Market Rumours

2010/07/15 21:00=DJ NY Fed's July Manufacturing Index 5.08 Vs 19.57 In June
NEW YORK -New York manufacturing activity is expanding in July but at a much slower pace than in June or May, according to the Federal Reserve Bank of New York's Empire State Manufacturing Survey released Thursday. The report also showed prices received fell back into negative territory this month. The Empire State's business conditions index fell to 5.08 this month from 19.57 in June. Economists had expected a reading of 18.5 in July. The report said 'while conditions for New York manufacturers continued to improve in July, the pace of growth in business activity slowed substantially over the month.' The indexes were uniformly disappointing. The index for new orders fell to 10.13 from 17.53 in June, while the index for shipments dropped to 6.31 from 19.67. The index for employment remained positive in July, but slipped to only 7.94 from 12.35 in June. Equally worrisome was that the workweek fell back into negative territory, dropping to -9.52 from 8.64 in June. Unfilled orders dropped further into negative territory hitting -15.87 from -1.23. The index of prices paid fell to 25.40 from 27.16, while the index of prices received dropped to -1.59 from 4.94. Businesses have little pricing power in a weak economy. Although current conditions are faltering, expectations about economic activity in the New York region remained very positive. The index rose to 41.27 in July, from 40.74 in June. But the employment index for the next six months dropped to 14.29 from 28.40. In response to a series of extra questions, manufacturers were asked to estimate changes in their sales and employment levels from 2009 to 2010--both year-to-date and for the calendar year. In this year's survey, the median respondent reported that sales were up 7% for the first half of 2010 and were expected to be up 8% for all of 2010--a stark contrast with the results of last July's survey, when the median respondent reported 15% declines for the corresponding time horizons in 2009. In the current survey, the number of employees was reported to be unchanged in the first half of the year and was expected to remain so over the full year. In the 2009 survey, 10% declines were seen for both horizons. Respondents were also asked about exports. In general, respondents indicated that exports accounted for a growing share of their revenues and their firms were devoting more resources to marketing abroad--particularly in Asia--and were expecting sales to be higher in the next 12 months than in the past 12 months across all parts of the world.

2010/07/15 21:00DJ ECB Draghi: 'Excessive' Market Reaction To Perceived Sovereign Risk
ROME -Financial markets have displayed an 'excessive' reaction to perceived sovereign risk, and that is a key risk to a euro-zone economic recovery that is already weak and dependent on exports, Bank of Italy Governor Mario Draghi said Thursday. An accelerated fiscal consolidation is 'indispensable,' and its effect on economic growth 'will be positive if the consolation contributes to narrowing spreads on sovereign bonds,' Draghi also said in a speech to the Italian Banking Association in Rome. Draghi, who is also a voting member of the European Central Bank's Governing Council, said the ECB's monetary policy 'remains strongly expansionary' and that the bank remains committed to sterilizing the government-bond purchases it began to make in May.

2010/07/15 20:55=DJ DATA SNAP:US Jobless Claims -29K To 429K In July 10 Week
WASHINGTON -- The number of U.S. workers filing new claims for unemployment benefits fell last week by more than economists expected, bucking the typical July trend as fewer factories were shuttered for the summer. In its weekly report Thursday, the Labor Department said the number of U.S. workers filing initial claims for jobless benefits decreased by 29,000 to 429,000 in the week ended July 10. That is the lowest level for claims since August 23, 2008 - just as the financial crisis was nearing its height. Economists surveyed by Dow Jones Newswires had expected claims would fall by 9,000. The previous week's level was revised slightly upward, from 454,000 to 458,000. But the four-week moving average -- which aims to give a better idea of the trend by smoothing volatility in the data -- fell by 11,750 to 455,250 in the week ended July 10. The prior week's average was revised to 467,000. Claims lasting more than one week, meanwhile, jumped in the week ended July 3 to reverse declines posted in the prior week. Although claims in July typically tend to rise as factories shut down for part of the summer, analysts widely expected to see big declines in the July 10 data after General Motors Co. announced plans to keep most of its plants open for the season. A Labor Department economist said Thursday, however, that GM is not the only driving force behind the large decline. 'This was not just a GM thing,' he said. 'We saw this across a number of different states.' He added that more data on this will be available next week. But whether or not this improvement in the figures will last remains to be seen. Other economic indicators are starting to point to a possible slowdown in U.S. growth, driven largely by the high 9.5% unemployment rate. The lack of available jobs has led to a decline in consumer spending for the past two months, with retail sales down 0.5% in June. The U.S. economy also shed 125,000 nonfarm payrolls in June as temporary Census workers lost their jobs and the private sector only added an additional 83,000 jobs. In the Labor Department's report Thursday, the number of continuing claims -- those drawn by workers for more than one week in the week ended July 3 - rose by 247,000 to 4,681,000 from the preceding week's revised level of 4,434,000. The unemployment rate for workers with unemployment insurance for the week ended July 3 was 3.7%, a 0.2 percentage point increase from the prior week's revised rate of 3.5%. The largest decrease in claims for the week ended July 3 occurred in Florida, which saw claims fall by 3,586. Other states with decreases included Georgia, Connecticut, Pennsylvania and Iowa. The largest increase in claims occurred in New York, which saw claims rise by 8,066 in the week ended July 3 due to layoffs in the service and transportation industries. Other states with increases included New Jersey, Michigan, Illinois and Ohio. The Labor Department report on jobless claims can be accessed at: http://www.dol.gov/opa/media/press/eta/ui/current.htm

2010/07/15 20:26DJ BOJ To Keep Super-Easy Policy Unchanged In August - DJ Poll
TOKYO -The Bank of Japan will likely keep its super-easy monetary policy unchanged at its next policy board meeting on Aug. 9-10, said all eight BOJ watchers in a Dow Jones Newswires poll Thursday. The finding follows the central bank's unanimous decision earlier in the day to maintain its unsecured overnight call loan rate at 0.1%. All eight BOJ watchers surveyed expect Japan's central bank to leave its policy interest-rate target at 0.1%, where it has been since December 2008, and to take no further unconventional easing steps. Earlier Thursday, the BOJ upgraded its growth projections for this fiscal year to 2.6% from 1.8%, as the economy is expected to continue recovering on the back of healthy exports and a pickup in domestic demand. The significant upgrade from a projection made just three months ago suggests BOJ officials believe the measures the central bank has taken so far have been effective in propping up the economy and preventing prices from falling further.

2010/07/15 19:25DJ BOE Miles: Not Appropriate To Raise UK Interest Rates Now
LONDON -Bank of England Monetary Policy Committee member David Miles said that underlying domestic U.K. price pressures aren't strong--despite above-target inflation--and that it is still to early to raise interest rates. In a speech published Thursday, Miles warned of a risk that strains in the banking system could cause the economic recovery in Europe and the U.K. to falter. He said that high inflation readings make policy-setting difficult, but pointed out that weak wage growth makes it unlikely that the current rate of price gains would be sustained. 'I look forward to the day when it will be appropriate to tighten monetary policy since a return to more normal levels of interest rates would be a welcome sign that economic conditions were also more normal,' Miles said. 'But I do not think that is where we are today.'

2010/07/15 18:02DJ ECB: Without Reform, Many Years Of High Joblessness Beckon
FRANKFURT -The euro area faces years of sustained high unemployment unless it broadens and accelerates the pace of labor market reform, the European Central Bank warned Thursday. In two separate articles on labor market developments in its monthly bulletin for July, the ECB said it expects employment to continue to fall through the rest of 2010 and said many of the jobs lost in the current recession won't return. It also noted that with many workers currently under-employed or working shortened hours, 'there is some risk that job creation will be insufficient to bring down unemployment for a significant period of time if wages do not moderate sufficiently to stimulate labor demand.' The ECB fretted particularly about the ability of workers laid off from the construction sector to find work elsewhere and said that 'some industrial branches... may need to be permanently downsized.' 'Without sectoral reallocation and greater wage flexibility, the euro area may take many years to generate sufficient employment growth to absorb those workers currently displaced,' the ECB wrote. The euro zone's unemployment rate has hovered at around 10% for the last three months, its highest in nearly 12 years. Most member states have not yet reached that point in the recession where economic output is rising fast enough to create new jobs. Website: http://www.ecb.int

2010/07/15 17:29DJ EU's Barroso: Euro Has Become Driver Of Economic Reform -Report
BRUSSELS -The euro has become a necessary driver of economic reform during the financial crisis, pushing governments to pursue budget cuts and other policies that would be politically difficult without the single currency, European Commission President Jose Manuel Barroso said in an interview with London daily The Times Thursday. 'The euro is, in fact, being an extremely powerful driver for what Europe needs--and what Europe needs most of all is not to live above its means and, secondly, to make the structural reforms to become more competitive in the global economies,' Barroso said. European Union governments are embarking on major budget-cutting programs, after setting up over EUR600 billion in emergency loans for Greece and other weak members of the euro zone. Barroso has been a strong booster of these efforts, though some economists say Germany and other EU governments with stronger budget positions shouldn't be cutting their deficits while the economy is still weak. Barroso wouldn't rule out creating an orderly process for a euro-zone government to default on its debt, a position pushed by Germany as part of the economic reforms being considered at the EU. 'We are discussing all the options but now that we are still facing the pressure regarding the sovereign debt of some of our countries, it would not be helpful to speak about possible bankruptcy,' he said. Newspaper website: www.thetimes.co.uk

2010/07/15 16:55DJ JGBs Rally As Asian Share Markets Slump
TOKYO -Demand for safe-haven assets pushed JGB prices higher Thursday as regional share markets slumped amid renewed concerns over the health of the U.S. recovery and a slight slowdown in Chinese growth. JGBs could gain further into the weekend if global share markets remain weak, analysts said. An upgrade to the Bank of Japan's economic outlook did little to temper enthusiasm for JGBs as the move was widely anticipated. Japanese life insurers and other investors bought JGBs Thursday, after the Federal Reserve overnight said it now expects gross domestic product in the world's largest economy to grow at a slower 3.0%-3.5%, down from its previous projection for 3.2%-3.7% expansion. The Fed also released minutes from its previous meeting showing board members discussed the possibility of further monetary easing ahead. Investors also turned to low-risk assets like JGBs as share prices in Asia fell. Japan's Nikkei Stock Average closed down 1.1% at 9685.53. 'We've hit a bout of risk aversion, and this seems again to be leading to a bull-flattening of the curve,' in which long-term interest rates fall closer to short-term rates, said Christian Carrillo, senior rates strategist at Societe Generale. Some investors are concerned that slower growth in China could weigh on the global economy ahead. Though the country's gross domestic product logged a solid 10.3% on-year expansion in the second quarter, that was down from the 11.9% rise in the first quarter. The slowdown was slightly worse than the expected drop to 10.5%. Meanwhile, the Bank of Japan raised its projection for the country's economy, saying it now expects gross domestic product to expand 2.6% this fiscal year, higher than its previous forecast for a 1.8% gain. But the move had no major impact on JGBs as it was widely expected, said Chotaro Morita, head of Japan fixed income at Barclays Capital.

2010/07/15 16:39=DJ Forex Focus: Brave Be The Euro Hunters
LONDON -Buying the euro at current levels is only for the brave. If European bank stress tests don't knock the single currency back then a fall in global risk sentiment will. In fact, as it heads towards $1.30, the single currency's gains are already starting to look pretty hesitant. See how the euro's recent rally has faltered: www.dowjoneswebservices.com/chart/view/4273 Fresh optimism about the global economic recovery, an extended rally in global equity markets and new hopes that the worst of the euro-zone debt crisis is over have all helped to drive the euro higher in recent days. Also contributing to the positive mood has been a stream of comments by European officials trying to reassure investors that the stress tests that are being applied to major European banks aren't a problem. However, as publication of the actual test details this Friday and the release of the test results themselves next Friday get closer, scepticism about the tests is starting to increase. The tests have been designed to ease credit conditions by proving that banks are credit-worthy and strong enough to survive another debt crisis. But uncertainty over just how good the tests are, and claims by European politicians that their banks will pass the tests whatever happens, are steadily undermining market confidence in the process. 'The continued lack of transparency regarding the bank stress tests remains a concern and claims by the German finance minister that all German banks will pass the test, including the Landesbanks, will call in to question the credibility of the process,' said Hans Redeker, head of global foreign exchange at BNP Paribas. If that happens, credit conditions in much of the euro zone will remain tight, the economic recovery will remain more protracted and the risks of further sovereign debt problems will rise again. Successful open-market auctions by Greece, Italy and Portugal--despite a downgrade in Portugal's credit rating--have contributed this week to the market's complacency that the worst of the debt crisis is over. Optimism has been helped by economic data from some parts of the euro zone, including Germany, suggesting that the single currency's decline earlier this year is helping the recovery. However, most of the economic data have remained fragile with even the 0.9% rise in euro zone industrial production Wednesday coming in well below expectations for a 1.3% increase. Certainly there is little sign that the region's recovery is anywhere near robust enough to create serious price pressures. June inflation data for the euro zone showed annual growth in core prices ticking up to 0.9% from 0.8% but a general slide is expected to continue given the vast amount of spare capacity that still exists in European industry. There also remains considerable doubt over just how long the latest recovery in global risk appetite, which has been keeping global equity markets on the rise, will last. A recent spate of interest-rate rises, including the latest from Thailand, have helped to feed hopes that the global recovery remains on track and that demand will continue to pick up. But there remains considerable doubt about just how robust the U.S. economy is and whether it is still at risk from a double-dip recession. Also, new data increasingly point to an economic slowdown in China, which could force analysts to scale back some of their optimism over the global recovery and bring an early end to the recent buying interest in risky currencies, such as the euro. As data earlier Thursday showed, Chinese growth in the second quarter slowed even more sharply than expected to 10.3% from 11.9% in the first. The market had been looking for second-quarter growth to come in at 10.5%. Coming after dovish minutes from the last U.S. Federal Reserve rate-setting meeting, as well as disappointing U.S. retail sales Wednesday, the news helped to encourage investors back into safe havens and push the euro a little lower. By 0645 GMT, the single currency wad down at $1.2729 from $1.2735 late on Wednesday in New York, according to EBS. It was also down at Y112.22 from Y112.29 while the dollar slipped to Y88.13 from Y88.19.

2010/07/15 14:38=DJ FED WATCH: Few Good Options To Offer Economy More Help
NEW YORK -As worries about the economy mount, the Federal Reserve has few good options for giving additional support to the economy, should policy makers deem fresh stimulus necessary.Fears that the Fed may need to act are being driven by a softening trend in U.S. economic data, continued high unemployment, and a chance that Europe's financial and economic problems could together pull the nation back into recession. While few believe the Fed needs to take any extra measures right now, policy makers are considering contingency strategies should recession again threaten, according to Wednesday's release of meeting minutes from the late June Federal Open Market Committee gathering.As the summer started, Brian Sack, manager of the New York Fed's markets desk, said the central bank balance sheet is the most powerful tool available to policy makers. He was referring to the Fed's ability to support and stimulate the economy through asset buying, emergency lending facilities and currency swaps. All offer the Fed ways to aid growth and smooth turbulent markets since interest rates, now effectively at zero percent, can't be moved any lower.But balance-sheet-based strategies may not have the potency they once did.The most high-profile use of the balance sheet was the mortgage debt purchase program. The central bank gobbled up nearly $1.3 trillion of the securities in a bid to push down long-term borrowing rates and facilitate home purchases. It's a natural candidate for redeployment if the Fed decides new action is needed. Boston Fed chief Eric Rosengren, in an interview Tuesday, flagged this route as a viable option.Asset purchases won't get policy makers much, however. The Fed stopped buying mortgage securities in March, and after a modest rise in yields, financial anxiety rooted in European developments has forced a global rush into safe-harbor U.S. Treasurys. As the benchmark 10-year yield--which sets the base for mortgage rates--tumbled, home loan rates ground toward historic lows, raising the question of what exactly the Fed could accomplish with more mortgage purchases.The mortgage-buying effort was shadowed by Fed purchases of a smaller amount of long-term Treasurys. The central bank could again ramp up purchases of these securities, but this could be even more fraught with complications. Such purchases would aim to lower government bond yields at a time when they are already at rock bottom, raising questions about what could be achieved.What's more, loading up on Treasury debt at a time of huge government borrowing would fuel fears the Fed is monetizing the deficit, raising the risk of a big-time inflation break-out.Meanwhile, banks are already flush with liquidity, parking around $1 trillion in excess reserves at the Fed. Many would like to see some of that lent out, boosting credit availability. Some have speculated the Fed could stop paying interest on those reserves to force the cash toward more productive usage, but it's not clear whether that would be sufficient to force that cash into action.With some of the most high-profile strategies available to the Fed unlikely to work very well, what's left?Former Fed Governor and current Columbia Business School professor Frederic Mishkin said if the central bank were to confront a new downturn driven primarily by economic forces rather than financial market dislocation, words by themselves could be the best strategy.The Fed could make 'a stronger commitment to keep rates low for an extended period of time,' he said.Other strategies to actively expand the balance sheet are 'much more problematic than the issue of managing expectations by modifying the language with regard to the commitment to keeping interest rates low,' Mishkin said.Ray Stone, of forecasting firm Stone & McCarthy Research Associates, speculated the Fed's recent concern about small-business lending presents a targeted area for action. He told clients the Fed could deploy its emergency powers to lend directly to those firms, as unpalatable as that may be, should it desire a targeted and potentially powerful way to help fuel economic activity.The Fed has a serious problem on its hands, said Torsten Slok, economist with Deutsche Bank. To generate some real stimulus for the economy, the Fed would need to generate a 'wow' effect, and it's unclear what the central bank could do to get that, he warned.