Market Rumours

2010/07/12 16:57=DJ DATA SNAP: UK 1Q Current Account Deficit Widest Since 3Q 2007
LONDON -The U.K.'s current-account deficit widened sharply in the January-March period to its largest amount since the third quarter of 2007, data from the Office for National Statistics released Monday showed. The current-account deficit increased to GBP9.6 billion in the first quarter from a modest surplus of GBP0.5 billion in October-December. The ONS had originally estimated a GBP1.7 billion deficit in the fourth quarter. The widening in the deficit largely reflected a smaller income surplus, which dropped by GBP8.1 billion to GBP3.8 billion in the first quarter, tracking bank profits. An increase in the deficit on current transfers and trade in goods, as well as a lower surplus on trade in services, compounded the current-account worsening. As a share of economic output, the deficit rose to 2.7% of gross domestic product, from the previous quarter's surplus measuring 0.1% of output. Website: www.ons.gov.uk

2010/07/12 16:56=DJ DATA SNAP: UK 1Q GDP Unrevised +0.3%, Recession Deeper
LONDON -The U.K. economy expanded an unrevised 0.3% in the first quarter, while revised data showed the recent recession was deeper than previously thought. The Office for National Statistics also reported Monday that the U.K. savings rate fell for the second straight three-month period in the first quarter, to 6.9%, from 7.2% in the fourth quarter of 2009. The ONS said the U.K.'s economic output grew 0.3% on the quarter in the first three months of the year and contracted 0.2% from the year earlier period. Monday's data, the second and final revision, was in line with expectations. The ONS made a series of revisions to previous data, however. These showed that the recession, which started in the second quarter of 2008 and ended in the third quarter of 2009, knocked 6.4% off output. That is bigger than the previous estimate of a 6.2% contraction. The ONS also revised 2008 GDP figures to show the economy contracted 0.1% that year. The economy also contracted 4.9% in 2009. The growth data come amid a continued political battle over how quickly the government should move to rein in the U.K.'s budget deficit. Prime Minister David Cameron and his Treasury Chief George Osborne have ordered large spending cuts and tax rises, arguing that failure to tackle the deficit will push borrowing costs higher and undermine the confidence needed for recovery. The first-quarter data was initially due to be reported June 30 but was delayed until Monday because of technical errors, the ONS had previously said.

2010/07/12 16:50*DJ Fitch: UK Credit Cards Performance Improves in May
2010/07/12 16:33*DJ Revised UK Data Show GDP Fell In 2008, 2009
2010/07/12 16:31*DJ UK 4Q Curr Acct Revised To Surplus GBP0.5B Vs Deficit GBP1.7B
2010/07/12 16:31*DJ UK 1Q Current Account Was Forecast At Deficit GBP2.8B
2010/07/12 16:31*DJ UK 1Q Current Account Deficit GBP9.6B
2010/07/12 16:30*DJ UK 1Q GDP -0.2% YY, Unchanged From Last Estimate
2010/07/12 16:30*DJ UK 1Q GDP Forecast At +0.3% QQ; -0.2% YY
2010/07/12 16:30*DJ UK 1Q GDP +0.3% QQ, Unchanged From Last Estimate

2010/07/12 16:03=DJ WORLD FOREX: Yen Falls Following DPJ's Big Election Loss -2-
TOKYO -The yen declined against the dollar and euro in Asia Monday as investors speculated that the Japanese ruling party's significant losses in the weekend elections have increased uncertainties over the nation's politics.The ruling Democratic Party of Japan and its coalition partner the People's New Party together won only 44 of 121 seats contested at the Upper House elections on Sunday. The outcome was much less than the 56 seats the government needed to keep its majority in the house.Investors believe the administration of Prime Minister Naoto Kan will now have a tough time passing bills through the Diet, spelling trouble for efforts to improve Japan's fiscal health. Another concern is that the government may not be able to move swiftly enough now to ward off any further slowdown in Japan's recovery, particularly if global trade weakens significantly, dragging the country's export-driven economy down.'There is a risk that we may encounter another global crisis similar to the Lehman shock. But the government may not be able to act promptly to pass any bills to protect the economy. That's a big negative factor for Japan and the yen,' said Tsutomu Soma, a senior dealer at Okasan Securities.Earlier during Asian trading hours, the dollar rose to a two-week-high of Y89.15 from Y88.65 in New York Friday. At 0550 GMT, it stood at Y88.94. The euro also rose to as high as Y112.39 from Y112.07. The common currency traded hands at Y112.06 at 0550 GMT. Yen-selling by a major Japanese trust bank was particularly strong, dealers in Tokyo said.The yen may suffer further ahead if the Japanese political situation becomes increasingly unstable in the coming months.Kan's term as head of the DPJ will expire in September, and he has to be re-elected at an intra-party presidential election to remain as premier. In Japan, the chief of the ruling party traditionally holds the post of prime minister.'Under such conditions, you can't expect yen-buying from foreign investors,' said Hideaki Inoue, senior forex dealer at Mitsubishi UFJ Trust and Banking.But some analysts said any yen depreciation could be tempered by the apparent difficulty the government may have in forging a coalition with a party that wants the Bank of Japan to do more to fight deflation, a process that would involve weakening the yen. Many observers had considered the pro-inflation Your Party a likely partner for any new coalition. But that now appears less likely because the DPJ's bigger-than-expected losses Sunday mean that even if it teamed up with the smaller Your Party, that would still not yield an Upper House majority.'This makes the scenario of yen depreciation provoked by a DPJ/Your Party coalition less likely,' said Yunosuke Ikeda, strategist at Nomura Securities.Elsewhere, the euro was at $1.2596 at 0550 GMT compared with $1.2640 in New York last week.Investors said they are trimming holdings of the euro against the dollar to better prepare for possible sharp movements in currency markets in the wake of the release of earnings reports from U.S. firms starting this week.

2010/07/12 15:57DJ Tokyo Shares End Down As Election Results Invite Selling-2-
TOKYO -Tokyo stocks fell on Monday as a worse-than-expected election defeat dealt to Japan's ruling coalition over the weekend stoked enough uncertainty to sell equities, offsetting supportive Chinese export data and modest yen weakening.The Nikkei Stock Average fell 37.21 points, or 0.4%, to 9548.11 following Friday's 0.5% rise. The Topix index of all the Tokyo Stock Exchange First Section issues also fell 3.51 points, or 0.4%, to 857.70, with 22 of 33 subindexes ending in negative territory.Trading volume was by no means robust, totaling just under 1.6 billion shares.Stocks opened with moderate losses following stinging defeats by the current ruling Democratic Party of Japan-led coalition in Sunday's Upper House elections, increasing general political uncertainty and clouding the investment outlook somewhat vis-a-vis stocks."Investors want to unload their positions for now since all of the DPJ's previous policies on fiscal restructuring and growth strategy will need to be reworked from zero," said Masatoshi Sato senior strategist at Mizuho Investors Securities, noting that new coalition partners will likely have to be sought out. But he added that election-linked selling likely to be short-lived as attention turns to U.S. earnings season and Chinese economic data starting this week. By midday the market had trimmed its losses, turning positive in the afternoon, aided by the dollar's rise above Y89. An unexpected widening in China's trade surplus for June--illustrated in data released over the weekend--as well as stronger Asian bourses, also provided support for the Japan market.But profit-taking eventually won out by the end of the session.Phoenix Securities manager Mamoru Nakajo noted that shares of firms driven by domestic demand were generally weak on concern about consumer spending. He added that the election results cast a pall on the direction of the consumption tax debate in particular.Heavyweight Fast Retailing was the single largest negative drag on the Nikkei, dropping 1.8% to Y12,570. Several drug maker shares were also lower, with Takeda Pharmaceutical and Astellas off 1.2% to Y3,975, and off 2.6% to Y1,793, respectively.Technology bellwether Tokyo Electron dropped 1.7% to Y4,830 after posting a three-fold increase in semiconductor manufacturing equipment orders for the April-June quarter. The figures nevertheless disappointed the market.Obvious weaker yen beneficiaries included Honda Motor, which added 3.1% to Y2,687, and Sony, which gained 3.6% to Y2,532.Steel shares were one of the best performing sectors in posting a 2.0% gain, thanks largely to the strong China data. Nippon Steel added 2.3% to Y308. Traders said that while short covering was seen today, the stocks have upside as they have been excessively sold of late. Plenty of caution remains before companies announce quarterly earnings at the end of the month, however, as price hikes in raw materials are expected to weigh on bottom lines.Energy developer Inpex gained 5.4% to Y437,500 after Friday's 13% sell-off following the firm's announcement of a highly dilutive equity capital increase plan.September Nikkei 225 futures closed down 30 points, or 0.3%, at 9550 on the Osaka Securities Exchange.

2010/07/12 15:23DJ JGBs Up As DPJ's Setback Fans Concern Over Economic Outlook
TOKYO -Japanese government bonds were higher on Monday as concern grows that the ruling block's crushing overnight defeat could trigger political unrest and cast dark clouds over the country's economy. Prime Minister Naoto Kan's Democratic Party of Japan was trounced Sunday in the Upper House elections due largely to anger over his abrupt proposal to double the nation's 5% consumption tax to 10%, as well as his lack of adequate explanation about why the hike is needed. The DPJ won only 44 seats out of 121, losing ten seats compared with before the election, while the main opposition Liberal Democratic Party won 51 seats, up from 38 seats before. The People's New Party, the DPJ's coalition partner, didn't win any seats. The ruling coalition still enjoys a nearly two-thirds majority in the more powerful Lower House, but has lost its majority in the upper chamber. Many players expected longer-term JGB yields to rise if the ruling block received a setback as its loss means that the current government could face difficulties in passing laws through parliament, derailing Kan's efforts to rebuild fiscal health. But a worse-than-expected election outcome for the DPJ has made market participants more concerned about whether possible political turmoil will blur the outlook for the country's economy, analysts say. 'Political ferment may be raising pessimism about the future course of Japan's economy,' said Tetsuya Miura, chief market analyst at Mizuho Securities. 'The downward trend in JGB yields could continue for a while.' Miura added that fears about Japan's fiscal discipline are unlikely to intensify soon despite the DPJ's defeat, given that the LDP has also pledged to lift the consumption tax rate to 10% and rule out any pork-barrel spending. 'Discussions about fiscal reconstruction could go on' among lawmakers, which should keep bolstering the JGB market, he said. As of 0600 GMT, the benchmark 10-year JGB yield was down 3.5 basis points at 1.120%, and lead September JGB futures ended at 141.45, up 0.24. Superlong-term yields fell sharply, although longer-term JGBs are usually sold when worries grow over Japan's fiscal health. Tokyo traders say the key 10-year JGB yield may hover in a 1.090%-1.180% range this week. Contrary to Mizuho's Miura, Mitsubishi UFJ Morgan Stanley Securities senior strategist Naomi Hasegawa said Japan's political confusion could push longer-term JGB prices lower later this year. JGB prices move inversely to yields. 'Amid a wave of political realignment, the lower house may be dissolved in the near term, and deliberations on economic and fiscal policies could be shelved,' Hasegawa said. That could 'make the yield curve steeper over the next year.' Looking ahead, investors are focused on a five-year JGB auction on Tuesday.

2010/07/12 15:02DJ Forex Options: Dollar/Yen Options Up As Yen Outlook Unclear
TOKYO -Dollar/yen currency options rose in Tokyo Monday as investors speculated the yen may face swings ahead after weekend elections in Japan increased market concern over the country's political situation.Japan's ruling Democratic Party of Japan lost its majority in the Upper House at Sunday's elections. That prompted investors to expect a challenge to Prime Minister Naoto Kan's leadership, and that the government may therefore not be able to move swiftly to cope with any risks to the economy.Dealers in Tokyo said it is difficult to predict how the yen will move in the wake of the elections. While political uncertainties are negative to the yen, possible declines in Japanese share prices stemming from the DPJ's loss could be positive to the yen, which is considered a safe-haven currency.'It's hard to say whether the yen will rise or fall. And I think other dealers in Tokyo are thinking the same; and that's why demand for hedging against currency's sharp movement has increased,' said a senior dealer at a major Japanese bank.As of 0400 GMT, the benchmark one-month at-the-money implied volatilities were at 10.50%/11.20% from 10.35%/11.05% in New York last week. Dealers said the political uncertainty may cause volatilities to rise by another percentage point during the global day.

2010/07/12 15:02=DJ WORLD FOREX: Yen Falls Following DPJ's Big Election Loss
TOKYO -The yen declined against the dollar and euro in Asia Monday as investors speculated that the Japanese ruling party's significant losses in the weekend elections have increased uncertainties over the nation's politics.The ruling Democratic Party of Japan and its coalition partner the People's New Party together won only 44 of 121 seats contested at the Upper House elections on Sunday. The outcome was much less than the 56 seats the government needed to keep its majority in the house.Investors believe the administration of Prime Minister Naoto Kan will now have a tough time passing bills through the Diet, spelling trouble for efforts to improve Japan's fiscal health. Another concern is that the government may not be able to move swiftly enough now to ward off any further slowdown in Japan's recovery, particularly if global trade weakens significantly, dragging the country's export-driven economy down.'There is a risk that we may encounter another global crisis similar to the Lehman shock. But the government may not be able to act promptly to pass any bills to protect the economy. That's a big negative factor for Japan and the yen,' said Tsutomu Soma, a senior dealer at Okasan Securities.Earlier during Asian trading hours, the dollar rose to a two-week-high of Y89.15 from Y88.65 in New York Friday. At 0550 GMT, it stood at Y88.94. The euro also rose to as high as Y112.39 from Y112.07. The common currency traded hands at Y112.06 at 0550 GMT. Yen-selling by a major Japanese trust bank was particularly strong, dealers in Tokyo said.The yen may suffer further ahead if the Japanese political situation becomes increasingly unstable in the coming months.Kan's term as head of the DPJ will expire in September, and he has to be re-elected at an intra-party presidential election to remain as premier. In Japan, the chief of the ruling party traditionally holds the post of prime minister.'Under such conditions, you can't expect yen-buying from foreign investors,' said Hideaki Inoue, senior forex dealer at Mitsubishi UFJ Trust and Banking.But some analysts said any yen depreciation could be tempered by the apparent difficulty the government may have in forging a coalition with a party that wants the Bank of Japan to do more to fight deflation, a process that would involve weakening the yen. Many observers had considered the pro-inflation Your Party a likely partner for any new coalition. But that now appears less likely because the DPJ's bigger-than-expected losses Sunday mean that even if it teamed up with the smaller Your Party, that would still not yield an Upper House majority.'This makes the scenario of yen depreciation provoked by a DPJ/Your Party coalition less likely,' said Yunosuke Ikeda, strategist at Nomura Securities.Elsewhere, the euro was at $1.2596 at 0550 GMT compared with $1.2640 in New York last week.Investors said they are trimming holdings of the euro against the dollar to better prepare for possible sharp movements in currency markets in the wake of the release of earnings reports from U.S. firms starting this week.The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 84.199 from 83.914 late Friday in New York.

2010/07/12 14:33=DJ UPDATE: IMF: Asia Must Prepare For New Shock, But Double-Dip Unlikely
DAEJEON, South Korea -International Monetary Fund Managing Director Dominique Strauss-Kahn said Monday that Asian economies need to be prepared for downside risks to the global economy, but ruled out the possibility of a double-dip recession. Policymakers 'need to remain attuned to negative shocks,' Strauss-Kahn said at the Asia 21 conference here, but he added: 'I don't believe there will be another dip. Our baseline is that there will be a recovery.' Asia is leading the global recovery, but the region's policymakers will have to find ways to manage the sharp rebound in capital inflows, as well as risks related to economic overheating and credit and asset bubbles, Strauss-Kahn warned. With lower growth rates in Europe and the U.S. liable to continue for an extended period, Asia needs to make an increase in its domestic investment and consumption a long-term policy goal, Strauss-Kahn said. Europe's sovereign-debt crisis shouldn't threaten the Asian growth story, he said, but the region still has a lot to learn from Europe's problems. 'As Asia's economic weight in the world continues to rise, its stake in the economic performance of other countries is rising too,' he said. 'In my view, the macroeconomic, financial and corporate sector reforms put in place over the last decade have played an important role in the region's resilience,' Strauss-Kahn said. 'So despite being hit hard initially, Asia was able to bounce back quickly from the global financial crisis.' Higher growth can aggravate inequalities, and Asian economies need to show they can tackle such issues, Strauss-Kahn said. Strauss-Kahn said the U.S. dollar has been 'very resilient' during the crisis, surprising market players who had expected it to suffer. Major currencies such as the yen and euro have a role to play, but the dollar will remain the most important world currency, he added. Earlier in the day, South Korean Finance Minister Yoon Jeung-hyun told the same conference that the IMF could help ensure global financial stability by coming up with a realistic, detailed plan for handling volatility arising from rapid international capital flows. 'I believe the IMF has an important contribution to make by proposing and enacting concrete and realistic measures to strengthen financial safety nets around the globe,' Yoon said. G-20 nations hope to finalize such measures at the Group of 20 summit in Seoul in November. Yoon also said the Washington-based IMF should move to reflect Asia's growing importance to the global economy by speeding up efforts to increase Asia's quota of voting rights. Strauss-Kahn said such a review was in works and that Asian countries' share of voting rights, which traditionally have been weighted toward the big economic powers, will rise.

2010/07/12 12:13=DJ WORLD FOREX: Yen Falls Following DPJ's Big Election Loss
TOKYO -The yen declined against the dollar and euro in Asia Monday as investors speculated that the Japanese ruling party's significant losses in the weekend elections have increased uncertainties over the nation's politics.The ruling Democratic Party of Japan and its coalition the People's New Party together won only 44 of 121 seats contested at the Upper House elections on Sunday. The outcome was much less than the 56 seats the government needed to keep its majority in the house.Having fallen short, investors believe the administration of Prime Minister Naoto will have a tough time passing bills through the Diet, meaning any effort to improve fiscal health may not be carried out smoothly. Moreover, the government may not be able to move swiftly enough to cope with risks that could trigger another round of economic downturn.'There is a risk that we may encounter another global crisis similar to the Lehman shock. But the government may not be able to act promptly to pass any bills to protect the economy. That's a big negative factor to Japan and the yen,' said Tsutomu Soma, a senior dealer at Okasan Securities.Earlier during Asian trading hours, the dollar rose to a two-week-high of Y89.15 from Y88.65 in New York Friday. The euro also rose to as high as Y112.39 from Y112.07. Yen-selling by a major Japanese trust bank was particularly strong, dealers in Tokyo said.Looking ahead, the yen may suffer further because it is possible that uncertainties in Japanese politics may balloon in the coming months.That is because Kan's term as head of the DPJ will expire in September, and he has to be re-elected at the intra-party presidential election to remain as premier. In Japan, the chief of the ruling party traditionally holds the post of prime minister.'Under such conditions, you can't expect yen-buying from foreign investors,' said Hideaki Inoue, senior forex dealer at Mitsubishi UFJ Trust and Banking.Elsewhere, the euro was at $1.2597 at 0250 GMT from $1.2640 in New York last week.Investors said they are trimming holdings of the euro against the dollar to better prepare for possible sharp movement in currency markets in the wake of releases of earnings reports from U.S. firms starting this week.The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 84.231 from 83.914 last week.

2010/07/12 10:06DJ IMF Kahn: Don't Believe There Will Be Another Dip
DAEJEON, South Korea -International Monetary Fund Managing Director Dominique Strauss-Kahn said Monday he doesn't foresee a double-dip recession and that the economic recovery is on track. 'I don't believe there will be a another dip. Our baseline is that there will be a recovery,' Kahn said at the Asia 21 conference in Daejeon. Kahn also said Asia is leading the global economic recovery.

2010/07/12 09:08DJ HSBC Chief Warns Over Plans To Break Up Banks- Newspaper
LONDON -HSBC Holdings PLC (HSBA.LN) chairman Stephen Green has revealed serious concerns about the future strength of the economically vital banking sector, which is under threat of new regulations, The Sunday Telegraph said citing an interview.Green told the newspaper that the likely structure of the proposed Basel III accord on banking risks 'overly gold-plating' investment banking capital requirements. He added that the proposed 'net stable funded ratio' system of governing liquidity as part of the next stage of the Basel regulations would have a 'massive effect on the banking industry.'Green said that any plan to break up banks between investment and retail operations would 'very difficult to do.'HSBC was not immediately available to comment.

2010/07/12 08:52=DJ FOREX WEEK AHEAD: Euro Should Sustain Rally As Stress Tests Eyed
NEW YORK -With concerns about the euro-zone debt crisis receding, the common currency should hold onto gains made against the dollar since hitting a four-year low in early June.Successful government bond auctions in Portugal and Spain combined with details released this week on stress tests of European banks and continued belt-tightening plans across the euro zone all have taken pressure off the euro. Friday, the euro briefly touched a two-month high against the dollar--ticking all the way to 1.2723, a 7% gain in the span of about a month--from its four-year low at $1.1876'A lot of it has to do with sentiment,' said Geoffrey Pazzanese, co-manager of Federated Investors' $736 million Intercontinental Fund (RIMAX).With German and French leaders 'winning the arguments' for stringent budget cuts and market-soothing stress tests, investors are coming around to the viewpoint that 'the euro should look a little bit more like the Deutsche mark,' with its solid fiscal backing, Pazzanese said.Still, it will take a while to repair the damage done. Despite this week's recovery, the euro is still down around 11.5% against the dollar since the beginning of the year, with investors keeping a cautious stance on the lingering issues of sovereign debt.Ahead of the July 23 results of the European Union's bank stress test, the euro should hold onto most of its recent gains, trading next week between $1.2480 and $1.2725, said Jan Lambregts, global head of financial markets research at Rabobank International in London.Lambregts pinpointed one key risk to the euro's recent rally--leaks of bad news from the stress tests. Thin summer markets tend to be more volatile, with small trades having an exaggerated effect. Friday afternoon, the euro traded at $1.2641 from $1.2703 late Thursday, according to EBS via CQG.The dollar has suffered from the shift in focus from the euro zone to the possibility of slowing U.S. growth. Of U.S. data released next week, Thursday's industrial production figures should go a long way in determining the pace of the U.S. recovery, Lambregts said. He noted the data could surprise to the upside, which could spark a rally in assets closely tied to global growth.Next week investors also will dissect Wednesday's release of the Federal Open Market Committee's minutes, which could give some clue to the Fed's view on the health of the economy.Meanwhile, uncertainty surrounding Japan's current ruling party also could lead the yen to weaken, analysts said.Polls suggest that the ruling Democratic Party of Japan and its junior coalition partner, the People's New Party, may lose their combined majority in the Upper House, forcing Prime Minister Naoto Kan to consider partnering with other parties. The two most likely candidates for a new coalition would both likely want to put fiscal consolidation on the back burner.Traders say the resulting political uncertainty could hurt the yen against the dollar. The dollar should trade between Y88 and Y92, analysts said, with the greenback Friday afternoon at Y88.66 from Y88.38 late Thursday, according to EBS via CQG.