2010/08/04 21:16=DJ WORLD FOREX: Dollar Pares Losses Vs Yen After US Private Jobs Data-2-
TORONTO -The dollar has pared its losses against the yen Wednesday after a private-sector jobs report exceeded expectations, helping ease concerns about the U.S. economic recovery. The dollar advanced against the yen after the Automatic Data Processing Inc. (ADP) private sector jobs report for July indicated a gain of 42,000, surpassing the increase of 39,000 expected by economists and the revised gain of 19,000 in June, first reported as 13,000. The dollar had dropped to an eight-month low of Y85.32 against the Japanese currency in overnight trading. Wednesday morning, the dollar was at Y85.74 from Y85.85 late Tuesday, according to EBS via CQG. The euro was at $1.3213 from $1.3233. The single currency was at Y113.25 from Y113.60. The pound was at $1.5946 from $1.5948. The dollar was at CHF1.0395 from CHF1.0390. The dollar was little changed or slightly ahead from day-earlier levels against most of its other major rivals, with the euro falling back against the dollar in earlier trading as the latest euro-zone data disappointed growth prospects and lowered inflation expectations for the region. The dollar declined broadly on Tuesday on speculation the Federal Reserve might increase monetary stimulus again to bolster the struggling economy. At 10 a.m. EDT (1400 GMT), the Institute for Supply Management will release its nonmanufacturing index for July, which will provide a fresh impulse for trading on news about the U.S. economy.
2010/08/04 21:03=DJ ADP: July Private-Sector Jobs Up 42,000 Versus 39,000 Expected-2-
NEW YORK -Weak labor markets remain an obstacle to the recovery. Private payroll gains increased by only 42,000 in July, as large business added no new workers, according to data released Wednesday. Private-sector jobs in the U.S. increased by 42,000 last month, according to a national employment report published by payroll giant Automatic Data Processing Inc. (ADP) and consultancy Macroeconomic Advisers. Economists had expected ADP to report a job gain of 39,000 in June. The estimated change in employment for June was revised to a gain of 19,000 from an increase of only 13,000 first reported. The ADP survey tallies only private-sector jobs, while the Bureau of Labor Statistics' nonfarm payroll data, to be released Friday, include government workers. Economists surveyed by Dow Jones Newswires expect that continued layoffs of government workers hired for the Census will mean a drop of 60,000 jobs from total July nonfarm payrolls. Among those economists forecasting private-sector jobs within the BLS data, the median projection is for a gain of 100,000. The July unemployment rate is projected to edge up to 9.6% from 9.5% in June. Without better job growth, consumers have contributed modestly to the recovery and ended the second quarter with wallets shut. Personal income was flat in June, leading to no change in consumer spending as well. Federal Reserve Chairman Ben Bernanke said in a speech given Monday that 'the slow recovery in the labor market and the attendant uncertainty about job prospects are weighing on household confidence and spending.' The latest ADP report showed large businesses with 500 employees or more added no new employees and medium-size businesses hired 21,000 workers in July. Small businesses that employ fewer than 50 workers lifted payrolls by 21,000. Service-sector jobs added 63,000 last month, while factory jobs fell by 6,000. ADP, of Roseland, N.J., says it processes payments of one in six U.S. workers, while Macroeconomic Advisers, based in St. Louis, is an economic-consulting firm. Other job reports also show very slow improvement in the labor markets that will barely cut the jobless rate. Employers announced plans to shed 41,676 workers in July, a 6% increase from the 39,358 layoffs in June, according to global outplacement firm Challenger, Gray & Christmas. The report added that, although July marks the third consecutive monthly gain in announced job cuts, downsizing activity remains at its lowest level since before the 2001 recession. Also on Wednesday, TrimTabs Investment Research said that because of 75,000 layoffs by the Census Bureau, the economy lost about 5,000 jobs in July with private sector hiring adding 70,000. 'A sustainable economic recovery requires strong job growth, and we see no sign of that on the horizon,' said Charles Biderman, chief executive of TrimTabs. TrimTabs bases its employment estimates on an analysis of daily income tax deposits to the U.S. Treasury from all salaried employees.
2010/08/04 17:41DJ Japan Finance Minister Noda: Current Yen Movement One-Sided
TOKYO -Japan's finance minister Wednesday slightly escalated his warnings about a rising yen, calling the currency's recent gains 'a little one-sided.' Yoshihiko Noda's latest remarks diverged from his recently repeated mantra that he was 'closely watching' the currency market, highlighting his growing concern about the rising yen and the damage it could do to Japan's export-led economy. 'I feel the (yen's) current movement is a little one-sided,' Yoshihiko Noda told reporters at the Ministry of Finance. 'I will monitor (yen exchange rates) more closely.' But Noda declined to comment on what the government might do if the yen were to keep strengthening. 'In any case, our fundamental stance is that any excessive fluctuation or disorderly movement in foreign exchange rates could have adverse effects on the stability of economies and financial markets and so are not desirable,' he said.
2010/08/04 17:25=DJ DATA SNAP: Euro-Zone Retail Sales Stagnate In June
LONDON -Retail sales in the 16 countries that use the euro stagnated in June, a fresh sign that consumer demand remains the weakest link in the currency area's economic recovery, official data showed Wednesday. The volume of retail sales across the euro zone was unchanged from May and 0.4% higher than in June last year, the European Union's statistics agency Eurostat said. But figures for the previous month were revised higher to show retail sales rose 0.4% on the month and 0.6% on the year in May. Economists were expecting retail sales to be flat on the month and 0.2% higher on the year in June, according to a Dow Jones Newswires survey last week. Some had forecast sales would get a boost in June due to the soccer World Cup tournament and a rise in spending in Spain and Greece ahead of rises in value added tax rates in both those countries in July. The World Cup ran from June 11 to July 11. The breakdown of the figures showed that while retail sales volumes of non-food products rose 0.3% on a monthly basis in June, sales of food, drinks, and tobacco slumped 0.7%. Non-food products range from clothing to books and medical goods. It was a similar picture on an annual basis, where sales of non-food products were 1.4% higher than in June last year, but sales of food, drinks and tobacco only rose 0.1%. Data suggests that euro-zone economic growth picked up in the second quarter, but economists expect the recovery to lose some steam in the latter half of 2010 as stimulus measures run their course and countries cut government spending in an effort to reduce their budget deficits. Economists say the fragility of the recovery and benign course of inflation suggest the European Central Bank is unlikely to raise interest rates anytime soon. The ECB is widely expected to leave its key rate at a record low of 1.0% Thursday where it has been since May last year. Eurostat website: www.europa.eu.int/en/comm/eurostat
2010/08/04 16:58=DJ DATA SNAP: UK July Services 53.1 PMI Versus 54.4 In June
LONDON -The U.K.'s dominant services sector expanded at the slowest pace since June 2009 in July as a broad-based slowdown, including weaker demand from the public sector, weighed on the index, data showed Wednesday. Research group Markit and the Chartered Institute of Purchasing & Supply said the services Purchasing Managers Index fell to 53.1 in July from 54.4 in June. That was weaker than expected as economists were forecasting an increase to 54.5, according to a Dow Jones Newswires poll last week. A reading above 50.0 indicates that the sector is expanding, while a reading below 50.0 indicates it is contracting. Both output and new orders grew at slower rates in July than June with public sector demand weakening notably, the survey showed. And, after a sharp slump in June from May the confidence sub-index was more stable in July but is now well below the long-run survey average. 'This month's services PMI will undoubtedly raise questions about whether the economic recovery is running out of steam,' said David Noble, Chief Executive Officer at the CIPS. 'To see government spending cuts impact the sector so quickly is concerning given the bulk of cuts are still yet to come. The big question is whether the private sector can plug the big gaps left by the public purse,' he said.
2010/08/04 16:57=DJ Forex Focus: Weak Dollar Should Give Pound One Last Run
LONDON -Sterling will have one last burst of buying that should send it sailing over $1.60, especially if the dollar remains as weak as it has been. After that, though, economic realities will hit home and support for the U.K. currency will wane. For the moment, stronger than anticipated U.K. data, good bank earnings and favorable merger and acquisition flows are all helping the pound to extend the two-and-a-half month rally that has brought it up from under $1.4300. See the pound's rally against the dollar: http://www.dowjoneswebservices.com/chart/view/4357 More support for the currency will emerge later this week as long as the Bank of England doesn't express any dovish sentiments after its policy meeting on Thursday and as long as U.S. employment data on Friday increase speculation of more monetary easing by the Federal Reserve. This will likely weaken the U.S. currency even more and send the pound hurtling as high as $1.63. Thin trading conditions in August as well some signs of a short squeeze in the pound make this move even more probable. After that, though, sterling's run should come to an end. Not only will the currency start to look overpriced up at that level but, as recent data have shown, the U.K. economy won't be looking as good as it was. Second quarter growth may have proved stronger-than-expected and contributed to the pound's rally. But, the summer has brought proof that this strength is not sustainable. U.K. house prices remain very subdued with little sign of serious recovery. Credit growth, in both the personal and business sectors, is still soft both because of a lack of demand and because of tight credit conditions. And now, with euro-zone growth prospects being downgraded as fiscal austerity kicks in, the U.K.'s export outlook is also at risk. Hopes that higher export demand would help to compensate for lower domestic activity are looking badly misplaced. So far, there has been little real talk of further Bank of England easing. The central bank is likely to confirm that its quantitative easing will be left unchanged at this week's policy meeting. However, there is growing concern that if the Fed is considering pouring more liquidity into financial markets, then the Bank of England may be following suit--a consideration that could be reflected in the minutes of Thursday's meeting when they are released in two weeks time. If that is the case, sterling will quickly lose any yield attraction and the rally that has lasted since the Conservative/Liberal Democrat coalition came to power will come to an end. Early Wednesday, the pound was trading a little higher at $1.5957 at 0645 GMT, compared with $1.5948 late Tuesday in New York, according to EBS. Further speculation of more U.S. monetary easing left the dollar under pressure against most other major currencies as well, with the U.S. currency falling to Y85.51 from Y85.85 despite talk that the Japanese government may put pressure on the Bank of Japan to ease its policy further to prevent the yen from getting any stronger. The dollar did stage some recovery against the euro, which fell to $1.3200, but it has since stabilized to trade hardly changed at $1.3230 from $1.3233. The single currency was also down at Y113.08 from Y113.60.
2010/08/04 16:37DJ PRECIOUS METALS: Gold Up In Asia;Fears Of US Quantitative Easing
SYDNEY -Precious metals rose in Asian trade Wednesday, with gold climbing to its highest level in eight trading sessions on fears that the U.S. may be about to embark on a fresh round of quantitative easing. At 0710 GMT, spot gold had gained $7.60 on its late New York level to $1,193.20 a troy ounce. Silver gained 16 cents to $18.53/oz, platinum rose $12 to $1,589/oz, and palladium climbed $1 to $502/oz after dipping briefly below $500. The fears sparking gold's move upwards were prompted by an article in the Wall Street Journal speculating that the U.S. Federal Reserve may consider using cash from maturing mortgage-backed securities purchased during the financial crisis to embark on a fresh round of bond buying. That raised concerns about monetization of debt, which many investors fear will debase the value of fiat currencies, driving interest in gold as a more reliable alternative to paper money and sovereign debt. 'This has been driving gold up last night and today. I think gold is much more bullish,' said a gold trader in Shanghai. She said the article was a much bigger driver of activity in China's gold market than moves announced by the People's Bank of China to liberalize the country's gold market. The policy change would allow China's four biggest state-owned banks to trade gold bullion and could later allow foreign bullion dealers to trade gold in the Shanghai gold market. But it was already privately announced to local banks three months ago, the trader said. A trader in Hong Kong said speculators were buying back long positions in gold futures but physical demand remained relatively slow. 'Everyone is waiting for the non-farm payroll report on Friday, so the market is a little bit quiet now,' he said. The recent movements in the gold price drove parts of the futures curve on the Comex division of the New York Mercantile Exchange into backwardation, with the February, April, June and August 2011 contracts all trading below the $1,193.20/oz level of the August 2010 contract at 0715 GMT.
2010/08/04 15:49DJ Key 10-Year JGB Yield Falls Below 1.0% For 1st Time In 7 Years
TOKYO -The benchmark 10-year Japanese government bond yield dropped below 1.0% for the first in seven years on Wednesday amid growing speculation that the U.S. central bank could ease monetary policy in the near term to boost the economy. After the Wall Street Journal reported Tuesday that the Federal Reserve may consider renewing bond purchases, U.S. Treasury yields fell sharply across the board and JGB yields also moved lower as expectations grow that global financial market conditions could become more accommodative. The Fed is slated to hold its policy board meeting next week. Long-term JGB yields should extend their declines as several U.S. economic indicators due out this week may accelerate concerns over the outlook for the world's biggest economy, analysts said. In particular, if July jobs data to be released Friday underscore that the U.S. economy is losing momentum, further drops in Treasury yields could spark demand for cash bonds globally, probably sending the 10-year JGB yield down to 0.900%, they added. 'As long as worries linger about the U.S. economy, investors may continue buying JGBs actively and long-term yields could keep falling,' Mizuho Research Institute economist Hirokata Kusaba said. 'It's very difficult to predict when the downtrend will end.' As of 0600 GMT, the 10-year JGB yield was down four basis points at 0.995%, the lowest level since August 2003. Lead September JGB futures closed up 0.32 at 142.29. Superlong-dated yields slid, with the 20-year and 30-year yields declining five basis points to 1.645% and 1.665% respectively, making the yield curve flatter. Earlier in the day, a fall in long-term U.S. interest rates drove the dollar to its lowest level in eight months versus the yen, fanning fears about the outlook for Japan's export-oriented economy. That prompted more investors to buy cash bonds and pushed the yields lower. Growing expectations that the Bank of Japan might implement additional measures to mitigate the effects of the stronger yen also supported the JGB market. Dow Jones Newswires recently reported that the bank could consider further easing steps if the dollar stays around Y85 for a month or two, citing people familiar with the central bank's thinking. 'At the moment, there is little to make investors reluctant to buy long-term JGBs,' said Takeshi Minami, chief economist at Norinchukin Research Institute. But Minami added that Prime Minister Naoto Kan's recent comments that Tokyo may consider taking additional economic stimulus steps points to one upside risk for JGB yields in the medium term. 'If the government takes further measures to prop up the economy now, that could raise skepticism about whether Kan can really rebuild fiscal health as pledged,' Minami said. 'It's easy to imagine that the JGB yields could surge once the government loses market trust on fiscal discipline.' Japan's public debt level is approaching 200% of the nation's gross domestic product, the highest among industrialized countries. Further spending may incite anxiety about the sustainability of its fiscal policy.
2010/08/04 15:42=DJ DATA SNAP: UK Halifax House Prices Post Surprise Rise In July
LONDON -U.K. house prices rose unexpectedly in July, but the volatility in residential property prices seen this year suggests they are likely to end 2010 around the level they started it, the Halifax mortgage lender said Wednesday. The Halifax house price index rose 0.6% in July from the previous month to an average price of GBP167,425, after falling 0.6% in June. Economists were expecting house prices to drop 0.3% on the month in July, according to a Dow Jones Newswires survey last week. The average price for the three months to July was 4.9% higher than the corresponding period in 2009, down from a 6.3% year-on-year gain in June. 'The mixed pattern of monthly rises and falls over the first seven months of the year is consistent with a slowing market,' Martin Ellis, Halifax housing economist, said in a statement. 'It is also in line with our view that house prices will be broadly unchanged over 2010 as a whole.' U.K. house prices were squeezed higher in 2009, despite the weak state of the economy, due to a shortage of property for sale. A rise in homes coming to the market has helped redress the balance between buyers and sellers this year, although the low level of interest rates and economic recovery continues to support demand, Ellis said. Halifax website: www.halifax.co.uk
2010/08/04 14:59DJ China To Invest Over CNY100 Bln In Energy-Efficient Cars Next Decade - Report
SHANGHAI -China plans to invest more than CNY100 billion (US$14.76 billion) over the next 10 years to boost production of energy-efficient cars and become the world's biggest producer of such vehicles, the Shanghai Securities News reported Wednesday, citing a proposal by the Ministry of Industry and Information Technology. The ministry will finalize its plan and seek approval from the Chinese cabinet by the end of this month, the state-run paper said, citing unnamed sources. China aims to produce and sell 15 million energy-efficient vehicles annually by 2020, according to the report. Under the plan, China will have three to five major manufacturers and two to three internationally competitive parts suppliers, including battery-makers, the report said. To fund the expansion of China's auto manufacturing industry, the government will also introduce tax cuts for buyers of such vehicles, it added. China, which has recently replaced the U.S. as the world's biggest auto market, also surpassed the latter as the world's biggest energy consumer last month, according to data from the International Energy Agency. Newspaper website: http://www.cnstock.com
2010/08/04 14:56DJ Tokyo Shares End Down;Exporters Fall As USD/JPY Hits 8-Mo Low
TOKYO -Tokyo stocks tumbled Wednesday as the dollar fell to a fresh eight month low against the yen, hitting Tokyo Electron, Canon, and other exporters, while offsetting bank shares, which were otherwise supported by a stronger bond market. Investors continue to worry about the rising yen as weak U.S. economic data is fueling concerns that the Federal Reserve may further ease monetary policy, potentially driving the dollar lower. 'Investors feared that the dollar may drop below 85 yen when the currency neared that level in the afternoon,' said Eiji Kinouchi, senior strategist at Daiwa Securities Capital Markets. Investors are likely to watch currency trends even more closely than ever, he said, adding that if the yen stabilizes over the course of the next week, the Nikkei Stock Average could rise as to high as 9800. The Nikkei fell 204.67 points, or 2.1%, to 9489.34. The Topix index of all the Tokyo Stock Exchange First Section issues also fell 13.25 points, or 1.5%, to 845.93. Among heavily-weighted technology exporters, Tokyo Electron dropped 5.0% to Y4,510, while Canon fell 4.3% to Y3,650 and Sony shed 3.0% to Y2,647. Earnings reports continued to factor into some share movers as well. Suzuki Motor lost 3.8% to Y1,797 as its solid April-June results failed to alleviate concerns about an uncertain outlook for its Indian operations. 'Amid anemic sales growth in developed markets, Suzuki's margins in India--which have supported its growth image--have declined,' a Morgan Stanley MUFG Securities analyst wrote in a client report. NTT Data also slipped 5.8% to Y300,000 on worse-than-expected April-June business results, which disappointed investors who had expected to see a recovery in IT investment in the corporate sector. On the other hand, some major banks outperformed the market. Mitsubishi UFJ Financial Group gained 0.7% to Y430, Resona Holdings added 1.6% to Y934, and Mizuho Financial Group ended flat at Y142 after Japan's benchmark long-term interest rate fell below 1.0% for the first time in seven years. 'In the near-term, gains (from bond holdings) will increase as bond prices go higher,' said Tsuyoshi Segawa, equity strategist at Mizuho Securities. Idemitsu Kosan gained 3.8% to Y6,800 after it revised up its April-September earnings outlook. Mizuho Investors Securities analyst Hirofumi Kawachi said there is 'a growing possibility' that higher margins for gasoline products can be maintained from April to September. September Nikkei 225 futures closed down 190 points, or 2.0%, at 9490 on the Osaka Securities Exchange.
2010/08/04 13:03=DJ BOE WATCH: MPC To Stay On Hold As Economic Uncertainty Lingers
LONDON -The Bank of England's Monetary Policy Committee is expected to keep interest rates and bond purchases steady at its meeting Thursday, but the high degree of economic uncertainty means that policy loosening or tightening could materialize in the coming months. The choice facing BOE policymakers is by no means a simple one. The revelation that the U.K. economy grew at its fastest pace in more than four years in the second quarter has raised investor expectations of rate increases, but other evidence points to a slowing in the speed of expansion, with constrained credit, weakness in the U.K.'s major trading partner, the euro zone, and fiscal austerity likely to crimp growth further ahead. At the same time, inflation has been surprisingly high on repeated occasions and, as BOE Governor Mervyn King acknowledged last week, has stayed above its 2.0% target for much of the past four years--in contrast to Europe, where prices fell for several months in 2009. 'The direction of policy is especially uncertain,' said Don Egginton, head of long-term analysis and modeling at Daiwa Capital Markets Europe. He said he doesn't expect the BOE to alter its stance before the middle of next year, but warned there was a chance of earlier policy changes. 'Signs that high inflation are raising inflation expectations or earnings growth could swing the MPC towards higher rates. Conversely, quantitative easing might be expanded if slowing growth threatened a large undershoot of the inflation target,' he said, referring to the BOE's policy of purchasing U.K. government bonds with freshly created central bank money. All 20 economists polled by Dow Jones Newswires tipped the MPC to keep its key interest rate at its 0.5% all-time low when its regular two-day meeting ends Thursday at 1100GMT. Most also forecast it to leave unchanged its GBP200 billion quantitative-easing policy, although one economist tipped an immediate expansion. This week's meeting will see the committee returning to its customary nine members, with National Institute of Economic and Social Research Director Martin Weale taking up Kate Barker's old place at the table. Many analysts expect the MPC once again to raise its inflation view and to cut its forecasts for growth in its Inflation Report next Wednesday. That will amplify the already huge degree of uncertainty in its existing projections, which show that price growth is less likely to come in close to target than to be stronger than 2.5% or weaker than 1.5% in the medium term. Those figures prompted MPC member Adam Posen to tell Dow Jones in an interview last month that while the current forecasts indicate a 'more than 50% likelihood' that the next move will be to loosen policy, 'the possibility still exists of it being right to raise interest rates before too long.' Reflecting that uncertainty, minutes from the MPC's July meeting unusually showed that members considered arguments in favor of a modest loosening in monetary policy, as well as a small tightening. Andrew Sentance was the only member who actually dissented, voting for a rate rise. 'On the basis of the near-term growth outlook there is a strong case for more QE. However, the elevated level of current inflation is a huge obstacle at this stage,' said Alan Clarke, U.K. economist at BNP Paribas, who tips the MPC to announce a GBP25 billion increase in bond purchases. Testimony before U.K. lawmakers last week highlighted the widening range of views held by BOE officials, with Sentance at one end of the scale, focusing on the turnaround in the economy, and David Miles at the other, stressing the 'real' risk of an extended period of low growth. Governor King sought to reconcile those views, and no doubt to prevent a premature tightening in market interest rates, by insisting that the debate is about the appropriate degree of policy stimulus--whether slightly more or less than at present--and not about 'applying the brakes.' But the risk is that when the time for action finally comes, it may not be the modest fine-tuning that the MPC would prefer, but a more substantial shift. The million-dollar question is in which direction it will be. For now, as Posen says, all the BOE can do is 'wait to see which way the uncertainty resolves.'
2010/08/04 11:55DJ Japan Government Spokesman: To Analyze JGB Yield's Recent Fall -Kyodo
TOKYO -The government will keep close tabs on the recent fall in the yield on the benchmark 10-year Japanese government bond, Chief Cabinet Secretary Yoshito Sengoku said Wednesday, Kyodo News reported.'Long-term interest rates are falling globally...We have to analyze and watch what this (trend) means,' the government's top spokesman said at a news conference, after the key yield slipped below the 1% threshold for the first time in seven years earlier in the day.Sengoku, however, declined to make further comments, saying he wants to avoid influencing financial markets.
2010/08/04 10:20=DJ ECB WATCH: Summer Lull To Give ECB Rare Breathing Space
FRANKFURT -The European Central Bank will hold its August press conference Thursday against the background of the most genuine summer lull in four years, thanks to an improving economy, calmer financial markets and, at the margins, signs of reviving confidence in the region's banks.Obvious concerns about the economy still remain. The ECB's quarterly Bank Lending Survey, published last week, showed that credit conditions for the majority of businesses tightened in the spring as banks in some of the euro area's countries suffered from the crisis in government debt markets.That picture was reinforced by June's money-supply figures, which showed a fresh decline in the monthly flow of credit to companies, dashing hopes that the upturn seen in May would prove a turning point in a credit cycle that is taking an agonizingly long time to improve.But most of the ECB's other nightmares of 2010 seem to have receded: at $1.3215, the euro has regained all the ground it lost against the dollar after the turmoil in euro-zone sovereign-bond markets in May.The stress in those markets has as good as vanished, allowing the ECB to cut its purchases of government bonds to only EUR81 million last week--just enough to remind market participants that the safety net hastily extended in May still exists, if needed, and just enough to remind German critics of the need to keep those markets stable.'It's reassuring that the ECB has almost stopped buying because it means that sovereign-debt markets are functioning again,' said Sylvain Broyer, an economist with Natixis in Frankfurt.At the bank's press conference, due to start at 1230 GMT, President Jean-Claude Trichet is likely to be asked whether the ECB will formally announce at least a temporary halt to its purchases of government bonds, as its most senior German representatives want, or whether to continue.There has also been no sustained rise in market interest rates since banks had to repay EUR442 billion in 12-month funds at the start of July. The stress tests on 91 of the continent's largest banks have come and gone without causing any volatility, and there are signs that the region's banks are starting to trust each other again instead of borrowing from the ECB.The amount loaned out by the ECB at Tuesday's main refinancing operation was EUR35.14 billion less than the previous week's, and down by nearly a quarter from two weeks ago.'The fall in the gross take-up at the main refinancing operation is consistent with our view that the system is gradually coming back into balance,' Morgan Stanley analyst Laurence Mutkin said in a research note.The benchmark Euro Overnight Index Average, or EONIA, has meanwhile fallen back below 0.40%, after an initial rise above 0.55% after the repayment of the 12-month funds reduced the huge excess liquidity that the ECB had used to support the financial system in the year after the financial crisis.The gradual whittling away of excess liquidity is the only tightening of policy that analysts expect from the ECB this year. A clear majority of 40 analysts polled by Dow Jones Newswires still expects the main refinancing rate to be at 1% next June, with most expecting a slowdown--but no double-dip recession--in both the euro area and the world at large over the next six months, removing any need for further tightening.Natixis' Broyer argues that inflation in the euro zone is unlikely to advance beyond the 20-month high it posted in July, as a big base effect from last year's oil price recovery passes out of the year-on-year calculations. The price of Brent crude is now essentially unchanged from where it was a year ago.Despite some pressures from elsewhere in the commodities markets--notably the surge in global wheat prices because of poor harvests in Russia and Canada--analysts point out that, at 0.8% year-on-year, core inflation is still the lowest it has been in years.
2010/08/04 09:49=DJ FOREX VIEW: Bank Of Japan Unlikely To Intercept Rallying Yen
TORONTO -The yen's been racing higher against the dollar like a finely tuned sports car lately, but the Bank of Japan isn't likely to set off in hot pursuit.Instead, it seems much likelier that Japan's central bank will stay on the sidelines and abstain from intervening in the market, at least in the near term.The Japanese currency has reached levels that invite speculation about the possibility of intervention. On Tuesday, the dollar reached Y85.67, its worst level since it hit a 15-year low at Y84.82 in November 2009. Because yen strength reduces demand for the country's export products, the Japanese government has taken action in the past to quell the yen's advance.Direct market intervention would be the most effective tool for reducing any currency-induced damage to Japan's struggling economy available to ministers at the finance department, who make the decisions about market intervention that are executed by the bank.But market watchers believe the most recent signals from Japanese officials suggest intervention remains a low probability event.Earlier Tuesday, Japan's finance minister Yoshihiko Noda said foreign exchange rates in principle should be set by market forces, although he added that disorderly currency movements could hurt economic activities.'Regarding how to respond to (recent yen rises), our fundamental stance is that foreign exchange rates are something that should basically be set by the market,' Noda said during a session of the Lower House's fiscal and financial committee.More broadly, intervention remains out of favor with the world's leading central banks. The Group of Seven leading nations has shunned intervention for many years and the Bank of Japan hasn't been active in markets to slow the yen's climb since 2004.'I think the bar for BOJ intervention has to be high,' said Marc Chandler, chief currency strategist at Brown Brothers Harriman in New York.Conditions in the market don't line up with those typically associated with intervention by the BOJ, Chandler said.The options market is not showing a one-way trade in the dollar against the yen, with a big premium on yen calls over yen puts, he said. While the BOJ typically intervenes at times of high volatility, volatility is at the low end of its ranges for the last few months, Chandler said.Beyond that, the yen's appreciation is not just a yen move, but reflects broadly based weakness in the dollar, he said.In a report in early July, Morgan Stanley said its proprietary model for yen intervention was then estimating a 47% probability of intervention. That was up from 40% at the end of May and extended an uptrend that began in late 2009.The traditional indicators of intervention have risen since then, but political changes in Japan tend to work against intervention, said Ron Leven, senior currency strategist at Morgan Stanley in New York.The Democratic Party of Japan, which took over as the ruling party last year, appears less oriented to a weak yen than its predecessor, the Liberal Democratic Party, he said.A power vacuum in Japan, where the DPJ lost its majority in the upper house last month, also militates against intervention, he said.'In the very short term, it makes it difficult to get the organization and focus together that's needed to do a serious intervention,' Leven said.
2010/08/04 08:00DJ CREDIT MARKETS: Corporate Bond Markets In High Gear As Double-Dip Fears Fade
NEW YORK -Corporate issuers were still in full swing Tuesday as the freight train of new issuance showed little sign of slowing and record-setting borrowing rates continued to tempt companies of all types back to market, whether they needed the money or not. Despite lackluster results from Procter & Gamble and a brief hiatus in the stream of positive economic data with consumer spending, personal income and new home sales flat to weakening, issuers were attracted by the ability to get historically low pricing for their debt. 'Today's disappointing economic data has not had any measurable impact on credit market sentiment,' said Edward Marrinan, a macro credit strategist at Royal Bank of Scotland. 'For most market participants, the main issue is the threat of a double dip. While today's data wasn't particularly upbeat, neither was it so bad that it confirmed the skeptics' views.' Public Service Electric and Gas, a New Jersey utility, sold $250 million in new 10-year bonds at a discount to yield 3.53% to maturity, or a spread of 0.62 percentage points over Treasurys. The deal was three times oversubscribed and the 3.55% coupon the company landed matched the record low across the 10-year point of the curve obtained by McDonald's Corp. only days ago. International Business Machines, Kimberly-Clark and Wal-Mart are among a spate of issuers in recent days to score ultra-low borrowing rates. The 1% coupon IBM landed Monday was the lowest coupon of any corporate debt issue for any maturity or credit rating in the almost 3,500 issues contained in the Barclays Capital U.S. Corporate Index, according to Anne Daley, managing director in fixed-income syndicate at Barclays Capital. Investment-Grade Bonds The roughly $8 billion issued over the day made it on pace to be among the top-20 days of high-grade issuance for the year so far, according to data provider Dealogic. Aside from PSEG, two Australian issuers were in the market: ANZ National for $1 billion in 3.125%, five-year notes that priced with a risk premium of 1.60 percentage points over Treasurys, and Macquarie Group for $500 million to $1 billion in new seven-year bonds that were expected to price at 2.625 percentage points. Glass maker Corning Inc. was in the market with a $700 million two-part offering, comprising $300 million in 10-year bonds and $400 million in 30-year bonds that priced at 1.45 and 1.75, respectively. Guidance has been 1.45-1.50 on the first tranche and 1.75-1.80 on the second. The deal was upsized by $100 million on demand. Canadian mining company Teck Resources priced an issue of new seven-year and 10-year bonds at 1.60 and 1.98 percentage points over Treasurys, respectively. Guidance had been 1.75 and 2.10. Proceeds will be used to help the company pay for its cash tender of up to $600 million in outstanding 9.75% senior secured notes due 2014 and its 10.25% senior secured notes due 2016. Offshore drilling contractor Pride International Inc. sold 10-year bonds and added a 30-year tranche for an overall deal size of $1.2 billion. The first tranche of $900 million in 10-year bonds was offered at a yield of 6.875% to maturity, compared to guidance in the 7% area, while the $300 million in 30-year paper was launched at a yield of 7.875%, compared to guidance of 8%. And life insurance giant Metlife Inc. sold $3 billion in new 3-year, 3.5-year, 10.5-year and 30.5-year paper. The pricing offered was Libor plus 1.25 percentage points on the floating tranche of 3-year notes and 1.625, 1.85 and 1.95 on the remaining tranches. The company will use the proceeds to help pay for its $15.5 billion acquisition of American Life Insurance Co., after it raised $3.15 billion in a sale of 75 million shares Monday. Secondary trading was dominated by debt securities sold Monday. Traders bid up the price for Citigroup's new 5.375% notes due August 2020 by around 1 3/8 points, according to MarketAxess. The average weighted price for the notes was 100.394 points for a yield of 5.322%, or 2.08 percentage points. Meanwhile, Markit's CDX North American Investment Grade index widened back over 100 basis points after Monday's rally drove the index below that threshold for the first time since mid-May. The index traded 0.97 basis point weaker to 101.1 as of 3:32 p.m. EDT, according to Markit. High Yield The high-yield market climbed firmly aboard the new issue bandwagon, joining the procession of higher-rated deals that have come to market in droves of late. Junk-bond issuance continues to be driven by companies looking to sell bonds at a time of low interest rates to refinance existing debt and extend debt maturities. Petrohawk Energy Corp. was in the market with $825 million of senior unsecured notes due 2018 and plans to fund a buyback of its $769 million of outstanding 9.125% senior notes due 2013. Price guidance was in the 7.25% area. Tenet Healthcare is also planning to sell $600 million in senior unsecured 10-year notes and intends to use the proceeds, along with cash on hand, for buying back its existing 7.375% senior notes due 2013. Price guidance was in the 8% area. Separately, PHH Corp. announced a sale of $250 million in senior unsecured notes due 2016, with a plan to repay a portion of the amounts outstanding under its credit revolver. The timing of the sale is not yet known. The secondary market was firm although trading volumes remain muted. 'All the attention is going to the new issues,' said Greg Hopper, high-yield fund manager at Artio Global Investors. 'We still think there's plenty of value out there.' The Markit CDX North America High Yield index was flat at 98.65, according to Markit. Agency Mortgages Agency mortgages were back in the swing with prices on the 4.5% and 5% coupon bonds hitting new highs. Prices on the 4.5% coupon hit 104-19, while the 5s hit 106-21 intraday as investors came back into the market after a brief selling bout earlier in the day following a report the Fed may consider buying agency mortgages again. Since then, most analysts have voiced their opinion against such a move happening. This boosted investor confidence. However, mortgages couldn't keep up Treasurys, and risk premiums are now 2 basis points wider at 132 basis points over comparable Treasury yields.
