Market Rumours

2010/06/30 17:30DJ BOE Posen:CPI Expectations Rise Doesn't Warrant Rate Hike
LONDON -Bank of England Monetary Policy Committee member Adam Posen said Wednesday that persistently high U.K. inflation reflects a modest increase in public expectations of price growth in response to crisis measures, but that doesn't warrant an interest rate hike. In a speech in London, Posen described the U.K. economy as caught between two worlds--tentatively recovering, but still at risk of falling back into recession, with painful fiscal tightening set to curb growth ahead. The BOE suspended its GBP200 billion quantitative easing program of buying government bonds with freshly created central bank money in February, but has left the door open to extending the policy further if conditions deteriorate. Its key interest rate remains at an all-time low of 0.5%. 'I see the inflation target overshoots that occurred over the last two and a half years as the comprehensible result of a monetary policy stance set to be very stimulating to prevent a terrible downside risk of deflation and depression,' Posen said. He added that it wasn't surprising that when that doomsday outcome didn't come to pass--largely thanks to the BOE's aggressive easing measures--this pushed up expectations of price growth and inflation itself. 'A small slow upwards creep in inflation expectations is not worth panicking over, and certainly is not a reason to tighten policy when the forecast argues against so doing,' Posen said. He added that the rise in inflation expectations should be easily reversed once the MPC starts tightening monetary policy. Markets were surprised last week when minutes from the MPC's June meeting revealed that Andrew Sentance voted for an immediate 25 basis point rate rise. The BOE's forecasts indicate that inflation is far more likely to be below 1.5% or above 2.5% than close to the 2.0% target over the medium term, Posen said. He noted that he would happily vote for a rate hike if the more bullish scenario came to pass. 'I regret to say that I am not as confident, however, that we will get to that favorable situation, and that much of what determines our outlook will take place beyond our borders and certainly beyond the MPC's remit,' he said.

2010/06/30 17:22*DJ Euro Spikes Higher On Low Take-Up For 3 Month Tender

2010/06/30 17:20=DJ DATA SNAP: Euro-Zone June Flash CPI Slows More Than Expected
LONDON -Consumer prices across the 16 countries that use the euro rose at a slower pace than expected in June, data showed Wednesday. The European Union's official statistics agency Eurostat said the flash estimate of the annual consumer price index in the euro zone rose 1.4% on the year in June. In May the consumer price index rose 1.6%. Economists surveyed by Dow Jones Newswires last week had predicted a 1.5% increase. The lower-than-expected inflation rate in the euro zone comes after a 0.3 percentage point slowdown in German inflation to 0.9% on the year in June, down from May's 1.2% rate. The flash measure of Spanish consumer price inflation, also reported earlier this week, was 1.5% in June, down from 1.8% in May as a result of lower energy prices, Spain's national statistics institute said. That was a smaller-than-expected slowdown as economists had forecast inflation would reach just 1.4% on the year in June. The full breakdown of euro-zone March inflation data will be published June 16.

2010/06/30 17:20=DJ Forex Focus: Euro's Non-Dollar Falls Will Accelerate
LONDON -New worries about the U.S. economic recovery may be slowing the euro's slide against the dollar. However, the single currency will still accelerate its decline elsewhere--falling even faster against the pound, the Swiss franc, the yen and even the Swedish krona as global market sentiment deteriorates. See the euro's slide against the yen: http://www.dowjoneswebservices.com/chart/view/4198 Apart from fresh funding fears within the euro zone itself, along with increased political risks in Germany, the euro is facing further outflows as more doubt is cast over the pace of the global rebound. For now, though, euro losses against the dollar should be tempered, not because investors are any more fond of the euro but because recent data suggests that the U.S. recovery is stalling. Concern that the U.S. could face a 'double-dip' recession is so high that there is renewed talk that, rather than suspend its quantitative easing as expected, the U.S. Federal Reserve should be contemplating a new installment to help prevent deflation. This is helping to take the shine off the dollar, which only a few weeks ago was rising on talk that the Fed will soon remove its promise to keep interest rates down at their record low levels for 'an extended period'. Deepening concern about the U.S. economy has coincided with a rash of bad economic news elsewhere. The Japanese economy remains mired in deflation, sluggish euro zone monetary growth suggest that the region can't afford any rate hikes until well into 2011, and now estimates of Chinese leading indicators have been scaled back sharply. A pledge by leaders of the Group of 20 industrial and developing nations meeting in Canada last weekend to slash fiscal deficits in half by 2013 means that the global recovery could be even more gradual and even more painful now. This reassessment of growth prospects is bad news for the euro even before the latest developments in the euro zone debt crisis are taken into account. On the funding side alone, plans for the European Central Bank to refinance a one-year facility for helping euro-zone banks with a three-month paper offering has been called 'absurd' by Spanish banks given the continued high level of demand from the cash-strapped banking community. Greek plans to return to the open market with its own offering next month is also seen as a high risk exercise that could damage the credibility of euro zone funding as a whole if it doesn't succeed. Perhaps of even more significance for the euro is the test of German Chancellor Angela Merkel's authority as the Federal Assembly votes for a new president later Wednesday. As Simon Derrick, a senior currency strategist at Bank of New York Mellon in London, pointed out, the vote is increasingly being taken as a vote of confidence in Merkel, who stuck her neck out to back a euro-zone wide bail out package for Greece that has cost the German tax player plenty. If Merkel loses, much of the political glue that has been holding her government together could come unstuck, opening the way for a much less euro-sympathetic German administration to emerge some time in the future. So while investors might not be too happy jumping out of the frying pan into the fire, or into the dollar, they will still be happy to jump elsewhere. Early Wednesday in Europe, the euro was bouncing a little on short-covering after recent sharp losses, driven by fears over growth in the U.S. and in China and nervousness about the European Central Bank's plans for refinancing a one-year funding program for European banks on Thursday. On Tuesday, the latest U.S. consumer confidence index from Conference Board plummeted unexpectedly to 52.9 from 62.7 and, after recent disappointing data from China, there are fears that the country's latest purchasing managers index on Thursday will fall under the key 50 level between economic growth and economic contraction. By 0708 GMT, the euro had made it up to $1.2224 from $1.2196 late on Tuesday in New York, according to EBS. It was also up at Y108.32 from Y107.97. The dollar is up at Y88.61 from Y88.54.

2010/06/30 16:10DJ UK Treasury Sees 1.3M Jobs Lost Over Next 5 Years -Newspaper
LONDON -The U.K. government expects 1.3 million jobs to be lost over the next five years, U.K. daily The Guardian reports Wednesday, citing a treasury assessment of the impact of planned spending cuts. The forecast is for '100,000-120,000 public-sector jobs and 120,000-140,000 private- sector jobs assumed to be lost per annum for five years through cuts,' the newspaper cites the Treasury as saying, resulting in 500,000-600,000 public-sector jobs and 600,000-700,000 private-sector jobs to go in the five year period. Full story: http://www.guardian.co.uk/uk/2010/jun/29/budget-job-losses-unemployment-austerity

2010/06/30 16:10*DJ BOE Posen: UK "Tentatively" Recovering, Recession Still A Risk

2010/06/30 14:58DJ Forex Options: Dollar/Yen Options Up; Spot Rate Seen Falling Further
TOKYO -Dollar/yen currency options rose in Tokyo Wednesday, as a decline in the underlying exchange rate to a more than one-month low overnight strengthened demand for downside hedges amid concerns that it could fall further. The U.S. unit recovered to Y88.58 in the Asian morning session after sliding to Y88.29 overnight, its lowest level since May 6. One-month at-the-money dollar/yen implied volatilities were up at 12.55%/12.90% compared with 11.55%/12.25% in New York Tuesday. One player bought five-month dollar-put/yen-call options with a Y75.05 strike price, at 18.25%, an options trader said, with the volume of the deal unknown. Such contracts make money for holders when the dollar falls below the strike price. Market participants will watch Friday's U.S. non-farm payrolls data for June to gauge the health of the world's largest economy. If the result disappoints, pushing U.S. interest rates down, the dollar may decline against the yen, which would buoy implied volatilities.

2010/06/30 14:12=DJ WORLD FOREX: Dollar Up Vs Yen, But Risks Of Plunging To Y85-3-
TOKYO -The dollar inched up against the yen in Asia Wednesday as long-term-focused Japanese retail investors bought the unit on lows to beef up dollar portfolios.The amount of buying from these investors was not large, dealers said. But it had some impact on the market because other major players, such as short-term-focused hedge funds, stayed on the sidelines ahead of U.S. payrolls data from Automatic Data Processing due later in the global day.Still, Tokyo dealers warned the greenback may suffer sharp declines if the data miss forecasts, as such an outcome will encourage investors to speculate that the key U.S. non-farm payrolls survey due Friday will also turn out weak.A Dow Jones poll of economists views the ADP figures as showing a job increase of 60,000 in June from a month earlier.Weaker-than-expected U.S. data are negative to the U.S. unit because they often push down U.S. Treasury yields, a tool that investors use to gauge the timing of the Federal Reserve's policy-rate tightening.The benchmark 10-year U.S. Treasury yield was 2.947% in Asia, its lowest point since April 2009. The two-year yield was at 0.601%, near its all-time low.'If the U.S. yield falls, investors should sell the dollar. There's no doubt about it,' said Minoru Shioiri, a senior dealer at Mitsubishi UFJ Morgan Stanley Securities.The U.S. unit was at Y88.58 at 0450 GMT, higher than Y88.54 in New York Tuesday.Once the dollar falls below the psychologically important Y88.00, it will likely drop sharply toward Y85.00 because of a significant amount of automated stop-loss selling orders, dealers said.'There are at least several billion dollars worth of such orders in the market today. If they get executed, the dollar targeting Y85.00 isn't difficult at all,' said a senior dealer at a major European bank in Tokyo.The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 85.974, down from 86.105 last night.The euro, meanwhile, was at $1.2220 and Y108.25 from $1.2196 and Y107.97 in New York last night due to buying from Japanese retail investors, dealers said.But the European currency's outlook is negative as well, especially if global share markets follow weakness in Japanese equity markets, said Mitsuru Sahara, a senior dealer at Bank of Tokyo-Mitsubishi UFJ.There is a significant risk of the single unit falling toward its eight-and-half year low of Y107.00 later in the global day, dealers said.

2010/06/30 10:31DJ Obama Declares Emergency In Texas Due To Storm Alex
U.S. President Barack Obama has declared an emergency in Texas, ordering Federal aid to help manage emergency conditions resulting from Tropical Storm Alex, the White House said in a statement Wednesday. The move allows the Department of Homeland Security's Federal Emergency Management Agency, or FEMA, to coordinate disaster relief efforts and assist in emergency measures, the statement said. Alex is expected to turn into a hurricane as it churns toward Texas and the change could occur in the next few hours, the National Hurricane Center said in an advisory late Tuesday. The Agency is 'authorized to identify, mobilize, and provide at its discretion, equipment and resources necessary to alleviate the impacts of the emergency,' according to the statement.

2010/06/30 09:54=DJ US Bank Bill Would Open Door To CFTC Oversight Of Forex Market
WASHINGTON -The Commodity Futures Trading Commission scored a victory in the financial overhaul bill after U.S. lawmakers last week agreed to a provision that would let the CFTC regulate foreign exchange swaps and forwards despite objections from the Treasury Department.Such a move could for the first time give the CFTC a window into a huge chunk of the over-the-counter market.In a compromise, however, the bill would still allow the Treasury Dept. to put a stop to new regulations that would require big banks and major traders to have their forex swaps executed on trading platforms and routed through clearinghouses, which guarantee trades.In order to stop the CFTC from regulating forex products, the Treasury Dept. would have to issue a written determination saying they shouldn't be regulated and that they haven't been structured to evade the new rules.The bill would still empower the CFTC to collect and have access to data on all forex trades even if Treasury blocks them from the new regulations. Dealers and major swap traders would also still be subject to business conduct rules as well.The foreign exchange market makes up a very large portion of the total over-the-counter market, and it is used heavily by big banks. In a survey of the New York over-the-counter foreign exchange market in January, the New York Federal Reserve reported that there was $675 billion in average daily volume in October 2009.Since last year CFTC Chairman Gary Gensler has been pushing to include foreign exchange swaps and forwards in new regulations for derivatives, and the Treasury Dept. has continued to resist the idea.When the U.S. House of Representatives passed the financial bill last year, it struck a compromise which said derivatives wouldn't be regulated unless the CFTC and Treasury Dept. both agreed to it.But Senate Agriculture Chairman Blanche Lincoln (D., Ark.) didn't like the idea and helped usher through the compromise that was ultimately approved by House and Senate negotiators in the financial bill now facing two crucial votes."This is the second-largest part of this $600 trillion marketplace, and it's completely unregulated right now. I think you are going to find us working hard to put together a bill that will have the type of regulation that is appropriate for that portion of the marketplace,"

2010/06/30 08:38DJ Strauss-Kahn: IMF Developing 'Precautionary,' Regional Credit Line
WASHINGTON -The International Monetary Fund is developing a new "precautionary" credit line that could be applied to regions and with fewer conditions than existing funding, IMF Executive Director Dominique Strauss-Kahn said Tuesday.Strauss-Kahn said a regional approach would help avert the stigma of an IMF loan and the subsequent market reactions that can raise borrowing costs for countries.The IMF executive director said he hopes the new credit line, designed as a sister to the flexible credit line, could be completely developed by the Group of 20 summit in the autumn.The IMF chief, speaking at an event at the Peterson Institute for International Economics, also said that the IMF should have deeper access to capital flows that are traditionally in the remit of nations' financial regulators.He said the IMF is targeting completing quota reforms, which determine the amount countries contribute to the fund and their voting power, by the G-20.

2010/06/30 07:30=DJ DATA SNAP: UK Consumer Confidence Weakened Ahead Of Budget
LONDON -U.K. consumer confidence weakened for the fourth straight month in June, ahead of the new government's emergency budget, which as expected ushered in a new age of austerity. Polling firm GfK NOP Wednesday said its headline measure of consumer confidence fell to -19 from -18 in May, a decline that was forecast by economists surveyed by Dow Jones Newswires last week. Consumers were surveyed on behalf of the European Commission between June 4 and June 20, as the broad outlines of the June 22 budget were becoming clearer. The government has indicated that it would further raise taxes and cut spending in an effort to cut the budget deficit more rapidly than planned by the previous Labour administration. 'The ongoing debate around spending cuts and speculation around tax hikes in the lead-up to the emergency budget has impacted consumer confidence,' said Nick Moon, managing director of GfK NOP. The continued decline in consumer confidence is likely to weaken the economic recovery in the absence of a big pick-up in exports or business investment, increasing the risk of a double-dip recession. The U.K. economy began to grow again in the final three months of last year, having contracted for six straight quarters. 'Concerns about the fragility of the recovery and the potential for a double-dip recession may be exacerbated by the fall in confidence in the general economy,' Moon said. The weakening of confidence was driven by a deepening pessimism about the outlook for the economy over the coming 12 months, which consumers expect to have a negative impact on their personal financial prospects. According to a survey released Tuesday by the European Commission, consumer confidence in the 16-member euro zone picked up in June, having dipped sharply in May in response to the intensification of the currency area's fiscal crisis. Indeed, the Commission's Economic Sentiment Index for the U.K.--a combined measure of business and consumer confidence--fell more sharply than any other large European economy in June, as confidence in the manufacturing and service sectors slumped. With the budget having included the mild surprise of a rise in the sales tax rate to 20% from 17.5% and England's soccer team having fared poorly at the World Cup, consumer confidence is likely to dip again in July. But business confidence may rebound, boosted in part by planned cuts in the tax rate on company profits. Website: www.gfknop.co.uk

2010/06/30 06:53DJ CREDIT MARKETS: Full Slate Of Concerns Renew Flight To Safety
NEW YORK -Credit markets on Tuesday were touched by the same forces that pushed the Dow Jones Industrial Average under the 10,000 mark and almost sent the S&P 500 below 1040.Investors were concerned about the steep drop in U.S. consumer confidence, about financial regulation cutting down future bank profitability and about the possibility that the Chinese economy slowing. Markets also were jittery about eurozone sovereign debt ahead of Thursday's expiration of a EUR442 billion ($542.53 billion) European Central Bank bank-lending program and the potential fallout from bank stress tests by European governments.Each factor cut into debt issuance and drove up credit-default swap levels. No high-grade borrowers issued debt in the primary market, and just two speculative-grade bond deals were finalized.Treasurys rallied, with the two-year note's yield falling to a record low and the benchmark 10-year yield dropping below 3%. Increased demand for Treasurys is consistent with the weeks-long derisking trade, or flight to high-quality debt securities, said Susan Jansen, managing director of U.S Credit Research at Nomura Securities International. Prices are on the rise for the names that are in demand, and prices are falling for riskier debt securities. 'The haves are the very liquid, on-the-run, high-quality securities,' Jansen said. 'It's very difficult for investors to source high-quality, liquid paper. It just isn't there.' Investment Grade No new high-grade issues were sold in the primary market for the second consecutive day. The torpor in investment-grade debt comes after two weeks of increased vitality during which volume grew to levels not seen since mid-March. The focus in the secondary market Tuesday was on banks as the final details of financial-system regulatory changes are hammered out in Washington. Spreads rose for bank debt as traders sold off the notes for fear that new rules could bind future profitability. The risk premium, or spread over comparable Treasurys, for Bank of America Corp.'s (BAC) 5.625% notes due July 2020 rose 0.08 percentage points, while the spread for J.P. Morgan Chase & Co.'s (JPM) 3.4% notes due June 2015 rose 0.07 percentage points. The Markit CDX North America Investment Grade index, the benchmark U.S. credit default swaps measure, widened 5.6% as the day progressed, resting at 122.5 basis points as of 4:25 p.m. EDT, 6.5 basis points wider than Monday's close. High-Yield High-yield bonds are poised to wrap up the second quarter with only slightly more issuance than in the fourth quarter of 2009, when the market was virtually silent as market players waited to see whether the economy would rebound in early 2010. Companies issued $483 billion in debt in the past three months, compared with $478 billion in the fourth quarter of 2009 and $696 billion in the first quarter of this year. Bankrate sold $300 million in 5-year senior notes at 11.75% with a one-cent discount to initial buyers to yield 12%. Funding from the deal, led by Jefferies and RBC Capital Markets, will be used to pay for acquisitions. And DynCorp International sold $455 million in 7-year senior notes with a 10.375% coupon at par. The deal, run by Citigroup, Bank of America Merrill Lynch, Barclays Capital and Deutsche Bank, will partially fund Cerberus Capital Management's leveraged buyout of the military contractor. Loans did not fare better. The annual return for the Markit iBoxx USD Leveraged Loan index is now at 3.32%, but month-to-date the index has lost 0.3%. Willbros Group is slated to allocate its $300 million term loan via Credit Agricole and UBS on Wednesday. It may sell at 94 cents on the dollar, wider than the 97 that had been talked earlier, according to a report by Leveraged Commentary & Data. The loan is now talked at 750 basis points over the London interbank offered rate, which tracks the amount banks charge one another to borrow, with a 200-basis point minimum Libor rate. Loan investors say buyers are requiring higher rates and steeper discounts on the loans hitting the market now because of the Federal Reserve's recent comments, which suggested rates would be held steady for the remainder of the year. Loans are a floating-rate instrument, meaning they are more attractive if interest rates rise. Agency Mortgages The drop in Treasury yields slowed mortgages on Tuesday. Prices started to drop on lower-coupon mortgage securities, which indicate corresponding mortgage rates. The 5% coupon saw prices drop from 106.0625 to 105.9375 Tuesday morning. Correspondingly, risk premiums have started to widen, though only by a modest 1.0 basis point to 132 basis points over comparable Treasury yields. The rapid descent of the 10-year Treasury-bond yield to levels below 3% has become the focus of mortgage investors, who are worried that mortgage rates will move in sync with Treasurys. Mortgage strategists say 2.8% on the 10-year benchmark bond is a key threshold and that, if breached, mortgage rates are expected to dip to 4.5% or lower. The low rates could spark a fresh wave of refinancing by homeowners, especially those borrowers with good credit who had bought homes at rates between 5 to 6% over the past 12 to 18 months.