Market Rumours

2010/07/06 20:12DJ Fed Call:No Liquidity Operation Due; Fed Funds At 0.2050%
NEW YORK -The Federal Reserve has no liquidity operations scheduled for Tuesday. Fed funds were last quoted at 0.2050%, compared to the federal-fund target range of 0 to 0.25%, according to Tullett Prebon data.

2010/07/06 17:55DJ JGBs Fall After Weak 10-Yr Auction As Election Concerns Weigh
TOKYO -Japanese government bonds fell Tuesday after an auction of 10-year notes met with slightly weaker-than-expected demand, amid concerns an election in the country's upper house of parliament this weekend could lower expectations for fiscal consolidation that have recently supported JGBs. An afternoon rally in share prices also encouraged investors to sell safe-haven JGBs. These factors overwhelmed a slight bump JGBs received earlier in the day from news that China ramped up its JGB buying earlier this year. Still, any further falls in JGBs will likely be limited this week as investors hesitate to sell aggressively before reviews of European banks' health are completed later this month, analysts said. Should the 'stress tests' increase concern over the European financial sector, that could increase the comparative appeal of JGBs as Japan's banking sector remains relatively healthy. On Tuesday, however, lead September JGB futures closed down 0.13 at 141.44. The benchmark 10-year yield was up 2.0 basis points at 1.125% as of 0600 GMT. Bond prices and yields move inversely. An auction of new 10-year JGBs received only tepid demand. Investors refrained from more active bidding in part on the view the government may suffer a setback in an Upper House election this Sunday that could complicate its fiscal consolidation plans, analysts said. If the ruling bloc loses its majority in the Upper House, which many analysts expect it will, Prime Minister Naoto Kan and his Democratic Party of Japan may have to form a new coalition with different partners, complicating efforts to trim the country's massive debt. For that reason, the election 'will likely determine the direction of fiscal consolidation trends,' said Katsutoshi Inadome, a fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities. If the government is forced to form an alliance with other parties, that could jeopardize Kan's push for a debate on raising the country's consumption tax from 5% to 10%. 'The market views a debate on a consumption tax hike as a positive, so if the government has to form an alliance with other parties that may be opposed to a hike, that could cause a reversal of sentiment in the market, leading to higher yields,' said Atsushi Ito, a JGB strategist at Morgan Stanley MUFG Securities. Japan's Finance Ministry sold Y2.016 trillion of the 10-year cash bonds at a lowest price of 99.80, slightly lower than traders' expectations for 99.83, yielding 1.122%. The new bonds carry a coupon of 1.1%, the lowest since an issue of the maturity in August 2003. The coupon in the previous issue was 1.3%. 'The low-level coupon obviously played a role in the slightly weaker-than-expected auction result,' said Morgan Stanley MUFG Securities' Ito. 'The meaning of that level for banks is that it's comparable or almost equal to the bank lending rate, which makes the issue less attractive.' Meanwhile, data from Japan's Ministry of Finance showing China bought Y541 billion worth of JGBs from January to April gave JGBs what analysts said would likely only be a temporary boost. The buying compares favorably to the Y80 billion in Japanese securities China sold last year. But data showed the vast majority of the buying, at Y517.7 billion, was in short-dated securities. 'They still haven't bought much in the longer-end, with a comparatively small level of purchases of maturities greater than two years, so whether they expand their buying beyond the short-end will be crucial,' said Mitsubishi UFJ Morgan Stanley Securities' Inadome. Nonetheless, China's buying highlights the possibility that the country could eventually help Japan diversify the holders of its debt, Inadome said. Domestic investors hold around 95% of JGBs. While that cushions Japan from a run on its debt, helping the country avoid the kind of sovereign debt crisis facing Greece, the rapid aging of Japan's population means that in the coming decade the savings rate will likely fall, leaving banks with less reserves to park in JGBs. 'The consensus view is that in five or ten years, it's going to be more difficult for Japanese government debt issuance to be fully absorbed by domestic buyers, so if China continues to increase its buying, that could lead to a sense of security for the market.'

2010/07/06 17:37=DJ Trichet, CEOs Of Europe's Largest Banks To Meet July 21 -Source
FRANKFURT -European Central Bank President Jean-Claude Trichet and the chief executives of Europe's largest banks will meet July 21 in Frankfurt to discuss European stress tests for banks, a person familiar with the matter told Dow Jones Newswires Tuesday. The meeting will take place at the European Central Bank, the person said, two days ahead of the planned publication of stress test results. French Finance Minister Christine Lagarde said Sunday that the results of the tests, which target around 100 of the continent's largest banks, will be published July 23. Lagarde also said that European stress tests will show that European and French banks are solid. A spokeswoman at the ECB declined to comment. Trichet has traditionally met with bank chief executives once or twice a year for 'informal dialogue.'

2010/07/06 17:24=DJ Forex Focus: Sterling Is Due For A Pounding
LONDON -A reality knock is on its way for the pound. For the past week or so, sterling has been gliding higher, boosted by the new coalition government's fiscal discipline and by talk from one Bank of England monetary policy maker that rates should rise. In a world where austerity is becoming the norm, Chancellor George Osborne's plans to slash public spending even more than expected removed the risk of a credit downgrade. For investors who have spent the last few months dodging the debt crisis sweeping through the euro zone, this could only be seen as good news. However, as data on Monday indicated, the economic price for reducing the country's deficit so fast will be high. The economic recovery that showed signs of taking off in the first half of this year has already started to falter, even before the fiscal measures in the emergency budget late last month have been introduced. Although manufacturing industry may not have contracted quite as much as many feared last month, the much larger and much more important services sector of the economy has proved a lot less resilient. The latest purchasing managers' index fell much more than expected with business expectations plunging to a 15-month low. Coming against a background of increased fears about a double-dip recession not only in the euro zone but in the global economy as a whole, the prospects for the U.K. economy are looking decidedly dim. So although the economy may have achieved growth of 0.6% in the second quarter, that is the best the country is likely to see for some time. 'The survey data have continued to cast doubt on the ability of the private sector to weather the fiscal tightening when it begins in earnest soon,' warned Vicky Redwood, U.K. economist with Capital Economics, an independent research group, in London. By taking its fiscal medicine on the chin, the U.K. economy may yet achieve more sustainable growth sooner than its competitors, paving the way for U.K. interest rates to start rising well before their peers do. But, there is little sign that higher U.K. rates are needed in the near term. On the contrary, pricing power in the service sector appears fairly limited while input prices are running at the lowest level in six months. Given this, there should hardly be any fresh pressure for the Bank of England to start tightening policy when its policy members hold their next meeting on Thursday. Last week, three other members of the policy committee made it clear that they didn't support any early move. This should ensure that sterling remains at a disadvantage to high yielders just now and even if general market sentiment improves that the pound loses some of its recent support. Even though sterling is still trading firmly over $1.5100, technical analysts suggest that its recent rally is more or less over. See how the pound has glided higher against the dollar: http://www.dowjoneswebservices.com/chart/view/4220 At Den Danske Bank, analysts are putting out a sell recommendation for any rise over $1.5304, warning that there is scope for a return all the way back down to $1.3500. Early Tuesday, financial markets were having a little bit of relief rally with the Nikkei rising 0.8% and the Shanghai Composite gaining 1.1% after the Reserve Bank of Australia left rates unchanged as predicted but proved much less dovish about global growth prospects than expected. A larger-than-expected increase in Australia's trade surplus also helped to offset some of the recent negative sentiment that has been dominating global markets. By 0645 GMT, the pound was up at $1.5192 from $1.5135 late on Monday in North America, according to EBS. The euro was up at $1.2585 from $1.2541 and rose to Y110.50 from Y110.02. The dollar was essentially flat at Y87.77 compared with Y87.75. The improvement in sentiment may not last long given that a continued decline in the Baltic Dry Index points to a further reduction in global trade, suggesting lower demand from countries such as China. Also, the latest Institute for Supply Management survey for U.S. non-manufacturing is expected to show another decline, reminding investors that the U.S. recovery is stalling.

2010/07/06 15:58DJ IMF Raises South Korea 2010 Economic Growth Forecast To 5.75%
SEOUL -The International Monetary Fund Tuesday raised its growth forecast for the South Korean economy for this year, saying it has bounced back "impressively" from the global crisis.Asia's fourth-largest economy is expected to grow 5.75% this year and 5% next year, the Washington-based multinational organization said at the end of its regular twice-a-year review of the Korean economy.The new projections compare with the fund's previous forecasts in April for expansion of 4.5% this year and 5.0% in 2011.The Korean government's forecast is for the economy to expand 5.8% this year."The Korean economy has staged an impressive recovery since early 2009 thanks to the authorities' supportive macroeconomic and financial policies, and the normalization in global trade," the fund said in a statement."In light of the strong economy, a carefully calibrated exit from supportive macroeconomic policies is appropriate. The gap between the economy's output and its potential is expected to close in coming months."The IMF said Korea's monetary policy remains highly accommodative, somewhat beyond what is necessary to support the recovery."It is now appropriate for the Bank of Korea to start gradually raising the monetary policy rate to avoid falling behind the curve," it said.

2010/07/06 15:57DJ Swiss SNB Currency Reserves Drop To CHF225.8 Bln In June
ZURICH -The Swiss National Bank's currency reserves dropped to 225.8 billion Swiss francs ($213.6 billion) in June, the central bank said Tuesday. The central bank's reserves fell by CHF6.4 billion last month, from CHF232.2 billion at the end of May, signaling dimished buying of foreign currencies to check the franc's appreciation against the euro. In May the SNB's foreign-exchange reserves surged by CHF79 billion as the central bank tried to stem the decline of EUR/CHF, triggered largely by investor concerns about the debt crisis in many euro-region countries. Company website: http://www.snb.ch

2010/07/06 15:28DJ Tokyo Shares End Up On Bargain Hunting, Bullish China Shares
TOKYO -Tokyo stocks rose on Tuesday, as bargain-hunting in technology and real estate shares, backed by robust Chinese markets, combined to lift the Nikkei Stock Average off fresh year lows.The Nikkei 225 Stock Average rose 71.26 points, or 0.8%, to 9338.04. The Topix index of all the Tokyo Stock Exchange First Section issues also rose 10.35 points, or 1.2%, to 847.24, with 30 of 33 Topix subindexes closing in positive territory.Trading volume totaled over 1.8 billion shares--far more than on Monday--reflecting in part the market's afternoon reversal. Stocks opened sharply lower and fell early to levels not seen since late November.While persistent yen strength was seen as the primary catalyst in the morning sell-off, afternoon short-covering, partly on Chinese share strength, helped turn stocks around just after lunch.'It might be better to turn bullish now since it looks like the index has hit its near-term bottom,' said Hideki Horikawa, chief analyst at Himawari Securities. The index finished not far off its intraday peak of 9351.11.Select heavily-weighted exporter shares that had taken steep early losses recovered to lead the market, with Fanuc closing up 1.4% to Y10,300, and TDK up 2.0% to Y4,870. Several bellwether stocks touched fresh 2010 lows, however, including Tokyo Electron, which closed up 0.4% at Y4,750, and Sony, which ended up 1.3% at Y2,361.Honda Motor added 2.2% at Y2,566 after hitting a near-12 month low, dogged by worries over the inexorably strong yen. While investors merely picked up the stock after judging it to be technically oversold, selling may strike again if worries over a slowdown in China's economy drag on, according to a fund manager at one U.S. asset management firm.Real estate shares also supported the broader indexes, as Mitsui Fudosan added 3.8% to Y1,313 and Mitsubishi Estate added 2.4% to Y1,269 as a recent decline in long-term interest rates boosted appeal for the sector.'It's a 'buy' sector in terms of long-term investment,' said a trader at one Japanese brokerage, adding that volume levels may show that investors are still nervous about shifting to an aggressive buy mode. Mitsui Fudosan and Mitsubishi Estate are still both off over 20% from their respective end-April levels.On the negative side, heavyweight Fast Retailing continued its slide, finishing down 3.0% at Y12,800 as sour sentiment stemming from weak June same-store Uniqlo sales data continued.'Investors' expectations on its domestic Uniqlo business were too high,' said a local fund manager, adding while hopes for Uniqlo's overseas business remain long-term, positive newsflow has been absent on the domestic end of its business.Consumer lenders noticeably underperformed, as Takefuji lost 8.4% to Y273, and Acom lost 4.2% to Y1,383, on profit-taking after yesterday's sharp gains. The pair surged 18% and 26%, respectively, on Monday after a weekend Mainichi Shimbun report said Osaka Prefecture is finalizing a proposal to ask the central government to relax the newly enacted money lending law.Market watchers say the probability that Japan's central government will actually pass any such proposal is low, however.On the Osaka Securities Exchange, the Nikkei 225 September futures contract ended up 90 points, or 1.0%, at 9350.