Market Rumours

2010/07/01 18:04DJ ECB Allots EUR111.237B In Six-Day Tender At Fixed Rate
FRANKFURT -The European Central Bank allotted EUR111.237 billion in six-day funds at a fixed rate Thursday. It satisfied all bids of 78 bidders. ECB website: www.ecb.int

2010/07/01 16:59=DJ DATA SNAP: Euro-Zone Manufacturing Growth Slows In June
LONDON -Output growth in the euro zone's manufacturing sector slowed slightly in June, the latest indication that the currency bloc's recovery is losing some steam, a monthly survey by financial information company Markit showed Thursday. 'The second quarter most likely represents a peaking in the rate of expansion of manufacturing output,' Chris Williamson, chief economist at Markit, said in a statement. The final euro-zone manufacturing purchasing managers index, a gauge of activity based on a survey of some 3,000 manufacturing firms, eased to a four-month low of 55.6 in June from 55.8 in May. The result is bang in line with the preliminary flash reading and the market consensus expectation from a Dow Jones Newswires survey of economists last week. Although the PMI has eased back further from April's near-four-year high, it remains well above the long-run average of 51.6, Markit said. The PMI has now been above the no-change 50 level, indicating improving business conditions, for nine consecutive months. Markit website: www.markit.com

2010/07/01 16:47=DJ DATA SNAP: UK June Manufacturing PMI 57.5 From May 58.0
LONDON -The U.K. manufacturing sector expanded at a slower pace in June, as export orders eased, data showed Thursday. The PMI for the manufacturing sector slipped to 57.5 in June from 58.0 in May, Markit and the Chartered Institute of Purchasing and Supply said. The June outcome was stronger than expected as economists surveyed by Dow Jones Newswires last week had expected the PMI to fall to 57.0. A reading above 50.0 indicates the sector is expanding, while a reading below 50.0 indicates it is contracting. 'June PMI data signal that growth of U.K. manufacturing production in the second quarter of 2010 was sustained at an average pace close to the 1.2% first quarter gain reported by the official figures,' said Rob Dobson, senior economist at Markit. 'The latest survey offered signs that conditions may have passed their peak, as indexes for output and new orders have tapered off in recent months,' he said.

2010/07/01 16:15DJ BOE Miles: UK Interest Rate Hike Not Yet Necessary
LONDON -A U.K. interest rate hike is not currently necessary, despite inflation staying at elevated levels, Bank of England member David Miles said Thursday. In an interview with U.K. daily, The Daily Mail, Miles said that while inflation was currently 'uncomfortably' high, above the central bank's 2% target rate, it is also volatile as it was below 1% less than one year ago. 'My own judgment is that we haven't yet got to the point at which a tightening in monetary policy is the right thing to do,' Miles said, adding inflation is 'unusually' volatile. 'The latest inflation data suggest we are slightly moving back towards the target level,' he said. Monetary Policy Committee member Andrew Sentance voted for a 25 basis points rate hike at the last rate-setting meeting in June, the only member to have done so for almost two years. The minutes revealed that while members noted the possibility of further increases in the U.K. consumer price index--which rose 3.4% on the year in May--sharp downward moves are more likely.

2010/07/01 15:57DJ JGB Yields Hit Multi-Year Lows; Tankan Fails To Reverse Safety Trend
TOKYO -Japanese government bond yields fell to multi-year lows on Thursday, as money continued to flow out of riskier assets, such as stocks, into safe-haven JGBs due to fears over a global economic slowdown. 'JGBs have recently been bought on vague concerns over the economic outlook. Players will likely focus on economic data and earnings from now on for evidence to back up those concerns,' said Nobuto Yamazaki, executive fund manager at DLIBJ Asset Management. In the near term, JGB marker participants will look at U.S. employment data due Friday. Economists polled by Dow Jones expect non-farm payrolls to decline by 110,000 in June, compared with a 431,000 rise in the previous month. Lead September JGB futures closed the day 0.22 higher at 141.88 after briefly hitting 141.95--their highest level since March 18, 2008. Bond yields move inversely to prices. But Yamazaki said that if upcoming economic data don't boost demand for JGBs, then futures could slip back to as low as 141.10 over the course of next week as players adjust their positions ahead of key JGB auctions. The Ministry of Finance plans to sell Y2.2 trillion worth of 10-year JGBs next Tuesday and Y600 billion worth of 30-year notes on Thursday. JGBs were initially sold off Thursday morning, as the headline diffusion index in the Bank of Japan's quarterly tankan survey showed that large manufacturers' business confidence surprisingly turned positive for the first time in two years. But that wasn't enough to completely reverse recent bullish momentum in the JGB market. In the cash bond market, room for further declines in shorter-dated yields--such as the five-year yield, which touched 0.320%, its lowest point since August 13, 2003--are limited. As a result, players have started shifting their focus to the longer-end of the curve. The benchmark 10-year cash JGB yield fell to 1.055%--its lowest point since Aug. 14, 2003. The 20-year yield hit 1.755%, which is the lowest point since Jan. 5, 2009, while the 30-year yield sank to 1.820%, the lowest since Dec. 29, 2008. Demand for JGBs remains strong, said a trader at a Japanese bank, especially from those who couldn't buy enough JGBs in the April-June quarter as they were waiting for dip-buying chances that were few and far between. But if the Nikkei Stock Average falls below the psychologically key 9,000 mark, that could trigger some JGB selling to cover up losses in stocks, the trader added. The Nikkei Stock Average finished the day down 2.0% At 9191.60.

2010/07/01 15:34DJ Japan Senior Vice Fin Min Ikeda:Will Try To Prevent Undue Yen Rise
TOKYO -Japanese Senior Vice Finance Minister Motohisa Ikeda said Thursday the government will try to prevent undue yen strength while working to bring about economic growth that's powered by both domestic and foreign demand. In its recently announced growth strategies, the government said it "will stave off excessive yen rises while realizing economic growth that is underpinned by both domestic and external demand, so we will act along the lines of a such policy," Ikeda told Dow Jones Newswires in an interview.Ikeda also said "in general," a weak yen works in favor of Japan's economy, which he said "has no choice but to depend substantially on external demand" for now.

2010/07/01 15:26DJ Tokyo Shares End Sharply Lower As China PMI Data Disappoint
TOKYO -Tokyo stocks fell to their fifth straight loss on Thursday as disappointing Chinese manufacturing activity data sent buyers scurrying, helping China-sensitive shares such as JFE Holdings drive the Nikkei Stock Average to a second straight seven-month low.The Nikkei fell 191.04 points, or 2.0%, to 9191.60 following yesterday's 2.0% loss. It was the lowest closing level for the index since the November 27 'Dubai Shock.'The Topix index of all the Tokyo Stock Exchange First Section issues also fell 13.03 points, or 1.6%, to 828.39, with 32 of 33 subindexes closing in negative territory.Much like the prior day's session, trading volume was not excessive considering the percentage decline, totaling just 1.76 billion shares, and illustrating a lack of participation in the market.Stocks opened broadly lower after their Wall Street counterparts' weakness, with sell pressure attenuated somewhat by better-than-expected BOJ June tankan survey results, which came out before the opening bell.Selling accelerated after the mid-morning release of China's Purchasing Managers Index (PMI) data, which showed a fall to 52.1 in June from May's 53.9. China-sensitive shares in the mining, iron and steel sectors took big hits on fears of a slowdown in Chinese economic activity. JFE Holdings dropped 3.2% to Y2,692, Mitsui O.S.K. Lines fell 2.5% to Y579, and Hitachi Construction Machinery shed 2.6% to Y1,613.Meanwhile, more weakening in the dollar and euro against the yen continued to hammer export shares such a Kyocera, which lost 3.4% to Y7,010, and Honda Motor, which surrendered 3.3% to Y2,512. Honda was also struck by Citigroup's rating cut to Hold from Buy. Some foreign investors are now seen reducing their overweight positions in Honda, according to a fund manager at one U.S. asset management firm.'A global recession is unlikely, but it's obvious recovery momentum is slowing down,' said Norihiro Fujito, general manager at Mitsubishi UFJ Morgan Stanley Securities. He added that the Nikkei could easily drop under 9000 if it breaks its November 27 intraday low of 9076.41. A weak Friday U.S. jobs report could be such a sell catalyst, he said.On the Osaka Securities Exchange, the Nikkei 225 September futures contract ended down 180 points, or 1.9%, at 9180.Elsewhere, Softbank also closed down 4.4% to Y2,267 after its subsidiary Yahoo Japan was slapped with an additional tax payment order over its acquisition of a separate Softbank unit.'The negative impact on its earnings is limited but the stock has a history of being sensitive to negative news,' noted Yusuke Tsunoda, an analyst at Tokai Tokyo Securities.Softbank said Wednesday that the tax payment would push down its April-June net profit by Y24.8 billion, but noted no change to its current full-year operating profit forecast. Yahoo Japan also closed down 3.2% to Y34,500.Sony lost 3.7% to Y2,296 after hitting yet another 2010 low as foreign investors sold on strong yen concerns. Traders said that its share weakness may continue on such potential factors as weaker TV demand in Europe. Sony has lost 18% since end-May.Sumitomo Rubber Industries and Bridgestone represented two rare bright spots among more liquid shares. The pair closed up 3.7% to Y817 and up 1.1% to Y1,430, respectively, after Goldman Sachs upgraded both stocks to Neutral from Buy, and lifted their target prices. The brokerage cited tire production volume, centering in Japan, as far exceeding earlier estimates.

2010/07/01 15:01DJ Forex Options: Demand For Options Up As Dollar/Yen Hits 2-Month Low
TOKYO -Dollar/yen currency options rose in Asia Thursday as the underlying exchange rate touched a two-month low of Y88.10, prompting investors to buy protection against further weakness in the U.S. currency.Also fueling demand for options to hedge against a weaker dollar was speculation that the coming U.S. jobs data may miss forecast, causing the U.S. currency to fall below the psychologically important Y88.00 level, traders said.The prices of one-month at-the-money dollar/yen options, as measured by implied volatilities, rose to 11.85%/12.55% from 11.75%/12.45% in New York Wednesday.Many of the options bought today were yen calls with strike prices of Y85.00 to Y88.00 designed to mature Monday and Tuesday, a trader at a Japanese bank said.The trades took place as the U.S. unit declined to Y88.10 on EBS, the lowest since Y87.95 on May 6. Falling Asian stock markets and growing concerns over the global economic outlook lifted demand for the yen, which many investors see as one of the safest currencies in times of economic turmoil.Such call options offer the right to sell dollars for the yen at pre-set levels, enabling investors to hedge against, or profit from, a weaker U.S. currency. Their popularity demonstrates how the increasingly murky global economic outlook is raising expectations for gains in the yen.Data due Friday are likely to show that U.S. non-farm payrolls fell by 110,000 in June, after climbing 431,000 in the previous month, according to the median forecast of economists surveyed by Dow Jones Newswires.And some think the figure could be even worse, after payrolls giant ADP on Wednesday reported that only 13,000 new private-sector jobs were created in the U.S. in June, compared with an expected 60,000 increase.

2010/07/01 14:03=DJ WORLD FOREX: Dollar Hits 2-Mo Low Vs Yen On US Econ Concerns -2-
TOKYO -The dollar fell to a two-month low against the yen in Asia Thursday, as recent weak U.S. data increased concerns about that nation's economy, propelling large Japanese investors to aggressively sell the unit.Earlier in the session, the greenback briefly dropped to Y88.08, its lowest level since May 6. Tokyo dealers said it will likely keep falling this week."I see plenty of dollar-selling offers from various types of large Japanese players ranging from exporters to banks to funds," said a senior dealer at a major Japanese bank said.Exporters were in a particular hurry, he said, probably because the exchange rate is below their break-even point.The Bank of Japan's tankan survey of firms released earlier in the day showed that firms made business plans for this fiscal year ending in March on the assumption the greenback will trade at Y90.18 on average. If the yen rises further, earnings generated overseas could shrink significantly when repatriated.As of 0450 GMT, the U.S. currency was at Y88.26 from Y88.43 in New York Wednesday. The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 86.140 from 86.031.The dollar may soon slip below the psychologically important Y88.00 mark and head toward Y85.00 if the Institute for Supply Management's manufacturing index due at 1400 GMT misses forecasts. Dealers said a weaker-than-expected reading will push shares and U.S. Treasury yields down, which would in turn increase demand for the safe-haven yen.A Dow Jones poll of economists forecasts the headline figure for the data to deteriorate to 59.0 in June from 59.7 in May.Even if the greenback falls to Y85.00, the risk of Japan's finance ministry intervening in the currency market is low because the economy is no longer so weak as to justify such action, analysts said."As economic conditions improve and exporters become tougher, it's getting difficult for the MOF to take any actions in the currency market," said Osamu Takashima, chief currency strategist at Citi Bank Japan.The euro, meanwhile, was at Y107.80 and $1.2214 from Y108.21 and $1.2238 New York Wednesday.The euro's outlook is also grim because of ongoing spontaneous global share-price declines, said Shinkin Central Bank's senior dealer Shinichi Hayashi.He said that if the Nikkei Stock Average falls below the psychological level of 9,000, euro-selling will intensify, taking along other high-yielding but risky currencies, such as the Australian and New Zealand dollars.The safe-haven Swiss franc should strengthen on the other hand, he said. The franc recorded another fresh all-time high against the euro, with the euro falling to CHF1.3073 earlier in the day. Dealers said the euro should soon drop below CHF1.30.

2010/07/01 12:15=DJ BIG PICTURE: Friday's Dim Jobs Report Now Looks Even Darker
NEW YORK -Friday's employment number could be as disappointing as a dud firework on July 4.The June nonfarm jobs figure was already expected to be negative because of massive layoffs of temporary Census workers, but two warning signs suggest a larger downside risk.The Conference Board's confidence survey showed consumers turned more negative on the labor markets in June--and their sentiment is often a proxy for how payrolls are behaving.In addition, payroll giant ADP's tally of private-sector jobs showed a gain of just 13,000 new hires this month--far less than the 60,000-job increase that was expected.After the release of the ADP number, some forecasters marked down their Friday expectations. Nomura Securities, for example, expects private payrolls rose only 100,000--less than the 140,000 expected previously.So far, the reductions haven't been large enough to move the median forecast of a loss of 110,000 total jobs and a gain of 110,000 for private payrolls alone.Other forecasters, such as those at Goldman Sachs and T. Rowe Price, didn't change their forecasts but recognized that the downside risks have increased after the ADP number.Guy Lebas of Janney Montgomery points out the upcoming Independence Day holiday in the U.S. could exaggerate the market impact of a disappointing payrolls report, since trading volume typically falls before a long weekend.With the overall economic outlook so uncertain, he expects investors to react quite negatively to a smaller-than-expected increase in private-sector jobs. But even a better-than-forecast number may not be enough to calm concerns about the pace of the recovery.The lack of jobs threatens to have a bigger impact on this recovery than in prior upturns because consumers have no other sources to tap to increase their spending.In the past, the Federal Reserve fought recession by cutting interest rates--a move that has unleashed a wave of borrowing. Now, however, credit constraints and the need to pay off old debts are keeping households from using credit cards. In addition, market volatility and weak home prices means households are still $10 trillion poorer than they were in 2006.Joel Prakken, chairman of Macroeconomic Advisers, which oversees the ADP survey, says better growth in wages and salaries will be needed to support second-half growth given how important consumer spending is to U.S. economic growth. "But labor income can't grow strongly when payrolls are barely increasing," he says.The weak ADP number follows a series of other disappointing trends. Sinking stock prices, euro-zone debt problems and sluggish factory reports from Federal Reserve regional banks suggest the economy hit an air pocket at the end of the second quarter. Continued weak hiring raises concerns about strength in the second half of the year, which kicks off Thursday.

2010/07/01 11:32=DJ ECB WATCH: Relief At Surprisingly Low Demand For ECB Funds
FRANKFURT -Demand for the European Central Bank's offer of three-month funds fell short of expectations Wednesday, relieving fears that the region's banks are dependent on an ECB lifeline to stay afloat.The euro and riskier assets within the euro zone rallied moderately on the news, the single currency edging up to $1.2285 by 1135 GMT, around half a cent higher than immediately before the operation. European bank stocks also rose after days of heavy selling prompted by fears about their soundness.The ECB said it allotted EUR131.933 billion in funds for 91 days at a fixed rate of 1% to a total of 171 banks. The amount allotted is well below what many market participants had expected, and rolls over less than a third of the EUR442 billion in 12-month funds that banks need to repay the ECB Thursday.Forecasts of up to EUR250 billion had circulated ahead of the tender, but forecasting volumes for the ECB's longer-term tenders has been notoriously difficult over the last year.'In a way it's good news because it suggests that banks don't need the ECB as much as it seemed,' said Juergen Michels, an economist with Citigroup in London.On the other hand, he added, the big drop in 'excess liquidity' in the system as the 12-month funds are repaid means that effective interest rates in the euro-zone money market might start rising sooner and more sharply than the market has expected so far--unless the ECB takes more action to keep market rates capped.Michels said the rate of the benchmark Euro Overnight Index Average, or EONIA, could hit 0.8% to 0.9% by October, compared with the range of 0.30% to 0.35% it has been in for the last year. That would mean a relatively sharp tightening of monetary conditions at a time when growth in much of the euro zone is still weak or non-existent, and many banks have problems with losses on their portfolios of loans and government bonds.Others were less sure. Luca Mezzorno, head of macroeconomic analysis at Intesa SanPaolo in Milan, argued that there would still be enough money in the system to stop market rates from rising.He said the ECB is still lending banks as much as they want under the 'fixed-rate, full allotment' procedure of its lending operations, albeit for shorter periods. The ECB intended its offers of 12-month funds to be only a temporary response to the financial crisis.Patrick Jacq, an interest-rate strategist with BNP Paribas in Paris, said one negative consequence of the tender could be increased selling pressure in some core segments of the bond market, because banks will now be free to sell the bonds they had posted at the ECB as collateral over the last year.The ECB has said it will offer a supplementary six-day tender Thursday to ease any tensions that arise as the market adjusts to the new liquidity conditions. Jacq said it will take another EUR40 billion to EUR50 billion to ensure that market rates stay stable at their current levels.While the prevailing mood in the market after the tender was one of relief, analysts were quick to warn that the tender results don't give the all-clear to euro-zone banks, many of which remain dependent on the ECB because other banks are reluctant to lend to them.Analysts at Morgan Stanley said in a research note that the publication of the results of stress tests on Europe's banks later in the summer would give a far more authoritative verdict on the state of the region's financial institutions.A total of 171 banks availed of the tender, barely one-seventh of the number that bid for the 12-month funds a year earlier.However, whereas banks bidding last year were immediately able to reinvest the money at higher rates in short-dated government bonds, there are no such easy carry trades to be made today, meaning that the only reason for banks to bid would be to cope with shortfalls they cannot cover from the market.'Most of the banks [that bid Wednesday] would have some sort of trouble,' Intesa SanPaolo's Mezzorno said.Last year's 12-month tender was the biggest such operation in the ECB's history. A total of EUR172 billion in 12-month money from two other tenders will expire in September and December.Website: http://www.ecb.int