Market Rumours

2010/07/07 17:33=DJ DATA SNAP: Euro-Zone 1Q Growth Confirmed At 0.2%
LONDON -The euro-zone economy grew modestly in the first quarter with support from restocking and exports, final data from the European Union's Eurostat statistics office confirmed Wednesday. The gross domestic product of the 16 countries that share the euro grew 0.2% on a quarterly basis in the first three months of the year and was 0.6% stronger than in the first quarter of 2009, the first expansion on an annual basis for six quarters, Eurostat said. The figures are unchanged from the previous estimate released in early June and in line with the market consensus forecast from a Dow Jones Newswires survey of economists last week. Fourth-quarter figures showing the economy grew 0.1% on the quarter and shrank 2.1% on the year were also unchanged from the previous estimate. The breakdown of the first-quarter data showed the change in inventories contributed 1.0 percentage point to the quarterly growth rate while exports added 0.8 percentage point. However, imports subtracted 1.3 percentage point, investment took away 0.2 percentage point and household expenditure subtracted 0.1 percentage point. Economists expect the pace of euro-zone growth to strengthen in the second quarter to 0.5% or stronger, but warn that the expansion has been fueled by temporary factors--such as a construction rebound in Germany and restocking--and is unlikely to last. Recent purchasing managers' surveys suggest economic activity peaked early in the second quarter and has since slowed, and economists are also concerned about the possible impact of fiscal consolidation in many European countries. However, the sluggish pace of the euro zone's economic recovery and the recent slowdown in inflation in the currency bloc suggest the European Central Bank is unlikely to tighten monetary policy anytime soon. Eurostat website: www.europa.eu.int/en/comm/eurostat

2010/07/07 16:56DJ German Cabinet OKs 2011 Budget, Signals Exit From Stimulus
BERLIN -The German cabinet Wednesday approved the government's 2011 spending plan, which foresees less expenditure as austerity measures and an economic recovery help reduce labor-market costs and borrowing levels, a government official, who declined to be named, said. The center-right coalition's second budget targets EUR57.5 billion in new borrowing next year and a 3.8% reduction in spending, with overall expenditure pencilled in at EUR307.4 billion compared with EUR319.5 billion this year. The planned spending cut for 2011 means the government is slowly ending the fiscal stimulus it has had in place for the past two years. The consolidation efforts from 2011 onward aim to meet Germany's constitutional rule requiring the government to reduce its structural deficit, which excludes cyclical factors, to 0.35% of gross domestic product by 2016. In addition, Germany has to bring its public-sector budget deficit in line with European Union budget rules which require the deficit to be below 3% of GDP from 2013. The 2011 budget assumes EUR28.1 billion in miscellaneous revenue, of which EUR3 billion in profit will come from the central bank, the Deutsche Bundesbank. The 2011 budget also assumes that just EUR2.6 billion will come in revenue from capital assets, such as privatization. A finance ministry official said revenue will come mainly from dividend payments rather than new privatizations of state holdings. Investment will reach EUR27.3 billion next year, slightly down from this year's forecast EUR28.3 billion. In addition, the government will give the federal labor agency EUR6.2 billion in loans to balance its spending on unemployment benefits. Compared with the previous fiscal plan for 2011 to 2013, the government has reduced the new debt target by almost EUR80 billion. New debt is targeted to reach EUR40.1 billion in 2012, EUR31.6 billion in 2013 and EUR24.1 billion in 2014. Finance Minister Wolfgang Schaeuble presents his 2011 budget draft to the cabinet Wednesday and will brief the press at 1130 GMT. Official website: www.bundesfinanzministerium.de

2010/07/07 15:25DJ Long-Term Cash JGBs Down On Caution Before 30-Year Auction
TOKYO -Longer-maturity cash Japanese government bonds fell Wednesday due to hedging ahead of a 30-year bond sale by the Ministry of Finance on Thursday. Recent rapid and steep drops in JGB yields have made it difficult for analysts to predict demand at the MOF's auction of Y600 billion worth 30-year JGBs. 'As the (30-year) JGB yield has declined sharply--more than 10 basis points--since the previous auction (in June), and as lots of main buyers of the zone look at absolute interest rates, it's uncertain who will be willing to buy' such low-yielding 30-year bonds, said Makoto Yamashita, a strategist at Deutsche Securities. On the other hand, Credit Suisse strategist Kenro Kawano expects the new 30-year JGBs to receive firm investor demand, supported by speculation over global economic slowdown and the decline in growth rates. The new 30-year JGBs will reopen a March issue with a 2.3% coupon. Reflecting concern over tender results, the 20- and 30-year cash JGB yields both jumped 3.5 basis points to 1.845% and 1.910%, respectively, as of 0600 GMT. The benchmark 10-year yield also rose 1.0 basis point to 1.145%. Besides the 30-year tender, JGB players will closely watch for the outcome of upcoming Upper House elections for a fresh selling cue. 'JGB yields, especially in the superlong sector, will likely rise about 5-10 basis points if the (ruling) Democratic Party of Japan is defeated badly' and fails to secure 50 seats in the Sunday elections, Deutsche's Yamashita said. The JGB market has taken Prime Minister Naoto Kan's effort to cap the new JGB issuance for the next fiscal year positively. But, the DPJ's loss at the elections may mean a delay in carrying on its fiscal consolidation plans and eventually weigh on government bond prices. The DPJ needs at least 60 seats for a stand-alone majority, or a combined 57 to capture a majority as a ruling coalition that includes the People's New Party.

2010/07/07 15:05DJ Forex Options: Yen Options Down As Spot Expected To Remain Stable
TOKYO -Dollar/yen currency options fell Wednesday as investors took the view there would be no sharp near-term moves in the underlying exchange rate, decreasing demand for hedging contracts. Currency investors were focusing on the results of stress tests on European banks, due later in this month. Until then, they said currency markets are likely to lack major trading factors. 'I look around, but I can't find any big events or economic data that market participants will look for to take cues to decide their short-term trade strategy,' said an options dealer at a major Japanese bank. The greenback was trading in a narrow range Wednesday, suggesting many investors were on the sidelines. As of 0200 GMT, it was at Y87.52, with the top side at Y87.68 and the downside at Y87.45. The dealer added that the dollar will retain a similar tone for the coming days, as Japanese exporters' dollar-selling will likely be offset by Japanese institutional investors' buying. Prices of option contracts should fall as a result, probably another one or two percentage points. Another options dealer in Tokyo said anyone who wants to buy contracts for some reason 'can wait for a few more days' so they can buy options at cheaper prices. At 0200 GMT, the benchmark, one-month at-the-money dollar/yen implied volatilities were at 10.80%/11.50% from 11.20%/11.90% in New York Tuesday.

2010/07/07 14:59DJ PRECIOUS METALS: Gold Slightly Lower; No Impact From BIS Swaps
SINGAPORE -Gold was slightly down in Asia Wednesday after dropping through the psychological $1,200 level overnight as global equity markets rebounded.Traders said there were few cues with the market relatively quiet and neutral to news Tuesday that the Bank Of International Settlements had undertaken large-scale gold swaps in the first quarter.Asian participants were again buying on dip but this couldn't halt the slide as traders said some were now moving to the sidelines looking for lower levels to re-enter."Longer term we are still friendly but there is nothing happening. It's heading lower and I'd expect a test of $1,185 support," said a senior commodities trader at a European bank.At 0555 GMT spot gold was at $1,190.20 a troy ounce, down $3.90 since Tuesday's New York close. On Tocom June 2011 gold was trading at Y3,352 a gram, down Y69.Traders said the news of the BIS gold swaps wasn't material to the market."It says more about how desperate central banks have been to raise cash than about gold," said a dealer at a European bank in Singapore.It is believed the BIS has swapped around $14 billion in exchange for 380 tons of gold since December.The swaps imply no actual gold sales except in the event of a default by one of the participating central banks, said Darren Heathcote, head of trading at Investec in Sydney.Even if a default occurs and the BIS chooses to sell the gold, it would be difficult to see that as bearish, he added."A default of that nature could reflect a period of great instability again in the banking system, which would probably be more of a reason to buy gold than sell it. So it's possible that their sales could be canceled out, or indeed swamped by fund activity."Other precious metals were also under pressure, in line with industrial commodities and regional equities on the back of weak U.S. ISM service sector data.Spot platinum was at $1,497/oz, down $16, and spot palladium at $429/oz, down $7, while spot silver was at $17.71/oz, down 13 cents.

2010/07/07 14:50=DJ WORLD FOREX: Dollar Regains Ground, But US Concerns Cloud Outlook -2-
TOKYO -The dollar regained some ground against the euro and other risk-sensitive currencies in Asia Wednesday as weak regional share markets prompted hedge funds and other short-term investors to buy back the safe-haven U.S. unit. But the currency failed to gain back all the losses it suffered overnight after the release of weak U.S. service-sector data. That highlights lingering concerns in the foreign exchange market over a slowdown in the U.S. economic recovery that could keep interest rates ultra-low for longer than previously thought, to the detriment of the dollar, dealers said. 'People in the market are focused on U.S. economic indicators for signs that the recovery is losing more momentum,' said Satoshi Tate, a senior vice president in the forex division of Mizuho Corporate Bank. 'Such signs could lead to more dollar selling,' said Satoshi Tate, a senior vice president in the forex division of Mizuho Corporate Bank. The U.S. currency has weakened since early June as many investors have shifted their focus from Europe's fiscal and economic woes to signs that U.S. production, consumption and employment may be stumbling. For that reason, another risk to the U.S. currency is that reviews of European banks' health, expected to be completed in the coming weeks, could reveal fewer problems than expected. 'In that scenario you could get dollar selling into the end of July, as investors trim their bets against the euro,' said Mizuho Corporate Bank's Tate. Dealers said that due to the mounting focus on the U.S. economy, many market participants are now paying more attention than usual to the ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies including the euro and yen. The index was up slightly at 84.234 at 0450 GMT from 84.076 late Tuesday in New York, as the dollar gained on its safe-haven status. But if in the coming days the index falls back below the two-month low it hit overnight around 83.83, that could increase selling pressure on the dollar as many market participants are now watching that level as a threshold, said Mizuho Corporate Bank's Tate. At 0450 GMT, the euro was down at $1.2586 from $1.2619 late Tuesday in New York. Against the yen, the european single currency traded hands at Y110.10, down from Y110.42. The dollar was little changed against the Japanese unit, at Y87.49 from Y87.48.

2010/07/07 12:04DJ BP Agrees To Inform US Ahead Of Transactions - Report
LONDON (AFP)--BP PLC (BP) has agreed to inform the U.S. government of major transactions that might affect the future shape of the company following the Gulf oil spill, a U.K. paper reported Wednesday. The oil giant has bowed to demands to notify the Department of Justice at least 30 days ahead of major financial moves, U.K. newspaper The Times said. The request came in a letter from Tony West, the U.S. assistant attorney general, to Rupert Bondy, BP's general counsel, on June 23, the paper said. It asked BP to inform U.S. justice officials before 'any planned or contemplated events that may involve substantial transfers of cash or other corporate assets outside of the ordinary course of business.' U.S. authorities should also be told of any 'corporate restructuring, reorganization, acquisitions, mergers, joint ventures, sales, divestments or disbursements,' it said. BP also agreed to hand over other information to the U.S., including monthly financial statements and details of credit and loan agreements, said The Times. The letter set a deadline of last week for BP to agree to the requests.

2010/07/07 11:36=DJ TAKING STOCK: Dow's Gain May Have Done More Harm Than Good
After the longest string of losses in nearly two years for the Dow Jones Industrial Average, one might think investors should be happy with any advance. Some gains, however, can end up doing more harm than good. It's easy for chart watchers to point out where strong resistance should be, but the only way to know for sure is for the market to test it. The Dow did just that, and failed pretty miserably. The Dow rose as much as 172 points early Tuesday to an intraday high of 9858, right in the middle of the range of 9830 to 9880 defined by the early-February and early-May lows. The Dow then pulled back sharply to close at 9743, or 115 points below the day's high. The Dow may have ended its losing streak at seven sessions, but all the rally did was prove that resistance is very strong, and the notion that bears are still very much in control. The question is this: Do bulls still have the energy needed to lift the Dow by triple digits to take another shot at what has proven to be strong resistance? The lack of underlying technical support and the fact that the yield on the 10-year Treasury note also failed at resistance suggests the answer: not yet. What bulls need to sustain a bounce is some form of bullish technical divergence, which is when some underlying technical indicators start rising while the index is still falling. That occurs when the pace of declines starts to slow enough to give the appearance of relative strength. It takes more than just stabilization for that to happen, however, it also takes time. A similar technical failure in the Treasury market indicates time is something the stock market doesn't have. While concerns over European sovereign debt and a slowdown in China have contributed to the Dow's weakness since April, the Dow's recent slide seems more the result of increased worries about the U.S. economy and the rising risk of deflation. The drop in the 10-year Treasury note yield below 3% supports that view. So until the 10-year yield starts to show some signs of bottoming, Wall Street investors should expect any bounce in stocks to fade rather quickly. To be supportive of stocks, the 10-year yield first needs to close above resistance at the gap in the charts between the June 29 intraday high of 3.001% and the June 28 low of 3.03%. The yield rose as much as 1.4 basis points to a high of 2.993% in intraday trading on Tuesday, before reversing course to close down 4.7 basis points at 2.932%. Unlike the Dow, the yield couldn't even threaten resistance before fading fast. If by chance bulls can get the Dow above 9880, resistance at 9950 to 10000 should be just as strong. If, however, the Dow falls below Friday's low of 9614, it could be a while before Treasurys and stocks again test resistance up to 3.03% and 9880, respectively.

2010/07/07 05:53=DJ WORLD FOREX: Dollar Falls Broadly As US Recovery In Doubt
NEW YORK -The dollar fell to an eight-week low against a basket of currencies from its major trading partners after disappointing U.S. service-sector data fueled fears that the U.S. recovery may be faltering.The dollar also dropped to its worst levels since May 21 against the euro, though it pared some of its losses in afternoon trading. The common currency has gotten some respite as investors reassess the euro-zone debt crisis, while the dollar has suffered from a string of economic reports that fell short of expectations.The pressure on the greenback was largely due to "concerns that the economic recovery could be happening more slowly than originally anticipated," said Matthew Strauss, currency strategist at RBC Capital Markets in Toronto."The evidence is showing that could certainly be the case," Strauss added.A statement from the Reserve Bank of Australia that analysts regarded as cautiously optimistic helped the commodity-backed dollar bloc, including the Australian and Canadian currencies, to gain against the greenback. The central bank left key interest rates unchanged, but noted global growth--particularly in Asia--is likely to support demand in commodities.The Australian dollar rose more than 1.2% on the day, while the greenback was down roughly 1.0% versus the Canadian currency.Late Tuesday, the ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 84.076 from 84.573. Earlier Tuesday, the index hit 83.825, its lowest level since May 10.The euro was at $1.2619 from $1.2541 late Monday, according to EBS via CQG. The dollar was at Y87.48 from Y87.75, while the euro was at Y110.42 from Y110.02. The U.K. pound was at $1.5142 from $1.5135. The dollar was at CHF1.0595 from CHF1.0642.To see the performance of the ICE Dollar Index, please see:http://dowjoneswebservices.com/chart/view/4225To see the euro's performance against the dollar, please see:http://dowjoneswebservices.com/chart/view/4224The U.S. service sector saw activity grow more slowly in June, as business leaders fretted about the labor market's perilous state. Private research group the Institute for Supply Management reported its overall index of non-manufacturing activity moved to 53.8 last month from 55.4 in May.Most worrying, analysts said, was the ISM's non-manufacturing employment index, which came in at 49.7 from 50.4, indicating a contraction in the sector.With continued weakness in U.S. data, the Federal Reserve is likely to keep key interest rates ultra-low for the foreseeable future, depressing U.S. bond yields and making the dollar less attractive, especially against high-yielding currencies, such as the Australian dollar, that are most tied to the pace of global growth.The RBA for the second month in a row left its key interest rate at 4.50%, with Reserve Bank Governor Glenn Stevens describing the current setting for rates as "appropriate." But the Australian central bank left the door open for more increases over time, indicating inflation remains uncomfortably high."The RBA meeting set the tone for a more positive trading session," bolstering equities and currencies tied to growth, said Vassili Serebriakov, foreign-exchange strategist at Wells Fargo in New York. Late Tuesday, the Australian dollar was at US$0.8509 from US$0.8378 late Monday, according to EBS via CQG, while the New Zealand dollar strengthened by more than 0.8%.Separately, investors are likely to keep a close eye on the Swiss National Bank after consumer prices in Switzerland turned negative in June, leading BNP Paribas analysts to speculate the SNB could restart intervention in currency markets to temper franc strength and stave off the threat of deflation.A surging Swiss franc resulted in cheaper import prices, according to economists. The franc has risen to a series of all-time highs against the euro in recent weeks--with the euro dropping as far as CHF1.3073 on Thursday, as the SNB has eased off its practice of intervening in markets.With the ICE Dollar Index weakening, Deutsche Bank's PowerShares U.S. Dollar Index Bearish exchange-traded fund was up 0.32% from late Monday, while its PowerShares U.S. Dollar Index Bullish was down 0.33%. The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of the ICE's Dollar Index.