2010/08/09 18:45*DJ 3-Month USD Libor Falls To 0.40438% Vs 0.41125% Friday
2010/08/09 18:10DJ German Minister: Import Strength Underscores Broader Recovery
BERLIN -The strength of German imports indicates that economic recovery in Europe's largest economy is gaining momentum , Economics Minister Rainer Bruederle said Monday. 'The dynamic development of imports...shows that the domestic market is recovering and aiding a broad, increasingly steady recovery process,' Bruederle said in a statement. Bruederle's remarks were released after the German Industry and Trade Association, or DIHK, predicted that imports would rise 9.5% in 2010 and 2011 after declining 16.4% in 2009.
2010/08/09 17:54=DJ Forex Focus: Wheat Rally To Help Emerging Markets Next
LONDON -All eyes are on the Canadian dollar as wheat prices soar. But, it is in emerging markets, especially in Asia, where the main gains might come. News that Russia is banning wheat exports has already sent the Canadian currency soaring up to barely a cent away from parity against the U.S. dollar. See the U.S. dollar's fall against its Canadian counterpart: http://www.dowjoneswebservices.com/chart/view/4388 Not only will Canada benefit as a major wheat exporter from the nearly 94% rise in wheat prices, but the country will also gain if the reduced use of wheat in alternative energy projects pushes the price of crude oil higher too. Elsewhere in the developed world, other major wheat exporters such as Australia and the U.S. should also find some benefit in their terms of trade. But Japan and the U.K. will also suffer given their dependence on imports. But, it is the relative impact on global inflation pressures that will probably decide which currency gets the most help from the wheat rally. Of course, the higher wheat prices, and the fall out they will have on other food prices including meat and wheat substitutes, will soon filter through to higher consumer prices around the world. This could well hasten a global rise in interest rates despite continued doubts about the strength of the global recovery. The impact on rates in each country will not only depend on where inflation pressure are at the moment but also on how important food prices are in their economy. This is where, as far as winners are concerned, emerging market currencies could step up to the plate. Unlike their counterparts in the developed world, who are still saddled with the credit and banking crisis that plunged the world into recession two years ago, their economies have pulled well ahead. If anything, growth has accelerated to levels where demand has started to outstrip supply and consumer prices have started to rise. However, it is the relative importance of food, and thus wheat, in their economies that will increase upward pressure on rates. Philip Poole, global head of macro and investment strategy at HSBC Global Asset Management, said that while food only accounts for 10-15% of the consumer price index baskets in the developed world, in China it is about one-third and in India, Vietnam, Pakistan, Philippines and Russia, it is anywhere up to 40%. Given the economic recoveries that have taken place in many emerging markets, corporate pricing power has also risen, ensuring that companies are less likely to absorb the higher prices in their margins and more likely to pass them on to the consumer. Higher interest rates and higher emerging market currencies could also be more readily tolerated, especially in that they help to reduce the cost of food imports and lower political pressure on many emerging market governments. So while the Canadian dollar may be coming on top right now and while global yields in general might rise, it is the currencies of emerging markets that could well find themselves back in the spotlight if this rally in the world wide cost of wheat continues. Early Monday, the Canadian dollar was experiencing a little correction against its U.S. counterpart after Canadian unemployment data disappointed. This helped the U.S. dollar to stage a bounce even though U.S. non-farm payroll data came in lower than expected and encouraged more speculation of further easing by the U.S. Federal Reserve on Tuesday. The U.S. dollar rose to CAD 1.0283 by 0645 GMT from CAD1.0268 late Friday in New York, according to EBS. The dollar also bounced a little to Y85.55 from Y85.40 as investors squared positions ahead of the Fed. The Yen was probably helped lower by comments from Japanese Finance Minister Yoshihiko Noda that he is closely watching the Japanese currency's movements. The euro was down a little at $1.3288 from $1.3294 even though German exports figures came in at the highest level since October 2008. The single currency was also up at Y113.70 from Y113.48.
2010/08/09 17:00=DJ MONEY TALKS: China Set To Hold Monetary Policy Steady For Now
BEIJING -Forget the market chatter: China will likely keep monetary policy on hold in the near term.China's leaders have suggested as much with their near-constant refrain that policy continuity will be maintained in the second half of the year.That hasn't stopped local markets from being convulsed by rumors of imminent policy shifts. Some market participants reckon Beijing may be forced to back down on this year's two most prominent tightening policies: a CNY7.5 trillion target for new lending by banks--in effect an economy-wide credit quota--and measures to curb soaring property prices.But such speculation misses the point. The initiatives are achieving their intended purpose: cooling some hot sectors in the economy and bringing growth down to more sustainable levels.Unless Beijing becomes seriously concerned about an abrupt slowdown--and there's no evidence of that now--it's unlikely to alter policy course, particularly because doing so could cost it credibility.Consumer price data Wednesday may cause another brief flurry of talk of monetary tightening. But don't buy it. The increase in inflation to 3.4% on-year in July from 2.9% in June tipped by economists is mostly a result of a one-off rise in food prices driven by severe floods, and is likely to subside in the months ahead.And tapping the brakes now would hardly make sense when the U.S. economic recovery shows signs of stalling.It's not surprising investors are on guard for a sudden shift in policy. In late 2008, for example, the PBOC abruptly lifted caps on lending by commercial banks and reversed property-market restrictions. What's more, a faster-than-expected slowdown in indicators such as industrial production growth have revived speculation that a similar about-face could be in the cards again this year.But present conditions, with the economy slowing but still growing at a brisk on-year pace of 10.3% in the second quarter, are a far cry from the situation that confronted policy makers during the global crisis two years ago.Following April's measures to take some froth off the real estate market, sales have dried up in top-tier cities but prices have yet to fall considerably. If China were to bail out the property sector before any real pain was felt, future campaigns to prick bubbles would surely lack credibility.Facing slowing growth and rising inflation, the PBOC said last week that macroeconomic policy is presented with a "difficult dilemma." If risks clearly break in one direction or another, policymakers will have to adapt.But for now they are likely to maintain a steady hand even if market expectations oscillate wildly.
2010/08/09 17:00DJ German Exports Rebounding, Back At Pre-Crisis Levels In 2011 -DIHK
BERLIN -German exports will rebound strongly this year and next, catching up after last year's global recession, a leading German industry group said Monday. The latest survey from the German Industry and Trade Association, or DIHK, predicted that German exports will grow 11% in 2010 and 8% in 2011 after a 17.9% drop in 2009. That would outpace growth in global trade in general, according to the poll, carried out on the DIHK's overseas chambers of commerce in over 80 countries in June and July. Global trade should increase 7.0% in both 2010 and 2011, the survey predicted. The DIHK said Germany's return to the export volumes it registered in 2008 'is close at hand.' 'Within three years, we will have climbed out of the crisis in the export business.' It forecast the volume of German export goods to reach EUR968 billion in 2011 compared with EUR985 billion in 2008. 'German exports are benefiting from positive developments on global markets, mainly boosted by the investment-based upswing of emerging countries, the incentives from fiscal stimulus packages and the relatively weak euro,' the DIHK said. Still, it warned that risks remain, such as a renewed slowdown in the U.S. economy, a possible overheating of the Chinese economy and fiscal consolidation in the euro zone. Website: www.dihk.de
2010/08/09 15:40=DJ HEARD ON THE STREET: China's Yen For Japan's Currency
A strong yen is giving Tokyo an awful headache. Beijing is adding to the problem. If things get worse, these old rivals could find themselves facing off in global currency markets. China has ramped up its stockpiling of yen this year, snapping up $5.3 billion worth of the currency in June, Japan's Ministry of Finance reported Monday. China has already bought $20 billion worth of yen financial assets this year, almost five times as much as it did in the previous five years combined. That's making the yen even stronger than it otherwise would be. There are a few explanations for this activity. China's currency managers have long stated their desire to diversify the nation's foreign exchange horde away from dollars. More recently, Beijing signaled it will use a basket of its biggest trade partners' currencies to manage the yuan's levels, rather than only the dollar. That basket undoubtedly includes yen. Economists from Standard Chartered believe the South Korean won and Canadian and Australian dollars are also in the mix. Fundamental factors are also underpinning the yen's strength. Converging interest rates in the U.S. and Japan take away an incentive for Japanese investors to send yen abroad and for global hedge funds to favor the yen for carry trades. Japan's persistent current account surplus creates structural demand for yen, too. But it doesn't take much for China to move the Japanese currency. A one percentage point shift of China's reserves into yen equals a month's worth of Japan's current account surplus. And news that China has a new-found love for the Japanese currency has hedge funds piling onto the brawny yen story. Intended or not, Beijing's yen buying will benefit Chinese exporters that compete with Japan, and pressure Japanese companies to move even more fabrication facilities to lower-cost China. Conversely, the stronger currency is threatening Japan's export-led profit recovery: Already the yen is well above levels at which major Japanese manufacturers have based their earnings and sales forecasts. It's up to Japan to respond. If the dollar drops to below 83 yen from 85.42 currently, the Bank of Japan could inject more cash into the banking system, a yen weakener, Nomura's currency strategist Taisuke Tanaka notes. Such levels could also move Japan's finance ministry to direct official yen selling in currency markets, something it's not done since 2004. If it does intervene, though, the ministry might find the People's Bank of China a willing buyer--gladly vacuuming up enough yen to stifle its efforts.
2010/08/09 15:21DJ JGBs Rise On Weak US Jobs Data; BOJ, Fed Policy Decisions Eyed
TOKYO -Japanese government bonds ended higher Monday as weaker-than-expected U.S. jobs data released over the weekend fueled demand for safe-haven assets. Analysts expect JGBs to maintain solid ground this week on concerns about a slowdown in the global economy and speculation about additional easing in the U.S. and Japan. If recent weakening in Japan's industrial production forces the Bank of Japan to take a more bearish tone on the domestic economy at the end of its policy board meeting Tuesday, the policy-sensitive five-year cash JGB yield could fall to as low as 0.300%, said Makoto Yamashita, a strategist at Deutsche Securities. The five-year yield was down 1.0 basis point at 0.335%, as of 0600 GMT. Japan's central bank will announce its rate decision Tuesday afternoon together with a statement. BOJ Gov. Masaaki Shirakawa will speak to the press afterward, at 0630 GMT. All 10 BOJ watchers surveyed by Dow Jones Newswires expect the central bank to leave its policy interest-rate target at 0.1%, where it has been since December 2008, and to hold off taking further unconventional easing steps. Bond market participants will also closely watch the outcome of the Federal Open Market Committee later Tuesday, as analysts think the BOJ may follow suit if the Federal Reserve opts for further loosening. The view for easing in the U.S. has grown since the Wall Street Journal reported last week that the Fed may consider renewing bond purchases. 'If the Fed decides not to ease at the FOMC meeting, long-term yields may briefly turn up,' said Naomi Hasegawa, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities. 'But the upside of JGB yields is likely to be limited due to caution ahead of data releases in Japan, U.S. and China in the latter half of the week,' she added. Hasegawa tips the benchmark 10-year cash JGB yield to trade in a 0.990%-1.065% range for the rest of the week, compared with 1.015% at 0600 GMT.
2010/08/09 14:44=DJ DATA SNAP: German Exports Hit Highest Level Since Oct 2008
FRANKFURT -Germany's export sector continued to pull the country out of the economic doldrums in June, according to data released Monday by the Federal Statistics Office, Destatis.Exports rose 3.8% in calendar- and seasonally-adjusted terms to a preliminary estimate of EUR86.5 billion, only EUR2.2 billion behind the record high level registered in October 2008, Destatis said. Imports reached their highest-ever monthly level of EUR72.4 billion, an increase of 1.9% from May.As the surplus in merchandise trade widened to EUR14.1 billion, so the current account surplus also grew to EUR12.9 billion from a revised EUR1.8 billion in May, far ahead of a consensus forecast of EUR5.5 billion.In year-on-year terms, the comparison was less spectacular, rising only 0.8% from EUR12.8 billion in June 2009.Web site: www.destatis.de
2010/08/09 12:49=DJ BIG PICTURE: Not a Good Way To Kick Off 2nd-Half Jobs Market
NEW YORK -At the start of this year, it appeared as if the U.S. economy had skirted the dreaded jobless recovery that had plagued the last two expansions. Now, that prognosis doesn't look so certain. Perhaps, if the correct word isn't jobless, then job-challenged recovery might do. And even the mighty Federal Reserve may not be able to do much to about it. Friday's employment data were depressing. Total payrolls dropped 131,000 in July as 143,000 census workers were let go. Private businesses added just 71,000, and the unemployment rate remained at a high 9.5% only because 181,000 people dropped out of the workforce. Equally disturbing was the downward revision to the June numbers. Payrolls fell 221,000 that month, much worse than the 125,000 drop previously reported. Only 31,000 jobs were created in the private sector, not the healthier 83,000 increase first reported. The few small silver linings came from the factory sector and pay. Manufacturers added 36,000 jobs in July, the seventh consecutive month of hiring. Average hourly earnings rose four cents to $22.59 while the workweek increased six minutes to 34.2 hours. These gains, added to the small rise in business payrolls, suggest private-sector wages and salaries rose modestly in July. The disappointing job picture is sure to be a big topic around the large oval table at the Fed when policymakers meet on Tuesday. Fed Chairman Ben Bernanke told Congress late last month that the central bank remains 'prepared to take further policy actions as needed to foster a return to full utilization of our nation's productive potential in a context of price stability.' With an unemployment rate of 9.5%, labor markets are clearly nowhere near full utilization. It's not clear, however, how much more the Fed can do to boost the private-sector hiring that remains key to boosting gross domestic product growth. It's a chicken and egg story, says Heather Boushey, senior economist at the thinktank Center for American Progress. 'Consumers get their spending power from their earnings, and falling real wages and weak hiring will continue to put constraints on how much money consumers have in their pockets to spend,' she says. Businesses, in turn, remain uncertain about future demand and so hold back on adding more workers. Governments are no help at all. Besides the loss of federal census workers, state and local governments cut 48,000 jobs last month. Over the past year, cash-strapped states and municipalities have laid off 212,000 workers. The result is a recovery challenged by the lack of hiring. Jay Feldman, director of economics at Credit Suisse, compared past experiences versus current job growth over the past 13 months since real GDP bottomed out. He says in the recoveries of the 1960s, 70s, and 80s, private jobs increased by 3.5% on average 13 months following the trough of GDP. In the current episode, private jobs are down 0.3%, similar to the average decline of 0.6% in the 'jobless recovery' of the early 1990s and 2000s. To be sure, the 0.3% decline reflects job cuts that took place in the second half of 2009. So far in 2010, private businesses have added workers by an average of 90,000 per month. While that's better than layoffs, the pace simply isn't enough to bring down the jobless rate or make consumers feel very confident about their futures.
2010/08/09 11:53=DJ BOC WATCH: US Jobs Data Might Be More Relevant Than Canada's
TORONTO -The bleak news from the U.S. labor market Friday may ultimately have more impact on the Bank of Canada's ability to keep raising interest rates than Canada's own job data disappointment in July. In isolation, news that Canada lost 9,300 jobs in July did little to dislodge expectations the bank will raise its overnight target rate a least one more time this year after already increasing it in two 25-basis-point moves to 0.75%. But weak Canadian jobs data Friday was followed by an even-weaker report from the U.S. It suggests the bank's tightening cycle could be curtailed by sputtering growth in the country that serves as Canada's largest trading partner as well as a key engine for global growth. There are reasons the U.S. data could be more critical. One is that the softness in Canadian job creation appears to be driven by short-term seasonal factors, and doesn't seem to represent a serious shift for Canada's robust labor market recovery. Some analysts pointed to a drop of 65,300 jobs in the education sector that appeared to reflect seasonal factors that could easily be reversed. Others argued the softness in July was a natural pause after job creation of more than 226,000 in the three previous months. The other is that the risks to the Canadian economy the Bank of Canada is most worried about are external risks. In its last monetary policy report in July, the bank depicted a solid domestic recovery that was unfolding in line with its expectations, supported by government and consumer spending. But the bank had reservations about the recovery outside Canada. One key risk the bank identified was that 'private demand around the world, including the United States, may be insufficient to sustain the recovery.' The soft U.S. data take us one step closer to that kind of scenario. While one data point is never decisive, the weak performance in the U.S. labor market and extensive downward revisions to earlier months are signs the recovery, at least in that country, is not being sustained. The bank also reaffirmed in July that its tightening program is highly sensitive to both global and domestic developments. 'Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments,' the bank said.***********The U.S. data, more than the Canadian, argue for a continued cautious approach. Markets were reflecting that Friday morning, with the overnight indexed swaps market pricing in about a 60% probability of a 25-basis-point rate increase at the bank's next policy date on Sept. 10.Many analysts see the bank raising rates once again in September, and then moving to the sidelines for its last two dates of the year in October and December.
2010/08/09 08:34DJ Japan Finance Minister: To Pay Close Attention To Forex Moves
TOKYO -Japanese Minister of Finance Yoshihiko Noda said Monday he will be paying close attention to recent moves in the foreign exchange market."Excessive foreign exchange moves can adversely affect the economy and monetary conditions. I will closely monitor the market," Noda told a group of reporters.Last Friday, the dollar fell close to Y85 following poor U.S. job market data. The greenback was changing hands at around Y85.42 early Monday.
