Market Rumours

2010/07/13 17:37=DJ DATA SNAP: German Jul ZEW Econ Expectations 21.2 Vs 28.7 In Jun
MANNHEIM, Germany -German economic expectations plummeted in July for the third straight time, indicating the recovery could slow down in the second half of the year as fiscal consolidation efforts weigh on analysts' mood. The ZEW economic think-tank's survey for July fell to 21.2 points, continuing its steep decline after a showing of 28.7 points in June and 45.8 points in May. The outcome was also below the forecast of 26.0 points in a Dow Jones Newswires poll of economists and the indicator's historical average of 27.4 points. 'The potential for further improvements of the German economy seems to be widely used up,' ZEW President Wolfgang Franz said. ZEW canvassed the views of 287 analysts and institutional investors for this month's survey. ZEW website: www.zew.de

2010/07/13 17:01=DJ DATA SNAP: UK CPI Eases To 3.2%YY In June, Higher Than Tipped
LONDON -U.K. consumer price inflation eased slightly less than expected in June, but remained broadly on track to gradually return to the Bank of England's target around the end of the year. Data from the Office for National Statistics Tuesday showed that annual inflation fell to 3.2% last month from 3.4% in May, staying slightly stronger than economists' expectations for a rate of 3.1%. The BOE targets inflation at 2.0%. In monthly terms, prices rose 0.1% in June, down from May's 0.2% gain, but above the flat reading tipped by analysts polled by Dow Jones Newswires last week. June's inflation reading brings the average annual rate over the second quarter to 3.5%--higher than the 3.3% central projection in the BOE's May Inflation Report. The BOE is still likely to keep policy extremely loose for many months to come, in the face of aggressive fiscal tightening by the government, strains in the banking sector and the weakness of the U.K.'s main trading partner, the euro zone. But persistently high inflation is a worry for members of the BOE's Monetary Policy Committee, who have expressed concerns that strong price growth could push up public inflation expectations, resulting in further cost increases. MPC member Andrew Sentance surprised investors by voting for an immediate interest rate rise at June's meeting, but analysts say he is unlikely to garner significant support for his views any time soon. Minutes for July's meeting will be published next week.

2010/07/13 16:48*DJ Sterling Climbs To Day's High Of $1.5045 Post Inflation Data

2010/07/13 16:01DJ 10-Year JGBs Fall A Tad; Potential Dip-Buy Demand Limits Downside
TOKYO -Benchmark 10-year cash Japanese government bonds ended slightly lower Tuesday reflecting U.S. Treasurys' overnight weakness, but downside was limited due to an uncertain global economic outlook and because domestic players' surplus cash promises potential dip-buying demand. 'There aren't many reasons to sell JGBs. Supply and demand conditions seem still favorable in the JGB market,' said Keiko Onogi, senior JGB strategist at Daiwa Securities Capital Markets. 'Investors are likely looking for buy cues from developments in overseas economies and markets as well as from foreign exchange movement,' Onogi added. Onogi tips the benchmark 10-year cash JGB yield to trade in a range of 1.10% to 1.15% in the next few weeks. The 10-year yield was up 0.5 basis point at 1.125%, as of 0600 GMT. Lead September JGB futures finished the day down 0.05 at 141.40 after trading in a narrow 141.33-141.49 band. Earlier in the day, the Ministry of Finance's auction of policy-sensitive five-year JGBs went smoothly despite a recent decline in yields, in a sign that the market is confident the Bank of Japan won't change its easy policy stance in the foreseeable future. The MOF sold Y2.202 trillion worth of the five-year JGBs at a lowest price of 100.17, in line with market expectations, yielding 0.364%. The new bonds carry a coupon of 0.4%, reopening the June issue. The five-year yield touched a seven-year low of 0.320% on July 1, as JGB yields dropped across the board over the past few weeks. Investors have been rushing to buy safe-haven JGBs due to increasing concern over global economic slowdown. The five-year yield stood at 0.365% as of 0600 GMT. Some analysts expect the BOJ may come under even more political pressure to support the economy, as Your Party--which secured a swing vote in Sunday's Upper House of Parliament election--spoke of its intention to submit a revision to the BOJ law during an extraordinary diet session so that the BOJ will be able to contribute more to fight deflation. While it remains to be seen what kind of revision Your Party will propose, 'there is a possibility that the market will start to focus more on political pressure related to monetary policy than on the issue of fiscal discipline,' said Chotaro Morita, chief strategist at Barclays Capital. 'For now, it still appears that domestic developments related to fiscal and monetary policy will not provide a reason to sell JGBs,' Morita added.

2010/07/13 15:58DJ Trichet: ECB Isn't There To Repair Govt Budgetary Errors-Report
PARIS -The European Central Bank won't bail out national budgetary mistakes and the bank's monetary policy hasn't changed despite its program of buying European government bonds, ECB chief Jean-Claude Trichet says in an interview published in a French newspaper Tuesday."The central bank is in no case there to repair governmental budgetary errors; errors which it has constantly warned against," Trichet says in the leftist Liberation newspaper. When asked about the impact of the ECB's new program of buying government bonds, Trichet says "our monetary policy is unchanged, because we consider it is appropriate for guaranteeing price stability." Trichet, as would be expected, urges states to continue budget austerity to reduce public sector deficits. "It's a mistake to think that fiscal rigor hurts economic growth and job creation," the ECB head says. He adds it probably isn't opportune to continue with an oligopoly of three global rating agencies as at present. "Rating agencies in general have the tendency to amplify movements higher or lower in financial markets," he says when asked if Europe should create a single rating agency. Newspaper website: www.liberation.fr

2010/07/13 15:44DJ German Fin Min: Stress Tests Aim To Calm Fincl Markets - Report
FRANKFURT -German Finance Minister Wolfgang Schaeuble said the stress tests for European banks are there to calm financial markets, German radiostation Deutschlandradio reports Tuesday."I believe that the transparency won't cause concern, but rather create clarity," he told the radio station. "The aim isn't to create panic, the aim is to make clear that the European banks are stable," Schaeuble said, according to the report.Radiostation website: www.dradio.de

2010/07/13 15:28*DJ Euro Drops After Moody's Downgrades Portugal

2010/07/13 15:27DJ Forex Options: Dollar/Yen Options Down As Market Waits For Europe Bank Tests
TOKYO -Dollar/yen currency options declined in Asia Tuesday as investors refrained from active trading in the spot market ahead of European bank stress test results due next week, weakening demand for short-term hedges.Options are likely to fall further as underlying exchange rates are expected to remain lackluster until the release of the test results on Friday next week, dealers said.Such speculation prompted Asian investors to decrease their holdings of options contracts, as the owners of such contracts lose money if they hold onto them amid quiet spot moves.'Japanese investors are selling various types of contracts, from short ones to long ones, to trim the size of their portfolios,' said an options dealer at a major Japanese bank.As a result, benchmark one-month at-the-money dollar/yen implied volatilities declined to 10.20%/10.90% from 10.35%/11.05% in New York Monday. They are likely to fall below 10.00%--a two-and-half month low--this week, the dealer said.

2010/07/13 14:52DJ IMF Strauss-Kahn: Working Closely With Asia To Strengthen Global Financial Safety Net
DAEJEON, South Korea -International Monetary Fund Managing Director Dominque Strauss-Kahn Tuesday said that the fund is working closely with Asia through South Korea on developing a global financial safety net, which the multilateral agency should be able to deliver at the Group of 20 nations meeting in Seoul in November. 'The (global) crisis made it clear, that we need something for global liquidity position. We are examining several options to strengthen our tool to prevent crises and mitigate systemic shocks, including more tailored crisis prevention facilities and multi-country approaches,' Strauss-Kahn said. The IMF chief was addressing a joint press conference along with South Korean Finance Minister Jeung-Hyun Yoon at the concluding session of the Asia 21 meeting in Daejeon, South Korea, sponsored by the International Monetary Fund and the South Korean government. Finance Minister Yoon said that during the meeting a consensus was reached on the need for a global financial safety net. He said that the meeting discussed the need for a safety fund that would be of a 'sufficient' size and easily accessible to a country on the verge of crisis.

2010/07/13 14:24=DJ WORLD FOREX: Dollar, Euro Tick Down Vs Yen On Weak Asia Stocks -3-
TOKYO -The dollar and euro edged lower against the yen in Asia Tuesday as fragile regional share markets prompted non-Japanese short-term funds to pick up the safe-haven yen. Currency market moves over the rest of the week are likely to be determined by stock markets and a series of economic reports and U.S. corporate earnings, dealers said. Players are looking for signs that the global economic recovery may be slowing, they said. In early Asian trading, Japanese pension funds and long-term investors bought the dollar and euro on the view that overseas securities offer a better return compared with Japan's ultra-low interest rates, dealers said. But the dollar and euro reversed course after choppy trading in Asian stock markets caused non-Japanese short-term funds to buy back the yen. At 0530 GMT, the Shanghai Composite Index was down 2.0%, while in Tokyo the Nikkei Stock Average was 0.2% lower. As of 0530 GMT, the dollar stood at Y88.53--after rising to Y88.87 in early Asian trading--compared with Y88.59 in New York late Monday. The euro slid to Y111.50--after earlier reaching Y112.07--compared with Y111.55 in New York Monday. 'The currency market has lacked clear direction as trading flows don't have any staying power,' said Yuichiro Harada, a senior dealer at Mizuho Corporate Bank. 'Unless upcoming economic reports deliver a surprise, the dollar may remain in a Y87.50-Y89.00 range and the euro in a Y109-Y113 band for the rest of the week.' Later in the day, the U.S. unit may fall to Y88.20 and the euro to Y111.00 if Germany's July ZEW index of business expectations and corporate earnings from the U.S.'s Intel Corp. come in weak, dealers said. Sluggish results may weigh on stock prices, adding to a cloudier outlook for the global economic recovery. Economists polled by Dow Jones Newswires expect the ZEW index to decline to 26.0 in July from 28.7 in the previous month, weighed down by Europe's sovereign debt turmoil. Other key events for this week include Wednesday's U.S. advance monthly sales data for retail and food services, and Thursday's Chinese gross domestic product data for the second quarter. The European single unit remained mostly unchanged against the greenback, trading at $1.2594 from $1.2593 overnight. The ICE Dollar index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 84.214 from 84.228.

2010/07/13 13:57=DJ WORLD FOREX: Dollar, Euro Tick Down Vs Yen On Weak Asia Stocks -2-
TOKYO -The dollar and euro edged lower against the yen in Asia Tuesday as fragile regional share markets prompted non-Japanese short-term funds to pick up the safe-haven yen. Currency market moves over the rest of the week are likely to be determined by stock markets and a series of economic reports and U.S. corporate earnings, dealers said. Players are looking for signs that the global economic recovery may be slowing, they said. In early Asian trading, Japanese pension funds and long-term investors bought the dollar and euro on the view that overseas securities offer a better return compared with Japan's ultra-low interest rates, dealers said. But the dollar and euro reversed course after choppy trading in Asian stock markets caused non-Japanese short-term funds to buy back the yen. At 0530 GMT, the Shanghai Composite Index was down 2.0%, while in Tokyo the Nikkei Stock Average was 0.2% lower. As of 0530 GMT, the dollar stood at Y88.53--after rising to Y88.87 in early Asian trading--compared with Y88.59 in New York late Monday. The euro slid to Y111.50--after earlier reaching Y112.07--compared with Y111.55 in New York Monday. 'The currency market has lacked clear direction as trading flows don't have any staying power,' said Yuichiro Harada, a senior dealer at Mizuho Corporate Bank. 'Unless upcoming economic reports deliver a surprise, the dollar may remain in a Y87.50-Y89.00 range and the euro in a Y109-Y113 band for the rest of the week.' Later in the day, the U.S. unit may fall to Y88.20 and the euro to Y111.00 if Germany's July ZEW index of business expectations and corporate earnings from the U.S.'s Intel Corp. come in weak, dealers said. Sluggish results may weigh on stock prices, adding to a cloudier outlook for the global economic recovery. Economists polled by Dow Jones Newswires expect the ZEW index to decline to 26.0 in July from 28.7 in the previous month, weighed down by Europe's sovereign debt turmoil. Other key events for this week include Wednesday's U.S. advance monthly sales data for retail and food services, and Thursday's Chinese gross domestic product data for the second quarter. The European single unit remained mostly unchanged against the greenback, trading at $1.2594 from $1.2593 overnight. The ICE Dollar index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 84.214 from 84.228.

2010/07/13 12:31*DJ Japan May Revised Inventories +2.0% M/M Vs +2.0% Prelim
2010/07/13 12:31*DJ Japan May Factory Operating Ratio +0.8% M/M From Apr
2010/07/13 12:30*DJ Japan May Revised Indus Output +0.1% M/M Vs -0.1% Prelim
2010/07/13 12:30*DJ Japan May Revised Shipments -1.7% M/M Vs -1.7% Prelim

2010/07/13 11:53DJ Japan Banking Minister: DPJ and People's New Party Remain In Coalition
TOKYO -Japan's banking and postal services minister Shozaburo Jimi said Tuesday the ruling Democratic Party of Japan and the People's New Party, of which he is the number two official, will remain in a coalition government. 'I and (PNP leader) Shizuka Kamei received a call from (Prime Minister) Naoto Kan confirming the coalition,' Jimi told reporters after a regular Cabinet meeting. The remark comes after the PNP lost seats in Sunday's Upper House of Parliament election. Jimi also said that he hopes a postal reform plan proposed by PNP leader Shizuka Kamei will be left unchanged in the next session of parliament. The postal reform plan reverses many aspects of the privatization of the postal services. It has drawn heavy criticism from private Japanese financial institutions which feel it would give too much new power to what is already one of the world's largest financial institutions, with around $3.3 trillion in assets.

2010/07/13 09:58=DJ INTERVIEW: IMF: Japan Needs Caution On Taxes
SDAEJEON, South Korea -The drubbing Japan's ruling party took in elections Sunday shows that the government needs to be careful in discussing tax increases, a senior International Monetary Fund official said Monday.Deputy Managing Director Naoyuki Shinohara, a former top Japanese government official, also told Dow Jones Newswires that debt-restructuring 'is not an option' for Greece and that the IMF expects China to allow only a gradual rise in the yuan.'The Japanese election results probably show that the government needs to be more cautious on discussing tax-raising measures,' Shinohara said in an interview on the sidelines of a meeting sponsored by the IMF and the Korean government.Prime Minister Naoto Kan acknowledged that his Democratic Party of Japan's setback in the Upper House poll partly reflected his call to discuss eventually raising the 5% consumption tax to help curb the nation's huge debt.'The idea of (raising) the consumption-tax rate was a little bit abrupt,' Shinohara said. 'People were not prepared to absorb the discussion.'But he added that the IMF believes increasing tax revenues is an important part of achieving more sustainable growth for Japan, where government debt is now nearly twice the nation's annual gross domestic product.Japan needs to increase productivity and its growth rate and 'find a good time to correct the budget situation,' Shinohara said.The IMF has welcomed China's move late last month to de-peg the yuan from the dollar, but Shinohara said the Chinese currency remains 'substantially below the equilibrium exchange rate in the medium term.'Beijing has let the yuan inch up 0.8% against the dollar in the three weeks since loosening the two-year peg. Shinohara predicted yuan moves would remain gradual, with no sharp rises.He expressed confidence that Greece is sticking with the EUR110 billion bailout it accepted in May from the IMF and European Union but said any return to the debt market this year or next will be up to the government.Asked if the bailout was just buying time for Greece, Shinohara said, 'What we have done is to provide liquidity to give them time to solve their problems, give them time to implement the program. So 'just buying time' in a sense is true.'But at the same time, it means that we have a very good program in Greece and the government is determined to follow the program,' he said. 'We believe that as long as they implement the program, there will be a future ahead.'

2010/07/13 09:57DJ PIMCO: US Treasurys Remain Fairly Attractive
SYDNEY -Pacific Investment Management Co is buying Treasurys and has shifted some of its portfolio duration out of European debt, Head of Global Product Management David Fisher said Tuesday. He said the euro is unlikely to displace the U.S. dollar as the main global reserve currency anytime soon, and Treasurys remain the favored option during risk-averse periods. 'The U.S. remains the flight-to-quality country,' Fisher said on a conference call. Central banks in developed worlds including the U.S. and Japan are unlikely to tighten policy in the forseeable future as deflation remains a bigger threat than inflation, meaning bond yields shouldn't spike higher in the near term.

2010/07/13 09:51=DJ FOREX VIEW: Global Yields, Equities Seen Driving Yen
TORONTO -Global interest rates and equity markets will likely continue to be the key drivers for the yen despite some political turbulence in Japan, enabling the currency to stave off serious weakness in the near term. As long as interest rates in other countries stay stalled at low levels and investors remain skittish about risk, there will be enough buying interest in the safe-haven yen to allow it to at least hold steady against its major rivals. Longer term, the yen will likely be burdened by Japan's economic and fiscal problems, but in the next several weeks the currency seems likely to maintain its equilibrium. Buying interest in the yen was reflected in news Friday that a report of trading positions from the International Monetary Market showed speculative bets on the currency continued to build in the week ending July 6, reaching about $5.4 billion. The IMM is a market for currency and interest-rate futures and options. The Japanese currency was quick to recover Monday from its knee-jerk retreat after news that 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 Sunday. The dollar was trading at Y88.54 early Monday afternoon from 88.65 late Friday. It reached a session high of Y89.15, according to EBS via CQG. The election results signal that Prime Minister Naoto Kan could have a tough time passing bills, possibly stalling efforts to improve Japan's fiscal health. But it will be a minor negative at best for the yen, as global factors continue to overshadow domestic politics and economics, analysts said. 'The impact rapidly fades, and we get back to looking at the factors that have driven the yen more broadly, like global risk appetite and the prospects for overseas interest rates,' said Adam Cole, chief currency strategist at RBC Capital Markets in London. RBC expects the U.S. dollar to head lower against the yen. That's largely because it would take a 'material' rise in U.S. interest rates for the dollar to change direction against the yen, and RBC doesn't expect the Federal Reserve to raise rates until the middle of 2011. Higher interest rates in other countries could also pressure the yen, but they will also likely remain mired at lower levels in the next few months, Cole said. With other currencies also sporting low rates, there will be less reason for investors to borrow in yen and invest the proceeds in a higher-yielding currency, a strategy known as the carry trade. In the past, carry trades had put pressure on the yen, but aren't expected to do so again in the near future. Investors' desire to trim exposure to carry trades has driven the increase in net long positions, or positive bets, in the yen reflected in the IMM data, said Jack Spitz, managing director for foreign exchange, financial markets and derivatives at National Bank Financial in Toronto. 'When the market is looking more at a risk-off environment, it's reducing its exposure to carry trades. By getting long yen, through the IMM, it's a way to hedge carry trade risks,' Spitz said. A report from UBS said the increase in speculative positions in the yen reflected the currency's popularity as U.S. yields fall. In the coming weeks the performance of volatile equity markets, Spitz said, will eclipse economic issues as a driver for the yen. 'If the market sees weakness in corporate earnings and a pullback in equity valuations, then the yen is likely to outperform,' he said.