2010/09/06 17:21DJ Dollar's Global Moves To Determine Yuan Rise - PBOC Researchers
SHANGHAI -China's yuan is under pressure to appreciate against major global currencies, but the pace and magnitude of any rise will be determined by the U.S. dollar's moves in the global markets, two researchers at the People's Bank of China wrote in an article published in a magazine overseen by the central bank. The yuan's movements are increasingly determined by a basket of currencies following China's decision in June to drop the yuan's de facto peg to the U.S. dollar, Ji Min and Wang Yue wrote in the August edition of China Money magazine. 'The U.S. dollar dominates the yuan's currency basket, so aside from China's balance of payments surplus, the U.S. dollar's moves will still be the main factor affecting the pace and magnitude of the yuan's appreciation against other major currencies,' they wrote. China has vowed to make the yuan's exchange rate more flexible by adopting a managed floating exchange rate system and referencing it against an undisclosed basket of currencies. The researchers said that under China's current exchange rate regime, the yuan will track any increase in the U.S. dollar against the euro, though the yuan's gains against the euro will be smaller. And the reverse is also true: the yuan will track gains by the euro against the U.S. dollar, but the yuan's gains will be smaller. Ji and Wang said the yuan faces appreciation pressure because China's economic recovery is clearly outpacing that of the U.S. They also said China's trade surplus could continue to grow in the near term, partly due to slowing domestic investment and imports growth. China's trade surplus for July hit $28.7 billion, up from $20.02 billion in June and its highest level since January 2009, due to a sharp slowdown in import growth. The researchers also said the European Central Bank could further loosen monetary policy and cut interest rates to boost growth in the euro zone, which could prompt the euro to decline against the U.S. dollar--possibly as low as $1.0--around the fourth quarter. At 0411 GMT, the euro was at $1.2906, up from $1.2896 late Friday in New York.
2010/09/06 17:02DJ PRECIOUS METALS: Gold, Silver Up After Solid Display Friday
SINGAPORE -Gold and silver were higher in Asia Monday after a show of resilience Friday reinforced sentiment. Gold had hit an intraday low of $1,237.53 a troy ounce Friday on a brief spell of euphoria over U.S. non-farm payrolls data which came in better than expected, before it recovered to close unchanged. Although Monday could be quiet due to the absence of U.S. participants for a national holiday, Friday's rebound left gold poised for more gains this week, said Peter Tse, director of precious metals at ScotiaMocatta in Hong Kong. However, he added, the June record high of $1,265/oz could be difficult to surpass in the short term. 'We are likely to find that the record high proves strong resistance. Beware a correction.' At 0620 GMT, spot gold was trading at $1,248.60/oz, up $2 since Friday's New York close while on Tocom August 2011 gold was at Y3,396 a gram, down Y1. Spot silver was at $19.90/oz, up 5 cents and close to Friday's two-and-a-half year high of $19.93. Spot silver hit a decade's high of $21.31/oz on March 17, 2008. The metal is likely to outperform going forward as long as deflation doesn't take hold in major economies, Deutsche Bank said in a report. 'Given our conviction that central bankers will lean towards an inflationary outcome rather than deflationary, we expect that precious metals such as silver or palladium could outperform in a precious metals context.' On the fundamental side, China's transition to a net importer of silver in 2008 should also be noted, it said. 'We believe that increased net imports are a function of both rising industrial consumption and the emergence of retail investment demand in mid-2009.' Deutsche Bank tipped silver to average $22/oz in 2011 and $25/oz in 2012. Spot palladium was at $529/oz, up $1 while spot platinum was at $1,559/oz, up $8 in line with gains in industrial metals.
2010/09/06 16:58=DJ MONEY TALKS: Jobs Report Clears The Way For Dollar Carry Trade
NEW YORK -Friday's news that U.S. payrolls shrank by a smaller-than-expected 54,000 jobs in August has encouraged a view of the U.S. economy that's neither glass half-full nor glass half-empty.That middle ground spells bad news for the dollar. With fears over deflation or a double-dip recession easing, the greenback has less appeal as a safe haven. But neither is there much chance of it getting a boost from robust U.S. growth, a fact also confirmed Friday by a weak August report on the non-manufacturing sector. In this a slow-but-stable environment, the U.S. currency's near-zero interest rates raise its potential as a funding currency. Risk-seeking investors will be encouraged to borrow in dollars--effectively selling it short--and apply those funds to so-called 'carry trade' bets on higher-yielding currencies.Sure enough, as risk appetites improved Friday, giving equities and other growth-sensitive asset markets a lift, the dollar fell against all currencies except the yen and Swiss franc.'The figures show that concerns about a double dip had gotten far ahead of the economic cycle. That is encouraging demand for yield and flows into equity markets, which carries a negative correlation with the dollar,' said Lena Komileva, Head of G7 Market Economics at Tullet Prebon in London.The biggest gains Friday were in emerging market currencies and in those backed by commodity economies such as the Australian and Canadian dollars, all of which are in one way or another exposed to the strong growth regions of Asia and Latin America.All carry interest rates that are considerably higher than in the U.S. And more importantly, the odds are for that gap to widen.Although the jobs data eased speculation that the Fed might ramp up its purchases of Treasury securities to further stimulate the economy, it is clearly in no hurry to hike its near-zero federal funds target rate. In fact, at its policy meeting last month, the Fed affirmed its accommodative monetary stance by deciding to reinvest the proceeds from its portfolio of mortgage securities in Treasurys.To be sure, this year's skittishness in markets will take time to disappear, which will undoubtedly make many investors hesitant to rush into dollar carry-trade bets.Such strategies involve an unhedged short-position in the dollar. Any sudden return to risk aversion would drive safe-haven inflows into the dollar, forcing investors to rapidly unwind those positions to cover their losses.That's what happened to people who had funded themselves in cheap dollars earlier this year only to have the European sovereign crisis fuel a panicked rush into the greenback.And although a meltdown in the euro zone has been averted for the time being, concerns about the long-term prospects for the monetary union remain. That means the euro is unlikely to be a big destination currency in any renewed carry-trade bets, even though the European Central Bank's 1.0% benchmark rate offers a clear spread to the Fed's.Instead, Asian, Latin American and commodity currencies are likely to attract these flows. The bigger question is whether the borrowing side of the strategy takes place in dollars or yen, a traditional funding currency whose rates are just as low.Opportunities for a yen carry trade were also enhanced by Friday's return to risk appetite, which prompted a reversal of the safe-haven inflows that recently sent the yen to a 15-year high against the dollar and a nine-year high against the euro.Nonetheless, 'a vipers pit of issues in Japan ... makes it difficult to use the yen as a funding currency,' says Michael Woolfolk, Senior Currency Strategist at BNY Mellon. These include elections on Sept. 14 and the Sept. 30 fiscal year-end, when Japanese investors typically repatriate money. And although the Bank of Japan has threatened to intervene to weaken the currency--a move that would favor currency trade speculators--failure to follow through has left it looking decidedly unwilling to turn those words into action. Given this uncertainty surrounding Japan, investors will be tempted to bet against the dollar and the unfortunate certainty of a jobless U.S. recovery.
2010/09/06 16:23DJ 10-Year JGB Yield Hits More Than 2-Month High; Eyes On DPJ Election
TOKYO -The benchmark 10-year cash Japanese government bond yield climbed to a more than two-month high Monday, as a less pessimistic outlook for the U.S. economy encouraged risk appetite and weakened demand for safe-haven assets. 'As yields have risen, those who want to cut their losses are fire-selling, but it is also providing great dip-buying opportunities for investors whose portfolios haven't been damaged' by recent volatility, said Nobuto Yamazaki, executive fund manager at DLIBJ Asset Management. JGBs weakened sharply across the board Monday, following a fall in U.S. Treasurys on Friday that was triggered by better-than-expected U.S. employment data. The benchmark 10-year cash JGB yield jumped 6 basis points to 1.195%, its highest since June 22. Lead September JGB futures finished the day down 0.73 at 141.17 after earlier sinking to an intraday low of 141.07. Bond yields move inversely to prices. Yamazaki expects downward price corrections to continue for the rest of the week. But he said JGBs may be bought back if a more reliable forecast for the ruling Democratic Party of Japan's leadership race comes out later this week, and shows Prime Minister Naoto Kan is in the lead over former DPJ Secretary General Ichiro Ozawa, known as fiscal expansionist. As the DPJ controls the key lower house of Parliament, the winner will almost certainly become prime minister. Polls conducted by local media over the weekend showed that Kan leads Ozawa in pledges of support from local DPJ assembly members, rank-and-file party members and registered supporters eligible to vote in the election. Since late August, Ozawa's candidacy has fueled oversupply fears and sent superlong JGB prices sharply lower. The ruling party kingpin has pledged that, if elected, he will implement ambitious spending plans contained in the party's 2009 election manifesto. Other analysts expect excessive fears over JGB supply increases will recede somewhat in the near future. 'Although the political situation will remain uncertain until the vote on Sept. 14 and even after, the JGB market should start to show a bit less concern about the prospect of an increasing risk premium for now,' said Chotaro Morita, chief strategist at Barclays Capital.
2010/09/06 15:52DJ Tokyo Shares End Higher On Upbeat US Economic Figures -2-
TOKYO -Tokyo stocks rose sharply Monday on the back of better-than-expected U.S. jobless figures, although traders said the market could be hit by any warning signs coming from U.S. corporations ahead of third quarter earnings figures. Encouraging U.S. non-farm payrolls data for August released Friday calmed concern of another U.S. recession, so market focus will now shift more directly to the health of corporate America, traders said. 'Investors' attention will likely shift to micro factors from macro factors from this week,' said Tsuyoshi Segawa, equity strategist at Mizuho Securities, adding that U.S. companies tend to announce forecast changes for the July-September quarter after the Labor Day weekend, which concludes Monday. 'If there are downward revisions in the U.S. corporate sector, some Japanese stocks may be affected.' The Nikkei Stock Average rose 187.19 points, or 2.1%, to 9301.32. The Topix index of all the Tokyo Stock Exchange First Section issues rose 15.01 points, or 1.8%, to 838.71. Major exporters were among the strong gainers, although the yen remains at an uncomfortable level for many Japanese firms. 'The market is still cautious about the yen's levels, but a sharp sell-off is not expected for this week,' said Kenichi Hirano, strategist at Tachibana Securities. Within the export sector, Advantest added 3.1% to Y1,686 and Kyocera advanced 3.9% to Y7,770. Market analysts say that the Nikkei may trade between 9100-9400 this week. Among individual issues, Mazda Motor gained 3.7% to Y194 on a Nikkei report that it has drawn up emergency cost reduction measures, and that it expects a Y30 billion to Y40 billion boost from these steps to soften the impact of the strong yen. Suzuki Motor gained 1.5% to Y1,779 on heavy volume after the Nikkei reported that the company plans to build its third automobile assembly factory in India. A fund manager at a Japanese asset management firm said that the construction of a plant in India is not surprising, but the move complements its efforts to offset currency risks and maintain its competitive edge in the Indian market. Elpida Memory jumped 9.5% to Y1,039 after Mitsubishi UFJ Morgan Stanley Securities started coverage with a Buy rating, saying that the company expects to benefit from a sharp rise in demand for smartphones and tablet computers. On the other hand, Sumco lost 3.9% to Y1,409 despite news that it expects a narrower net loss for this fiscal year through January. Goldman Sachs said that although its second quarter earnings included some positive developments, the company is likely to suffer from a delay in hiking wafer prices as well as the strong yen. Nikkei 225 futures closed up 190 points, or 2.1%, at 9290 on the Osaka Securities Exchange.
2010/09/06 15:42DJ Forex Options: Dollar/Yen Options Up; Japan Exporters Continue To Hedge
TOKYO -Dollar/yen currency options edged up in Asia Monday as Japanese exporters purchased hedges against dollar downside risk, and investors began the week by buying back options contracts sold before the weekend.An options dealer at a major Japanese bank said Japanese exporters hedging against greenback decline are continuing to buy contracts--as they have been doing over the past three or four weeks--as they can't shake off the concern that the dollar may drop even further against the yen in the near term.Encouraging U.S. non-farm payrolls data released Friday helped boost the dollar to Y85.23, but the gains soon evaporated as the U.S. ISM monthly services sector index turned out worse than expected, keeping alive market doubt about the slowing pace of global economic growth.At 0550 GMT Monday, the greenback was trading against the yen at Y84.37.Volatilities were also supported Monday by investors buying back contracts. Investors often sell their options contracts Friday and buy them back Monday to avoid devaluation caused over time.Benchmark one-month at-the-money volatilities edged up 11.55%/12.25% from 11.45%/12.15% in New York Friday.The Japanese options dealer said benchmark volatilities may decline by 10 to 20 basis points later in the global day if the exchange rate stays around its current level, as demand for hedges against currency fluctuation declines.The dealer also said that one market participant sold a 1-week dollar-call/yen-put options contract with a strike price of Y85.25 and implied volatility of 11.60% for $50 million to $60 million. Because such a contract benefits the buyer if the dollar is trading above Y85.25 at the contract's expiry, the transaction indicates that the seller thinks the dollar will remain below that level come the end of the week.
2010/09/06 15:34DJ Tokyo Shares End Higher On Upbeat US Economic Figures
TOKYO -Tokyo stocks rose sharply Monday on the back of better-than-expected U.S. jobless figures, although traders said the market could be hit by any warning signs coming from U.S. corporations ahead of third quarter earnings figures. Encouraging U.S. non-farm payrolls data for August released Friday calmed concern of another U.S. recession, so market focus will now shift more directly to the health of corporate America, traders said. 'Investors' attention will likely shift to micro factors from macro factors from this week,' said Tsuyoshi Segawa, equity strategist at Mizuho Securities, adding that U.S. companies tend to announce forecast changes for the July-September quarter after the Labor Day weekend, which concludes Monday. 'If there are downward revisions in the U.S. corporate sector, some Japanese stocks may be affected.' The Nikkei Stock Average rose 187.19 points, or 2.1%, to 9301.32. The Topix index of all the Tokyo Stock Exchange First Section issues rose 15.01 points, or 1.8%, to 838.71. Major exporters were among the strong gainers, although the yen remains at an uncomfortable level for many Japanese firms. 'The market is still cautious about the yen's levels, but a sharp sell-off is not expected for this week,' said Kenichi Hirano, strategist at Tachibana Securities. Within the export sector, Advantest added 3.1% to Y1,686 and Kyocera advanced 3.9% to Y7,770. Market analysts say that the Nikkei may trade between 9100-9400 this week. Among individual issues, Mazda Motor gained 3.7% to Y194 on a Nikkei report that it has drawn up emergency cost reduction measures, and that it expects a Y30 billion to Y40 billion boost from these steps to soften the impact of the strong yen. Suzuki Motor gained 1.5% to Y1,779 on heavy volume after the Nikkei reported that the company plans to build its third automobile assembly factory in India. A fund manager at a Japanese asset management firm said that the construction of a plant in India is not surprising, but the move complements its efforts to offset currency risks and maintain its competitive edge in the Indian market. Elpida Memory jumped 9.5% to Y1,039 after Mitsubishi UFJ Morgan Stanley Securities started coverage with a Buy rating, saying that the company expects to benefit from a sharp rise in demand for smartphones and tablet computers. On the other hand, Sumco lost 3.9% to Y1,409 despite news that it expects a narrower net loss for this fiscal year through January. Goldman Sachs said that although its second quarter earnings included some positive developments, the company is likely to suffer from a delay in hiking wafer prices as well as the strong yen. Nikkei 225 futures closed up 190 points, or 2.1%, at 9290 on the Osaka Securities Exchange.
2010/09/06 14:58=DJ BIS: Sustained Debt Reduction Needn't Cause Weaker Growth
LONDON -Sustained debt reduction need not be a cause of weaker growth in the aftermath of a crisis, as long as policymakers fix the problems that caused the turmoil in the first place, the Bank for International Settlements said late Sunday.In a study in its quarterly review, the central bankers' central bank found that almost all crises that have been preceded by a credit boom were followed by significant drops in the credit-to-output ratio, suggesting that debt reduction can't be avoided.It stressed the need for officials to fix the 'inadequate' regulation that was partly responsible for the sharp buildup in public debt before the credit crunch, and for banks to fully recognize their losses at an early stage and to sufficiently rebuild bank capital.On a conference call, BIS economic advisor and monetary and economic department head Stephen Cecchetti noted that crises tend to be followed by protracted periods of deleveraging.'If history is any guide, we should expect to see continued reduction in private sector debt, particularly of households, than has taken place so far after the crisis,' he said.The BIS used two episodes of debt reduction in Japan over the past two decades--during which the economy grew at a similar, moderate pace--to illustrate its advice to policymakers.The first such period ran from the end of 1992 to mid-1997, with the ratio of credit to gross domestic product falling by only seven percentage points, and culminated in a credit crunch.In the second, which extended from mid-1999 to the end of 2008, the debt ratio dropped by a much larger 26 percentage points.'What is surprising is that there is much less evidence of restrictions in credit supply [in the second period] than in the first period, despite the much sharper fall in nominal credit outstanding,' the BIS said. 'The likely reason is that this time Japanese policymakers had dealt with the problems in the banking sector that had been left lingering in the first period.'As such, while reducing private sector debt may not be at the forefront of policymakers' minds when output is plummeting, as the economy recovers it is important to address the problems that led to the crisis in the first place, it said.'The Japanese experience offers a key lesson for policymakers on how to reduce private sector debt: fix the banking system first,' the BIS said, adding that that involved the early recognition of losses and the restructuring of bank balance sheets, with new capital raising.'Only then will banks be able to provide new loans,' it said.A separate report within the review cited the heightened awareness spurred by the crisis of the risk of a sudden shortage of foreign currencies, and the desire to obtain liquidity assurance.While there are various possible multilateral or bilateral arrangements that could provide access to international liquidity, such as reserve pooling and swap arrangements, each has advantages and disadvantages, and a variety of approaches is likely, the BIS said.Members of the Association of South East Asian Nations, along with China, Japan and Korea, already agreed last year to bring forward the timetable for multilateralizing the Chiang Mai Initiative--until that point, an untapped network of bilateral swap agreements--creating a pool of $120 billion in reserves.Earlier in 2009, the International Monetary Fund set up its flexible credit lines to allow timely lending to economies that have good economic fundamentals and policies.In late 2008, the U.S. Federal Reserve also set up dollar swap lines with several central banks as an emergency measure to address funding strains in the aftermath of the failure of Lehman Brothers.The BIS noted that some countries that experienced severe shortages of foreign currency liquidity during the crisis already appeared to be accumulating reserves for self-insurance reasons.From the start of 2009 to April 2010, the value in dollars of foreign exchanges reserves rose by 85% in Denmark, 60% in Sweden, 41% in Hungary and 29% in Brazil, it said.'If the range of internationally agreed multilateral and bilateral facilities does not provide adequate liquidity assurance to the countries that wish to have it, then self-insurance by countries building up foreign exchange reserves is likely to continue,' it said.While the benefit of such action is that the country in question has definite access to foreign currency liquidity without needing to co-ordinate, there are costs: the funds have to be held in liquid assets, the liquidity on tap may not be sufficient, and if many countries build up reserves simultaneously, it could impact the economic situation.'Outright purchases of foreign exchange might cause the currencies of the reserve-building countries to depreciate so that global expenditure switches to their domestic products, perhaps generating current account imbalances,' the BIS said.'And borrowing of foreign currencies would add to the pressure to raise long-term funding in global capital markets.'
2010/09/06 14:25=DJ WORLD FOREX: Euro Hits 3-Week High Vs Dollar On Strong Shares -3-
TOKYO -The euro rose to near a three-week high against the dollar in Asia Monday as strong regional share markets prompted short-term players to buy the risk-sensitive currency, dealers said. In afternoon trade in Tokyo, the common currency rose to $1.2905, its highest level since Aug. 18. The rise came as Japan's benchmark Nikkei Stock Average led gains in regional bourses, trading up 1.51%. Traders said the gains could continue through the week if equities remain solid. 'If global share markets remain strong, investors will be encouraged to buy riskier assets' to the benefit of the euro, said Motonari Ogawa, senior foreign exchange trader at Barclays Capital. The unit could rise as high as $1.3000 in coming sessions, Ogawa said. That key psychological level may be difficult to break, however, given concerns that European sovereign debt problems could flare up again ahead. 'A scenario in which we'd see steady rises over $1.3000 looks unlikely for now as the market continues to lack clear longer-term direction on the euro as the debt problems aren't completely resolved,' Barclays Capital's Ogawa said. At 0450 GMT, the euro stood at $1.2895, compared with $1.2896 late Friday in New York. The euro and the dollar, meanwhile, were little changed against the yen, as players refrained from major bets ahead of the market closure in the U.S. for the Labor Day holiday. At 0450 GMT, the euro was at Y108.77 compared with Y108.87 late Friday in New York. The dollar was at Y84.33 compared with Y84.43. Dealers said the greenback could remain in a Y84.00-Y85.00 range in the coming sessions. U.S. non-farm payrolls for August came in better than expected, easing speculation that a recovery in the world's largest economy could slow more sharply ahead. But as U.S. interest rates remain low, 'it's hard for the dollar to gain much traction against the yen,' said Satoshi Tate, a senior vice president in the forex division of Mizuho Corporate Bank. Japanese exporters are also ready to sell the dollar on any rises, likely keeping the unit capped around Y85.00, dealers said.
2010/09/06 14:02=DJ FOCUS: Japan's Political Turmoil Adds To JGB Market Jitters
TOKYO -An unfolding political saga that could lead to a new prime minister who strongly favors higher fiscal spending has taken Japan's already jittery government bond market by surprise, sending prices on a roller-coaster ride. Yields--especially in the 'super long' 20- and 30-year maturities--have risen sharply as investors consider the possibility that Ichiro Ozawa, a powerful political kingmaker, could become prime minister. Ozawa is openly challenging Prime Minister Naoto Kan for leadership of the ruling Democratic Party of Japan in a close race. The party's elected representatives and wider membership will decide the matter in an election on Sept. 14. The turmoil comes at a sensitive time for the market. In the past few months, global economic worries have fueled demand for safe-haven Japanese assets, sending more money into the already high-priced JGB market. Yields, which have been low for years amid Japan's deflationary environment, have fallen below 1% for 10-year bonds for the first time in seven years. But another change in political leadership in so short a time could have the major ratings agencies asking whether Japan can carry through with a sustained program of fiscal rehabilitation. Ozawa has pledged that, if elected, he would implement the ambitious spending plans his party promised when it came to power in September 2009. Under Kan, who took over as prime minister in June, social programs were being curtailed due to the poor state of the government's finances. The International Monetary Fund said this week that Japan, with its long string of government budget deficits, is now on a par with Greece and Portugal with little or no room left for deficit spending. The IMF said Japan is very close to its 'debt limit'--a point at which markets might react to the threat of default by boosting interest rates sky-high on new borrowing. Some market participants said government bond prices were set for a fall in any case. 'The market was looking for a cue to sell JGBs, but the Ozawa news turned out to be an unexpected trigger,' said Maki Shimizu, a strategist at Citigroup Global Markets Japan. Traders had thought any discussion of increased fiscal spending would come after the election, she said. After major banks initiated the sell-off late last week, others, including dealers, regional banks and investment trusts, had no choice but to follow suit, traders said. The 20-year cash JGB yield stood at 1.865% as of 0700 GMT Friday. That was much higher than 1.530% on Aug. 26 when the news emerged Ozawa might challenge Kan. Just a few days before this news sparked oversupply concerns, the 20-year yield fell to as low as 1.510%, its lowest point since August 2003. In the longer term, Citigroup's Shimizu expects JGB yields to gradually rise until the end of this business year in March, with fiscal concerns getting more attention than economic fundamentals. However, she said global deflationary pressure is expected to limit the pace of any yield rises. Shimizu predicts the 20-year cash JGB yield to climb as high as 2% by the end of December. In addition to the 'Ozawa surprise,' recent structural changes in the superlong sector are also being blamed for the high volatility. Domestic life insurers, which tend to buy and hold, previously dominated the range. But more recently, banks seeking better returns have entered the sector. Since the banks are much more active traders, volatility has increased. This in turn has provided dip-buying opportunities to the life insurers, who will be looking to do some bargain-hunting if the 20-year yield stabilizes around 1.8%-1.9%, analysts say. Some also point to the market risks if Japan's debt is downgraded due to the political uncertainty over fiscal reconstruction. If the Kan administration's fiscal consolidation plan gets sidetracked, rating agencies may downgrade Japanese sovereign debt, said Susumu Kato, chief Japan economist at Credit Agricole. A lower rating normally sends interest rates higher. Standard & Poor's Ratings Services sovereign analyst Takahira Ogawa told Dow Jones Newswires this week that the agency may review its ratings on Japanese sovereign debt if the domestic economy deteriorates and remains mired in deflation. Ogawa said the frequent changes of government in recent years are a major problem for Japan, making it 'difficult to have confidence in any long-term fiscal rehabilitation programs.' Japan has had five prime ministers in the last four years. 'There could be a time ahead when we may need to consider whether our Japan rating is appropriate,' he said. S&P downgraded its outlook on Japan's AA credit rating to negative from stable in January. The market is now focused on a Y600 billion auction of 30-year JGBs next Wednesday to test demand. Some analysts say the recent volatility may discourage buying.
2010/09/06 13:44DJ Obama To Propose $100 Billion Tax Credit - Report
WASHINGTON (AFP)--President Barack Obama will call for a $100 billion business tax credit this week to boost the sagging U.S. economic recovery, The Washington Post reported late Sunday.Obama will use a speech in Cleveland on Wednesday to launch what administration officials said was a new policy push, it said.The proposal would increase and permanently extend research and development tax credits for businesses, rewarding companies that develop new technologies domestically and preserve American jobs, the report said.It would be paid for by closing other corporate tax loopholes, the paper noted, citing an unnamed administration official.Obama's economic team is considering a raft of new measures to revive the economy.But with little appetite in Washington for a massive new round of government stimulus spending, with congressional elections looming in November, the White House said there would be no repeat of massive $814 billion 2009 Recovery Act.Obama will visit two states, Wisconsin and Ohio this week, which have both been hit hard by the recession, and include crucial political races as Democrats battle to cling onto their majorities in Congress.The reported proposals come after a new Labor Department report released Friday showed the economy lost 54,000 jobs last month and the unemployment rate edged up to 9.6 percent.Although the job losses were much less than the 120,000 slump expected by Wall Street economists, hiring was not substantial enough to help millions of crisis-hit Americans to return to work.Created in 1981 as a temporary measure, the research tax credit has been extended repeatedly by Congress, The Post said. The latest extension expired in December.
2010/09/06 11:57=DJ BIG PICTURE: Good News About Jobs, Right Before Labor's Day
NEW YORK -Admittedly, they were not over-the-top, break-out-the-champagne robust, but the good payroll numbers released Friday were very welcome news right before the long Labor Day weekend.The data showed private businesses added 67,000 jobs, about double the median forecast. Layoffs of Census workers caused top-line payrolls to fall, but by only 54,000 jobs, half the expected. Best of all, those working saw a bit more in their paychecks.All in all, the August report was a positive for the U.S. outlook and further quelled worries about a double-dip economic slump.To be sure, tons more needs to be done to repair labor markets ravaged by the recession. Private payrolls have risen 763,000 so far this year, but remain 7.7 million in the hole since peaking in 2007.'It is too early to celebrate,' says Sung Won Sohn, professor of economics at California State University, Channel Islands, in Camarillo. 'Uncertainties abound, including the future course of the economy, deflation, taxes, the cost of health care, the economic outlook in Europe and China, etc., putting a damper on employment.'It will be a long slog to good times. Economists at Moody's Economy.com forecast that U.S. employment will not return to its prerecession level before the end of 2013.But it's not just the quantity of jobs that matter, it's the quality as well.Economists are coming to recognize the goal is not just to create jobs; it's about creating jobs that pay enough to support consumer spending increases.Workers still employed have seen their purchasing power suffer. After adjusting for even the low rate of inflation, average weekly pay among private sector workers was no higher in July than it was at the start of the recession.That's why the strongest plus to the outlook was the 0.3% increase in the average hourly wage last month, much better than the 0.1% expected.Coupled with the job gain and a flat work week, the increase suggests a good gain in wages and salaries last month. To be sure, the increase is behind the raises posted in past recoveries, but even slightly fatter paychecks are a positive for spending.The labor news also eases some of the stress at the Federal Reserve.'The figures take some of the pressure off the Fed to do something quickly to shore up the recovery,' says Nigel Gault, chief U.S. economist at IHS Global Insight.Better wage growth also removes the risk of deflation taking root, giving the Fed more leeway.Politicians, however, face tougher times.'With unemployment edging back into the high 9s, the job numbers won't help the administration as the midterm elections approach,' says Gault. 'And it's too late for any policies enacted now to make the economy look better by Election Day.'Which could mean a rise in the unemployment rate for the incumbents in Congress.
2010/09/06 11:09DJ Fitch: Does Not Foresee Impact From Earthquake On NZ Sovereign Rating
WELLINGTON -Saturday's 7.1 magnitude earthquake that devastated New Zealand's second-largest city, Christchurch, is unlikely to have any impact on the country's sovereign ratings, Fitch Ratings said Monday. 'I do not foresee any impact from this natural disaster on the NZ sovereign ratings,' Fitch's Asia Director Ai Ling Ngiam told Dow Jones Newswires. Ngiam said at 'this juncture, the Crown is likely able to meet any financial shortfall by the Earthquake Commission to meet the preliminary estimates on cost of damage.'
2010/09/06 10:56=DJ FOCUS: Euro-Zone Growth Slows In Third Quarter
LONDON -Euro-zone economic growth slowed during the third quarter from the surprisingly strong expansion seen in the second, but there appears to be little risk of a return to recession, data showed Friday.A survey by financial information firm Markit showed growth in private-sector activity eased only slightly in August and employment rose at the fastest pace for more than two years. Official data also showed that retail sales rose more than expected in June and July.Rob Dobson, senior economist at Markit, said figures for the past two months suggest there may be only a modest loss of growth momentum in the euro-zone economy from the robust 1.0% quarterly rise in gross domestic product seen between April and June.'Further job creation in August alongside faster growth of new business and improving service-sector confidence also bode well for the coming months,' he said.The Markit Final Euro-Zone Composite Output Index, a gauge of private-sector activity based on a survey of about 4,500 companies, fell to 56.2 in August from 56.7 in July. The reading above the 'no-change' 50.0 mark indicates the sector is still growing.Economists were expecting the preliminary August composite figure of 56.1, released Aug. 23, to be left unrevised, according to a survey by Dow Jones Newswires last week.Ken Wattret, chief euro-zone market economist at BNP Paribas, said the level of the composite output index was indicative of GDP growth of about 0.6% quarter-on-quarter.On Thursday the European Central Bank raised its forecast range for euro-zone economic growth this year to between 1.4% and 1.8% from a prediction three months back of between 0.7% and 1.3%, but warned that the expansion would be uneven.Markit said Friday that the widening performance disparities among the four biggest economies remain a cause for concern.'France and Germany are still the principal engines driving the recovery forward, whereas Italy and Spain continue to trail behind,' Dobson said.It was also doubtful that growth in the services sector would be strong enough to drive the wider economy forward as the expansion in manufacturing cooled because of weaker international trade flows and a waning effect from inventory rebuilding, he said.The survey showed inflation pressures remain muted in the euro zone, giving the ECB ample room to maintain its ultra-loose monetary policy. On Thursday the ECB kept its main interest rate at a record low of 1.0%, where it has been since May 2009.Eurostat, the European Union's statistics agency, said the volume of euro-zone retail sales rose 0.1% in July from June and was 1.1% stronger than in July last year--beating market expectations of a flat reading on the month and 0.7% gain on the year.Eurostat figures released Thursday showed the strongest rise in consumer spending since the start of the financial crisis in 2007 helped drive the euro zone's economic growth in the second quarter.But although Eurostat also revised up June's retail sales figures, economists cautioned that fiscal consolidation measures, the euro zone's 10% unemployment rate and muted wage growth would weigh on consumer demand.'Despite the growing evidence that euro-zone consumers are gradually opening their purses again, a broad-based, self-sustaining recovery is not yet assured,' said Martin van Vliet, an economist at ING.
2010/09/06 10:39DJ EU To Unveil Derivatives, Short-Selling Rules Sept 15 -Barnier
CERNOBBIO, Italy -The European Union will present new rules governing derivatives trading and short selling on Sept. 15, said European Union Financial Services Chief Commissioner Michel Barnier on Saturday.The new rules regarding derivatives are aimed at improving transparency, he said, through obligatory registration of derivatives transactions.On short selling, 'we will propose tools that discourage abuse...also in terms of credit default swaps.'Barnier declined to provide further details until the rules were unveiled.He said he hoped the EU could reach an accord on rules governing hedge funds and private equity investments 'in a few weeks.''We're almost there,' he said. 'There are still two or there sensitive aspects; one of them is third-party transactions.'Barnier said he would address French and German calls for tighter rules on commodities speculation within the new rules on derivatives trading.
2010/09/06 09:55=DJ FOREX VIEW: Dollar Under Pressure As Recovery Fears Recede
NEW YORK -The dollar is likely to stay under pressure as fears over deflation or a double-dip recession ease and investors become more willing to take on risk. Friday's news that U.S. payrolls shrank by a smaller-than-expected 54,000 jobs in August has encouraged a view of the U.S. economy that's neither glass half-full nor glass half-empty. That middle ground spells bad news for the dollar because it reduces the need for currency safe harbors like the greenback. But neither is there much chance of it getting a boost from robust U.S. growth, a fact also confirmed Friday by a weak August report on the non-manufacturing sector. In this slow-but-stable environment, the U.S. currency's near-zero interest rates raise its potential as a funding currency. Risk-seeking investors will be encouraged to borrow in dollars and apply those funds to so-called 'carry trade' bets on higher-yielding currencies. Sure enough, as demand for risk improved Friday, the dollar fell against nearly all currencies except the yen and Swiss franc. Late afternoon, the dollar was at Y84.48 from Y84.21 late Thursday, according to EBS via CQG. The euro was at $1.2891 from $1.2821, while the ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 82.061 from 82.451. 'The figures show that concerns about a double dip had gotten far ahead of the economic cycle. That is encouraging demand for yield and flows into equity markets, which carries a negative correlation with the dollar,' said Lena Komileva, Head of G7 Market Economics at Tullet Prebon in London. But the dollar's two biggest rivals--the euro and the yen--probably won't be the beneficiaries of the hunger for higher yield when trading volumes return to normal after the long North American Labor Day weekend that will keep U.S. and Canadian markets closed Monday. The biggest gains Friday were in emerging market currencies and in those backed by commodity economies such as the Australian and Canadian dollars, all of which are in one way or another exposed to the strong growth regions of Asia and Latin America. All carry interest rates that are considerably higher than in the U.S. And more importantly, the odds are for that gap to widen. The Fed is clearly in no hurry to hike its near-zero federal funds target rate. In fact, at its policy meeting last month, the Fed affirmed its accommodative monetary stance. To be sure, this year's skittishness in markets will take time to disappear, which will undoubtedly make many investors hesitant to rush into dollar carry-trade bets. Although a meltdown in the euro zone has been averted for the time being, concerns about the long-term prospects for the monetary union remain. That means the euro is unlikely to be a big destination currency in any renewed carry-trade bets, even though the European Central Bank's 1.0% benchmark rate offers a clear spread to the Fed's. Instead, Asian, Latin American and commodity currencies are likely to attract these flows. The bigger question is whether the borrowing side of the strategy takes place in dollars or yen, a traditional funding currency whose rates are just as low. 'A vipers' pit of issues in Japan ... makes it difficult to use the yen as a funding currency,' says Michael Woolfolk, Senior Currency Strategist at BNY Mellon. These include elections on Sept. 14 and the Sept. 30 fiscal year-end, when Japanese investors typically repatriate money. And although the Bank of Japan has threatened to intervene to weaken the currency--a move that would favor currency trade speculators--failure to follow through has left it looking decidedly unwilling to turn those words into action. Given this uncertainty surrounding Japan, investors will be tempted to bet against the dollar and the unfortunate certainty of a jobless U.S. recovery.
2010/09/06 08:10DJ Euro Zone To See More Government Borrowing In September - FT
Nations in the euro zone plan to issue nearly twice the amount of debt in September as they did in August, The Financial Times reports on its website Sunday. Citing ING Financial Markets, the FT said EUR80 billion in debt will be offered by euro zone governments, compared to August's EUR43 billion.Full story at http://www.ft.com/cms/s/0/abe5bf60-b8dc-11df-99be-00144feabdc0.html
