Asia FX By Cornelius Luca - Mon 03 Dec 2012 18:04:55 CT (CME/www.lucafxta.com)
The appetite for risk improved selectively on Monday in part due to the firm Chinese economic data. The ubiquitous "fiscal cliff" negotiations remain the main driver of the markets and will continue to generate short-term swings. The political dancing continues with big words but no real work. The European currencies and yen ended higher, while the commodity currencies made little progress. The US stock indexes fell. 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: The ISM's purchasing managers index fell to 49.5 in November from 51.7 in October.
US: Construction spending rose 1.4% in October from 0.6% in September.
Today's economic calendar
UK: BRC retail sales monitor - all for November
Australia: Building permits for October
Australia: Current account balance for the third quarter
Australia: The RBA interest rate decision (Dec 4)
Asian Stocks Fluctuate on China Data, U.S. Budget Concern (Bloomberg)
Asian stocks swung between gains and losses as Chinese manufacturing data added to signs of recovery while U.S. lawmakers continue to debate over a budget compromise to avert a so-called fiscal cliff. Metallurgical Corp. of China, an engineering contractor and equipment manufacturer, climbed 4.4 percent in Hong Kong. Shimizu Corp., a construction company, advanced 4 percent in Tokyo on speculation a deadly highway-tunnel collapse will reduce opposition to more public works spending. Li & Fung Ltd., a supplier of toys and clothing to retailers including Wal-Mart Stores Inc., slipped 3 percent. The MSCI Asia Pacific Index was little changed at 124.62 as of 4:28 p.m. in Tokyo, erasing gains of as much as 0.5 percent. The measure advanced 14 percent through Nov. 30 from this year’s low on June 4 as central banks added stimulus to spur growth and data showed China’s slowdown may be ending.
“While there are signs China’s economy might be bottoming, we don’t expect growth to go back to double-digit rates,” said Daphne Roth, Singapore-based head of Asia equity research at ABN Amro Private Bank, which oversees about $207 billion. “We expect no big stimulus or monetary easing from China. The U.S. fiscal cliff is a concern even though we think they’ll eventually come up with some kind compromise.” U.S. lawmakers are debating the budget to help avert the so-called fiscal cliff. Failure to come up with a budget deal would trigger more than $600 billion of automatic tax increases and spending cuts next year. The Nikkei 225 Stock Average (NKY) gained 0.1 percent in Tokyo and South Korea’s Kospi Index added 0.4 percent. Australia’s S&P/ASX 200 Index climbed 0.6 percent. Hong Kong’s Hang Seng Index dropped 0.9 percent, while China’s Shanghai Composite Index slid 1 percent.
All Markets Gain for Second Time in 2012 on Recovery (Bloomberg)
For the second time this year, stocks, bonds, commodities and the dollar posted monthly gains amid optimism central bank stimulus programs are bolstering growth in the world’s biggest economies. Raw materials led, with the Standard & Poor’s GSCI Total Return Index (SXXP) rising 1.5 percent. The MSCI All-Country World Index of equities added 1.3 percent, including dividends. Bonds of all types returned 0.53 percent on average for a fifth monthly advance, the longest run of gains since 2010, according to Bank of America Merrill Lynch’s Global Broad Market Index. Intercontinental Exchange Inc.’s Dollar Index, which tracks the currency against those of six major U.S. trading partners, advanced 0.29 percent, its first increase since July.
The world economy has recovered to its strongest level in 18 months as China’s stimulus measures bolster growth and the U.S. seeks to avoid the so-called fiscal cliff, a Bloomberg Global Poll of investors showed Nov. 29. The Federal Reserve has pumped more than $2.3 trillion into the financial system, while the Bank of Japan (8301) is providing more than $800 billion. The European Central Bank has made about $1 trillion available in three-year loans to banks. “With so much monetary stimulus around the world, we’ve taken the brakes off the global economy,” Bruce McCain, chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a Nov. 27 phone interview. His firm oversees $20 billion. “It should mean improved growth into next year. Officials in Europe and in the U.S. seem to realize that we’re on the precipice of some pretty negative outcomes if they don’t do something to find better solutions.”
Asian Stocks Fluctuate on China Data, U.S. Budget Concern (Bloomberg)
Asian stocks swung between gains and losses as Chinese manufacturing data added to signs of recovery while U.S. lawmakers continue to debate over a budget compromise to avert a so-called fiscal cliff. Metallurgical Corp. of China, an engineering contractor and equipment manufacturer, climbed 4.4 percent in Hong Kong. Shimizu Corp., a construction company, advanced 4 percent in Tokyo on speculation a deadly highway-tunnel collapse will reduce opposition to more public works spending. Li & Fung Ltd., a supplier of toys and clothing to retailers including Wal-Mart Stores Inc., slipped 3 percent. The MSCI Asia Pacific Index was little changed at 124.62 as of 4:28 p.m. in Tokyo, erasing gains of as much as 0.5 percent. The measure advanced 14 percent through Nov. 30 from this year’s low on June 4 as central banks added stimulus to spur growth and data showed China’s slowdown may be ending.
“While there are signs China’s economy might be bottoming, we don’t expect growth to go back to double-digit rates,” said Daphne Roth, Singapore-based head of Asia equity research at ABN Amro Private Bank, which oversees about $207 billion. “We expect no big stimulus or monetary easing from China. The U.S. fiscal cliff is a concern even though we think they’ll eventually come up with some kind compromise.” U.S. lawmakers are debating the budget to help avert the so-called fiscal cliff. Failure to come up with a budget deal would trigger more than $600 billion of automatic tax increases and spending cuts next year. The Nikkei 225 Stock Average (NKY) gained 0.1 percent in Tokyo and South Korea’s Kospi Index added 0.4 percent. Australia’s S&P/ASX 200 Index climbed 0.6 percent. Hong Kong’s Hang Seng Index dropped 0.9 percent, while China’s Shanghai Composite Index slid 1 percent.
China’s Stocks Drop to Lowest Since 2009, Led by Liquor Shares (Bloomberg)
China’s stocks fell, with the benchmark index declining for the sixth time in seven days, as liquor companies extended yesterday’s rout on speculation demand will weaken. Kweichow Moutai Co. and Wuliangye Yibin Co., the two biggest producers of baijiu liquor, slumped more than 2 percent, leading a gauge of consumer staples producers to the steepest loss among 10 industry groups in the CSI 300 (SHSZ300) Index. Ping An Insurance (Group) Co. paced gains for insurers after Haitong Securities Co. recommended the industry for next year. The Shanghai Composite Index (SHCOMP) slipped 0.3 percent to 1,954.04 at 10:08 a.m. local time, heading for the lowest level since Jan. 16, 2009. The CSI 300 lost 0.1 percent to 2,105.89 while the Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong fell 0.2 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, lost 0.9 percent in New York.
“Investors have kind of given up for this year,” Zhang Haidong, analyst at Tebon Securities Co. analyst, said by telephone in Shanghai. “The stock market hasn’t reached a bottom yet. Investors are concerned that demand for high-end products like liquor will suffer.” Trading volumes in the Shanghai Composite were 2.3 percent lower than the 30-day average, according to data compiled by Bloomberg. Thirty-day volatility in the gauge was at 13.7, compared with this year’s average of 17.2. The Shanghai Composite trades at 10.8 times reported earnings, the lowest level since at least 1997, according to data compiled by Bloomberg. The index has fallen 11 percent this year, heading for a third straight year of losses, amid estimates the economy will grow at its slowest pace in a more than a decade this year.
U.S. Stocks Fall on Manufacturing Data Amid Cliff Concern (Bloomberg)
U.S. stocks fell, following a two- week advance for the Standard & Poor’s 500 Index, as an unexpected contraction in manufacturing spurred concern about the potential economic toll from the so-called fiscal cliff. DuPont Co., the most valuable U.S. chemical maker, fell 1.7 percent, leading raw-materials producers to the biggest drop among 10 S&P 500 groups. Dell Inc. (DELL) rallied 4.4 percent after Goldman Sachs Group Inc. recommended buying the shares. The S&P 500 dropped 0.5 percent to 1,409.46 at 4 p.m. in New York. The Dow Jones Industrial Average lost 59.98 points, or 0.5 percent, to 12,965.60. More than 5.6 billion shares traded hands on U.S. exchanges today, or 9.4 percent below the three- month average, according to data compiled by Bloomberg. “The fiscal cliff concerns are actually affecting decision making at the business level,” Andres Garcia-Amaya, New York- based global market strategist at JPMorgan Chase & Co.’s mutual funds unit, which oversee $400 billion in assets, said in a phone interview. “China is starting to show signs of life. The U.S. was showing signs of life, but we have the geopolitical issue that’s impeding us from moving forward. All in all, that’s just confusing the market.” The Institute for Supply Management’s U.S. factory index fell to 49.5 in November from 51.7 a month earlier, the Tempe, Arizona-based group said today. Economists in a Bloomberg survey projected a reading of 51.4 for November, according to the median of 83 forecasts. The dividing line between expansion and contraction is 50.
Recap Stock Index Market Report (CME)
The December S&P 500 entered the US trading session on a higher track, fueled by encouraging signs out of China's manufacturing sector and a level of improvement on the European debt situation. Reports that Spain had formally requested EU support for its struggling banking sector was seen as a positive. These factors helped the December S&P 500 breakout above the 1420.00 level during the US morning hours. However, sentiment in the market turned sour following US manufacturing data that unexpectedly contacted in November. The weakness seemed to gain downside momentum into the afternoon hours. Most of the S&P sector indices were in negative territory, led by a more than 1.5% drop in material-related shares.
DeMark Sees 48% China Index Rally as Bears Exhausted Below 1,960 (Bloomberg)
The Shanghai Composite Index (SHCOMP) will rally 48 percent within nine months after its decline below 1,960 signaled selling has climaxed, according to Tom DeMark, the creator of indicators to show turning points in securities. The benchmark index for Chinese equities will advance to 2,900 after its decline produced a buy signal on the Sequential and Combo charts, designed to identify market tops and bottoms, said DeMark, who has spent more than 40 years developing market- timing indicators. The Shanghai index fell 1 percent to 1,959.77, the lowest level since January 2009, and is down 11 percent in 2012. “Everyone is negative on SHCOMP index, absolutely everyone,” DeMark wrote in an e-mail, referring to the Chinese benchmark gauge’s ticker symbol. “And now is the perfect environment to make a low and be positive as the last seller, figuratively speaking, has sold.”
China is headed for its slowest economic growth in more than a decade as the central bank tightened monetary policies in 2010 and 2011 to tame inflation. The People’s Bank of China raised its benchmark interest rate five times during the last two years before cutting twice in 2012. The economy is projected to grow 7.7 percent this year, the slowest since 1999, according to median estimate of 49 economists surveyed by Bloomberg.
European Stocks Climb as Chinese Manufacturing Expands (Bloomberg)
European (SXXP) stocks climbed, following their longest stretch of monthly gains in six years, as two measures of Chinese manufacturing increased and Greece offered to spend 10 billion euros ($13 billion) buying back bonds. Cable & Wireless Communications Plc (CWC) rose 1.2 percent after agreeing to sell its Monaco and Islands unit to Bahrain Telecommunications Co. for $680 million. Colruyt SA (COLR) slid 1.9 percent after first-half earnings before interest and taxes missed analysts’ estimates. The Stoxx Europe 600 Index advanced 0.1 percent to 276.13 at the close in London as four stocks rose for every three that fell. The equity benchmark has rallied 18 percent from this year’s low on June 4 as the European Central Bank announced an unlimited bond-buying plan and the Federal Reserve started a third round of asset purchases.
“Greece has made quite a bit of progress,” said Philippe Gijsels, head of fixed-income research at BNP Paribas Fortis in Brussels. “If Greece can manage the buyback and get a new tranche of aid, then the Greece problem will be out of the way until the end of 2013. China is clearly improving and this is helping equities and commodities. We’re in a sweet spot for the next two to three months.” China’s official Purchasing Managers’ Index, a gauge of manufacturing, rose to 50.6 in November, the highest in seven months, the National Bureau of Statistics and China Federation of Logistics and Purchasing said on Dec. 1. A reading above 50 indicates expansion. A separate survey by HSBC Holdings Plc and Markit Economics, which focuses on smaller businesses, today showed that activity increased last month.
Republicans Reprise 2011 Debt-Limit Threat in Cliff Talks (Bloomberg)
Republicans are renewing attempts to use a debt-limit increase to force deeper spending cuts, replicating the 2011 showdown that caused the U.S. to come within days of default and led to a credit-rating downgrade. As in 2011, many Republicans in Congress see the need to raise the $16.4 trillion limit on public debt in early 2013 as leverage to force President Barack Obama to cut entitlement programs such as Medicare and Medicaid. House Republicans view the U.S. budget deficit, which topped $1 trillion in each of the past four years, as a crisis requiring immediate action. “There has to be a reality out there that says we are in serious trouble,” said Representative Tim Walberg, a Michigan Republican. “We can’t just keep raising it because it’s been traditional to do it.”
The prospect of another debt-ceiling showdown is complicating the stalled talks to prevent more than $600 billion of spending cuts and tax increases from taking effect in January. Republicans, who say they didn’t suffer politically from the 2011 fight, are reprising their tactics. The administration wants to include a debt limit increase in a fiscal cliff deal and prevent Congress from wielding default as a weapon in the future. Talks on averting the fiscal cliff are at a standstill. Democrats continue to demand higher tax rates for top earners and Republicans want to cut spending on entitlements and other programs.
Geithner Fight on Fiscal Cliff Invokes Dodd-Frank Resolve (Bloomberg)
When U.S. senators were picking apart the Obama administration’s plan for a stand-alone consumer- protection bureau during negotiations on the financial-rules overhaul, Treasury Secretary Timothy F. Geithner agreed to put it under the Federal Reserve to ensure that Republican lawmakers wouldn’t kill it. Geithner calculated the bureau wouldn’t be affected and backing down would help get the 2010 legislation passed. His compromise illustrates the pragmatic approach Geithner embraced in pressing for Dodd-Frank during his four years at the Treasury and will need to draw on in one final test as the administration’s lead negotiator with Congress on the so-called fiscal cliff. “There were some very ticklish issues that had to be dealt with,” former Senate Banking Committee Chairman Christopher Dodd, the bill’s co-sponsor, said in an interview. “Tim was certainly reaching out. He made a big difference in making sure we could keep people together on what we ultimately came up with.”
Geithner -- the longest-serving and most influential of President Barack Obama’s economic advisers -- will leave the Treasury in mid-January after testifying before Congress 67 times, appearing 24 times on Sunday talk shows and making 98 trips within the U.S. and abroad. He’s staying to deal with more than $600 billion in tax increases and spending cuts that take effect automatically in January unless Congress acts. If the cliff isn’t averted, the U.S. could fall back into recession, according to the Congressional Budget Office.
U.S. Manufacturing Unexpectedly Shrank as Orders Slowed (Bloomberg)
Manufacturing unexpectedly contracted in November for the fourth month in the last six as factory managers grew more concerned about the potential economic toll stemming from the so-called fiscal cliff. The Institute for Supply Management’s factory index fell to 49.5, the lowest since July 2009, from 51.7 in October. The median forecast in a Bloomberg survey called for 51.4. Fifty marks the dividing line between expansion and contraction. Construction spending in October jumped by the most in five months, another report showed. Weaker overseas demand, less investment in equipment and the possibility of automatic tax increases and government budget cuts in 2013 are hurdles for companies making everything from apparel to machinery. With six months of stagnation in manufacturing, construction gains, reflecting a rebound in housing, are helping pick up some of the slack for the world’s largest economy.
“We could be doing a lot better than we are doing if we had a coherent fiscal policy,” said Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York, one of two forecasters to project a contraction. “We have a recovery in housing that’s been underway for a year and a half now. More recently, it’s been picking up steam. This will help offset what’s going on in other places.” Stocks fell, following a two-week advance for the Standard & Poor’s 500 Index. The S&P 500 dropped 0.5 percent to 1,409.46 at the close in New York.
IMF Officially Endorses Capital Controls in Reversal (Bloomberg)
The International Monetary Fund endorsed nations’ use of capital controls in certain circumstances, making official a shift, which has been in the works for three years, that will guide the fund’s advice. In a reversal of its historic support for unrestricted flows of money across borders, the Washington-based IMF said controls can be useful when countries have little room for economic policies such as lowering interest rates or when surging capital inflows threaten financial stability. Still, it said the measures should be targeted, temporary and not discriminate between residents and non-residents. “Capital flows can have important benefits for individual countries across the fund membership and the global economy,” IMF staff wrote in a report discussed by the board on Nov. 16 and published today. They “also carry risks, however, as they can be volatile and large relative to the size of domestic markets.”
Countries from Brazil to the Philippines have sought in recent years to manage inflows of capital that put upward pressure on their currencies and threatened to create asset bubbles. The new guidelines will enable the fund to provide consistent advice, though rules prevent it from imposing views about managing capital flows on its 188 member nations. IMF Managing Director Christine Lagarde has cited the shift on capital controls as an illustration of the fund’s attempts to modernize.
Greece Offers 10 Billion-Euro Debt Buyback to Unlock Aid (Bloomberg)
Greece offered 10 billion euros ($13 billion) to buy back bonds issued earlier this year as the bailed-out nation attempts to cut a debt load that may threaten future international aid. Greek bonds rallied after the so-called modified Dutch auction was announced today by the Athens-based Public Debt Management Agency. The prices offered for bonds maturing from 2023 to 2042 averaged 33.1 percent of face value, based on information in a statement from the debt agency today, higher than euro-area finance ministers indicated would be paid. The offer runs until 5 p.m. London time on Dec. 7. Success is crucial to releasing aid that’s been frozen since June. The offer was part of a package of measures approved by the finance ministers last week to cut the nation’s debt to 124 percent of gross domestic product in 2020 from a projected 190 percent in 2014. The 10 billion-euro buyback may enable Greece to retire about 30 billion euros of debt, Citigroup strategist Valentin Marinov wrote in a comment.
The average price “is higher than previously published or announced,” said Spyros Politis, chief executive officer of Athens-based TT-ELTA AEDAK, which oversees about 300 million euros of assets and owns Greek government debt. “At the moment it looks as if it will be successful, or if they miss the target, they will miss it by a small margin. Anything that reduces the overall debt burden is good.”
Greece Makes Buyback Offer as Merkel Floats Writeoffs (Bloomberg)
Greece offered 10 billion euros ($13 billion) to buy back bonds issued earlier this year as the bailed-out nation attempts to cut a debt load that may threaten future international aid. Greek bonds rallied after the so-called modified Dutch auction was announced today by the Athens-based Public Debt Management Agency. PDMA offered an average maximum purchase price for the bonds maturing from 2023 to 2042 of 34.1 percent, based on information in the statement. The offer runs until 5 p.m. London time on Dec. 7. Success of the buyback is crucial to releasing aid that’s been frozen since June. The offer was part of a package of measures approved by euro-area finance ministers last week to cut the nation’s debt to 124 percent of gross domestic product in 2020 from a projected 190 percent in 2014. The deal may enable Greece to retire about 30 billion euros of debt, Citigroup strategist Valentin Marinov wrote in a comment.
The average price “is higher than previously published or announced,” said Spyros Politis, chief executive officer of Athens-based TT-ELTA AEDAK, which oversees about 300 million euros of assets and owns Greek government debt. “At the moment it looks as if it will be successful, or if they miss the target, they will miss it by a small margin. Anything that reduces the overall debt burden is good.” The bid to ease Greece’s debt curden underscores a move away from austerity-first measures European leaders have embraced since the financial crisis began in 2009. German Chancellor Angela Merkel yesterday opened the possibility that Germany may ultimately accept a write-off of Greek debt, previously a taboo in the biggest contributor to euro bailouts.
Merkel Signals Debt Write-Off Possible as Buyback Begins (Bloomberg)
Chancellor Angela Merkel opened the possibility that Germany may ultimately accept a write-off of Greek debt, as policy makers this week attempt to engineer a buyback that’s crucial for Greece to receive more funding. With Greece announcing bids today to repurchase bonds issued earlier this year, Merkel told Bild newspaper yesterday that euro leaders might consider writing off debt once the country has a budget surplus. Germany has until now ruled out such a scenario as violating European Union treaties. “If Greece one day can rely once again on its own revenue, without having to borrow, then we’ll have to look at this situation and make an evaluation,” Merkel told Bild am Sonntag in an interview when asked about the prospect of debt forgiveness. It wouldn’t happen before 2014 or 2015, “if everything goes according to plan,” the chancellor said.
The shift on Greece’s mounting indebtedness, which triggered Europe’s debt crisis three years ago, signals a growing consensus that a Greek exit could doom the 17-member single currency. German lawmakers approved the latest package to alleviate Greece’s burden after Finance Minister Wolfgang Schaeuble said a default could foreshadow the euro’s collapse. Merkel’s signal of openness to eventual debt forgiveness marks “the end of denial,” Carsten Brzeski, an economist for ING Groep in Brussels who, said in a phone interview. “It’s definitely a shift, but on the other hand, it’s obvious,” said Brzeski, who called an eventual debt writedown inevitable.
