Market Rumours

2010/06/24 14:59DJ Forex Options: Dollar/Yen Options Flat As Spot Stays Calm
TOKYO -Dollar/yen options were unchanged in Asia Thursday as the underlying exchange rate stayed in a tight range, prompting some investors to sell small-sized contracts. Lacking major market-driving factors, the greenback's daily trading range against the yen in the past few days has been narrower than Y1. Such small fluctuations pushed investors to sell contracts they had purchased to take advantage of possible sharp spot moves, said an options dealer at a major Japanese bank. 'We need a Y2 move, or at least a Y1 move per day to activate the currency options market,' he said. Benchmark one-month at-the-money implied volatilites were at 10.70% at 0200 GMT, unchanged from New York Wednesday. But they could fall to 9% or lower in the coming days if the underlying exchange rate remains quiet, dealers said, as volatility in the dollar/yen is now only at 8.5%. One investor sold a three-week dollar-call option with Y90 strike price and $50 million face value at 11.15%. Another investor, meanwhile, sold a one-week dollar-put contract with an Y89 strike, $100 million face value at 10.75%, dealers said. Those contracts suggest investors believe the U.S. currency will trade around the Y89.00-Y90.00 range in the coming weeks. It was at Y89.92 as of 0200 GMT. Meanwhile, trading at the longer-end of the curve have been 'surprisingly' upbeat, options dealers said, due to the activity of one big U.S. fund. The fund has been buying three- to five-year dollar-call options with Y120 strike price over the past month, with a total value of more than $5 billion. The fund is buying between $200 million to $500 million worth of contracts a day, dealers said. The buying suggests the fund expects the dollar will rise to Y120 in the coming years as the Federal Reserve by that time is expected to begin raising its interest rates, dealers said.

2010/06/24 14:55DJ French Finance Minister: More Cost Cuts Needed Than Ministers Think - Report
PARIS -France will have to make more cost cuts than government ministers think, the French finance minister says in Thursday's edition of French daily Les Echos.The country has forecast 2.5% growth for 2011, a target that is "ambitious, but not unrealistic," Christine Lagarde says in Les Echos.French Prime minister Francois Fillon has previously said that the target of cutting France's deficit to 3% of gross domestic product in 2013 means the deficit will have to be narrowed by EUR100 billion, with EUR45 billion coming from public spending and EUR35 billion from a rise in tax revenues as the economy recovers.Lagarde also says in the report that she has "strong hopes" that the G20 meeting in Toronto succeeds in defining a framework and the principles of a tax on banks. She says that the planned bank tax in France will raise between EUR300 million and EUR1 billion.Lagarde says it is not inconceivable that the proceeds of the tax are paid into the budget, but France is open to discussion on the subject. Still, she says Germany's idea of paying the proceeds into a fund could encourage banks to take further risks.Asked about support for a tax on financial transactions, Lagarde says in the report countries need to find the means to keep to their commitments in areas such as development, poverty and climate change."Given the enormous financing needs, logically we have to find new resources.... The merit of a tax on financial transactions is that its feasibility has been demonstrated," she says.Newspaper Web site: www.lesechos.fr

2010/06/24 14:15=DJ WORLD FOREX: Dollar Edges Lower Vs Euro On Dovish FOMC Statement -2-
TOKYO -The dollar edged lower against the euro and the yen in Asia Thursday as Japanese interbank dealers and Asian funds sold the dollar after a dovish statement by the Federal Open Market Committee overnight supported the view that the Federal Reserve may delay monetary tightening.Prospects for the dollar may remain dim if the country's durable goods advance orders and a seven-year Treasury auction, due later in the day, disappoint, fueling worries about further economic growth.After a two-day session of the Fed's policy-making body Wednesday, officials used more tentative language on the strength of the recovery than in their previous meeting almost two months ago. They noted how financial conditions had become less supportive of economic growth following the European debt crisis.'The Fed's dovish statement boosted speculation that its interest rate hike might be delayed toward 2012 from a previous expectation of the first quarter of 2011,' said Satoshi Tate, a senior dealer at Mizuho Corporate Bank.Japanese interbank dealers took cues from broad declines in U.S. Treasury yields that diminished the attractiveness of dollar-denominated securities, he added. The euro rose slightly to $1.2335 compared with $1.2311 in New York late Wednesday. The dollar edged down to Y89.85 from Y89.88. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 85.673 from 85.807. The greenback may decline to a one-month low of Y89.50 if U.S. durable goods advance orders and a $30 billion seven-year Treasury auction come in weaker than expected, pushing U.S. interest rates lower, dealers said. Economists polled by Dow Jones Newswires expect the advance report on durable goods to fall 1.5% in May from a 2.8% rise in April. The euro may briefly rise to $1.2370, but its gains may be short-lived as players remain reluctant to buy the euro amid concerns about European economic and fiscal problems. As of 0450 GMT, the European single unit stood at Y110.85, up from Y110.60 overnight in New York.Interbank

2010/06/24 13:56DJ Fitch: Don't See Major Downside To Australia Ratings On Resources Super Tax
SINGAPORE -The Australian government's proposed resources super profits tax is unlikely to present major downside risks to the nation's AA+ sovereign credit rating, Fitch Ratings analyst Ai Ling Ngiam said Thursday. "Any improvisions to the super profits tax by the Treasury are likely to still be relatively balanced to capture efficiency gains as well as mitigate the fallout with mining companies," Ngiam said in an email response to Dow Jones Newswires queries. "We do not foresee major downside risks to the sovereign ratings and public finances from changes on this front." Ngiam also said Australia's fiscal position "is in good shape to consolidate soon and its government debt is exceptionally low." On the nation's recent change of prime minister to Julia Gillard, she said Fitch does not typically move sovereign ratings based on "personality changes".

2010/06/24 11:21=DJ FED WATCH:FOMC Grows A Bit More Worried About Economy's Outlook
NEW YORK -Federal Reserve officials remain confident the U.S. economy is on the path to recovery, but based on the outcome of their monetary policy meeting Wednesday, they are worried about the durability of the rebound.The concern is well-founded, and it highlights the difficulties the Fed could face should it deem it necessary to offer fresh stimulus to the economy. The interest-rate-setting Federal Open Market Committee met Tuesday and Wednesday, leaving rates steady near zero and signaling no urgency to tighten policy.First, the slow-drip European financial crisis keeps alive the prospect of slower-than-expected U.S. growth. It could also bring renewed financial market stresses, further impairing banks' ability and willingness to extend credit.Joe Abate at Barclays Capital warns in a note that unsettled markets may lie ahead due to the expiry of a roughly $540 billion European Central Bank one-year liquidity line on July 1. He worries that could drive up short-term borrowing rates, both in the U.S. and internationally, although he hopes any jump will be 'brief.'The FOMC itself gave recognition to the matter, saying in its policy statement 'financial conditions have become less supportive of economic growth on balance, largely reflecting developments abroad.'The U.S. economy is by itself a problem. Recent economic data have been uneven and too frequently weak, leaving the nation vulnerable to shocks. The housing sector in particular appears unable to generate a sustained recovery now that a large government tax credit has expired. May new home sales fell to a record low of a 300,000 annual rate, while existing home sales also fell for the month.Meanwhile, a report Wednesday suggested commercial real estate may also be facing yet more weakness. The American Institute of Architects monthly index fell to 45.8 in May, from 48.4 the month before, a worrisome development given that the gauge is a leading indicator of commercial real estate activity.What is more, price pressures are very low and under what central bankers consider stability. Weak economic growth means an inflation surge is unlikely--an outright fall in prices depressing growth further and making debts harder to repay is the bigger worry.The Fed confronts these risks with few ways to offer fresh stimulus to the economy. Its overnight target rate is effectively at zero percent, where it has been since the end of 2008. It will be there for months to come, as the outcome of the FOMC meeting makes clear. A recent San Francisco Fed paper argued the central bank may not even raise rates until 2012.The Fed got around its so-called zero-bound before by massive purchases of mortgage securities. It could do that again, but with mortgage rates already at rock-bottom levels, that may not have much impact.Still, in a recent speech Brian Sack, a New York Fed official charged with implementing monetary policy, noted the Fed's balance sheet would be the main weapon against more economic weakness. But going down this road comes with long-term downsides.A big balance sheet is hard to shrink and carries inflation risks in the long run, simply from the math of money supply. Another issue is cost. The Fed has a balancing act between what it pays banks for reserves, and the income it makes on its mortgage investments. An eventual tightening in monetary policy makes the balance more difficult, potentially forcing the Fed to go to the Treasury for support, which could compromise central bank independence.'What more can they do' to help the economy, when adding more stimulus now creates such problems, said Ray Stone, of forecasting firm Stone & McCarthy Research Associates.(Michael S. Derby, a special writer with Dow Jones Newswires, has covered the Federal Reserve since 2001. He also writes about bond markets and the economy, and can be reached at 212 416 2214 or via email: michael.derby@dowjones.com)TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkbackAmericas@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.

2010/06/24 11:07=DJ FOCUS: Sterling-Boosting Budget Still Leaves Pound Vulnerable
LONDON -Sterling has moved higher after Tuesday's cost-cutting U.K. budget appeared to guarantee the country's top-notch debt rating, but the currency's outlook remains shaky.The pound has gained nearly two cents against the dollar and shoved the euro 1% lower since Chancellor George Osborne outlined his fiscal plans Tuesday, and news Wednesday that one member of the Bank of England's Monetary Policy Committee had voted to raise interest rates in June has added fuel to the move. Optimists tentatively believe that the pound is in line for further gains.However, the new fiscal squeeze probably means low growth and low interest rates for the long haul, both big negatives for the currency. The pound's many detractors see little reason for cheer.'We remain bearish on sterling over the medium term, and would look to use the current rebound to establish strategic [negative] positions, especially against the dollar,' said analysts at French bank BNP Paribas in London.The government's economic growth forecasts for next year 'still look way too high,' despite the downward revision from 2.6% to 2.3%, the bank said. The toughest budget for decades, which aims for a fiscal consolidation of GBP113 billion over the next five years with big spending cuts and tax rises, means low growth for the U.K., the bank added.For now, these concerns are being sidelined. Osborne's massive cost cuts have proven to be just what the credit-rating agencies wanted to see, with Fitch Ratings saying Tuesday that the measures outlined in the budget send a 'strong statement of intent' to trim the deficit and reduce the U.K.'s debt burden. If the plans are carried out in full, the country's AAA debt rating should be safe, Fitch said.That removes a dark cloud that has been hanging over sterling for months. The possibility that the U.K. could lose that cherished rating, shoving up borrowing costs and triggering a rush away from the country's bonds, has been a big reason for the currency's long-running weakness.'The deficit projections should be enough to placate the ratings agencies for now, while the prospect of growth around 2% would be a welcome achievement,' said Daragh Maher, a currencies analyst at Credit Agricole Corporate & Investment Bank in London.'It may be bordering on the optimistic, but the market has always felt that it wanted to give the new chancellor the benefit of the doubt,' he said.On that basis, the 'cheap' pound looks set to rally over the next six months, particularly against the euro and the yen, analysts at the Royal Bank of Scotland agreed.Moreover, the vote by BOE policymaker Andrew Sentance for an interest-rate hike in June, breaking ranks with his seven fellow MPC members who opted to stand pat, shows a vague note of hawkishness within the central bank and provides another reason to favor the pound, RBS said.Nonetheless, the muted nature of the pound's climb so far illustrates that concerns remain in place.'While the lack of negative surprises [in the budget] could benefit sterling in the near term, we think fiscal adjustments will still weigh on sterling and are likely to keep the BOE dovish,' said Gareth Berry, an analyst at UBS in Singapore. The bank advised its clients to use bouts of strength in the currency as neat new levels at which to sell.At 1115 GMT, the pound was trading close to a six-week high against the dollar, at $1.4928, from the $1.4730 area immediately before the budget statement began Tuesday, according to trading system EBS. The euro was at GBP0.8228 against the pound, from GBP0.8330. That takes the euro close to a 19-month low against sterling. A break below there is seen as a potential trigger for a rapid decline, because it would attract large flows from trend-following traders.

2010/06/24 08:14DJ Japan May Exports +32.1% On Year; Expected +37.2% On Year
TOKYO -Japanese exports rose 32.1% from a year earlier in May to Y5.311 trillion, Ministry of Finance data showed Thursday, marking the sixth straight month of growth and boding well for the nation's export-led economic recovery. The result was slightly below the 37.2% increase in merchandise exports expected by economists surveyed by Dow Jones Newswires. Exports to the U.S. rose 17.7% from a year earlier, while those to the European Union climbed 17.4%, the ministry said. Asian-bound shipments increased 34.4% from the previous year. Exports to China were up 25.3%. Japan's trade surplus rose 15.2% to Y324.2 billion, the data showed. The result compared with a Y458.9 billion surplus expected by economists polled by Dow Jones Newswires.

2010/06/24 07:24DJ CREDIT MARKETS: Risk Off As Housing Data Shakes Confidence
NEW YORK -The corporate bond market was at a virtual standstill Wednesday, with just three high-grade issues coming to market and only one visit from the high-yield market.Lending weight to the fears of those looking for a second big dip in the economy, new home sales for May were disappointing, down a record 32.7% to a seasonally adjusted annual rate of 300,000 units, compared to expectations of a 20.6% drop. That came on top of weak US existing home sales data reported on Tuesday.Markit's CDX North American Investment-Grade Index, a key barometer of US credit investors' nerves, deteriorated 1.17 basis points wider to 115.75bps on the news from 114.58bps at Tuesday's close. It improved only slightly through the afternoon to 115.54 as the knee-jerk reaction began to wear off."In the scheme of things, new home sales aren't a big enough portion of the economy...we still believe double [economic] dip is unlikely," said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott, in a note.John Lekas, CEO of Leader Capital Corp, which runs a short-term bond fund, said more issuers should be in the market since he believes interest rates are bound to go up and access to capital will only get tougher as the year progresses."If I were an issuer, I'd probably push ahead as I think the cost of borrowing is going to go up because of interest-rate risk, not because of credit risk. Earnings season is going to be sticky and soft," he said. Investment Grade: International Flavor Most of the action came from non-US issuers as Wednesday marked the second consecutive slump in the primary high-grade market this week following Monday's rush. Bahrain Mumtalakat Holding Co., a sovereign wealth entity owned by the Kingdom of Bahrain, priced its debut bond issuance--raising $750 million--with a spread of 3 percentage points over midswaps on five-year notes, in line with guidance. Mexican bakery and snacks company Grupo Bimbo SAB (BIMBO.MX) priced $800 million of 10-year bonds at 1.8 percentage points over Treasurys. And finance firm Jefferies Group launched a sale of $400 million senior unsecured bonds at Treasurys plus 3.9 percentage points. US-marketed investment-grade volume is $9.18 billion so far this week, compared to $19.2 billion last week, according to Dealogic. In secondary trading, risk premiums over super-safe Treasuries on Morgan Stanley's 4.1% bonds due 2015 rose 0.48 percentage points. The spread for Shell International Finance BV's recently issued 3.1% bond due 2015 fell 0.01 percentage point.

2010/06/24 04:34DJ World Bank Urges G-20 To Keep Focus On Growth, Not Just Deficits
DJ World Bank Urges G-20 To Keep Focus On Growth, Not Just Deficits By Tom Barkley Of DOW JONES NEWSWIRESWASHINGTON -The World Bank will urge Group of 20 leaders meeting this weekend not to allow the immediate demands of containing the sovereign debt crisis to detract from the need for sustainable long-term growth.The bank, in paper prepared for the G-20 summit in Toronto, also called on advanced countries to foster a more multipolar world economy and ensure more people don't fall into poverty.Instead of viewing the debt troubles in Europe as the next phase in the global financial crisis, the bank suggested that the world economy is facing a period in which sustainable growth is the main challenge.'So far, the world has focused on fiscal contraction and debt, but these are only half the story,' the report said.'The world and Europe also need a return to robust growth. Without it, fiscal adjustments will be more painful and politics more unmanageable,' it said.

2010/06/24 03:43=DJ Fed More Cautious On US Growth;Sees Rates Staying Near Zero-2-
WASHINGTON -Federal Reserve officials downgraded their outlook for the U.S. economy Wednesday, indicating that short-term interest rates could remain at a record low until next year to support growth.After a two-day session of the Fed's policy-making body, officials used more tentative language on the strength of the recovery compared to their previous meeting almost two months ago. They also noted how financial conditions had become less supportive of economic growth following the Eurpean debt crisis."Information received since the Federal Open Market Committee met in April suggests that the economic recovery is proceeding and that the labor market is improving gradually," the FOMC said in its carefully-worded statement.With the U.S. unemployment rate expected to remain high and inflation low for some time, the central bank said it expects the benchmark Fed funds rate it uses to steer the economy to remain near zero for an "extended period". That could mean the rate staying at a record low until next year.To help combat the global financial crisis and the severe recession that followed it, the Fed cut the rate at which banks lend to each other to a range between zero and 0.25% at the end of 2008. For more than a year now, the central bank has said it plans to keep the rate at that level for an extended period given that the economy's recovery is expected to be only gradual.Since the FOMC last met April 27-28, Europe's debt crisis has led U.S. stocks to fall and brought a renewed feeling of uncertainty in financial markets. Meantime, improvements in the U.S. jobs market have stalled and inflation has continued to slow down from already low levels, a sign of the big slack still left in the U.S. economy.Fed officials gave a more sobering assessment of the jobs market compared to the April meeting, when they said it was "beginning to improve." This time, they said the market was "improving gradually."In May, the private sector created only 41,000 jobs, far below the 188,000 expected and the average 114,000 created over the previous four months. The number of people filing new claims for jobless insurance, meantime, unexpectedly rose in the week of June 12. Some Fed officials are worried about the persistenly high level of unemployment claims.The Fed also appeared to be somewhat more downbeat in its assessment of household spending, saying only that it's "increasing." After the April meeting, they said spending had "picked up recently."In a setback for the recovery, Americans unexpectedly cut back on spending on everything from cars to clothing in May. The decline, driven by sharp drops in autos and building materials, was the first since Sept. 2009.In his latest take on the U.S. economy June 9, Fed Chairman Ben Bernanke said it appeared as though U.S. consumer spending and business investment could make up for fading government stimulus in supporting the economy. Since then, however, the recovery has looked fragile without further fiscal support.New-home sales plunged to a record low in May, the month after the government ended its home-buyer tax credit, figures showed earlier Wednesday. Sales tanked by 32.7% from the previous month, exceeding already dire expectations for a sector that remains a sore spot in the economy.The Fed also expressed less optimism about financial conditions, which had been improving steadily before Europe's fiscal crisis. Worries about the viability of the euro contributed to pushing U.S. stocks lower by almost 10% since the Fed last met. There's also been a rise in the U.S. dollar, which hurts exports, and in money market spreads.Although stocks have pared some losses, fears over Europe still linger. Monday's downgrade by Fitch Ratings of French bank BNP Paribas brought fresh worries over euro zone sovereign debt and the possibility it will infect the region's banking system.In a sign of the economy's continued weakness, inflation has been slowing in recent months from already low levels. Consumer prices excluding more-volatile food and energy items rose just 0.9% in May from a year earlier, the smallest annual increase in almost 45 years.The Fed noted the slowdown in inflation and repeated Wednesday that inflation is "likely to be subdued for some time."For fear it could spark asset bubbles or higher inflation in the future, Kansas City Fed President Thomas Hoenig continued to oppose the central bank' expectation that rates will remain near zero for an "extended period." But the other nine FOMC voting members were in favor of maintaining the expectation that rates won't rise for a while.Top U.S. financial firms have recently pushed back their forecasts for when the Fed will start to increase its short-term interest rate. In a survey published Tuesday, a majority of the 18-member panel of senior bank economists said they now expect the Fed to begin raising the rate next year. In the previous survey from December 2009, nearly half of those surveyed thought the Fed would have started raising the rate by now.