Market Rumours

2010/07/20 20:07DJ Fed Call: No Liquidity Operations 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 with the federal-fund target range of zero to 0.25%, according to Tullett Prebon data.

2010/07/20 19:16=DJ DATA SNAP: UK CBI Industrial Output Slows Further In July
LONDON -U.K. industrial output growth slowed for the second consecutive month in July, an indication that economic recovery is losing some momentum, a survey by the Confederation of British Industry showed Tuesday. The survey's headline industrial output balance fell to +6 from +15 in the June survey. The balance is the difference between the percentage of manufacturers reporting an increase and those reporting a decrease. The survey showed that the total orders balance improved to -16 from June's -23, its strongest level since August 2008. But the export orders balance fell to -12 in July from -2 in June. The CBI said that in the three months to July the manufacturing sector saw output rise at its fastest rate in 15 years, with demand for U.K.-made goods continuing to strengthen and firms rebuilding their stocks. The volume of output over the three months to July hit its highest since April 1995, at +24 from +1 in April. 'Looking ahead, production is expected to rise further, but at a more moderate pace,' said Ian McCafferty, chief economic adviser for the CBI. 'In our view the risk of a double-dip recession remains low and the fortunes of the manufacturing sector are continuing to slowly and steadily improve.' The survey was carried out between June 22 and July 7, with a total of 439 manufacturers responding.

2010/07/20 17:35=DJ DATA SNAP: UK PSNB Above Expected, May Borrowing Revised Higher
LONDON -The U.K. government borrowed more than expected in June, with central government tax receipts increasing at a much slower pace than in previous months. The Office for National Statistics said Tuesday that the U.K. public sector borrowed a net GBP14.5 billion in June, down from GBP14.7 billion a year earlier. Economists had expected public sector net borrowing of GBP13.5 billion. Central government tax receipts rose 4.0% on the year in June, the smallest increase since January. That included a 10.9% rise in value added tax revenue on the year--the smallest rise since December 2009. The higher June borrowing and upward revision to May's borrowing numbers wipe out some of the seeming improvement in public finances noted in recent months as the U.K. battles with a GBP155 billion budget deficit. For the financial year to date, which started in April, public sector net borrowing totaled GBP40.3 billion versus GBP40.9 billion in the same period last year. The government is expecting a PSNB total of GBP149 billion for the full financial year. June's public sector net cash requirement was GBP20.9 billion, up from GBP20.2 billion a year earlier. Public sector net debt as a proportion of gross domestic product reached 63.9% in June, up from 57.3% a year earlier. The ONS said there had been a GBP1 billion upward revision to May's public sector borrowing. That was because of an 'exceptional' GBP2.3 billion underreporting of local government borrowing due to an error by the Department of Communities and Local Government, an ONS official said. The central government's May borrowing was revised down. That took May's PSNB to GBP17.1 billion.

2010/07/20 17:15=DJ Forex Focus: Euro Crisis Rumbles On
LONDON -So, the euro-zone debt crisis is over, right? Greece demonstrated last week that it can auction short-term debt with reasonable success and at a more modest yield than it would have to pay to access emergency backstops. The euro is back up at $1.30. Even Monday's downgrade to Irish debt by Moody's failed to have a lasting impact. Panic over. Don't you believe it. Let's not forget that Greece shelved plans to auction some one-year debt last week. Hardly long-term stuff. And the euro is up mostly because the dollar is down. As for Moody's ... where has it been for the past few months? Of course Ireland has a heavy debt burden. This is old news. No, this crisis is far from over. It has calmed down, for sure. Investors are no longer in skittish mood. Greek government debt is no longer one of the top three in the world in terms of default insurance costs. A decline in the single currency to parity against the dollar or even lower within the next few months now looks a bit far-fetched. But this one is going to run and run. A hefty reminder of that came over the weekend, when the International Monetary Fund and the European Union decided to play hardball with Hungary. The emergency lenders are not satisfied with Hungary's book-balancing plans. Hungary has refused to keep slashing. So that's that. The Eastern European straggler is not getting the next instalment of its EUR20 billion credit line just yet. This could be worse; Hungary is not in terribly urgent need of the funds and the lenders have not walked away for good. Still, the country's currency and bonds have come under huge strain as investors are nervous. And it matters for the euro zone: the cost of insuring government debt from euro-member Austria against default has climbed, as its banks are so heavily exposed to the Central and Eastern European region. What's more, it's also a cautionary tale for Greece. If Greece wants to be eligible for multilateral aid not just this year but every year until this mess is over, then it has to make brutal cuts in public spending for the long haul. Protests over these cutbacks have already been violent on a number of occasions. 'Hungary said it was already in the fifth year of austerity measures and it was not possible to tighten the screws any further. That's critical because it's exactly the problem the euro zone faces; austerity measures ... are not one-offs, they are multiyear projects,' said Simon Penn, an analyst at UBS in London. 'The IMF and EU have not fudged a solution. Hungary won't play ball so the funding line is suspended,' he added. 'Remember, Greece's fiscal position is far worse than Hungary's.' In addition, investors are still nursing doubts over the sustainability of the single currency project as a whole. Monday, Alan Brown, chief investment officer at Schroders, wrote that Germany's insistence that Greece and other errant euro members must 'sit on the naughty step for a decade or more' could kill the currency entirely. Greece could well decide that the austerity measures it is forced to comply with are simply too harsh, and conclude that binning the euro 'could be the lesser of two evils,' he said. The idea, often repeated, that too much political capital has been invested in the single currency to allow it to fail, and that a Greek withdrawal from the currency would be ruinous for the country, are not necessarily true, Brown added. 'It is at least conceivable that the euro could break up by way of the strong countries rising out of the euro, leaving Portugal, Italy, Ireland, Greece and Spain with the euro,' he said. 'The revaluation effects now would be entirely benign with those economies in an unchanged position and with the countries that left the euro with assets denominated in an appreciating new currency,' he said. Sure, Germany's exports may suffer, but it needs to boost domestic demand anyway. 'It pays to remember that we have seen currency regimes come and go before,' he said, pointing to the Gold Standard and a number of currency unions that rose and fell in the past. A breakup of the euro may not happen just yet, but it is 'highly likely in the medium term,' he said. 'This tragedy [or pantomime] has many more acts to come. Stay alert,' he said. Indeed. In early European trading hours Tuesday, the dollar's downtrend was still in full swing, with the euro at $1.3012, having earlier hit $1.3029--its highest level since May, according to trading system EBS. Late in New York Monday, the euro was at $1.2945. The dollar was at Y86.96 against the yen, little changed from Y86.86, while the euro was at Y113.15 from Y112.45.

2010/07/20 15:48DJ PRECIOUS METALS: Gold Steady In Asia; Buyers On Sidelines
SINGAPORE -Gold was steady in Asia Tuesday as Asian participants digested another overnight retreat.A Singapore-based trader said dip buyers were absent as repeated sell-offs in Europe and on the Comex in New York, apparently due to the lack of safe-haven demand, damped sentiment.'They are selling every rally now,' he said.At 0635 GMT, spot gold was at $1,183.70 a troy ounce, down 40 cents since Monday's New York close.Tocom June 2011 gold was at Y3,324 a gram, down Y72 as Japanese participants played catch-up with recent losses since the exchange was closed for a holiday Monday.Technically gold looks biased towards more downside, analysts said.'True support in gold lies at $1,167 from the May 21 low, with the close in gold below last weeks low of $1,187, keeping price risk to the downside,' ScotiaMocatta said in a technical note.'Momentum has eased and triggered stops below technical levels and will continue to pull back until decent technical support is held possibly around the $1,170 level,' Triland said.However, Triland added Friday's euro zone bank stress test results could be a turning point should the results disappoint and generate some risk aversion.Other precious metals were slightly higher, in line with industrial metals.Spot silver was at $17.69/oz, up 8 cents, and spot platinum was at $1,510/oz, up $3, while palladium was at $446/oz, up $2.

2010/07/20 15:02DJ Forex Options: Yen Options Down As Spot Higher, Demand Still Strong
TOKYO -Dollar/yen options fell slightly in Asia Tuesday as a modest pick-up in the underlying exchange rate decreased the immediate risk of the greenback falling to the psychologically-key Y85 mark.That mark is being closely watched as it's the level where the Bank of Japan could possibly start considering taking additional monetary easing steps, dealers in Tokyo said.Benchmark volatilities implied by one-month at-the-money dollar/yen options declined to 11.50%/12.20% from 11.80%/12.50% in New York Monday as U.S. unit moved to around the Y87.00 level, up from the low-Y86 levels it has seen recently.Going forward, a senior dealer at a major Japanese bank said that if the greenback gets close to Y86.00 again, volatilities should rise above 13%, as many Japanese exporters are interested in buying dollar-put option contracts, a tool to protect them from sharp declines in the U.S. unit.

2010/07/20 14:25=DJ DATA SNAP: German June PPI +0.6% MM, +1.7% YY, Above Forecast
FRANKFURT -Producer prices in Germany, Europe's largest economy, rose significantly more in June than was expected by economists as intermediate goods drove prices upwards, the Federal Statistics Office, or Destatis, said Tuesday. Producer prices rose 0.6% on the month in June and increased 1.7% on the year, Destatis said. In a Dow Jones Newswires survey, economists had forecast a rise of 0.2% on the month and an increase of 1.2% on the year. In May producer prices rose 0.3% on the month and 0.9% on the year. Prices of intermediate goods, those used during the production process, rose 0.3% on the month and 5.0% on the year. Inflation in this category of goods was last higher in April 2007 when prices increased by 5.3% compared with the corresponding period of the previous year. Excluding energy prices, which can be very volatile, producer prices increased 0.3% on the month and 2.1% on the year, Destatis said. Web site: www.destatis.de

2010/07/20 12:41DJ Japan Sengoku: To Keep New JGB Issuance Below Y44.3T For FY11
TOKYO -Japan's Chief Cabinet Secretary Yoshito Sengoku reiterated Tuesday that the government will aim to keep new debt sales in the next fiscal year from topping the current year's Y44.3 trillion. Sengoku also said at a regular press conference the government will work to draft a budget plan for the year starting April 2011 while keeping a pledge to keep policy spending--including annual tax grants to municipalities--at this year's level of about Y71 trillion. Earlier in the day, Finance Minister Yoshihiko Noda said the government will try to keep new government bond issuance for the next fiscal year below this year's level.

2010/07/20 10:53=DJ ECB WATCH: ECB Temporarily Suspends Bond Purchases
FRANKFURT -The European Central Bank almost halted its bond purchases last week, ECB data showed Monday, indicating that fear of a euro-zone government defaulting on its debts is easing.The ECB and the currency area's 16 national central banks settled EUR302 million of bond purchases last week, compared with EUR797 million in the week ending July 9. At the height of the sovereign debt crisis in May, the ECB's weekly bond purchases exceeded EUR10 billion.'The overall situation is improving, risk aversion is receding and spreads are narrowing,' said Commerzbank economist Michael Schubert.The yield on 10-year Greek government bonds has fallen to about 10.4% on Monday from 12.2% on May 7.But the ECB's gradual retreat from the secondary bond markets also signals a win for the hawks at the ECB's Governing Council--especially for Bundesbank chief Axel Weber, economists said.Weber, who is also seen as a strong candidate to head the ECB after Jean-Claude Trichet retires next year, said in May that the purchases of government debt pose a risk to stability. His remarks were echoed by Juergen Stark, a fellow German economist and a member of the ECB Executive Board.But the latest data on ECB debt purchases don't come as a total surprise, after Trichet signaled at a press conference in early July: 'We have the feeling that what is needed in terms of the level of interventions from us has been progressively diminishing, but we will continue to observe this with great attention,' Trichet said then.

2010/07/20 08:45DJ Swiss Court Backs US-Swiss Pact On UBS Data; Rejects Appeal
ZURICH -A Swiss court Monday said it backed a U.S.-Swiss deal governing the handover of thousands of pages of confidential data on clients of UBS AG (UBS) to U.S. tax officials as 'binding,' rejecting an appeal by a client of the Swiss bank in a test case. The decision translates to a final stamp of approval from Swiss authorities, who ultimately clinched parliamentary approval last month for an August 2009 settlement between the U.S. and Switzerland to hand over data on roughly 4,450 alleged tax offenders with hidden Swiss offshore accounts. Switzerland's government had scrambled to honor the deal before the August deadline following a January decision by the same court, which ruled much of the data could not be handed over. In the July 15 decision made public Monday, the court wrote it 'has come to the conclusion, that the agreement approved by Swiss parliament on a legal aid procedure from the Internal Revenue Service concerning UBS is binding.' The ruling cannot be appealed. The Swiss government and U.S. officials in March elevated the agreement to a treaty between the two states, which reinforced the pact's stance before the court.

2010/07/20 05:34=DJ WORLD FOREX: Euro Rises Modestly Vs. Dollar; Stress Tests Eyed
NEW YORK - The euro rose modestly against the dollar Monday as investors anticipated that stress tests of European banks will show the region's financial system is sound.Steadily rising investor confidence over Europe's ability to right its troubled banking sector propelled the common currency above the $1.30 level for the first time in two months late last week. There is room for the euro to rise even higher, analysts said, if the stress tests go well. Nerves ahead of Federal Reserve Chairman Ben Bernanke's testimony to Congress on Wednesday also weighed on the dollar against the euro. Investors will be listening closely to Bernanke's remarks for further clues as to the pace of the U.S. economic recovery.After several weeks in which concerns about the U.S. recovery took center stage in currency markets, the initial results from stress tests, due Friday, are now dominating trading, said Julia Coronado, economist at BNP Paribas in New York.The euro rose, showing that 'on balance, people have become a bit optimistic,' about the results of the stress tests,' said Coronado.With the Japanese markets closed for a national holiday, and trading flows already light due to the summer season, movements in currency markets were tentative.Late Monday, the euro was at $1.2945 from $1.2927 late Friday, according to EBS via CQG. The dollar was at Y86.86 from Y86.61, while the euro was at Y112.45 from Y111.95. The U.K. pound was at $1.5231 from $1.5298. The dollar was at CHF1.0549 from CHF1.0519.The ICE Dollar index, which tracks the dollar against a trade-weighted basket of currencies, was at 82.591 from 82.535.To see the euro's performance against the dollar, please see:http://dowjoneswebservices.com/chart/view/4285The Committee of European Banking Supervisors is testing 91 banks to see whether they can withstand a three-percentage-point decline in gross domestic production from European Commission forecasts for 2010 and 2011. The committee will also test the banks for resilience to sovereign risk at a level beyond the market conditions experienced in early May.The ability of the stress tests to soothe investor concerns will rely on the robustness of the tests, as well as the results, said Jessica Hoversen, fixed income and foreign exchange analyst at MF Global in Chicago.Despite some uncertainty over how the tests were administered, investors remain positive about the tests, said Simon Smollet, senior foreign-exchange options strategist at Credit Agricole CIB in London.'Banks will need extra capital, but hopefully the capital will be a reasonable amount that the market can provide,' he said.The common currency's gains on Monday came despite some negative headlines out of Europe.Moody's Investors Service cut Ireland's rating Monday, to Aa2 from Aa1, with a stable outlook. The agency cited a rising debt burden, the high cost of rebuilding the country's banking system and sluggish growth as factors in the decision.In Hungary, the forint fell to its lowest levels in more than a year after negotiators for the International Monetary Fund and European Union walked away from funding talks because Hungary hadn't delivered on required austerity measures.The breakdown in talks between Hungary and the multilateral bodies has implications beyond Eastern Europe, as it offers a clear sign that international aid is tied to strict conditions.The U.K. pound gave back some recent gains on the greenback, slipping modestly on the day. But attention remained on the pound as an alternative to the dollar, euro and yen as Singapore's state investment company Temasek Financial Ltd priced its first sterling-denominated bond issue Monday, raising a total of GBP700 million.With the ICE Dollar Index strengthening slightly, Deutsche Bank's PowerShares U.S. Dollar Index Bearish exchange-traded fund was down 0.12% from late Friday, while its PowerShares U.S. Dollar Index Bullish was up 0.08%. The two exchange-traded funds are based on Deutsche Bank currency futures indexes, whose composition mirrors that of the ICE's Dollar Index.