Market Rumours

2010/07/21 17:29*DJ ECB To Meet With Europe's Top Bankers At 1000 GMT Wed -Source

2010/07/21 17:26DJ BOE: Mulled Arguments For Modest Monetary Policy Easing
LONDON -The Bank of England's Monetary Policy Committee discussed the option of easing policy further to offset a deterioration in the growth outlook but Andrew Sentance again called for a rate increase to dampen resilient inflation pressures. Minutes published Wednesday of the MPC's July 7-8 meeting, at which it kept rates at a record low of 0.5%, showed the MPC voted 7-1 in favor of maintaining interest rates. Members were unanimous in voting to leave the BOE's stock of GBP200 billion bond purchases unchanged. The MPC said that 'the prospects for GDP growth had probably deteriorated a little over the month,' with surveys pointing to weakened economic activity. They also noted 'factors that indicated the medium-term outlook for growth might have weakened too.' The MPC said the gradual easing in U.K. credit conditions had 'appeared to slow' and that the government's June 22 austerity budget had 'likely ... pushed down a little on the most likely path for output.' With pay growth subdued and 'little sign' of a significant rise in inflation expectations, the MPC said a 'modest easing' in policy would 'offset the softening in demand prospects.' The MPC also noted arguments in favor of a modest tightening in policy, saying inflation was 'likely to remain above target for some months and there was a risk that medium-term inflation expectations would rise.' The government's increase in the Value Added Tax rate to 20%, from the current 17.5% from January 2011, was also 'likely to add to inflation, particularly in 2011.' For the majority on the committee, 'the weight of evidence from both home and abroad continued to indicate that the margin of spare capacity was likely to bear down on inflation and bring it back to the target in the medium term once the impact of temporary factors had worn off,' the MPC said.

2010/07/21 17:03DJ Portugal 1H Deficit Grew EUR462 Million to EUR7.76 Billion
Portugal's central government budget deficit increased by EUR462 million in the first half from the same period a year earlier to EUR7.76 billion, the Finance Ministry said in a report sent late Tuesday. Tax revenue rose 6% in the period to EUR14.7 billion, with an increase of 60% from the tax on tobacco, to EUR625.7 million. Revenue from the value-added tax rose 16.3% to EUR5.8 billion. Spending by the central government increased 4.3% in the first half, partly because of transfers to the social security and health care systems. Without those transfers the increase in spending for the period would have been 1.4%, the report said. Portugal has come under increasing pressure from the European Union and financial markets to reduce a total public-sector deficit that topped 9% in 2009, three times the 3%-of-GDP limit for EU countries.

2010/07/21 16:57DJ JGBs Rise On Stronger Yen, But Outlook Up To 20-Year JGB Tender
TOKYO -Japanese government bonds were higher Wednesday as an upward trend in the yen rekindled concerns over the outlook for the nation's export-driven economy, prompting investors to pile into safe-haven assets. But demand for superlong-dated JGBs receded as some players sold such bonds to lighten positions ahead of a 20-year JGB auction Thursday. As of 0600 GMT, the benchmark 10-year JGB yield was down 0.5 basis point at 1.085%, while lead September JGB futures ended at 141.70, up 0.09. The 20-year JGB yield, however, rose one basis point to 1.805%, making the yield curve steeper. The outlook for longer-term JGBs will likely hinge on the 20-year debt tender Thursday, analysts say. Japan's Ministry of Finance is slated to sell Y1.1 trillion worth of the notes. If the tender result turns out tepid, that could prod investors to let go of superlong-term bonds in the secondary market to lock in profits, driving the yields upward further, they say. 'Longer-term JGB prices have been on an upward trend recently, so a weak auction result may provide a window of opportunity for players to sell them,' said Masashi Shimominami, a bond market analyst at Mizuho Securities. Katsutoshi Inadome, fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities, also said the tender is unlikely to go smoothly, given that the coupon could be set at 1.8%, its lowest level since February 2004. 'Investors should refrain from buying 20-year bonds actively' at the auction, he added. Another focus is testimony by Federal Reserve Chairman Ben Bernanke in Washington later in the day. Many players are paying attention to Bernanke's remarks for clues on future monetary policy in the U.S., traders say. If Bernanke indicates that the possibility of the Fed easing monetary policy as fears about the economy grow, a possible downturn in U.S. Treasury yields could bolster demand for JGBs, pushing the yields lower.

2010/07/21 16:40=DJ Forex Focus: Expect Swiss Franc To Make A Comeback
LONDON -Look for the Swiss franc's safe-haven status to start pushing the currency back up again soon. For the last few weeks, the franc has come under steady selling pressure against the euro as immediate fears about the sovereign debt crisis in the euro zone have subsided. Hopes that European banks will now sail through stress tests at the end of this week have helped the single currency to ignore downgrades of Portuguese and Irish credit ratings and show little reaction to news that Hungary has fallen foul of the International Monetary Fund. Now that it has broken over CHF1.35, the euro looks poised to climb up to CHF1.40 for the first time in well over a month. However, this rally could quickly go awry. It is not that the bank stress tests will be a problem. As European politicians have reassured financial markets at every opportunity over the last couple of weeks, the tests will more than likely show that the major banks of the region are well-equipped to face the economic slowdown that is likely to take place over the next two or three years. Whether the tests themselves are actually seen as adequate is another question. The results will still help to normalize trading and ease credit conditions across the euro zone. So far, news of the breakdown in Hungary's negotiations over a standby loan has also had little impact on euro sentiment. If anything, analysts have pointed to the risk of a fallout on the franc if the Hungarian forint starts to fall, given that so many franc-denominated mortgages are held by Hungarians. Nevertheless, Hungary does still pose a risk to the euro too, especially as any similar disagreements and delays between the IMF and Greece would quickly hit euro-zone bond markets. In other words, the euro isn't safe until fiscal discipline has been achieved. But as far as the euro's performance against the franc is concerned, there are two other factors that are likely to push the single currency back down again in short order. The first is global risk sentiment. As U.S. economic data continue to spell out the growing risk of a double-dip recession and Fed Chairman Ben Bernanke prepares to reassure Congress that the central bank is on standby to ease monetary policy again, the outlook for the global recovery as a whole will deteriorate. As a result, appetite for risk, which has been rising in recent weeks and helping the euro to find support, is likely to fall back again, taking the euro with it. Those investors wanting to keep their funds in Europe but not in the euro will more than likely turn to the franc once again as a safe haven in times of economic uncertainty. The franc is also likely to reassert itself against the euro just on the basis of yield. Although the confidence of the European Central Bank may have helped the euro to rally in recent weeks, the Swiss economy remains in better shape than that of the euro zone. Also, in the pecking order of which central banks are likely to hike rates first, the SNB is still more than likely to be ahead. If so this is another reason why investors are likely to start selling the euro back down to a level just above CHF1.3150 that marked the start of the recent bounce. Overnight the dollar traded slightly lower as the minutes of the June Federal Open Market Committee meeting showed a 10-2 split in the vote to keep rates at a record low, with the Kansas City and Dallas Federal Reserve Governors calling for the discount rate to be hiked by 25 basis points to 1%. For Wednesday, the focus is on Fed Chairman Bernanke's testimony and any comments that could point to further monetary easing. Around 0650 GMT, the euro fetched CHF1.3557, little changed from CHF1.3560 seen in late U.S. trade Tuesday. The euro was worth $1.2901, up slightly from $1.2887, the pound fetched $1.5310, up from $1.5275 and the dollar bought Y87.19, down from Y87.38.

2010/07/21 15:01DJ Forex Options: Yen Options Fall But Downside Risks Remain
TOKYO -Dollar/yen currency options fell on Wednesday as investors awaited Federal Reserve Chairman Ben Bernanke's speech later in the global day to better gauge the bank's policy management outlook. Bernanke will testify before the U.S. Senate panel in Washington from 1800 GMT, and market participants are waiting for whether he speaks about monetary policy and economic conditions. Waiting investors expect Bernanke's remarks to set the near-term trend for the greenback. If he sounds dovish, the dollar will likely fall, resulting in more demand for option contracts and thus higher option volatilities. 'We can't do much before Bernanke's speech today as it may provide an important cue that determines where markets will be heading,' said an options dealer at a major Japanese bank. Higher underlying exchange rates also prompted investors to wait for the speech. With the dollar trading above Y87.00--higher than the Y86 levels of Tuesday--participants no longer need to rush to buy option contracts hedging the greenback's downside, he said. Benchmark one-month at-the-money dollar/yen volatilities were at 11.30%/12.00% from 11.40%/12.10% overnight. So far in Asia, investors have sold three-month and six-month ATM straddles with face values of around $200 million to $300 million each, another options dealer in Tokyo said. The deals suggest the sellers think the greenback will remain somewhat quiet for the time being. However they haven't ruled out the risk of it falling toward the psychologically important threshold of Y85 as they didn't sell any contracts hedging the dollar's downside.

2010/07/21 15:00DJ Japan Government: Economy Picking Up Steadily; US Slowdown A Risk
TOKYO -Japan's government expressed greater concern about repercussions from a possible U.S. economic slowdown in its monthly report issued Wednesday, although it stuck to its cautiously upbeat tone on the current shape of its own economy. The July report indicates that the government is growing wary of overseas woes gnawing away at Japan's export-reliant recovery but has yet to develop a sense of urgency to take any new stimulus steps. The report noted that 'attention should be given to the risks that the economy is depressed by a possible slowdown in overseas economies, especially in the U.S. and Europe.' The previous month's report made no mention of the U.S. in this context. U.S. economic developments aren't visibly affecting Japan but 'we are watchful of (the U.S. economy) as a potential downside risk factor for our economy,' said Keisuke Tsumura, Cabinet Office parliamentary secretary in charge of economic and fiscal policy. In particular, the government is worried about signs of worsening sentiment among U.S. consumers, whose spending accounts for more than two-thirds of U.S. economic activity, he said. The latest report comes amid indications that Japan's international trade gains are moderating, raising concerns that slower exports may take some steam off the nation's still-weak domestic economy. Exports grew 32.1% on year in May--a solid rise, but the smallest in five months. Core machinery orders in the same month dropped 9.1% on month, the sharpest drop since August 2008. The jobless rate climbed 0.1 point to 5.2% in May, the highest in five months. Tsumura noted that Japan's recovery can't be called self-sustainable, and that recent deterioration in data suggests 'there's a possibility that the Japanese economy may have entered a lull,' or a state where it barely grows. But how broadly Tsumura's pessimism is shared across the government is unclear. The July report held on to the previous month's cautiously optimistic view: 'Although the economy has been picking up steadily and the foundation for a self-sustained recovery is being laid, it remains in a difficult situation such as (with) a high unemployment rate.' The government gave the same grades to key parts of the economy. Exports are 'increasing moderately,' industrial output is 'picking up,' corporate profits are 'improving' and business investment is 'leveling off.' Consumer spending is 'picking up.' Job markets remain 'severe,' but are showing signs of 'incipient recovery.' Yet, the whole economy remains 'in a mild deflationary phase.' Tokyo also left its assessment on business sentiment unchanged, saying it is 'improving,' despite stronger-than-expected results in the Bank of Japan's June tankan survey of business mood released earlier this month.

2010/07/21 14:44=DJ WORLD FOREX: Dollar Falls Vs Yen Ahead Of Bernanke Testimony -3-
TOKYO -The dollar fell against the yen in Asia Wednesday as short-term players sold the currency on the view that its upside will be limited ahead of testimony by Federal Reserve Chairman Ben Bernanke in Washington later in the day.'Sentiment toward the dollar can't be bullish,' said Yuichiro Harada, a senior trader at Mizuho Corporate Bank. A large number of players hold the view that Bernanke's remarks 'may strengthen expectations for the Fed's monetary easing,' which may weigh on dollar-yen.That view gained strength after dovish FOMC minutes last week and recent weak U.S. economic data, he added.As of 0450 GMT, the U.S. unit was at Y87.14 compared with its New York level of Y87.38 late Tuesday. The euro stood at Y112.23 from Y112.60.Coupled with short-term players' dollar-selling in the Tokyo morning session, Japanese exporters pushed down the unit as it rose to mid-Y87 late Tuesday.'The overnight gains in the dollar made the currency attractive for Japanese exporters' after the unit's recent sluggishness, a senior dealer at a non-Japanese bank said.Looking ahead, the greenback could fall toward Y86.00 in the coming weeks if expectations grow that U.S. economic recovery may slow, traders said. Market participants will continue to watch the Fed's policy stance and share market performance.Elsewhere, the European single unit ticked down to $1.2883 from $1.2887 overnight. Analysts said even if the results of European stress tests, due Friday, gauging whether the banking sector has enough capital reassure investors, the euro may not rise above $1.3100.The pace of economic growth in the region may continue to be gradual, while the European Central Bank will stand pat on its rates in coming months due to the impact of the debt turmoil, said Yuki Sakasai, a strategist at Barclays Capital.The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 82.726 from 82.772.

2010/07/21 12:59=DJ FED WATCH: Bernanke To Flag Weakness, Be Coy About Fed Options
NEW YORK -When Federal Reserve chief Ben Bernanke delivers the central bank's twice yearly economic and monetary policy report to Congress this week, one thing is for sure: It will be more downbeat.That's baked in the cake given the forecasts the Fed provided last week as part of its release of the meeting minutes from its late June monetary policy meeting. Growth in 2010 was lowered to a range of 3% to 3.5% from the prior estimate of 3.2% to 3.7%; 2011 saw a similar downgrade to growth, while 2012 was held at a 3.5% to 4.5% rate. That outlook will be the foundation the chairman uses to speak before committees of the House of Representatives on Wednesday and the Senate on Thursday.It's less certain how the chairman will portray the risks around the outlook, and whether he chooses to look at the softness seen in data over the last few months as transient, or as harbinger of more weakness.It's even more unclear how a downgraded outlook will translate into the Fed's monetary policy forecast. Most economists agree it will be a long time before the Fed raises interest rates, with many thinking it won't be until some time next year, or perhaps even later, before the Fed finally ends the zero percent policy put in place in late 2008.But the issue goes beyond short-term rates. The June meeting minutes also said officials were considering what they could do should the economy take a turn for the worse and more stimulus be needed. The comments of officials over recent weeks suggest no consensus on the need for further action. There's also no clarity on what the Fed would do if more action were needed.Though rates can't go any lower, the central bank nevertheless has options, albeit bad ones. It could restart asset-buying, but what would it add to its already massive balance sheet? Bernanke referred to the Fed's extraordinary actions as credit easing, so presumably any future actions would be about promoting borrowing, both in terms of loan supply and demand.Large-scale purchases of mortgages, the cornerstone of the first asset-buying program, are unlikely to offer very much with home-lending rates already grinding around historic lows. Meanwhile, buying longer-dated Treasurys en masse may also not help much given how far market forces have already pulled down yields. There's also the danger that large-scale Treasury acquisitions may wreck the Fed's credibility and drive fears the central bank is monetizing--read make disappear--government debt, which could lead to a big inflationary surge.There are other things the Fed could do. It could stop paying interest on reserves banks place at the Fed. That could in theory unleash the $1 trillion financial institutions have parked at the central bank. The Fed could also make a more explicit commitment to keep rates very low beyond its current pledge that monetary policy will stay around zero for an 'extended period,' hoping to counter the formation of a deflationary psychology in the market place.Most Fed watchers expect Bernanke to tread very carefully. Since the need for further action hasn't even been agreed upon, it's highly unlikely the chairman would take a firm stance on the 'how' of further central bank stimulus.Goldman Sachs doesn't expect Bernanke to take the issue head on. They told clients: 'One way for Chairman Bernanke to keep specific ideas at arm's length might be to couch them in terms of a discussion of what other central banks have done.

2010/07/21 06:50DJ CREDIT MARKETS: Still Jittery Ahead Of European Stress Tests
NEW YORK -Despite a clutch of high-grade and high-yield bond sales being tabled for later in the week, issuance was relatively light Tuesday.A pair of international high-grade borrowers, German development agency KfW and Abu Dhabi's Waha Aerospace, brought new U.S.-denominated paper, as did two high-yield borrowers, Calpine and Interactive Data.All eyes were on the European bank stress-test results due Friday, the slowdown in the economic recovery and earnings. 'We are in for ongoing moderate growth,' said Robert Tipp, managing director and chief investment strategist at Prudential Fixed Income, at the firm's mid-year market outlook presentation in New York. 'Over the short term, anxiety will remain high about the European sovereign situation.'Data was also light. The Commerce Department said U.S. housing starts, or the number of privately owned new housing units on which construction has begun, fell by 5% in June--the lowest level since October. But signs emerged of a turnaround as permits for new construction rose.Investment-Grade BondsIn primary issuance, Waha Aerospace BV said it plans to raise $1.5 billion in a sale of 10-year dollar-denominated notes later this week. Proceeds from the notes, guaranteed by the United Arab Emirates government and rated Aa2 by Moody's Investors Service and AA by Fitch Ratings and Standard & Poor's, will be used to buy new aircraft for the U.A.E's armed forces. Price guidance is 2.25 to 2.3 percentage points over comparable Treasurys.Meanwhile, KfW sold $1.5 billion in seven-year, 2.75% dollar-denominated bonds at a discount to yield 2.85%, or 0.49 percentage points over Treasurys, in line with guidance. KfW is rated AAA by all three major rating agencies.In secondary trading, activity was focused on Goldman Sachs, which reported quarterly earnings, and Charles Schwab Corp., whose new 10-year 4.45% notes issued Monday traded up to 100.707 to yield 4.362% as investors sought to own the paper. Risk premiums on Schwab notes fell 5.6% to 1.42 percentage points over Treasurys, compared to 1.5 percentage points, where they were originally offered.After reporting a drop in second-quarter earnings of 82% from the year-earlier quarter, pricing on Goldman's bonds remain depressed. The average price institutions paid for Goldman's 6% notes due June 2020 fell 0.47% to 106.773, for a yield of 5.118%, according to MarketAxess. The investment bank's profits were hit by a U.K. tax on bank bonuses and a $550 million settlement with the U.S. Securities and Exchange Commission. Its revenue slipped 36% to $8.84 billion from $13.76 billion.The cost to insure debt issued by Goldman via credit default swaps rose 2% as of as of 4:24 p.m. EDT, according to Markit, costing $165,000 per year to cover $10 million of debt for five years.After starting off down, Markit's CDX North American Investment Grade Index strengthened 2.84 basis points, or 2.5%, to 110.14 compared to Monday night's close as Tuesday's session drew to a close. The index movement mirrored the Dow Jones Industrial Average, which was 0.75% improved at 10,229 as of 3:53 p.m. EDT.Junk BondsIn high-yield bonds, the forward calendar continues to fill with companies looking to sell notes in the remaining days of July.Interactive Data Corp. sold $700 million of eight-year senior notes in a deal that will finance in part its leveraged buyout by private equity firms Silver Lake Partners and Warburg Pincus. The notes sold at par to yield 10.25%.And Calpine Corp. was in the market to sell $750 million in a drive

2010/07/21 06:47=DJ US Senate Approves Key Procedural Vote On Benefits Extension
WASHINGTON -The U.S. Senate on Tuesday narrowly voted to overcome a key hurdle on an extension of U.S. jobless benefits, renewing the 99-week period that long-term unemployed people in most parts of the country can qualify for assistance. By a vote of 60-40, senators voted to end a Republican filibuster, setting up a potential final vote on the measure later Tuesday.The legislation would then have to return to the House for lawmakers' approval in that chamber, something Democratic leaders have pledged to do.Since the benefits expired at the end of March, the National Law Employment Group, an advocacy group, estimates that 2.9 million long-term unemployed Americans have seen their benefits expire.The roughly $34 billion cost of the plan will be paid for by new borrowing.Democrats were able to reach the crucial 60-vote supermajority to overcome Republican resistance only after Sen. Carte Goodwin (D., W.V.) was sworn in by Vice President Joe Biden a few minutes before the vote was held. Goodwin replaces Sen. Robert Byrd (D., W.V.), the longest-ever serving senator, who died in June.Voting with the Democrats were Maine Republicans Sens. Susan Collins and Olympia Snowe.Two other moderate Republicans who have supported benefit extensions in the past--Sens. Scott Brown (R., Mass.) and George Voinovich (R., Ohio)--declined to support the measure. So, too, did Sen. Ben Nelson (D., Neb.), a Democrat who routinely votes against spending items unless their cost is offset.The vote portends an almost certain end to the more-than-three-month ordeal which has seen the Senate gridlocked in partisan rancor over the benefits issue.Democrats have attempted several times, both as a stand-alone measure as well as part of a wider tax package, to pass the benefits extension. Republicans have resolutely opposed the moves, arguing that unspent funds in the economic stimulus plan should be used to pay for the cost of the program.Democrats and Republicans have clashed repeatedly over whether the cost of the benefit program should be offset by cuts elsewhere to the federal budget.The majority party has argued that spending on unemployment benefits themselves are stimulative to the economy and can therefore expedite the economic recovery already underway.Republicans have countered that federal spending is out of control and have sought to force Democrats to pay for the roughly $34 billion cost of the benefits extension.