Market Rumours

2010/07/05 17:29=DJ DATA SNAP: Euro-Zone Retail Sales Rebounded Modestly In May
LONDON -Retail sales in the 16 countries that use the euro rebounded modestly in May as the start of the soccer World Cup approached, while figures for previous months were revised to show slightly less anemic growth. The European Union's statistics agency Eurostat said Monday that sales volumes in the euro zone rose by 0.2% from April and were 0.3% higher than in May 2009. The rise in sales during May was smaller than expected, with economists surveyed by Dow Jones Newswires last week having estimated that sales increased by 0.4%. However, sales were significantly stronger than expected when compared with the same month in 2009, since economists had estimated a decline of 0.7%. That reflects upward revisions to data from previous months. Eurostat now estimates that in April, sales fell by 0.9% on the month and 0.5% on the year, having previously calculated that they fell 1.2% on the month and 1.5% on the year. Eurostat Website: www.europa.eu.int/en/comm/eurostat

2010/07/05 17:21=DJ Forex Focus: Asian Risks For Aussie Now
LONDON -By her successful negotiations with the mining companies last week, Australia's new prime minister Julia Gillard has helped to remove a major obstacle to Aussie dollar gains. However, the Australian currency now faces a new and possibly larger obstacle to extending its rally: China. Or to be exact, probably China and the rest of Asia. Last week, while Gillard was accepting a reduction in the proposed tax on surplus mining profits to 30% from 40% and keeping the mining companies happy, most major Asian countries were reporting a distinct fall in manufacturing activity. Frederic Neumann, a co-head of Asian economic research at HSBC in Hong Kong, notes that activity in Asia has started to level off. In a piece of research entitled 'It Sure Ain't Pretty,' Neumann noted that purchasing managers' surveys across the region are 'pointing south' and that leading indicators have 'turned the wrong way as well.' So just while Gillard may have been convincing mining companies not to up stakes and knock the Australian economy flat on its back, evidence was rolling in that export markets in Asia for the commodities they produce may be shrinking. Neumann insists that the data aren't evidence of a double-dip recession, and are only a sign that restocking is fading and that the impact of earlier fiscal stimuli is wearing off. But there are other reasons to fear that Asian growth in general isn't going to be as strong as it used to be. Chances are that as inflationary pressures start to increase, central banks across the region will start raising interest rates and putting a further cap on growth prospects. Having said this, there is still plenty reason not to lose faith in the Aussie just yet. Despite the recent rise in global aversion towards risk, which put the Aussie on the back foot, the Australian economy is still likely to outperform its G-10 counterparts. As a sharp decline in the U.S. dollar against most other major currencies late last week showed, yield differentials are becoming more important again. So even if Australian interest rates fail to rise as fast as previously anticipated, fears of a double dip recession in the U.S. mean that rates there all also remain low for longer and differentials should remain in favor of the Aussie. This could all help to lift the Aussie at least a little more to $0.87 but there are few forecasters suggesting that the Australian currency's upward path will extend much beyond there just now. See the Australian dollar's recent performance against the U.S. dollar: http://www.dowjoneswebservices.com/chart/view/4217 Early Monday in Europe, the Aussie was up a little, at $0.8456 by 0645 GMT, from $0.8421 late on Friday in New York, according to EBS. There was a small improvement in market sentiment, with the Nikkei gaining 0.7% on the day, after last Friday's confirmation that U.S. non-farm payrolls declined in June. The dollar itself was up at Y87.92 from Y87.70 while the euro was down a little at $1.2538 from $1.2543. The single currency also rose to Y110.24 from Y109.56.

2010/07/05 17:06=DJ DATA SNAP: UK June Services PMI 54.4 Versus 55.4 In May
LONDON -The U.K.'s dominant services sector expanded at a slower pace in June from May, as new business and sentiment dropped back, data showed Monday. Research group Markit and the Chartered Institute of Purchasing & Supply said the services Purchasing Managers Index slipped to 54.4 in June from 55.4 in May. That was weaker than expected, with economists having forecast a drop to 55.0, according to a Dow Jones Newswires poll last week. A reading above 50.0 indicates the sector is expanding, while a reading below that level indicates it is contracting. 'June's data painted a worrying picture for the U.K. services sector as confidence suffered a serious blow following the government's emergency spending cuts,' said David Noble, Chief Executive Officer at the CIPS. 'Purchasing managers voiced grave concerns that budget cuts and VAT [value-added tax] rises will tip the scales and amplify the likelihood of the U.K. slipping back into recession,' he said. The sentiment measure registered the largest monthly fall in the survey's 14 year history, in response to Chancellor of Exchequer George Osborne's emergency budget.

2010/07/05 15:42DJ JGB Futures Slip As Solid Shares Outweigh Hedge Buying
TOKYO -Japanese government bond futures slid on Monday as buying related to hedge transactions ahead of a 10-year JGB auction wasn't strong enough to offset selling pressure stemming from robust share prices. Some investors sold cash 10-year JGBs and purchased futures instead to hedge the risk that Tuesday's 10-year bond tender will meet poor demand, said Chotaro Morita, head of Japan fixed-income research at Barclays Capital. These investors expect a weak result at the key offering because they believe the new issue's coupon rate will be too low to be attractive, analysts said. Japan's Ministry of Finance will sell Y2.2 trillion worth of 10-year bonds, and analysts forecast the coupon will be set at 1.1%, down from 1.3% at the previous issue. "10-year sovereign's balance of risk and return is too unfavorable now. Investors may soon realize 10-year JGBs are expensive," said Tetsuya Miura, chief market analyst at Mizuho Securities. If the auction result indeed turns out to be poor, yields will likely rise and prices, which move inversely to yields, are expected to decline. Miura said investors may want to consider buying a put option contract with a Y140.50 strike price. Such a tool would protect investors from losses if lead JGB futures fall below Y140.50. As of 0600 GMT, lead September futures were at 141.57, down 0.03. Despite hedge-related futures buying, some other investors' selling on the back of upbeat shares--a negative factor to the safe-haven assets--outweighed the purchasing, analysts said. The 2-year JGB yield was unchanged at 0.140% while the five-year yield rose 0.5 basis point to 0.335%. The 10-year yield was up one basis point to 1.105% and the 20-year and 30-year yields rose 1.5 basis points to 1.775% and 1.840%.

2010/07/05 15:37DJ Tokyo Shares End Up On Consumer Lender Surge, Bargain-Buying -2-
TOKYO -Tokyo stocks rose Monday on very thin volume as consumer lenders such as Credit Saison surged on an industry friendly report, while Fanuc and Canon led beaten-down exporters in a bargain-buying binge. The Nikkei Stock Average rose 63.07 points, or 0.7%, to 9266.78. The Topix index of all the Tokyo Stock Exchange First Section issues also rose 5.91 points, or 0.7%, to 836.89, with 29 of 33 subindexes ending in positive territory. Trading volume totaled just 1.43 billion shares, however--one of the lowest marks of the year--due to the extended U.S. Independence Day holiday weekend. "It's a good time to measure how strongly the shares that have been oversold can rebound," said Hideyuki Ishiguro, strategist at Okasan Securities, noting that while Friday's sluggish June U.S. jobs report confirmed a slowdown in the economic recovery, much of the bad news had already been priced into Japanese stocks. Investrust CEO Hiroyuki Fukunaga noted that active buying--as opposed to short-covering and position-squaring--was still difficult to see. Heavyweight technology exporters such as Fanuc rose 1.4% to 10,160, while Canon rose 0.8% to Y3,285, and Sony gained 0.9% to Y2,330. Casio Computer also closed up 4.1% at Y559 after the firm made a share buyback announcement on Friday. A sharp rise in consumer lender shares also helped the Nikkei after the Mainichi Shimbun reported Sunday that Osaka Prefecture may propose a relaxation of tighter money lending laws, including allowing limited application of higher interest rates. Credit Saison ended up 9.0% at Y997, while Acom gained 26% to Y1,444, and Aiful surged 24% to Y135. "Shares are extremely cheap after being sold on the tighter money lending rule (implementation) last month," said a trader at a Japanese brokerage, noting that price-to-book ratios and other valuation metrics are very low for the group. The Topix 'other financial business' subindex easily led the board with a 4.7% gain. Shinsei Bank (8303.TO), which has heavy exposure to the retail lending sector, also closed up 5.5% to Y77. Fast Retailing held larger prospective broader market gains in check, as its Friday announcement of a 5.8% fall in June domestic same-store Uniqlo sales sent shares down 1.8% to Y13,190. It also suffered from a pair of steep ratings and target price cuts from Nomura Securities and CLSA. While the firm blamed weak demand for summer clothing products as the culprit for the poor result, Nomura cited deficiencies in the firm's marketing efficiency. "It's difficult to judge by this sales data alone that Uniqlo's growth is slumping," says Hideyuki Ishiguro, strategist at Okasan Securities, noting that investors are nervous ahead of the company's earnings results Thursday. Elpida Memory closed up 3.2% at Y1,331 on a Nikkei report that it will start producing proprietary ultra-small DRAM chips jointly with three Taiwanese chipmakers.

2010/07/05 15:02DJ Forex Options: Dollar/Yen Options Edge Down On Higher Spot
TOKYO -Dollar/yen currency options edged down in Tokyo Monday as the underlying exchange rate tracked share prices slightly higher, damping demand for hedges against the U.S. unit's downsides.Benchmark one-month at-the-money dollar-yen volatilities stood at 12.10%/12.80% as of 0130 GMT, compared with 12.15%/12.85% Friday in New York. The dollar traded hands at Y87.99, compared with Y87.70.Option prices could continue to fall gradually this week as a lack of major economic indicators weighs on demand for bets against the greenback, dealers said. Some investors may try to trim holdings of dollar-put options, which profit on falls in the currency, to recoup premiums, option dealers said.'Many people are in a wait-and-see mood' ahead of a raft of corporate earnings reports from U.S. firms in the coming weeks, said an options dealer at a major Japanese bank.Recent economic data, including a mixed employment report for June released Friday, have added to concerns over the health of the U.S. economic recovery. But if corporate earnings come in better than expected, that could support the dollar, weighing on options, the dealer said.

2010/07/05 11:50=DJ FED WATCH: June Jobs Data Give Fed No New Reason To Raise Rates
NEW YORK -June jobs data shows just how far the U.S. economy is from seeing meaningful improvement in its highly troubled labor market, reaffirming why it will be many months before the Federal Reserve raises interest rates.The government on Friday reported a big drop in temporary government census workers caused the economy to shed some 125,000 non-farm payroll jobs in June. But underneath that number, the private sector managed to add 83,000 jobs, while the unemployment rate fell to 9.5% from 9.7% in May.June was to a degree a mirror image of the month before. The May job gain was powered almost exclusively by dint of government hiring. June may have seen net job losses, but the private sector rebound showed jobs are at least being created in the right place.The unemployment rate drop was also welcome, although there was evidence it fell because some have become so discouraged at finding work they've simply dropped out of the economy. Meanwhile, the government's very broad U-6 unemployment measure, which counts the jobless plus marginally attached and involuntarily part time workers, ticked down slightly to 16.5% from 16.6%.The most important metric may be one the government doesn't generate. The U.S. economy has averaged about 150,000 new hirings a month over the first half of the year. This average monthly gain helps cut through the wide volatility that attends the monthly change number. Problem is, this number is barely above the estimate of the around 120,000 jobs the economy needs to add each month to deal with the normal pace of new entrants to the labor force. By this reckoning, the jobs market is using a teaspoon to fill in the hole created by the over 7.5 million jobs lost over the course of the recession. It's hard to see how this pace of job creation will do much for reducing unemployment, and that's why central bank officials like Narayana Kocherlakota of the Minneapolis Fed warned last month he doesn't see the unemployment rate under 8%, a historically high number, by the end of next year.High unemployment coupled with modest growth means the economy is in little danger of creating the inflationary pressures that would drive the Federal Reserve to push up interest rates.What's more, the recent arc of the numbers has been mixed. The housing market again in sharp eclipse, at a time where European economic and financial problems have the potential to increase drag on already modest U.S. momentum.Economists expect less stimulus support from federal government spending, too. Put another way, it's hard to see how the economy will generate the vigorous growth needed to make unemployment fall, which means the Fed has no urgency to lift interest rates. Wall Street on Friday pushed back even further the expected time frame for rate hikes.The troublesome news is changing economists' sentiments. Pierpont Securities' Stephen Stanley had been more upbeat than most about the outlook. Now, not so much.'No one was rooting for a strong June employment report more than I was, but, sadly, this most assuredly was not it,' he said. 'I intend to go back to the drawing board and rein back my growth forecasts, at least for the next quarter or two to reflect the caution that has infected the U.S. economy,' Stanley added.

2010/07/05 08:43DJ EC Official: Euro Zone Could See Up To 6.5% Growth By 2020
SHANGHAI -The euro zone could see annual economic growth of up to 6.5% by 2020 if European countries adopt rigorous labor market reform and fiscal consolidation, a senior European Commission official said Saturday.Gert Jan Koopman, director of economic and financial affairs at the European Commission, said the existing structure of the European economy would result in merely 1.5% annual growth in coming years, a growth rate too low for many countries to cope with a rapidly aging population and rising government debt.He said in a financial workshop hosted by the European Union at the Shanghai World Expo that the higher growth rate can be achieved by EU member countries adopting aggressive reforms such as changes in retirement age, job growth programs and regulatory rules regarding slow-growing sectors, such as energy.His forecast however was met with some skepticism from the Chinese audience.Chen Daofu, a department chief of the Chinese government think tank the Development Research Center of the State Council, said that 'it would be rather difficult' for Europe to achieve 6.5% growth given the reform programs mentioned.'Usually such a growth rate is only seen in countries in the developing stage,' Chen said on the sidelines of the event.But Koopman brushed aside the doubt.'For some European countries here it's a matter of survival,' Koopman said on the sidelines. 'Governments there [of Greece, Spain, Portugal and Italy] are undertaking these reforms because they understand unless you grow faster than the debt overhang, there will be problems.'