Asia FX (CME/www.lucafxta.com)
The appetite for risk improved selectively on Thursday. The euro, pound and Canadian dollar ended higher amid greater optimism about the euro zone, while the franc, Aussie and yen declined. The yen sank to a new low for the downtrend on concern of further easing next week. The US stock markets advanced. 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 euro, yen, and the commodity currencies, and short pound and franc. Good luck!
Overnight
US: The initial jobless claims fell 37,000 to 335,000 in the week ending January 12th from the previous week's revised figure of 372,000 (371,000 originally reported).
US: Housing starts rose to 0.954 million in December from 0.861 million in November, while building permits rose 0.903 million from November's 0.899 million.
US: The Philly Fed manufacturing survey fell 5.8 in January after rising 8.1 in December.
Canada: Canadian residents have purchased C$7.81 billion in foreign securities in November, up from C$3.36 billion in October, while foreign residents incremented their holdings of Canadian securities by C$5.62 billion during the same period, less than C$12.7 billion in October.
Today's economic calendar
Australia: Export / import Price Index for the fourth quarter
China: House Price Index for December
China: Gross Domestic Product for the fourth quarter
China: Industrial Production for December
China: Retail sales for December
China: Urban investment for December
Japan: Industrial production for November
Asian Stocks Snap Rise on Better-Than-Forecast U.S. Data (Bloomberg)
Asian stocks rose for the first time in three days, with the regional benchmark index erasing its weekly loss, after initial jobless claims and housing data in the U.S. beat estimates, boosting the outlook for exporters.
Honda Motor Co. (7267), the Japanese carmaker that gets about 44 percent of sales from North America, climbed 3.9 percent. Fanuc Corp., a supplier of factory automation equipment to Chinese factories, gained 1.2 percent before that release of data that’s expected to show China’s economy accelerated from a three-year low. Alacer Gold Corp. jumped 4.3 percent in Sydney after reporting increased output.
The MSCI Asia Pacific Index (MXAP) gained 0.6 percent to 132.04 as of 9:41 a.m. Tokyo time. The gauge has advanced 2.1 percent this month amid signs the U.S. and Chinese economies are recovering and Japanese shares rallied for a 10th week on speculation Prime Minister Shinzo Abe will pursue more aggressive stimulus policies.
“The macroeconomic risks that the markets have been dealing with for the last couple of years continue to recede,” Mark D. Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, said on Bloomberg Television. His firm manages about $54 billion in assets. “As a result, equity risk premiums will compress around the world. The intervention the Bank of Japan is undertaking to weaken the yen should produced better profits for Japanese multinationals.
The Nikkei 225 Stock Average (NKY) jumped 2.2 percent, heading for its longest streak of weekly gains since April 1987, as the yen traded near a 2 1/2-year low amid speculation the Bank of Japan will decide to conduct open-ended asset buying to stoke inflation at a two-day policy meeting starting Jan. 21. South Korea’s Kospi Index added 0.6 percent, while Australia’s S&P/ASX 200 Index gained 0.4 percent. Markets in China and Hong Kong have yet to open.
Data due to be released today is expected to show China’s gross domestic product expanded 7.8 percent in the fourth quarter, according to the median estimate of 53 economists surveyed by Bloomberg. That’s up from 7.4 percent in the previous three months.
Japanese Stocks Head for 10-Week Gain on Yen, U.S. Data (Bloomberg)
Jan. 18 (Bloomberg) -- Japan stocks rose, with the Topix Index headed for its longest weekly winning streak since 1986, after the yen fell below 90 to the dollar for the first time since June 2010, and U.S. housing and jobs data beat estimates.
Mazda Motor Corp. (7261), an automaker that gets 28 percent of its sales in North America, jumped 8.1 percent. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest lender, advanced 2.1 percent after the Nikkei newspaper reported the Bank of Japan is preparing to ease policy next week. Advantest Corp. (6857), the world’s biggest maker of memory-chip testers, gained 6.7 percent after bellwether Intel Corp. beat earnings estimates.
The Topix advanced 1.9 percent to 907.08 as of 9:24 a.m. in Tokyo, heading for a 0.9 percent weekly gain. The equity gauge is poised to rise a 10th week, the longest such streak since July 1986. The Nikkei 225 Stock Average (NKY) gained 2.2 percent to 10,843.10.
S&P 500 Advances to Five-Year High on Economic Reports (Bloomberg)
U.S. stocks advanced, sending the Standard & Poor’s 500 Index to a five-year high, amid better- than-forecast initial jobless claims and housing data.
A measure of homebuilders in S&P indexes jumped 3 percent to the highest level since 2007. EBay Inc., operator of the largest online marketplace, increased 2.4 percent after revenue topped some estimates. Intel Corp. fell 4.9 percent in after- hours trading after reporting a second quarter of declining sales. BlackRock Inc. (BLK), the biggest money manager, added 4.4 percent after earnings increased 24 percent and the firm boosted its dividend and its buyback program.
The S&P 500 (SPXL1) rose 0.6 percent to 1,480.94 at 4 p.m. New York time. The Dow Jones Industrial Average added 84.79 points, or 0.6 percent, to 13,596.02. It briefly topped the highest closing level since 2007. About 6.5 billion shares changed hands on U.S. exchanges, 5.2 percent above the three-month average.
“The economy is entering the year maybe not with a running start, but certainly a head start,” said Jack Ablin, who helps oversee about $66 billion as chief investment officer of BMO Private Bank in Chicago. He spoke in a telephone interview. “It helps build a nice story for 2013.”
Equities rose as builders broke ground on more houses than forecast in December, capping the best year for the industry since 2008, another sign residential real estate is boosting the U.S. economic expansion. The number of Americans filing first- time claims for unemployment insurance payments fell more than forecast last week to the lowest level in five years, pointing to further improvement in the labor market.
European Stocks Rise on Retailer Rally, U.S. Housing Data (Bloomberg)
European stocks gained the most in a week as retailers climbed on increased revenue and U.S. housing starts jumped more than forecast to a four-year high.
Carrefour SA, France’s biggest retailer, Delhaize Group SA, the Belgian owner of Food Lion supermarkets, and Associated British Foods Plc (ABF) advanced more than 3 percent. Petropavlovsk Plc surged the most in four months after the gold producer reported better-than-forecast output. SAP AG fell 1.5 percent as Citigroup Inc. lowered its recommendation on the shares.
The Stoxx Europe 600 Index (SXXP) rose 0.5 percent to 287.35 at the close of trading, the biggest increase since Jan. 9. The measure has rallied 2.7 percent this year after U.S. lawmakers agreed on a budget that avoided most tax increases and spending cuts, extending the advance from its June 4 low to 23 percent.
“This is further confirmation that the market is recovering in many regions of the U.S.,” said Michael Morris, who oversees $1 billion as head of European equities at Mitsubishi UFJ Asset Management in London. “It’s another sign that we are in an upward phase. For some time now, there have been positive signs and we are well past a trough.”
The volume of shares changing hands in Stoxx 600 companies today was 6.7 percent greater than the average of the last 30 days, according to data compiled by Bloomberg.
The U.S. economy picked up across much of the country last month, boosted by auto and home sales, even as the outlook for unemployment showed few signs of improvement, the Federal Reserve said late yesterday in its Beige Book business survey.
Emerging Stocks Rise From Week Low on Earnings; Asia Stocks Fall (Bloomberg)
Emerging-market stocks rebounded from the lowest level in a week on prospects of improved earnings for companies Koc Holding AS (KCHOL), Dubai Financial Market PJSC (DFM) and OAO Gazprom. Asian shares retreated.
Koc, Turkey’s biggest industrial group, climbed to a record as Dubai Financial led the benchmark DFM General Index (DFMGI) to a two- year high. Gazprom, the world’s biggest natural-gas producer, drove gains in Russia’s Micex index. Brazil’s Bovespa rose to a two-week high as the central bank signaled borrowing costs would remain at a record low. Shares fell in Shanghai (SHCOMP) for a second day ahead of China’s fourth-quarter growth figures.
The MSCI Emerging Markets Index (MXEF) rose 0.2 percent to 1,073.15 in New York. Koc said it targeted a 6 percent profit increase while investors expected the emirates’ biggest companies to report improved full-year earnings as the region’s economy recovers from a property market crash that started in 2008. Gazprom said profit doubled in the third quarter. Data released today in the U.S. showed signs of an improved labor and housing market.
“Some of the earnings recently have been absolutely fantastic,” Gavin Redknap, an emerging-markets strategist at Nikko Asset Management, said by phone from London. “If we’re in a situation where monetary policy is relatively loose across the globe and economic data is improving, that’s clearly good for equity markets.”
Yen Is Near 2 1/2-Year Low Before BOJ Meets; Volatility Rises (Bloomberg)
The yen traded near a 2 1/2-year low amid speculation the Bank of Japan (8301) will decide to conduct open- ended asset buying to stoke inflation at a two-day policy meeting starting Jan. 21.
One-week implied volatility on the dollar against the yen surged to the highest in 17 months after Reuters reported the central bank may introduce the plan, citing people familiar with the BOJ’s thinking. Australia’s dollar was headed for a third- weekly advance before Chinese data today that may show growth accelerated in the world’s second-largest economy.
“Expectations for additional easing by the BOJ haven’t yet peeled off,” said Masato Yanagiya, the head of currency and money trading in New York at Sumitomo Mitsui Banking Corp., a unit of Japan’s second-biggest financial group by market value. “With rising implied volatility, there are quite a few people who are alerted by the pace of dollar-yen moves.”
The yen declined 0.1 percent to 89.93 per dollar as of 9:54 a.m. in Tokyo after touching 90.13 yesterday, the weakest since June 23, 2010. The currency dropped 0.1 percent to 120.29 per euro. The European currency was at $1.3376 after climbing 0.7 percent to $1.3376.
Implied volatility on the dollar-yen rate, derived from option premiums, surged to 16.6 percent, the highest since August 2011.
The Australian dollar, known as the Aussie, was little changed at $1.0541, having gained 0.1 percent since Jan. 11.
Housing Accelerates in Boost to U.S. Expansion: Economy (Bloomberg)
The rebound in U.S. homebuilding accelerated in December, capping the best year for the industry since 2008 and adding to signs residential real estate is contributing to economic growth.
Housing starts climbed 12.1 percent last month to a 954,000 annual rate, exceeding all forecasts in a Bloomberg survey of economists, according to Commerce Department data today in Washington. Other reports showed fewer Americans applied for jobless benefits last week and manufacturing in the Philadelphia region unexpectedly contracted in January.
Spurred by record-low mortgage rates, home construction will probably keep making headway in 2013 as it recovers from the worst slump since the Great Depression. Consumers, buttressed by an improving job market, rising home prices and lower fuel costs, may also be able to move ahead even as the debate over the federal budget heats up and taxes cut paychecks.
“Housing clearly continues to be one of the bright spots in an otherwise gloomy and sluggish economic-growth story,” said Anika Khan, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, a subsidiary of the largest U.S. mortgage lender. “On the labor market side of things, we continue to get overall positive momentum.”
The number of Americans filing first-time claims for unemployment insurance payments fell last week to the lowest level in five years, pointing to further improvement in the labor market, figures from the Labor Department also showed.
Lockhart Sees Fed’s Bond Buying Continuing Beyond Mid-2013 (Bloomberg)
Federal Reserve Bank of Atlanta President Dennis Lockhart said he expects the central bank to continue buying bonds beyond mid-year to achieve sustained improvement in the labor market.
“It is probably going to be a struggle to see by mid- year” enough progress in the jobs outlook to warrant stopping, Lockhart said, speaking in an interview with Matthew Winkler, editor-in-chief of Bloomberg News, in New York today at the Bloomberg Global Markets Summit hosted by Bloomberg Link.
While the U.S. economy will probably expand by about 2 percent this year, resolution of U.S. fiscal challenges may spur deferred business spending and fuel better-than-forecast growth, Lockhart said. He predicted that Congress will agree to raise the nation’s statutory borrowing limit “because it has to.”
Lockhart backed the Federal Open Market Committee decision in December to add $45 billion in purchases of Treasury notes each month to $40 billion in monthly buying of mortgage bonds. Policy makers have pushed the benchmark interest rate close to zero and expanded Fed assets to $2.93 trillion to stoke growth and reduce 7.8 percent unemployment. They are debating whether to continue stimulus this year or stop adding to it.
Minneapolis Fed President Narayana Kocherlakota said this week the Fed should ease more to boost hiring, while Boston Fed President Eric Rosengren said bond-buying could be expanded if necessary. Charles Plosser of Philadelphia and Jeffrey Lacker of Richmond have voiced doubts about the effectiveness of bond purchases and warned of inflation risks.
Manufacturing in the Philadelphia Area Unexpectedly Shrinks (Bloomberg)
Manufacturing in the Philadelphia region unexpectedly contracted in January, an indication companies are becoming more concerned about across-the-board U.S. government spending cuts that could slow growth.
The Federal Reserve Bank of Philadelphia’s general economic index dropped to minus 5.8 from 4.6 in December. Readings lower than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 58 economists surveyed by Bloomberg was 5.6. Estimates ranged from minus 3 to 10.
The report follows New York Fed data released earlier this week showing factory activity shrank for a sixth straight month and raises the risk manufacturing, once a pillar of the recovery, will again weaken in early 2013. Looming changes in federal spending and stagnant prices give companies little reason to expand inventories, which may hurt manufacturers.
“Manufacturing is going to be touch-and-go over the next few months until we get some fiscal clarity,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, the only economist to project the index would turn negative. The New York and Philadelphia surveys are “a sign that the fiscal deal struck on new year’s was a good first step, but it didn’t reduce the uncertainty.”
Other reports today showed housing starts surged more than forecast in December, fewer Americans than projected applied for jobless benefits last week and Americans’ economic outlook deteriorated in January to a three-month low as paychecks began reflecting higher taxes.
Fed Concerned About Overheated Markets Amid Record Bond Buys (Bloomberg)
Federal Reserve officials are voicing increased concern that record-low interest rates are overheating markets for assets from farmland to junk bonds, which could heighten risks when they reverse their unprecedented bond purchases.
Investors have been snapping up riskier assets since the Fed boosted its bond buying to reduce long-term borrowing costs after cutting its overnight rate target close to zero in December 2008. Enthusiasm for speculative-grade bonds is at unprecedented levels, driving a Credit Suisse index that tracks the yield on more than 1,500 issues to a record-low 5.9 percent last week.
Now, as central bankers boost their stimulus with additional bond purchases, policy makers from Chairman Ben S. Bernanke to Kansas City Fed President Esther George are on the lookout for financial distortions that may reverse abruptly when the Fed stops adding to its portfolio and eventually shrinks it.
“Prices of assets such as bonds, agricultural land, and high-yield and leveraged loans are at historically high levels,” George said in a speech last week. “We must not ignore the possibility that the low-interest rate policy may be creating incentives that lead to future financial imbalances.”
Bernanke himself raised that concern this week, saying the central bank has to “pay very close attention to the costs and the risks” of its policies during a Jan. 14 discussion at the University of Michigan’s Gerald R. Ford School of Public Policy in Ann Arbor.
Americans’ Economic Outlook Fell in January to Three-Month Low (Bloomberg)
Americans’ economic outlook deteriorated in January to a three-month low as paychecks began reflecting higher taxes.
The gap between positive and negative expectations widened to minus 7 this month from zero in December as the share saying the U.S. economy is improving dropped to the lowest since September, according to the Bloomberg Consumer Comfort Index. The weekly measure declined to minus 35.5, the weakest since Oct. 7, from minus 34.4 in the prior period.
Households may find it harder to boost spending after payroll taxes to fund Social Security benefits reverted to 6.2 percent this year from 4.2 percent. While improving property values and cheaper gasoline are providing some relief, Americans are being subjected to constant political bickering over the federal debt limit and the budget.
“The depressed attitudes are undoubtedly a function of a diminished paycheck and uncertainties surrounding the U.S. fiscal situation,” said Richard Yamarone, a senior economist at Bloomberg LP in New York. “Consumers can’t spend what they don’t have.”
Other reports todays showed housing starts surged more than forecast in December and fewer Americans than projected applied for jobless benefits last week.
Builders broke ground on 12.1 percent more houses last month, taking starts to a 954,000 annual rate, exceeding all forecasts in a Bloomberg survey of economists and the most since June 2008, the Commerce Department reported. For all of last year, construction began on 780,000 homes, up from 608,800 in 2011 and also the most since 2008. 1
Jobless Claims in U.S. Fell to Lowest Level in Five Years (Bloomberg)
The number of Americans filing first-time claims for unemployment insurance payments fell more than forecast last week to the lowest level in five years, pointing to further improvement in the labor market.
Applications for jobless benefits decreased by 37,000 to 335,000 in the week ended Jan. 12, the lowest level since the period ended Jan. 19, 2008, Labor Department figures showed today. Economists forecast 369,000 claims, according to the median estimate in a Bloomberg survey. A spokesman for the agency said the drop may reflect the difficulty the government has in adjusting the data after the holidays when seasonal workers are let go.
Fewer claims indicate businesses have grown comfortable with their current headcounts, a necessary development before hiring starts to pick up. At the same time, higher payroll taxes that shrink paychecks may prompt companies to hold the line on expanding headcount should Americans cut back on discretionary spending.
“The labor market is certainly getting better,” said Brian Jones, senior U.S. economist at Societe Generale in New York, who projected 345,000 claims. Even with the seasonal adjustment issues, “this is still a good report. Chances are claims remain at a fairly low level.”
Another report today showed housing starts climbed 12.1 percent in December to a 954,000 annual rate, capping the best year for the industry since 2008. For all of 2012, builders began work on 780,000 homes, up from 608,800 a year earlier, Commerce Department figures showed.
Japan Learned to Love Deflation in Wage Malaise Facing BOJ (Bloomberg)
A decade and a half after Japan slumped into deflation, the central bank is set to signal its strongest effort yet to reverse the trend. The biggest challenge may be that the nation has come to rely on falling prices.
More than 80 percent of respondents in a Bank of Japan (8301) survey released this month who noticed rising prices last year said it was bad. More than a third of those who said prices fell were happy about it. Even so, the BOJ next week will adopt the government’s desired 2 percent inflation target, according to 20 of 22 economists surveyed by Bloomberg News.
Ending consumer price declines would give companies and households more incentive to borrow, and boost revenue for businesses and the government in a nation that saw its third recession in five years in 2012. The danger: prolonged deflation has altered behavior across the economy, from entrenching declines in pay to driving more than half of savings into cash.
“The key is wages,” said Nobuyasu Atago, principal economist at the Japan Center for Economic Research and a former BOJ official in charge of price data. “Without pay increases, the economy won’t recover and households will only suffer from inflation.”
Japan’s main business lobby signaled it won’t endorse pay rises at regular wage negotiations with labor unions this spring, Kyodo News reported Dec. 20. Prime Minister Shinzo Abe’s Liberal Democratic Party is considering tax breaks for companies that raise pay or expand hiring.
Abe Currency Policy Stokes Gaffe Risk as Amari Roils Yen (Bloomberg)
Japan’s newly installed government saw one danger of verbal intervention in the foreign-exchange market this week, with a Cabinet member’s remarks interpreted as indicating a shift in stance that he later disowned.
Economy Minister Akira Amari today told reporters in Tokyo that the yen is still correcting from excessive appreciation, two days after flagging the danger of the exchange rate getting too weak. His Jan. 15 remarks stoked a two-day gain in the yen. Today, comments by Amari snapped the rise, with the currency down 0.9 percent at 89.15 per dollar at 7:06 p.m. in Tokyo.
The Abe administration’s determination to end deflation through coordinated action with the central bank has driven a 4.4 percent slide in the yen since it took office Dec. 26. A cheaper yen aids the competitiveness of exporters from Panasonic Corp. (6752) to Nissan Motor Co. (7201) that have labored under years of exchange-rate strength that saw the currency reach a postwar high in 2011.
“This is what I feared,” said Takahiro Sekido, a strategist at Bank of Tokyo-Mitsubishi UFJ Ltd and a former Bank of Japan (8301) official. “Abe has put correcting a strong yen at the center of his agenda -- that prompts various ministers to talk about the currency, bringing volatility to the market.”
Further risk of official comments roiling the currency may come next week, when the Bank of Japan meets and is forecast to adopt an inflation target and reach a policy agreement with the government.
Brazil to Hold Key Rate as Inflation Quickens Amid Slow Growth (Bloomberg)
Brazil’s central bank signaled it will keep borrowing costs at a record low this year as it tries to manage faster inflation amid a slower than expected recovery.
The central bank board, led by Alexandre Tombini, kept the benchmark interest rate at 7.25 percent for the second straight meeting yesterday, matching the forecast of all 56 analysts surveyed by Bloomberg. In the statement accompanying the unanimous decision, policy makers reiterated that the best strategy is to keep monetary policy conditions unchanged for a “prolonged period.”
While inflation is slowing in Mexico and Chile, price pressures are building in Brazil as the government pumps demand by reducing taxes and expanding credit amid record low unemployment. At the same time, a contraction in investment and industrial output is complicating President Dilma Rousseff’s efforts to revive the slowest growth in three years.
The Selic rate “will stay unchanged the whole year,” Andre Perfeito, the chief economist at Gradual Investimentos, said by phone from Sao Paulo. “The bank doesn’t have much room to maneuver between a slow economy and rising inflation.”
Inflation in December accelerated more than economists’ estimates for the sixth straight month and ended 2012 at 5.84 percent, higher than the bank’s 4.5 percent target for the third straight year.
The central bank ended the steepest rate-cutting cycle among Group of 20 nations in November after adverse climate in the U.S. and Brazil led to a jump in food prices.
Euro Area Seen Stalling as Draghi’s Pessimism Shared: Economy (Bloomberg)
The euro-area economy won’t return to growth until the next quarter as a recovery in Italy is delayed and France continues to shrink, according to a survey of economists.
Gross domestic product in the 17-nation currency region will stay unchanged in the three months through March, before rising 0.1 percent and 0.2 percent in the second and third quarters, the median forecast in a Bloomberg News monthly survey showed. GDP probably fell 0.4 percent last year and will decline 0.1 percent in 2013, economists said.
The survey follows a downbeat assessment by European Central Bank President Mario Draghi last week when he said that while the euro-area crisis has eased, “we are not at all seeing an early and strong recovery.” The 17-nation region’s economy last grew in the third quarter of 2011 and remains under pressure from government budget cuts and weak confidence. Goldman Sachs Group Inc. says authorities need to resolve the debt turmoil “fully” to encourage growth.
“Without a decisive resolution it will be hard to fully restore private-sector confidence and credit availability, and stimulate growth,” Goldman analysts including George Cole in London said in a report. “As a result, 2013 promises to be another year of weakness for Europe’s economy.”
