Market Rumours

Sterling drops to the day's lows after the November MPC minutes showed a 3-way split on QE and discussions on changing bank reserve remuneration, a subject that seemed to have slipped of the market's radar for a while. GBP/USD drops to 1.6771 from around 1.6825 while EUR/GBP adds some 35 ticks to 0.8907.

Asian share markets were mixed Wednesday, as investors were uninspired by a small rise in U.S. stocks Tuesday. In Japan, the market reversed an early rise amid weakness in real estate and financial stocks. Hong Kong's Hang Seng was down 0.5% while China's Shanghai Composite was 0.3% higher and Taiwan's main index was up 0.3%. Japan's Nikkei-225 share average was down 0.6%, South Korea's Kospi Composite was 0.8% higher while Australia's S&P/ASX 200 was up 0.4% and New Zealand's NZX-50 slipped 0.1%. Dow Jones Industrial Average futures were 13 points higher in screen trade.The Nikkei erased an early rise as equity financing concerns weighed on real estate and financial stocks after Tokyo Tatemono said it will raise up to Y45.64 billion via a new share issue. Tokyo Tatemono was down 19% with Mitsubishi Estate down 4.8% and Mitsubishi UFJ Financial Group down 2.3%."The market just doesn't have enough participants to regain any momentum," said Takero Inaizumi, head of equities at Mizuho Investors Securities. Inaizumi said uncertainty over additional economic stimulus plans had traders worrying about the economic outlook. "Without additional economic boost plans from the government, Japanese stocks will continue to lag the markets of other major developed countries, let alone those of more attractive newly emerging markets." The Hong Kong market was being supported by China Mobile, with that single stock making up roughly one-third of the Hang Seng index's points gain. China Mobile rose 3.8% as it played catch up after its recent underperformance. More broadly, Taifook Securities said that there appears to be increased confident that the Hong Kong market would move higher. "Funds inflow to the local market may prevail as interest in IPOs revives, with news that prominent hedge funds are keen on the H-share offering of China Minsheng Banking." In Taiwan, solar energy stocks were rallying on hopes that an agreement with China to cooperate on clean energy issues would lead to project wins. "This is expected to help Taiwanese companies secure more orders from China," said SinoPac Securities analyst Calvin Shao. Motech was up 5.6%, E-Ton Solar Tech up 6.9% and Gintech Energy was 7% higher. China's electricity companies also shone as their recent underperformance drew interest with sentiment also supported by expectations for a huge increase in electricity usage during the winter. Shanghai Electric Power was 7.5% higher and Chongqing Fuling Electric Power Industrial was up 6.7%.

Volatilities implied by 1-month ATM USD/JPY options fall to 11.00%/11.70% vs 11.15%/11.85% in NY yesterday as moves in underlying exchange rate lackluster, says options dealer at major Japan bank; adds vols may fall below 11%, toward 10.50% in coming days. Though USD/JPY edging lower to year's low of 87.10 in recent weeks (last 89.28), moves slow, so players in no need of hedges, leading to lower vols. "When we trade options, the most important things are trading range and speed, not a level. So, even if the dollar falls to say, Y80 or Y70, but the declining speed remains as slow as now, we can't push up vols."

DXY index now at 75.333, off 15-month low levels earlier this week as weak European stocks, weaker-than-expected U.S. October industrial output (+0.1% vs +0.3% expected) led to move away from risk-sensitive units overnight. But David Forrester of Barclays Capital says "the dollar strength is misplaced" as weak tone for USD remains for now. "Bernanke's rhetoric on the dollar likely continued to lend the dollar some support, but we think this is misplaced. Until there are clear signs of the Fed moving toward tighter policy - even if only through the end of its asset purchases - the dollar is likely to remain under (downward) pressure." USD/JPY last 89.30, EUR/USD last at 1.4876

EUR/JPY higher on buying by Japan names, possibly transactions related to trust funds' new launch of toshin funds this month, says senior sales dealer at major Japan bank. EUR/JPY may rise to 133.50 vs last 132.97; USD/JPY may rise to 89.50 vs last 89.31. Adds this month's toshin-related EUR, USD buying worth about Y110 billion; "though the amount is not that large, the impact could be significant if the orders flow into the market when trading is thin."

Don't expect EUR/USD to fall by much, senior dealer at major bank in Tokyo says, as hedge funds willing to buy pair on any dips on views ECB to enter tightening cycle faster than Fed does - meaning larger interest rate differenticals ahead. For today, regional stocks likely to rise after DJIA's slight gain overnight, so EUR and other risk-sensitive units likely to be bid. Several other traders say EUR now safest bet to go long. EUR/USD may rise to 1.4950 vs last 1.4875.