to cut, especially when the economy has started to expand again. I think they are probably already done with the easing cycle.” The Thai baht fell 0.1 percent to 30.71 per dollar as of 3:41 p.m. in Bangkok today. The benchmark Stock Exchange of Thailand index gained 0.3 percent.
