Asia FX By Cornelius Luca - Wed 09 Jan 2013 16:21:58 CT (CME/www.lucafxta.com)
The appetite for risk was mixed on Wednesday, with traders waiting to see the quality of earnings. All foreign currencies but the Australian dollar fell after the European and commodity currencies slipped on Tuesday. The severely oversold Japanese yen resumed losses after recovering for a couple of days and remains close to a 28-month low. The US stock markets edged up, while gold, oil and silver were barely changed. 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 European currencies and long on commodity currencies and yen. Good luck!
Overnight
Canada: Housing starts slipped to 198K in December from 201.4K in November.
Today's economic calendar
China: Trade balance for December
Australia: Building permits for November
Japan: Leading economic index for November
Asian Stocks Rise for Second Day as Exporters Gain on Yen (Bloomberg)
Asian stocks rose, led by a rally in Japanese exporters as the yen neared a 2 1/2 year-low after Prime Minister Shinzo Abe urged the central bank to double its inflation target.
Honda Motor Co. (7267), which gets about 44 percent of sales from North America, climbed 1.2 percent in Tokyo. Rival Nissan Motor Co., which generates almost 80 percent of its revenue overseas, increased 1.2 percent.
The MSCI Asia Pacific Index (MXAP) rose 0.1 percent to 131.30 as of 9:22 a.m. Tokyo time, headed for a second day of gains. Markets in China and Hong Kong have yet to open. The benchmark gauge has climbed for seven straight weeks, its longest winning streak since March, after the U.S. Congress approved a budget deal and Japanese shares rallied on expectations the new government would call for more economic stimulus.
“The government’s economic policy can prompt a sustained improvement in investor sentiment by weakening the yen before the recovery in the U.S. economy becomes definite,” said Naoki Kamiyama, equity strategist at Bank of America Corp. in Tokyo. “It is a way to engineer an economic recovery.”
The yen weakened for a second day against the dollar as Abe urged Bank of Japan Governor Masaaki Shirakawa to double the inflation goal.
Japan Stocks Rise as Yen Weakens on Inflation Prospects (Bloomberg)
Japanese shares rose, with the Nikkei 225 (NKY) Stock Average poised for a two-day gain, as the yen fell a second day after Prime Minister Shinzo Abe pressed the central bank to double its inflation target.
Toyota Motor Corp. (7203), which gets about 70 percent of its sales outside Japan, advanced 1.4 percent. Izutsuya Co. jumped 24 percent after the department-store operator raised its profit forecast. Tokuyama Corp., a maker of materials used in solar cells, added 3.8 percent after Chinese solar stocks listed in the U.S. rallied. Isuzu Motors Ltd. jumped 5 percent on a Nikkei newspaper report it would partner with General Motors Co. to manufacture pickup trucks.
The Nikkei 225 gained 0.7 percent to 10,651.56 as of 9:49 a.m. in Tokyo. Trading volume on the gauge was 21 percent higher than the 30-day average. The broader Topix (TPX) Index advanced 0.9 percent to 886.89, with more than two stocks advancing for each that fell.
“The market seems to have priced in half of the weaker yen’s impact on earnings and the effect of Abe’s stimulus measures,” said Masaru Hamasaki, chief strategist at Toyota Asset Management Co., which oversees the equivalent of about 1.79 trillion yen ($20 billion). “Optimism for policy action is continuing from end of last year.”
The Topix advanced 23 percent since Nov. 14 when elections were announced, driving the gauge into a bull market on expectations a new government would call for more stimulus. An advance of 20 percent or more from a low signals a bull market to some investors. The gauge is trading at 1.05 times book value, compared with 2.19 for the Standard & Poor’s 500 Index (SPXL1) and 1.59 for the Stoxx Europe 600 Index.
Abe said yesterday the Bank of Japan should aim for 2 percent inflation at the first meeting in four years of a panel that brings together government and central bank officials.
Futures on the S&P 500 Index were little changed today. The gauge yesterday advanced 0.3 percent amid investors’ optimism about fourth-quarter corporate earnings.
The Nikkei Stock Average Volatility Index (VNKY) added 3.7 percent to 20.13, indicating traders expect a swing of about 5.8 percent on the benchmark gauge over the next 30 days.
U.S. Stocks Advance on Optimism About Corporate Results (Bloomberg)
U.S. stocks advanced, snapping a two- day decline for the Standard & Poor’s 500 Index, amid investors’ optimism about fourth-quarter corporate earnings.
Alcoa Inc. (AA), which reported better-than-estimated sales, fell 0.2 percent after rallying as much as 2.5 percent earlier today. Seagate Technology Plc (STX) jumped 6.6 percent as revenue topped an earlier forecast. Herbalife Ltd. (HLF) added 4.2 percent after Daniel Loeb’s Third Point LLC took an 8.2 percent stake in the company. Bank of America Corp. (BAC) slid 4.6 percent after Credit Suisse Group AG cut its recommendation for the lender.
The S&P 500 rose 0.3 percent to 1,461.02 at 4 p.m. New York time. The Dow Jones Industrial Average added 61.66 points, or 0.5 percent, to 13,390.51. About 6.1 billion shares changed hands on U.S. exchanges, in line with the three-month average.
“Alcoa’s report got us off to a good start,” 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. “Still, earnings growth is going to be a little bit harder to come by. If we see some good results from bellwether companies, that will definitely give a lift to the market.”
Fourth-quarter profits at S&P 500 companies probably increased 2.9 percent, according to analysts’ estimates compiled by Bloomberg. That would be the second-slowest quarterly growth since 2009, the data show.
Six out of 10 groups in the S&P 500 rose today as health- care and industrial shares had the biggest gains. Telephone and utility companies retreated the most. The Dow Jones Transportation Average climbed 1 percent to the highest level since July 2011. An S&P index of homebuilders advanced 0.9 percent to the highest since August 2007.
VIX Ends Six-Day Drop, Rebounding From Lowest Since ’07 (Bloomberg)
The Chicago Board Options Exchange Volatility Index (VIX) rose, snapping a six-day streak of losses, after the gauge of U.S. stock options prices reached the lowest level since 2007.
The benchmark gauge, known as the VIX, rose 1.8 percent to 13.86 at 12:48 p.m. in New York, after earlier touching 13.22, the lowest intraday level since June 2007. The index dropped 40 percent over the previous days, the most since November 2008.
“People are just looking at these low levels as opportunity to buy portfolio protection,” Jonathan Krinsky, chief technical analyst at Miller Tabak & Co., said in an interview. “There were also a lot of eyes on it, and often times when that happens as an instrument breaks support levels, it reverses.”
The VIX tumbled a record 39 percent last week after U.S. lawmakers reached a deal to avert more than $600 billion in tax increases and spending cuts. During the week, the Standard & Poor’s 500 Index climbed 4.6 percent to 1,466.47, the highest level since December 2007. The S&P 500 (SPX) rose 0.3 percent today and investors’ optimism about fourth-quarter corporate earnings.
Record U.S. corporate profits and three rounds of Federal Reserve monetary stimulus have helped the S&P 500 climb 116 percent since the bull market began in March 2009. The VIX is 83 percent below its all-time high of 80.86 reached in the two months after Lehman Brothers Holdings Inc. declared bankruptcy in 2008.
“We are seeing the combination of unwinding of fiscal cliff hedges, which in the short term proved unnecessary, and a new year rally combining to crush volatility,” Alec Levine, an equity derivatives strategist at Newedge Group SA in New York, said in an interview.
Analysts predict profits at S&P 500 companies will rise 4.4 percent this year to a record $102.60 a share, according to data compiled by Bloomberg. Per-share earnings in the index probably rose 2.9 percent during the fourth quarter after increasing 4.6 percent in the previous three months, the estimates show.
European Stocks Advance on U.S. Earnings Optimism (Bloomberg)
European stocks rose to the highest in more than 22 months as Alcoa Inc. began the U.S. earnings season with sales that beat projections.
Telecom Italia SpA (TIT) led a gauge of telecommunications companies higher, climbing the most in 2 1/2 years, after a report that mobile-phone operators discussed sharing their infrastructure across Europe. Delta Lloyd NV (DL) jumped 6.6 percent after Aviva Plc (AV/) sold its stake in the Dutch insurer. ArcelorMittal slid 2.5 percent after the world’s biggest steelmaker said it will sell $3.5 billion of stocks and notes to lower debt.
The Stoxx Europe 600 Index (SXXP) advanced 0.7 percent to 288.22 at the close of trading, the highest since Feb. 18, 2011. The benchmark gauge last week surged 3.3 percent after U.S. lawmakers agreed on a compromise budget.
“Alcoa’s results were good, especially the revenue numbers and forward guidance, as was the comment that demand in China is coming back,” said Manish Singh, who helps manage more than $2 billion as head of investment at Crossbridge Capital in London. “U.S. earnings will probably beat expectations and this should lift European stocks.”
The volume of shares traded on the Stoxx 600 today was 70 percent higher than the average of the last 30 days, according to data compiled by Bloomberg. The VStoxx Index (V2X), a measure of Euro Stoxx 50 options prices, fell 4.5 percent to 16.15.
Emerging Stocks Rise as Alcoa Forecast Fuels China View (Bloomberg)
Emerging-market stocks rose for the first time in four days as utilities rebounded and Alcoa Inc. (AA) predicted stronger demand in the biggest developing nations.
Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, rose in Hong Kong as Alcoa’s sales beat estimates. Guangzhou Automobile Group Co. (2238), a Chinese partner of Toyota Motor Corp. (7203), surged the most in 18 months after Credit Suisse Group AG forecast growth in China’s car market. Cia. Energetica de Sao Paulo, Brazil’s second-biggest power generator, rose the most in a month to lead gains on the Bovespa. Vakiflar Bankasi TAO (VAKBN) rose to the highest level since 2005 after UBS AG upgraded the Turkish lender.
The MSCI Emerging Markets Index added 0.3 percent to 1,073.03 in New York, led by utilities as Brazilian power producers recovered on speculation yesterday’s slump was overdone. Alcoa, the largest U.S. aluminum producer, said yesterday that growth in global demand for the commodity will recover to 7 percent in 2013 as China’s economy rebounds. Chief Executive Officer Klaus Kleinfeld also forecast increased consumption in Brazil, India and Russia. The iShares MSCI Emerging Markets Index exchange-traded fund climbed 0.4 percent.
“Most people are comfortable with the story that China is starting to stabilize and turn up, which is supportive for emerging markets,” Win Thin, the global head of emerging- markets strategy at Brown Brothers Harriman & Co. in New York, said by phone today. “Between now and the end of the week we’ll have some pretty supportive China data that can keep the emerging markets story going.”
Yen Falls 2nd Day as Abe Urges BOJ on Inflation Target (Bloomberg)
The yen weakened for a second day and neared a 2 1/2 year-low against the dollar after Prime Minister Shinzo Abe urged Bank of Japan (8301) Governor Masaaki Shirakawa to double the central bank’s inflation goal.
Shirakawa said yesterday the BOJ was in close cooperation with the government, raising speculation policy makers will boost stimulus when they meet Jan. 21-22. Japan’s currency slid against all of its major peers before data forecast to show the nation’s trade deficit widened. The euro remained lower before the European Central Bank meets today following two days of declines against the greenback.
“The long-term downward trend in the yen hasn’t changed,” said Noriaki Murao, managing director of the marketing group in New York at Bank of Tokyo-Mitsubishi UFJ Ltd. “The BOJ may have no choice but to agree to the 2 percent inflation target, and it’s possible they may roll out additional quantitative easing,” Murao said, referring to asset purchases by the central bank.
The Japanese currency weakened 0.3 percent to 88.13 per dollar at 9:58 a.m. in Tokyo from yesterday, when it slid 0.9 percent. It touched 88.41 on Jan. 4, the lowest levle since July 2010. The yen declined 0.2 percent to 115.04 per euro. The 17- nation euro lost 0.1 percent to $1.3054.
Abe yesterday talked with Shirakawa at a meeting of Japan’s Council on Economic and Fiscal Policy, which was revived following its abolition by the previous government. The prime minister said the BOJ should aim for 2 percent inflation, double the current price goal which was introduced in February last year.
Australian Dollar Remains Higher Before Chinese Trade Data (Bloomberg)
The Australian dollar remained higher following a four-day gain before Chinese data today forecast to show imports grew last month in the South Pacific nation’s biggest overseas market.
New Zealand’s currency, known as the kiwi, reached its strongest level in more than four years against the yen as Asian stocks rose for a second day, boosting demand for higher- yielding assets.
“There should be positive support for the Aussie and kiwi from the Chinese data,” said Alex Sinton, director of institutional foreign exchange in Auckland at Australia & New Zealand Banking Group Ltd. (ANZ)
Australia’s currency traded at $1.0499 as of 11:38 a.m. in Sydney from $1.0514 in New York yesterday and fetched 92.55 yen from 92.39. New Zealand’s dollar traded little changed at 83.88 U.S. cents. It rose as high as 73.98 yen, the strongest since September 22, 2008, before trading at 73.95 yen from 73.78.
China’s imports probably increased 3.5 percent in December from a year earlier, a report today is forecast to show, according to the median estimate of economists in a Bloomberg News survey. Overseas shipments gained 5 percent, the economists predict.
Australian home-building approvals rose 2.9 percent in November from a month earlier, compared with the median economists’ forecast of a 3 percent gain, a report from the Bureau of Statistics showed today.
Stimulus From Jobless Aid Fades as U.S. Hiring Grows: Economy (Bloomberg)
By the time Congress got around to passing an extension of emergency jobless benefits last week, Clyde Lance no longer needed them.
On Dec. 17, his 52nd birthday, Lance started a full-time job helping train technicians for the International Society of Automation in Research Triangle Park, North Carolina, ending a three-year search for a permanent position.
“I didn’t even realize it was my birthday,” said Lance. “I believe God helped me, gave me this job.”
The dwindling ranks of the long-term unemployed, while testament to the improvement in the labor market, also shows the diminishing returns from what economists such as Mark Zandi say is one of the most effective government programs implemented to spur the recovery: extended unemployment insurance payments. By the time all figures are in, Lance will be among the almost 1.5 million people who stopped getting those checks last year.
“The bang-for-the-buck from the program is among the highest of any fiscal-stimulus program,” said Zandi, chief economist of Moody’s Analytics in West Chester, Pennsylvania, who estimated that every dollar spent in benefits generated 1.55 times as much economic activity. “It is important to have it in place as long as unemployment is high and the recovery is fragile.”
The legislation passed by Congress last week preserved benefits for harder-hit states that provide payments to the jobless for as long as 73 weeks, extending the normal program that typically lasts for the first 26 weeks of unemployment. About $30 billion in long-term benefits will be paid this year, down from about $45.5 billion in 2012, according to government estimates.
China December New Yuan Loans and Money Supply Trail Estimates (Bloomberg)
China’s December new local-currency loans totaled 454.3 billion yuan while M2 money supply rose 13.8 percent from a year earlier, the People’s Bank of China said today.
That compares with the median loan estimate of 550 billion yuan in a Bloomberg News survey of 37 analysts. Money supply was forecast to increase 14 percent. Aggregate financing of 1.63 trillion yuan exceeded the median 1.2 trillion yuan estimate of seven economists.
The nation’s foreign-exchange reserves were $3.31 trillion at the end of December, the central bank said, compared with the $3.32 trillion median estimate of seven analysts surveyed by Bloomberg.
The central bank released the data ahead of trade figures due today from the customs administration and tomorrow’s inflation report from the statistics bureau.
Japan’s Abe Urges 2% Inflation as Shirakawa Attends Meeting (Bloomberg)
Prime Minister Shinzo Abe said the Bank of Japan (8301) should aim for 2 percent inflation at the first meeting in four years of a panel that brings together government and central bank officials.
Abe said that the government and the BOJ should strengthen cooperation to achieve the price goal, in opening remarks at the Council on Economic and Fiscal Policy today in Tokyo that were open to the press. BOJ Governor Masaaki Shirakawa told reporters after the meeting that it was “meaningful” and that the central bank is in close cooperation with the government.
The meetings may help to decide whether the government pushes for a formal accord with the central bank as Abe calls for a doubling of the BOJ’s 1 percent inflation goal. Finance Minister Taro Aso, who also attended the meeting, said last week that such an agreement may be unnecessary if the gatherings are held regularly.
The BOJ pledged last month to reconsider its inflation goal at its next board meeting on Jan. 21-22.
The yen slid at least 0.3 percent against all of its 16 major peers as of 9:30 a.m. in New York. The Japanese currency weakened 0.6 percent to 87.55 per dollar, ending a two-day advance. It declined 0.4 percent per euro.
Australian Home-Building Permits Rose in November on Apartments (Bloomberg)
Australian home-building approvals advanced for the third time in four months in November as lower interest rates encouraged plans for apartment projects.
The number of permits granted to build or renovate houses and apartments gained 2.9 percent from October, when they fell a revised 5.1 percent, the Bureau of Statistics said in Sydney today. The result was in line with the median forecast for a 3 percent gain in a Bloomberg survey of 13 economists.
The Reserve Bank of Australia lowered borrowing costs five times from November 2011 to October to buttress the economy as a resource investment boom is predicted to peak this year. Governor Glenn Stevens is trying to revive industries including construction to rebalance economic growth and extend 21 recession-free years.
“Loan approvals, which lead building approvals, had been trending higher in prior months, pointing to underlying improvement in building approvals,” Justin Fabo, senior economist at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney, said in a research report before the release.
Building approvals in November advanced 13.2 percent from a year earlier, the report showed. That compares with economists’ forecast for an 11.6 percent rise year-over-year.
Approvals to build private houses fell 0.3 percent to 7,518 in November from the previous month, the report showed. Approvals for apartments and renovations advanced 10.1 percent to 5,552, it showed.
The local dollar was little changed after the data were released, trading at $1.0501 at 11:38 a.m. in Sydney.
The RBA board meets Feb. 5 to decide whether to change monetary policy. Traders are pricing in a 37 percent chance Stevens will cut the benchmark rate to a record-low 2.75 percent, according to swaps data compiled by Bloomberg.
Thailand Holds Key Rate a Second Time as Outlook Improves (Bloomberg)
Thailand kept its policy interest rate unchanged for a second straight meeting on signs of an improving outlook for exports and strengthening domestic demand.
The Bank of Thailand held its one-day bond repurchase rate at 2.75 percent, it said in Bangkok today, as predicted by all 22 economists in a Bloomberg survey. The decision was unanimous, and forecasts for growth last year and this year will be revised upward after a better-than-expected expansion in the fourth quarter, the monetary policy committee said.
Prime Minister Yingluck Shinawatra’s government has extended subsidies, raised minimum wages and increased infrastructure investments to shield growth after the floods of 2011. While weakness in Europe and Japan persist, there is a broad-based recovery in Thai exports and the performance of Asian economies has turned positive, the central bank said today.
“The unanimous decision confirms our view that the easing cycle in Thailand has drawn to an end,” said Wee-Khoon Chong, a strategist at Societe Generale SA in Hong Kong. “There seems to be no change in their view on the strong domestic demand and benign inflation. The BOT’s focus in the near-term will be on the potential impact of volatile capital flows.”
The Thai baht rose 0.2 percent to 30.38 per dollar as of 3:01 p.m. in Bangkok today, approaching a 10-month high. The benchmark Stock Exchange of Thailand index gained 0.6 percent, having surged 36 percent in 2012.
German Industrial Production Rises Less Than Forecast (Bloomberg)
German industrial production increased less than economists predicted in November as the euro area’s recession left its mark on Europe’s largest economy.
Production rose 0.2 percent from October, when it fell a revised 2 percent, the Economy Ministry in Berlin said today. That’s the first increase in four months. Economists had forecast a gain of 1 percent, according to the median of 23 estimates in a Bloomberg News survey. From a year earlier, production fell 2.9 percent when adjusted for working days.
The Bundesbank predicts the German economy will stagnate in the first quarter after a marked contraction at the end of last year. Still, signs are increasing that the economy may recover soon. Sentiment among German entrepreneurs and investors climbed more than economists expected in December and economic confidence in the euro area, the country’s biggest export market, jumped to the highest level since July.
“The German economy probably experienced the worst growth performance in the fourth quarter since the first quarter of 2009,” said Carsten Brzeski, senior economist at ING Group in Brussels. “Looking ahead, however, strengthening external demand and sound domestic fundamentals should lead the way out of contractionary territory in the first half of this year.”
Manufacturing output rose 0.4 percent on the month in November, with investment-goods production up 1.4 percent and basic-goods output up 0.2 percent, today’s report showed. Production of consumer goods declined 2.2 percent and energy output dropped 3.3 percent. Construction gained 1 percent from October.
