20130102 1008 Global Markets Related News.

US FX By Cornelius Luca - Mon 31 Dec 2012 07:05:10 CT (CME/www.lucafxta.com)
The appetite for risk remains limited by the lack of progress in the ongoing "fiscal cliff" negotiations ahead of New Year's Eve. Congress returns back today with only a few hours of actual legislative time scheduled in which to act to avert the crisis. Most foreign currencies open lower or off their overnight highs. Only the pound opens slightly higher. The Asia/Pacific stock indexes were mixed. The European bourses are mixed, while the US stock markets are little changed in pre-open trading. The gold/oil spread is up.
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 foreign currencies.

Overnight
Australia: Private sector credit was flat in November after rising 0.1% in October.
China: The final HSBC manufacturing PMI rose to 51.5 in December from 50.5 in November.

Asian Stocks Advance After Senate Passes U.S. Budget Bill (Bloomberg)
Asian stocks rose after the Senate passed a U.S. budget bill that may avert some automatic tax increases and spending cuts if approved by the House.
Australian gold producer Newcrest Mining Ltd. (NCM) added 1.7 percent as the precious metal climbed. BHP Billiton Ltd., the world’s biggest mining company, advanced 0.8 percent, leading gains among raw-material producers. The MSCI Asia Pacific Excluding Japan Index (MXAPJ) rose 0.3 percent to 467.59 as of 11:34 a.m. in Sydney, before markets open in Hong Kong and South Korea. About three shares increased for each that fell. Markets in Japan and China are closed today and tomorrow for public holidays.
U.S. lawmakers are racing to address a budget impasse that congressional analysts have warned has the potential to send the world’s biggest economy into a recession if not resolved. As Congress seeks to undo $600 billion in tax increases and spending cuts that took effect yesterday, House amendments to the Senate’s bill could throw a deal into doubt, forcing lawmakers to begin again when the new session starts tomorrow.
“It’s extremely disappointing not just for the U.S. economy and investors but for global markets, that the U.S. political system itself just can’t seem to get it done,” Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion, told Bloomberg Television today. “The process we’re going through at the moment does anything but build confidence.”
The broader benchmark MSCI Asia Pacific Index, which includes Japan, surged 14 percent last year as central banks from the U.S., Europe, Japan and China took action to spur economic growth.
Trading volume on Australia’s S&P/ASX 200 Index was 51 percent below its 30-day average for the time of day, according to data compiled by Bloomberg. The measure rose 0.6 percent.

Aussie Trades Near Month-Low Amid U.S. Budget Struggle (Bloomberg)
The Australian dollar was 0.7 percent from its lowest level in more than a month as U.S. lawmakers struggle to find agreement to avoid the so-called fiscal cliff, damping demand for higher-yielding assets.
The Aussie dollar dropped versus most of its 16 major counterparts as U.S. House Republicans opposed the Senate’s budget bill and said they will seek to insert spending cuts. New Zealand’s currency also weakened after posting its biggest annual gain in two years.
“We remain somewhat in limbo,” said Robert Rennie, the Sydney-based chief currency strategist at Westpac Banking Corp. “The goodwill from the very positive Senate outcome on the budget bill hasn’t spilled over into the House and the clock is ticking.”
The Australian dollar bought $1.0399 as of 11:08 a.m. in Sydney, little changed from its $1.0394 close on Dec. 31. It fell to $1.0329 on Dec. 25, the weakest since Nov. 16. The Aussie may rise toward $1.07 by mid-year before approaching $1.01 by the end of 2013, Westpac’s Rennie said.
The yield on Australia’s 10-year bond rose six basis points, or 0.06 percentage point, to 3.33 percent.
In the U.S., the Democratic-controlled Senate won’t take up a House-amended budget bill, a Democratic leadership aide said on condition of anonymity. The impasse between the Senate and the Republican-dominated House threatens an effort to head off automatic tax increases and spending cuts that risk tipping the world’s biggest economy back into recession.
New Zealand’s currency dropped 0.1 percent to 82.73 U.S. cents after climbing 6.6 percent last year, the most since 2010. The country’s two-year swap rate, a fixed payment made to receive floating rates, fell 2 1/2 basis points to 2.67 percent.

Yen Touches 18-Month Low Against Euro on Abe’s Currency Policy (Bloomberg)
The yen touched an 18-month low against the euro after Japanese Prime Minister Shinzo Abe reiterated his intention to weaken his nation’s currency.
Abe said in a New Year statement yesterday that “bold” monetary policy is one of the three prongs of his economic measures. The dollar was little changed against the euro as the U.S. Senate and House sought to avoid the so-called fiscal cliff of automatic tax increases and spending cuts that started to take effect yesterday.
“For the moment, the yen is probably going to remain weak,” said Andrew Salter, a currency strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) “If you look out a month or two, it really depends upon what the government is able to achieve as far as the central bank is concerned.”
The yen touched 114.78 per euro, the weakest since July 11, 2011, and traded at 114.46 as of 8:48 a.m. in Singapore from 114.46 at the close on Dec. 31. It was little changed at 86.71 per dollar. The greenback traded at $1.3201 per euro from $1.3193.
There was no trade in major markets yesterday, and Japan is closed till Jan. 4 for national holidays.
Abe said in the statement that the most urgent issue for Japan is to break out of currency appreciation and deflation. The premier has called on the Bank of Japan (8301) to undertake unlimited money printing to spur growth and achieve inflation of 2 percent, twice the BOJ’s target.
While the Japanese currency dropped 11 percent last year versus the dollar, the biggest annual slide since 2005, it is still about 17 percent stronger than the 10-year average of 101 per greenback.
“Neutral territory” for the yen is about 100 against the U.S. currency, Nissan Motor Co. President Carlos Ghosn told reporters during a year-end briefing. “Please bring it back to the neutral territory so that we can do our job without a handicap,” he said.

Senate Budget Pact Would Crimp Not Crush U.S. Growth (Bloomberg)
The budget deal passed by the Senate probably would crimp the U.S. economic recovery without stopping it.
The elimination of a 2 percent payroll tax cut, coupled with higher income taxes on the wealthy, will help reduce growth in the first quarter to 1 percent, from 3.1 percent in 2012’s third quarter, the latest data available, according to economists at JPMorgan Chase & Co. (JPM) and Bank of America Corp. The expansion will strengthen later in the year as the housing market continues to rebound, they forecast.
“It’s going to definitely present a headwind for the economy,” Michael Feroli, chief U.S. economist for JPMorgan Chase in New York, said of the fiscal pact that the Senate approved early today, sending it to the House of Representatives. “We’re looking for a downdraft in growth in the first half of the year, with the economy coming back in the second.”
The first half slowdown will mean that the U.S. will make limited progress in reducing unemployment in 2013, according to projections by Ethan Harris, co-head of global economic research for Bank of America in New York. He sees the jobless rate falling to 7.5 percent in the fourth quarter of 2013 from 7.7 percent in November 2012.

Jobless Benefits
The agreement forged in talks between Vice President Joe Biden and Senate Minority Leader Mitch McConnell, a Kentucky Republican, would avert some, though not all, of more than $600 billion in automatic tax increases and spending cuts slated to take effect this year. Under the accord, passed by the Senate early today, households making less than $450,000 per year would be spared an income tax rate increase. And the unemployed would still be eligible for extended jobless benefits.
Payroll taxes would rise, to 6.2 percent from 4.2 percent last year. And the wealthy would see an increase in their top income tax rate, to 39.6 percent, from 35 percent.
The deal faces an uncertain fate in the Republican- controlled House. House Speaker John Boehner of Ohio said last night the chamber would consider any budget measure passed by the Senate. “Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members -- and the American people -- have been able to review the legislation,” Boehner said in a statement.
Even if the House passes the bill, the agreement won’t mean the end of budget brinksmanship, Andrew Laperriere, senior managing director for ISI Group in Washington, said in a report yesterday to clients.

Debt Ceiling
The U.S. has hit its $16.4 trillion debt limit, forcing the Treasury Department to take what it called “extraordinary measures” to keep funding the government for now.
The Treasury probably will exhaust such measures by late February or early March, setting up another confrontation between President Barack Obama and congressional Republicans, according to Laperriere, who spent eight years working on Capitol Hill before joining ISI in 1999.
The stock market bounded ahead yesterday as lawmakers looked increasingly likely to reach agreement on the budget. The Standard & Poor’s 500 Index (SPX) rose 1.7 percent to 1,426.19 at 4 p.m. in New York, bringing the gain for the year to 13 percent.
The biggest hit to the economy from the fiscal package probably will come from the expiration of the payroll tax cut, Feroli said. The payroll tax cut was designed as a temporary measure to boost the economy in 2011 and then was extended through 2012. He reckons that its elimination will slow growth by just over a half percentage point this year by taking $125 billion out of consumers’ pockets.

‘Meaningful Impact’
It “would have a meaningful impact because it hits everybody,” said Michael Gapen, a New York-based senior economist at Barclays Plc. “You’d see it in the first quarter, and consumption would ratchet down.”
Higher taxes on the wealthy, in contrast, won’t have that much of an effect because top earners tend to save more of their income rather than spend it, he added.
Possible federal spending cuts would reduce economic growth by more than a half percentage point if they eventually are implemented, based on estimates by Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. Defense companies such as Northrop Grumman Corp. (NOC) and Lockheed Martin Corp. (LMT) could be particularly hard hit.
The deal would prevent automatic spending cuts from taking effect for two months, Senate Republicans told reporters.

Resilient Recovery
The recovery should prove resilient in the face of government belt-tightening because of the progress that the private sector in rebounding from the 2007-2009 recession, said Bank of America’s Harris.
“Both the housing market and the banking sector have healed significantly,” he said.
Residential real estate, which collapsed and helped trigger the 18-month economic downturn that ended in June 2009, is picking up. Existing homes sold at their strongest pace in more than two years in November and building permits reached a four- year high. Companies including Toll Brothers Inc. (TOL) and KB Home are competing for buildable lots and raising prices.
“We’ve seen a virtuous cycle building in housing,” said Terry Sheehan, an economic analyst at Stone & McCarthy Research in Princeton, New Jersey.

Bank Profits
Banks are bouncing back as well, with profits in the third quarter the highest in six years, according to the Federal Deposit Insurance Corp. in Washington.
The number of lenders on FDIC’s confidential list of so- called problem banks -- those deemed to be at greater risk of collapse -- fell from 732 in the second quarter to 694 in the third, the smallest number since a peak of 888 after the financial crisis.
Another encouraging sign: The job market has held up even in the face of concerns about the possibility of higher taxes and government spending cuts in 2013. Payroll gains this year through November averaged about 151,000 a month compared with 147,000 in the same period of 2011.
Labor Department figures due Jan. 4 may show employers added 150,000 jobs in December, about the same pace as the prior month, according to the median forecast of economists surveyed by Bloomberg.
“Underneath the fiscal drama is an improving economy,” said Ryan Sweet, a senior economist at Moody’s Analytics. “The fiscal drag will take some wind out of it but once there is more clarity, we can expect stronger growth.”

Senate Passes Budget Agreement to Undo Tax Increases (Bloomberg)
The Senate passed a budget agreement seeking to undo tax increases that took effect today for almost every U.S. worker after Congress and the Obama administration allowed a fiscal deadline to expire.
The legislation, passed 89-8 this morning, would make permanent the tax cuts for most households that expired at midnight, continue expanded unemployment benefits and delay automatic spending cuts for two months.
The measure emerged from an agreement yesterday between Vice President Joe Biden and Senate Minority Leader Mitch McConnell to stave off more than $600 billion in tax increases and federal spending cuts set to begin this month. The 157-page bill now moves to the House for consideration.
“We all knew that if we did nothing, they’d be going up on everyone today,” McConnell said before the vote. “We weren’t going to let that happen.”
After more than 17 months of bickering, Congress and President Barack Obama have yet to enact a deal to avert the budget changes known as the fiscal cliff. Even if an agreement clears both chambers of Congress in coming days, it would be more limited than what Obama and leaders of both parties sought.
The deal passed early today by the Senate would extend income tax cuts for household income up to $450,000, with rates rising to 39.6 percent on income above that level. Expanded unemployment insurance would be continued through 2013.

House Republicans Drop Bid to Add Spending Cuts to Bill (Bloomberg)
House Republicans abandoned their effort to add spending cuts to the Senate’s budget legislation and one member predicted the measure will be passed tonight.
Oklahoma Representative Tom Cole said he expects the House to pass the Senate bill unchanged with a “substantial” bipartisan vote. The House Rules Committee scheduled an 8:10 p.m. meeting to set the parameters for the vote.
House passage of the Senate bill would avert $600 billion in automatic tax increases and spending cuts that take effect starting today. The Senate passed its plan on an 89-8 vote early this morning.
“Let’s accept the wins that we have and live to fight another day,” Cole said in an interview on Bloomberg Television.
House Speaker John Boehner had offered fellow Republicans two options, including allowing a vote on the Senate bill if party members couldn’t show they had a majority vote to amend it with spending cuts sought by many Republicans.

House Republicans to Seek Spending Cuts in Budget Bill (Bloomberg)
U.S. House Republicans oppose the Senate’s budget bill and will seek to insert spending cuts, jeopardizing a bipartisan effort to undo $600 billion in automatic tax increases and spending cuts that take effect starting today.
The Democratic-controlled Senate won’t take up a House- amended bill, a Democratic leadership aide said on condition of anonymity. The Senate adjourned until noon tomorrow, and House Republicans were meeting privately today to decide how to proceed.
“I do not support” the Senate bill, House Majority Leader Eric Cantor of Virginia told reporters as he left a private meeting of House Republicans today in Washington.
“We’re all greatly disappointed with the Senate,” said Republican Jack Kingston of Georgia. “This appears to be really heavy on revenues and really light on cuts.”
The Senate’s 89-8 passage of its measure early today shifted the pressure to House Speaker John Boehner of Ohio. In his two years as speaker, Boehner has had to quell rebellions among fellow Republicans backed by the anti-tax Tea Party.
House amendments to the Senate bill would throw into doubt a deal worked out by Vice President Joe Biden and Senate Minority Leader Mitch McConnell, a Kentucky Republican, with fewer than 48 hours until the current Congress expires. Lawmakers would have to begin again when the new session starts Jan. 3.

China Manufacturing Index Shows Third Straight Expansion (Bloomberg)
A gauge of China’s manufacturing showed a third month of expansion, adding evidence that the recovery in the world’s second-biggest economy will extend into the new year.
The Purchasing Managers’ Index was 50.6 in December, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today in Beijing. That compares with the 51.0 median estimate in a Bloomberg News survey of 27 analysts and 50.6 in November. A reading above 50 indicates expansion.
Today’s report, along with a separate manufacturing gauge yesterday showing the fastest expansion in 19 months, reflects increased infrastructure spending that’s helping drive a rebound from a seven-quarter slowdown as a new generation of Communist Party leaders takes the nation’s reins. Li Keqiang, set to succeed Wen Jiabao as premier in March, is championing urbanization to put economic growth on a more sustainable path.
“Most data points, especially the industrial earnings, have been pointing to an impressive recovery,” Lu Ting, chief Greater China economist at Bank of America Corp. in Hong Kong, said in a note today. At the same time, “investors should be wary of getting too optimistic in coming months,” he said.
The final December reading of a purchasing managers’ index released yesterday by HSBC Holdings Plc and Markit Economics was 51.5, the highest in 19 months, after a 50.9 preliminary reading and a final 50.5 in November. The HSBC index focuses more on smaller businesses.

Hu Jintao Says China to Step Up Efforts to Support Growth (Bloomberg)
China will work toward bolstering global economic growth in 2013, President Hu Jintao said in a New Year’s Eve address, amid optimism that a recovery in the world’s second-biggest economy is gaining traction.
The nation will “step up efforts to promote strong, sustainable and balanced growth in the world economy,” Hu said in the speech broadcast by state radio and television. China achieved stable economic development in 2012 and will seek to do the same this year while making restructuring of its growth model a focus, he said.
Hu’s last New Year’s Eve address before he steps down as president in March signaled Chinese leaders’ confidence the economy may be rebounding after a seven-quarter slowdown. A recovery may facilitate the transfer of power to Xi Jinping, appointed head of the Communist Party in November and set to become president, as authorities seek to assuage discontent sparked by corruption and a widening income gap.
The Chinese people are now uniting around the leadership of Xi to work toward building a “well-off society,” Hu said.
China’s new Communist Party leaders have pledged to abandon extravagance, cut down on lavish receptions and live more frugally, amid a broader push to stamp out corruption and win back people’s trust.
Hu’s speech didn’t indicate how China, set to complete its once-a-decade leadership transition in March, plans to manage an economy that’s estimated to expand 8.1 percent this year.

Japan’s Population Falls by Record in 2012 as Births Decrease (Bloomberg)
Japan’s population last year declined by 212,000, the biggest drop on record, according to an estimate by the nation’s health ministry.
That’s the largest reduction since the ministry started recording the data in 1947 and a sixth straight year of declines. The number of births fell by 18,000 to a record low of 1.03 million last year, the ministry said.

North Korea Picks Stronger Economy, South Ties as Top 2013 Tasks (Bloomberg)
North Korea’s Kim Jong Un named improving the economy and better relations with South Korea as top policy goals for his second year as leader, signaling he may ease his country’s confrontational approach toward Seoul.
“The building of an economic giant is the most important task that comes to the fore in the present stage of building a thriving socialist country,” Kim said today in a New Year address carried by the official Korean Central News Agency. “The reunification of the country is the greatest national task that brooks no further delay.”
Kim departed from the past year’s saber-rattling against South Korean President Lee Myung Bak as Lee’s successor Park Geun Hye prepares to take office Feb. 25. Park has repudiated Lee’s hard-line North Korea policy, expressing her willingness to talk to Kim and help the North join global organizations to thaw ties.
“Kim’s speech mentioned the importance of the economy at far greater frequency than the military,” said Cheong Seong Chang, senior research fellow at the Seoul-based Sejong Institute, in an e-mail. “The success of the Dec. 12 missile launch has given Kim enough confidence to not have to rely on his father’s military-first policy to garner support.
‘‘The urgency of economic issues also compounds to the North’s need to better ties with South Korea, which makes it likely that Pyongyang will aggressively engage in efforts to resume dialogue,” Cheong said.

Singapore GDP Topped Survey Last Quarter, Avert Recession (Bloomberg)
Singapore’s economy expanded more than economists estimated last quarter, averting a recession even after the central bank refrained from monetary stimulus as it sought to contain elevated inflation.
Gross domestic product rose an annualized 1.8 percent in the three months to Dec. 31 from the previous period, when it contracted a revised 6.3 percent, the Trade Ministry said in a statement today. The median of 11 estimates in a Bloomberg News survey was for a 1.6 percent expansion. The economy grew 1.2 percent last year, less than a quarter of 2011’s pace.
The World Bank last month raised its outlook for emerging nations in East Asia, citing a recovery in China. The export- dependent region still faces risks from Europe’s protracted sovereign debt crisis and a U.S. budget impasse that congressional analysts have warned has the potential to send the world’s biggest economy into a recession if not resolved.
“Going forward, what happens will to a large extent depend on things like what stimulus from China looks like, how well the signs of nascent recovery seen in the U.S. is held up,” said Vishnu Varathan, a Singapore-based economist at Mizuho Corporate Bank Ltd. Singapore “will do better than it did last year.”
The Singapore dollar was little changed at S$1.2223 against the U.S. currency as of 8:56 a.m. local time. It gained 6.2 percent last year, and reached a record in October after the central bank said it would maintain a modest and gradual appreciation. A majority of analysts surveyed by Bloomberg predicted the pace of strengthening would slow.

Italy Debt Rallies in Euro-Area Bonds’ Best Year as Crisis Eases (Bloomberg)
Italian and Portuguese bonds rallied in 2012 as euro-area government securities had their best year on record after policy makers stepped up efforts to contain market turmoil that threatened to destroy the currency bloc.
A pledge in July from European Central Bank President Mario Draghi to do “whatever it takes” to safeguard the monetary union pulled down Spain’s borrowing costs from a euro-era record. Irish securities delivered the best returns since 1993 as the ECB outlined a bond-buying plan that eased tension in Europe’s three-year-old debt crisis. German bunds underperformed French and Austrian peers as record-low yields dented demand for the region’s top-rated fixed-income assets.
“We have seen a significant change in sentiment,” said Mohit Kumar, head of European fixed-income strategy at Deutsche Bank AG in London. “Portugal, Ireland, Italy, they’ve all done really well. The primary support for the market came from the ECB, which removed the risk of an aggressive selloff in any of the markets and of a breakup of the euro region.”
Portuguese bonds handed investors a 57 percent return through Dec. 28, the largest since at least 1994, according to indexes compiled by Bloomberg and European Federation of Financial Analysts Societies. Italian debt rose 21 percent, the first annual gain since 2009, while Irish sovereign securities returned 29 percent.
An index of all euro-region government bonds surged 12 percent, the most since Bloomberg began collecting the data in 1999, and extending the previous year’s 1.5 percent advance.