Market Rumours

UK banking stocks decline sharply Thursday, suffering on exposure to Dubai World's debt issues, says a trader. "Dubai's stalling repayment request has lead to fears that banks with direct exposure may suffer with more bad debt, therefore the sector as a whole is taking a defensive posture this morning," the trader says. However, another trader notes that Dubai has GBP48B of debt, while the UK government has spent GBP37B bailing out three banks, so it is not that bad for Dubai yet. HSBC (HBC) trades -4.3% at 709p, Standard Chartered (STAN.LN) -3.7% at 1547p, Barclays (BARC.LN) -3.8% at 304p, Royal Bank of Scotland (RBS.LN) -4.2% at 34p, Lloyds Banking Group (LLOY.LN) -3.8% at 91p.

Is there a real threat of Bank of Japan intervention? Probably not. First, vice minister of finance Yoshihiko Noda says there are no such plans. Finance minister Hirohisa Fujii tries to undo the damage, warning that is essential for action to be taken against "abnormal" moves. However, he does acknowledge the JPY's rise is due to USD weakness not JPY strength. "There's little sense that the government is about to act with intervention," says Standard Bank. Fujii's comments clearly seem to suggest that he thinks a response from the US--rather than Japan--is going to be needed to turn the dollar around, the bank adds.

The JPY may be playing more than just catch-up with the USD, according to Forex Focus by Nicholas Hastings. The Japanese currency's surprise rally to levels last seen 14 years ago certainly looks like a capitulation of JPY bears as they finally accept that U.S. interest rates won't be rising anytime soon. However, the shift in sentiment towards the JPY might well be driven by Japanese investors more than anything else as they once again show signs of pulling back from risky assets.

Benchmark 10-year JGB yield may extend declines to 1.250% in near term if JPY keeps rising, dragging down Tokyo shares, says trader at Tokyo securities house; JGB players "are carefully watching foreign exchange market developments, and if the stronger yen raises expectations that Japan's stocks will weaken further, that could boost demand for JGBs and push the yields lower." Players also keeping close eye on Japan's October CPI data due Friday. "If the results suggest that deflation will linger for an extended period in Japan, more investors will start buying JGBs on expectations that the BOJ may take additional easing measures to grapple with price falls." 10-year JGB yield at 1.285%, down 1 bp. Lead December JGB futures now at 139.44, +0.09.

USD/JPY briefly hits 14-year low at 86.52 (now near 86.72) as sell-stops around 87.00 triggered, says senior dealer at major Japanese brokerage; puts next support at 86.00, cautions any breach of that level is likely to trigger more stops. "The background to the dollar's fall against the yen is the growing view that U.S. interest rates are going to stay very low for quite some time"; also weighing on pair are recent Fed minutes indicating bank isn't unduly concerned over USD weakness. On possibility of Japanese intervention, says players slightly more cautious after Finance Minister Fujii's comment any abnormal FX moves would require appropriate measures, but "Japan would likely conduct any intervention in consultation with the central banks of other countries," with still-relatively orderly fall in USD/JPY limits Japanese justification for any action. Meanwhile USD Index, which measures its value vs six majors, falls to 74.170, lowest since Aug. 7, 2008.

A top Japanese Finance Ministry official said Thursday that Tokyo isn't considering intervening now to arrest the yen's rise, which reflects broad weakness in the dollar, Reuters reported."The dollar has weakened again," Senior Vice Minister Yoshihiko Noda was quoted as saying. "We are not considering intervention right now."
The Monetary Authority of Singapore Thursday intervened in the foreign exchange market to support the U.S. dollar, two persons familiar with the situation said. One person said that the central bank intervened around S$1.3797. He added that the central bank will continue supporting the greenback if needed. In early trading, the U.S. dollar was quoted as low as S$1.3774 and was trading at S$1.3803 at 0247 GMT.Philippine currency traders said Thursday that the central bank intervened in the dollar-peso spot market to stop the greenback's slide after the overnight surge of the euro to a 15-month high. "The central bank set the floor at PHP46.65 and that spooked the market, especially heading into an extended weekend," said a trader with a large local bank. The central bank bought the dollar at PHP46.65, and while the size of intervention of around $10 million was a small amount, it was enough to send banks to square some positions, the trader added. Another trader, however, said the intervention amount was far larger, with the central bank buying as much as $50 million. He added that Bangko Sentral ng Pilipinas bought at PHP46.70, helping to push the currency pair past its PHP46.72 level late Wednesday. At 0220 GMT, the dollar was trading at PHP46.775.

USD/JPY now 87.40, biased down on view Fed to remain on hold for months; but breaking below 87.10, marked in January, will be "a bit difficult" as there are "so many" options-related USD-buying orders lined up at 87.00 and 87.10, say senior dealers at major banks in Tokyo; "given today's thin trading volume, pushing the dollar below Y87.10 is little difficult, at least during Asian trading time," says one. Adds many options-related defensive buying orders above 87.00 means great amount of stop-loss selling orders just below 87.00; if those sell orders triggered, pair could fall below 86.50 quickly.