20130116 1003 Global Markets Related News.

Asia FX By Cornelius Luca - Tue 15 Jan 2013 16:36:14 CT (CME/www.lucafxta.com)
The financial markets were divergent on risk on Tuesday amid worries about the US earnings and after Eurogroup head Jean-Claude Juncker warned that the euro's exchange rate was dangerously high. All European currencies fell, commodity currencies consolidated, while the yen struggled higher after falling steadily in the previous weeks. The US stock markets closed divergently. The gold/oil spread ended higher. 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 long on European currencies and commodity currencies, and short yen. Good luck!

Overnight
US: The NY Empire state manufacturing index slipped to -7.8 in January from -7.3 in December.
US: The PPI dipped 0.2% in December  after falling 0.8%. The core PPI rose again by 0.1%.
US: The retail sales rose 0.5% in December after rising 0.4% in November.\\\\
US: The business inventories rose 0.3% in November, the same as in October. Business sales rose 1.0% after falling by 0.3% in October.

Today's economic calendar
Japan: Domestic Corporate Goods Price Index for December
Japan: Machinery orders for November
Japan: Consumer confidence index for December

Asian Stocks Drop as Japan Shares Retreat After Yen Gains (Bloomberg)
Asian stocks fell, with the regional benchmark index heading for its first decline in three days, as Japan’s Nikkei 225 Stock Average retreated from a 32-month high after the yen gained, dimming the outlook for export earnings.
Honda Motor Co. (7267), which gets 81 percent of its auto sales overseas, slipped 1.3 percent in Tokyo. Brother Industries Ltd. slid 1 percent after Credit Suisse Group AG recommended selling the shares of the Japanese office-equipment maker. Leighton Holdings Ltd. added 1.1 percent after the Australian Financial Review reported Hong Kong’s PCCW Ltd. may bid for the telecommunications infrastructure of Australia’s biggest construction company.
The MSCI Asia Pacific Index (MXAP) slid 0.1 percent to 132.51 as of 9:34 a.m. Tokyo time, before markets in China and Hong Kong open. The gauge has rallied since November after reports showed China’s economy is recovering and Japanese shares gained on speculation new Prime Minister Shinzo Abe will pursue more aggressive policies to stimulate the world’s third-largest economy. Japan’s Nikkei 225 dropped 0.9 percent, after closing yesterday at the highest level since April 2010.
“There should be some short-term selling amid a feeling that shares are overheating and the yen has stopped sliding,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc. “Investors are confident in the policy mix being put forward by the Abe government and there’s less worry about the global economy, so people are looking to buy on dips.”

Japan Stocks Fall as Rising Yen Outweighs Machine Orders (Bloomberg)
Japanese shares fell, with the Nikkei 225 (NKY) Stock Average retreating from a 32-month high, after the yen climbed for a second day, overshadowing a bigger-than- expected increase in machinery orders.
Canon Inc. (7751), a camera maker that gets 80 percent of its revenue outside Japan, slid 2.5 percent. Dai-Ichi Life Insurance Co. declined 2.3 percent after closing at its highest since May 2011 yesterday. The Nikkei 225’s relative strength index, an indicator of price movements, was at 80 yesterday, above the 70 threshold that some investors view as a sign to sell. Sumitomo Realty & Development Co. fell 2.4 percent after its rating was cut at SMBC Nikko Securities Inc.
The Nikkei 225 fell 1.1 percent to 10,761.79 as of 9:47 a.m. in Tokyo after closing yesterday at the highest level since April 2010. The broader Topix (TPX) Index slid 0.7 percent to 900.23, with about nine stocks declining for every six that rose.
“There should be some short-term selling amid a feeling that shares are overheating and the yen has stopped sliding,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc.
The 25-day Toraku index, which compares the number of advancing stocks with declining shares on the Tokyo Stock Exchange, rose to 158 yesterday. The gauge since Dec. 13 has stayed above 120, a level that indicates to some traders that a decline is likely.

U.S. Stocks Rise as Retailer Rally Offsets Debt-Ceiling (Bloomberg)
U.S. stocks advanced, rebounding from earlier losses in the Standard & Poor’s 500 Index, as a rally in retail and transportation companies overshadowed concern about discussions on raising the debt ceiling.
Consumer discretionary companies led the gains in the S&P 500 as data showed retail sales rose more than forecast in December. Dell Inc. (DELL) rallied 7.2 percent, following yesterday’s 13 percent surge, as the computer maker is said to be in buyout talks. Apple Inc. and Hewlett-Packard Co. dropped at least 2.4 percent to pace losses in technology shares. Facebook Inc. retreated 2.7 percent after the company introduced a tool for searching information posted to its social network.
The S&P 500 rose 0.1 percent to 1,472.34 at 4 p.m. New York time, after falling as much as 0.5 percent earlier. The Dow Jones Industrial Average added 27.57 points, or 0.2 percent, to 13,534.89. The Dow Jones Transportation Average gained 0.7 percent to a record 5,639.64. About 5.8 billion shares changed hands on U.S. exchanges, or 5.7 percent below the three-month average, according to data compiled by Bloomberg.
“The retail data is good news for economic expansion,” said Peter Jankovskis, who helps oversee $3 billion of assets as co-chief investment officer at Lisle, Illinois-based Oakbrook Investments LLC. He spoke in a telephone interview. “It’s encouraging. We have the earnings season going on, people are on wait-and-see mode. In addition, there’s a lot of rhetoric on the debt-ceiling front. Though it’s probably a bit early to start getting concerned about that.”

European Stocks Are Little Changed; SAP Shares Tumble (Bloomberg)
European stocks were little changed as concern that debt-ceiling talks will harm the U.S. economy and a report showing weaker-than-forecast German growth offset Spain’s better-than-targeted sale of debt.
IG Group Holdings Plc (IGG) slipped 1.1 percent after saying first-half net trading revenue fell. SAP AG (SAP) sank the most in six months after reporting earnings that trailed estimates. Air Liquide SA dropped 1 percent after Bank of America Corp. cut its recommendation on the stock. Hennes & Mauritz AB (HMB) advanced 3.6 percent after posting sales that beat analyst forecasts.
The Stoxx Europe 600 Index (SXXP) lost less than 0.1 percent to 285.97 at the close of trading. The measure has still gained 2.3 percent since the start of the year after U.S. lawmakers agreed on a budget, avoiding tax increases and spending cuts that threatened to push the world’s biggest economy into a recession.
“We had a relief rally after the fiscal cliff was pushed out,” Lucy MacDonald, chief investment officer for equities at Allianz Global Investors in London, which oversees $401 billion, said in a Bloomberg Television interview. “Now the focus will go back on the fiscal cliff and the debt ceiling. That can be a catalyst for a pause.”
National benchmark indexes fell in 11 of the 18 western European markets. France’s CAC 40 lost 0.3 percent and Germany’s DAX sank 0.7 percent. The FTSE 100 added 0.2 percent.
The volume of shares changing hands on the Stoxx 600 was 17 percent higher than the average of the last 30 days, according to data compiled by Bloomberg.

Emerging Stocks Drop Led by Biggest Technology Slump in 3 Weeks (Bloomberg)
Emerging-market stocks fell, driven by the biggest slump in technology shares in three weeks, on concern waning demand for iPhones will hurt suppliers while energy producers declined with oil prices.
Hon Hai Precision Industry Co. (2317) and Catcher Technology Co. dragged Apple Inc. suppliers lower for a second day, with a gauge of technology stocks falling 1.5 percent. Brazilian oil producer OGX Petroleo & Gas Participacoes SA stoked a 0.6 percent drop in the Bovespa index, while OAO Novatek (NVTK), Russia’s largest independent gas producer, slumped in London.
The MSCI Emerging Markets Index declined 0.7 percent to 1,073.48 in New York. Apple Inc. cut orders for iPhone 5 displays this quarter by about 50 percent, the Nikkei newswire reported yesterday. The U.S. risks economic and social calamity if the $16.4 trillion debt ceiling isn’t increased, President Barack Obama said. The 21 nations in the emerging-markets gauge send an average 17 percent of their exports to the U.S., World Trade Organization data show.
The Apple order reduction report “hit the supply chain and there were big declines in Taiwan’s component producers,” Michael Wang, an emerging-markets strategist at Amiya Capital LLP in London, said by e-mail. “Commodity prices are impacting Russia, hurting sentiment in the Middle East.”
The iShares MSCI Emerging Markets Index exchange-traded fund, the ETF tracking developing-nation shares, dropped 0.4 percent to $44.47. The Chicago Board Options Exchange Emerging Markets ETF Volatility Index, a measure of options prices on the fund and expectations of price swings, climbed 4.3 percent to 17.25.

Yen Rises for 2nd Day Before BOJ Holds Policy Meeting Next Week (Bloomberg)
The yen gained for a second day amid speculation the Bank of Japan (8301) will fail to impress investors with extra policy measures at its Jan. 21-22 meeting.
The euro remained lower following a drop yesterday after Luxembourg Prime Minister Jean-Claude Juncker said the currency is “dangerously high.” European Central Bank Governing Council member Ewald Nowotny speaks on monetary policy today.
A further decline in the yen “requires much bolder measures, as additional easing from the BOJ has been already priced in,” said Ken Takahashi, an assistant vice president of global markets in New York at Sumitomo Mitsui Trust Bank Ltd. “The euro will remain susceptible to comments from officials and economic indicators as investors are weighing on the monetary policy outlook.”
The yen rose 0.4 percent to 88.42 per dollar as of 10:11 a.m. in Tokyo following a 0.8 percent jump yesterday. It weakened to 89.67 on Jan. 14, a level unseen since June 2010. The euro was little changed at $1.3302 after dropping 0.6 percent yesterday. It reached $1.3404 on Jan. 14, the strongest since Feb. 29. The currency fell 0.5 percent to 117.51 yen.
BOJ Governor Masaaki Shirakawa and his fellow board members will review the central bank’s 1 percent inflation goal at their policy meeting next week. Prime Minister Shinzo Abe has called for the target to be doubled and said on Jan. 13 that he wants a BOJ chief “who can push through bold monetary policy.”

Euro Exchange Rate Is ’Dangerously High,’ Juncker Says (Bloomberg)
The euro’s 8.4 percent gain against the U.S. dollar in the past six months is posing a fresh threat to the European economy just as it shows signs of escaping the debt crisis, said Jean-Claude Juncker, who leads the group of euro-area finance ministers.
Echoing policy makers from Switzerland to Japan in bemoaning strong exchange rates, Juncker late yesterday called the euro’s value “dangerously high” after the 17-nation currency this week traded above $1.34 against the dollar for the first time since February last year.
The euro has rallied amid growing signs in financial markets that the three-year debt turmoil is fading and after European Central Bank President Mario Draghi last week signaled no immediate plan to ease monetary policy further.
“It was said last year that the euro zone was at risk of breaking and I said last year that this won’t happen,” Juncker, who steps down this month as head of the so-called eurogroup, told an annual gathering of business leaders in Luxembourg. “The euro zone has become more stable after lots of efforts,” Juncker said, adding that now “the euro foreign-exchange rate is dangerously high.”
The European currency dropped as much as 0.9 percent after Juncker’s comments, the biggest intraday decline since Jan. 3. The euro traded at $1.3306 at 5 p.m. New York time, down 0.6 percent. It touched an intraday high of $1.3404 on Jan. 14, the strongest since Feb. 29, 2012.

Aussie Dollar Falls Versus Kiwi After Confidence Report (Bloomberg)
The Australian dollar fell versus its New Zealand peer after data showed consumer confidence was little changed from a two-month low, underscoring concern the larger South Pacific nation’s economy is weakening.
The so-called Aussie remained lower following a one-day drop against the yen after the World Bank cut its global growth forecast for this year, damping demand for higher-yielding assets. The New Zealand dollar, known as the kiwi, advanced versus all of its 16 major counterparts.
“We’ve seen over the last week that domestic data hasn’t been that good and the Aussie’s taken perhaps a slight hit,” said Derek Mumford, a Sydney-based director at Rochford Capital, a currency risk-management company. “I wouldn’t say today’s data reflects any kind of booming confidence.”
Australia’s dollar fell 0.2 percent to NZ$1.2557 at 11:28 a.m. in Sydney. It was little changed at $1.0570. The Aussie bought 93.71 yen after sliding 0.8 percent to 93.81 yesterday. New Zealand’s currency gained 0.2 percent to 84.16 U.S. cents. It bought 74.61 yen, 0.1 percent above the close in New York.
Ten-year yields in Australia were at 3.42 percent from 3.44 percent yesterday. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates which is sensitive to rate expectations, was little changed at 2.81 percent.
Australia’s sentiment index for January rose 0.6 percent to 100.6, a Westpac Banking Corp. and Melbourne Institute survey taken Jan. 7-13 of 1,200 adults showed today in Sydney. This month’s figure was little changed from the 100.03 level in December, the least since October. Readings above 100 indicate optimists outnumbered pessimists.
The Washington-based World Bank projects the world economy will expand 2.4 percent, down from a June forecast of 3 percent, after growing 2.3 percent in 2012. It halved its forecast for Japan, cut the U.S. projection b

Treasuries Hold Three-Day Gain on Debt Debate (Bloomberg)
Treasuries held a three-day gain on concern political wrangling over the U.S. debt ceiling will curb economic growth, fueling demand for the relative safety of government bonds.
Fitch Ratings said yesterday its AAA credit rankings on France, the U.S. and the U.K. are likely to come under pressure this year due to the slow pace of economic expansion and high debt levels.
“We will have a serious problem next month” if politicians don’t raise the debt limit, said Kim Youngsung, the head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $106.4 billion in assets. “It will have a negative impact on the global economy. We’ve seen yields go down over the past couple of days. I hope the problem will be solved, and yields will go up again.”
Ten-year yields were little changed today at 1.83 percent as of 9:42 a.m. in Tokyo, according to Bloomberg Bond Trader data. The price of the 1.625 percent security due in November 2022 was 98 5/32. The rate dropped six basis points, or 0.06 percentage point, over the past three days.
The Treasury uses emergency measures to delay a default as the total value of debt nears the ceiling. Exhausting the extraordinary steps without raising the limit would require the Treasury to fund the government with cash on hand, which wouldn’t be adequate “for any meaningful length of time,” according to Treasury Secretary Timothy F. Geithner.

Treasury Bill Rate Curve Inverts Amid Debt-Ceiling Showdown (Bloomberg)
Rates on Treasury bills maturing around the time the U.S. is forecast to run out of money to pay its obligations are higher than those on longer-maturity securities, suggesting investors are concerned lawmakers may fail to agree to lift the debt ceiling.
Feb. 28 bill rates rose to 0.108 percent, an increase of 2 basis points, or 0.02 percentage point, and the highest since Nov. 14. That compares with 0.08 percent for bills due April 18. At the end of last year, the April bills yielded 7 basis points more than the February securities.
“You can see the debt-ceiling-related move pretty clearly now in the bill curve, which is a dynamic that only started in the last two days,” Andrew Hollenhorst, fixed-income strategist at Citigroup Inc. in New York, said in a telephone interview. “We think it is an opportunity. It’s very unlikely that payments would actually be delayed. If you’re an investor who can take advantage of the tactical situation, we’d wait for yields to move a little bit higher in those maturities and then think about investing.”
The Treasury reached its statutory borrowing limit on Dec. 31 and is using “extraordinary” measures to pay for the government. It will lack sufficient funds to pay all its bills as early as Feb. 15, according to the Washington-based Bipartisan Policy Center.

World Bank Cuts Growth Forecasts as Developed Nations Lose Steam (Bloomberg)
The World Bank cut its global growth forecast for this year as austerity measures, high unemployment and low business confidence weigh on economies in developed nations.
The Washington-based bank projects the world economy will expand 2.4 percent, down from a June forecast of 3 percent, after growing 2.3 percent in 2012. It halved its forecast for Japan, cut the U.S. projection by 0.5 percentage point and predicted a second year of contraction in the euro region. It also lowered projections for emerging markets led by Brazil, India and Mexico.
“Overall, the global economic environment remains fragile and prone to further disappointment, although the balance of risks is now less skewed to the downside than it has been in recent years,” the World Bank said in its twice-yearly report.
Developed economies failed to gain steam in 2012 even after measures to stem the European debt crisis helped boost financial markets around the world. Uncertainties surrounding a U.S. political agreement on spending cuts and Japan’s diplomatic tensions with China may weigh further on the global economy just as emerging markets recover from one of their slowest growth rates of the past decade.
“What we’re seeing is the recovery that we anticipated in June being pushed a little further back in time, beginning closer to the end of the first quarter, into the second quarter of 2013,” Andrew Burns, the World Bank’s director of global economic trends, said on a conference call.

Retail Sales Rise in U.S. to Close 2012 on Upbeat Note: Economy (Bloomberg)
Retail sales rose more than forecast in December to end 2012 on a positive note, indicating Americans may be able to rise above Washington’s budget rancor to keep contributing to economic growth.
Purchases climbed 0.5 percent, the biggest gain in three months, after a revised 0.4 percent increase in November that was larger than previously reported, according to Commerce Department data issued today in Washington. Another report showed wholesale prices retreated more than forecast last month to cap the smallest annual gain in four years.
An improving job market, a rebound in housing, lower gasoline prices and discounting by chains such as Macy’s Inc. (M) will give households the means to keep shopping after the holidays. Consumers need the support as they deal with a tax- induced drop in take-home pay and warnings from President Barack Obama that the economy will suffer if Congress fails to raise the debt limit and agree on budget cuts.
“It looks like households are saving us from a lot worse outcome for the economy,” said Jonathan Basile, a U.S. economist at Credit Suisse in New York. “The first quarter is going to be about adjusting to higher taxes and taking home less pay. It doesn’t mean the end of the expansion.”
Stocks fell, extending yesterday’s decline in the Standard & Poor’s 500 Index, as concern about discussions on raising the debt ceiling intensified. The S&P 500 fell 0.2 percent to 1,467.85 at 11:34 a.m. in New York.

Fed’s Rosengren Sees More QE on If No Jobless Progress (Bloomberg)
Federal Reserve Bank of Boston President Eric Rosengren said the central bank could still enlarge its $85 billion monthly purchases of bonds if policy makers are not making progress toward their twin goals of stable prices and full employment.
“I think there is the capacity to enlarge it if that were to become necessary,” Rosengren, 55, said in a telephone interview with Bloomberg News.
Rosengren added that it’s “difficult to strategize what our response would be without knowing what the source of potential weakness would be” and that he expects the economy to make enough progress to avoid the need to enlarge the program.
The Boston Fed chief becomes a voting member of the Federal Open Market Committee this year as part of a rotation among Fed regional presidents. He will lend his voice to a debate over when to halt or shrink the $40 billion monthly purchases of mortgage bonds and $45 billion monthly purchases of Treasuries announced last year.
Minutes of the central bank’s most recent meeting showed policy makers already debating when it would be appropriate to halt purchases. “Several members” said it would be appropriate to slow or stop purchases “well before the end of 2013” and a “few” willing to let the program run to the end of the year.

Bernanke presses Congress to raise U.S. debt ceiling (Reuters)
Federal Reserve Chairman Ben Bernanke urged U.S. lawmakers on Monday to lift the country's borrowing limit to avoid a potentially disastrous debt default, warning that the economy was still at risk from political gridlock over the deficit.

China Defends Export Data After Economists’ Skepticism (Bloomberg)
China’s customs administration said every dollar of trade is documented, defending the quality of export data that analysts at UBS AG and Australia & New Zealand Banking Group Ltd. (ANZ) said may fail to capture the true picture.
“Customs import and export statistics are based upon actual customs declarations,” the General Administration of Customs said in an e-mailed statement yesterday, responding to questions submitted by Bloomberg News on Jan. 11. “In our published export and import data, every dollar has a corresponding customs declaration document to back it.”
Last week’s customs report showing export growth of 14.1 percent in December from a year earlier, after a 2.9 percent gain in November, spurred skepticism from economists at banks including UBS, which cited discrepancies with other nations’ imports from China. Smaller trade gains could signal a less robust recovery from a seven-quarter slowdown.
“It is possible that local governments may have tried to boost exports data by either making round trips in special trade zones” or by exporting “earlier than otherwise in an attempt to improve the annual exports data,” Goldman Sachs Group Inc.’s Beijing-based economists Yu Song and Yin Zhang wrote in a Jan. 10 note. “Having said that, there is no concrete evidence to suggest this is what actually happened.”
Goldman Sachs and ANZ also cited a divergence from overseas orders in a manufacturing index, while Mizuho Securities Asia Ltd. said the increase could indicate exporters’ rush to finish year-end orders and government pressure to report exports before the end of the year to reach the official 2012 target of 10 percent growth.
Customs collects trade statistics “in accordance with the relevant laws and regulations,” according to the agency’s statement. Companies within special-trade zones, or bonded zones, that have actual transactions with overseas partners are included in the statistics, while transactions with domestic companies aren’t included in data, customs said.

Li’s Urban Planning Sends Invesco Into Machinery Stocks (Bloomberg)
China’s move to develop urban areas is luring Invesco Great Wall Fund Management Co. and Harvest Fund Management Co. to industrial stocks that are trading at an 11 percent premium to the benchmark index.
Yu Guang, who manages the $350 million Invesco Great Wall Energy fund, and Zhang Tao, who oversees the $480 million Harvest Research Selective Equity fund, are buying construction machinery stocks and railway companies. Their funds beat at least 92 percent of rivals in the past 12 months, data compiled by Bloomberg show.
A gauge of industrial companies in the CSI 300 Index (SHSZ300) has rallied 20 percent since Dec. 4, trailing the 22 percent advance in the benchmark measure, when the official Xinhua News Agency cited the nation’s new leaders as saying they would promote urban development. Urbanization is a “huge engine” of China’s future growth, Li Keqiang, poised to succeed Wen Jiabao as premier in March, wrote in a full-page article in the People’s Daily on Nov. 21.
“There are a lot of expectations for reforms and urbanization,” Invesco’s Yu said by phone yesterday. “I am optimistic about China’s stocks.”
Li is among a new generation of Chinese leaders headed by Xi Jinping that is due to take power in two months. Urbanization is expected to spur 40 trillion yuan ($6.4 trillion) of investment by 2020, the Southern Metropolis Daily reported Dec. 25, citing a draft plan by the National Development and Reform Commission, the nation’s top economic planner.

Japan Machine Orders Rise More Than Expected in November (Bloomberg)
Japan’s machinery orders rose more than expected in November, suggesting that companies were optimistic about the economic outlook as the yen weakened.
Orders, an indicator of capital spending, climbed 3.9 percent from the previous month, the Cabinet Office said today in Tokyo. The median estimate of 24 economists surveyed by Bloomberg News was for a 0.3 percent increase. Large orders can cause volatile results.
Prime Minister Shinzo Abe last week unveiled a 10.3 trillion yen ($116 billion) stimulus package that Nomura Securities Co. forecasts will help deliver real annualized growth of 3.5 percent in the April-June quarter. Prospects for exporters may also improve this year as the yen has fallen about 10 percent against the dollar since mid-November.
“The current recession may end up being very short,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo and a former central bank official. “The rapid depreciation of the yen may make companies more inclined to invest in the coming months.”
Economy Minister Akira Amari said yesterday that the nation faces risks from any excessive decline in the yen, adding that the currency is “correcting” to a level in line with economic fundamentals. He declined to comment on an appropriate value.
The yen has fallen amid expectations the central bank will increase cash infusions to jump-start growth and defeat deflation. The currency was at 88.78 per dollar as of 8:52 a.m. in Tokyo.
The Bank of Japan (8301) will adopt a 2 percent inflation target advocated by Abe at its Jan. 21-22 meeting, according to people familiar with officials’ discussions.

India Banks System Face Worsening Asset Quality, IMF Says (Bloomberg)
India’s financial system has been made vulnerable by a deterioration in bank assets and a lack of capital as the economy slowed, according to the International Monetary Fund.
“The main near-term risks to the financial system are a worsening of bank asset quality and renewed pressures on systemic liquidity,” the Washington-based lender said in a statement today. Stress tests have shown the risks are “manageable” for now, according to the IMF, which concluded its assessment of India’s financial stability in February 2012.
Increasing involvement of the state in the financial industry leaves the government exposed to losses at banks and is acting as a brake on economic growth, the IMF said. India’s economy will expand 6 percent this year, the body said in October, after gross domestic product rose 4.9 percent in 2012, the least since at least 2005.
The IMF urged Indian regulators to loosen a mandatory requirement for banks to hold government securities, saying that it would boost the flow of capital to other industries. India should also foster development of the local corporate bond market to broaden funding sources, according to the statement.
India remains committed to adopting international standards “in a phased manner and calibrated to local conditions,” the Reserve Bank of India said in a statement.

U.K. Inflation Stays Above BOE Goal (Bloomberg)
U.K. inflation held at the highest rate since May last month as increases in gas and electricity bills helped to keep consumer-price growth above the Bank of England’s target.
Consumer prices rose 2.7 percent from a year earlier, the same as in November and October, the Office for National Statistics said today in London. That matched the median estimate of 36 economists in a Bloomberg News survey. Housing and utility costs added 0.26 percentage points to inflation. From the previous month, prices rose 0.5 percent.
Britain’s economy is struggling to recover after emerging from a double-dip recession in the third quarter. Still, with inflation above the Bank of England’s 2 percent goal, that may leave some of the Monetary Policy Committee reluctant to support more stimulus to help bolster growth.
“Inflation could pick up a bit further in the near-term, quite possibly reaching 3 percent,” said Vicky Redwood, an economist at Capital Economics in London. “It will probably stay relatively high for most of this year, prompting households’ real pay to fall again in 2013. But we continue to expect inflation to fall back below its target towards the end of the year.”
The pound pared gains against the dollar after the report and was trading at $1.6087 as of 9:56 a.m. in London, up 0.1 percent on the day. The yield on the benchmark 10-year U.K. government bond was little changed at 2.04 percent.

Spanish Underlying Inflation Rate Declines Amid Recession (Bloomberg)
Spain’s core inflation rate fell in December as price pressures ease in an economy confronting a second straight year of contraction.
Annual core inflation, which excludes energy and fresh food prices, fell to 2.1 percent from 2.3 percent in November, the National Statistics Institute in Madrid said today. That compares with an 2.3 percent median forecast of five estimates in a Bloomberg survey. Underlying prices were unchanged from the previous month.
The recession in the euro region’s fourth-biggest economy is deepening as Prime Minister Mariano Rajoy struggles to tackle a budget deficit that matches that of Greece as the euro-area’s second biggest after Ireland. The European Central Bank last week left its benchmark interest rate unchanged as it sees flat growth in the region in 2013.
Spain’s headline inflation rate, based on EU calculations, was 3 percent, matching an estimate published on Jan. 2. Tax increases are fueling price increases even as a 26.6 percent jobless rate undermines demand. Retail sales fell 7.8 percent in November, after 9.7 percent in October.
Stripping out their impact, inflation was 0.9 percent in December, according to the Spanish statistics institute, and 0.2 percent if fresh food and energy were also excluded, according to the Spanish measure.

Draghi Boosts 30-Year German Index-Linked Debt Hope (Bloomberg)
The prospect of an economic rebound midwifed by Mario Draghi’s successful calming of the European bond market may finally prompt Germany to sell 30-year inflation-linked government debt.
Draghi’s European Central Bank forecasts the euro region will rally from recession in 2013, while European Union leaders say the worst of the debt crisis is over. The prospect of those forces stoking inflation is sharpening investor appetite for a top-rated, long-dated security after France’s rating downgrade left the region without a AAA index-linked security with more than 10 years to maturity.
“We are likely to be a buyer of German 30-year index- linked debt if they offer,” said Robin Marshall, a fixed-income director at Smith & Williamson Investment Management in London, which oversees the equivalent of $19 billion. “Inflation may not be a threat in the euro zone now, but I would like to be able to express a longer-term view on that without having to take a credit risk. At the moment, it’s not easy to do that.”
Germany came late to the inflation market, selling its first bonds linked to consumer prices in March 2006. The U.K. issued inflation-protected securities in 1981, with France tapping the market in 1998 and Italy debuting in 2004. The debt is designed to keep its value when consumer prices rise.