Today's Financial News Courtesy of The Financial Times

Today's Financial News Courtesy of The Financial Times


Fresh US recovery fears hit Asian stocks
By Telis Demos in London and Song Jung-a in Seoul
Copyright The Financial Times Limited 2010
Published: August 19 2010 09:45 | Last updated: August 20 2010 04:04
http://www.ft.com/cms/s/0/9e55d874-ab5f-11df-abee-00144feabdc0.html


Friday 03.45 BST. Asian stock markets tumble after overnight losses on Wall Street as weak US jobs market data cast a shadow on the global economic recovery while the higher yen continues to hurt Japanese exporters.

The Dow Jones Industrial Average plunged 1.4 per cent on Thursday after jobless claims unexpectedly rose to their highest level since November 2009.

Japan’s Nikkei stock average slides 1.2 per cent. Australia’s S&P/ASX 200 sheds 1.0 per cent ahead of Saturday’s election, South Korea’s Kospi composite is off 0.3 per cent while New Zealand’s NZX-50 is down 0.6 per cent.

Canon drops 2.3 per cent, Sony sheds 1.9 per cent and Toyota is 1.5 per cent lower despite expectations that the Bank of Japan may have an emergency meeting soon to tackle the rising yen. The yen hits a two-month high against the euro at Y109.02, its highest level since July 1. The yen is trading at Y85.40 against the dollar, down slightly from Y85.39.

Sharp drops 2.4 per cent on a local media report that the company plans to cut liquid crystal display panel production for one to two months.

BHP Billiton is off 1.1 per cent and Rio Tinto drops 1.8 per cent after a local news report that the companies have concluded that their pending production joint venture would be blocked by regulators.

Regional technology plays are also trading lower, in line with their US peers. Hynix Semiconductor is off 0.9 per cent, LG Display loses 1.4 per cent and Samsung Electronics eases 1.0 per cent. Elpida Memory is 1.6 per cent lower.

Oil and energy stocks are lower on weaker oil prices. Japan Petroleum Exploration sheds 0.8 per cent and SK Energy loses 0.8 per cent.

Thursday’s data showed US jobless claims rose to the psychologically significant 500,000 level last week, above the forecast of 476,000, and bringing the four-week moving average up by 9,000 claims.

“This report indicates that the pace of firings and layoffs has increased and is a negative signal for the employment report in two weeks’ time,” said Michael Gapen, economist at Barclays Capital.

And the drumbeat of bad US news kept on. The Philadelphia Fed’s gauge of factory activity fell to its lowest level in a year, and the Congressional Budget Office projected that the US’s 2014 budget deficit would reach $1,300bn, slightly higher than its forecast in March.

Government bond yields are falling further into uncharted territory. The US Federal Reserve also announced its first purchases of Treasuries, buying $3.6bn.

The yield of 10-year US Treasuries hit a new 11-month low of 2.57 per cent. Yields on 30-year US bonds were down a whopping 10 basis points, to 3.64 per cent, and German 30-year bond yields were at a fresh all time low, just below 2.98 per cent.

“The current low levels of bond yields would be consistent with the prospect of a very long period of near-zero, short-term interest rates, low or negative inflation, and lacklustre returns on riskier assets that increase demand for the safety of government bonds,” said Julian Jessop, chief international economist at Capital Economics.

“[We] see no compelling reason why bond yields cannot fall further in the US and Europe from their current levels, without this amounting to a bubble.”

Sentiment did not improve following a fresh mega-bid. Intel agreed to buy McAfee, security software developer, for nearly $8bn, but the market didn’t like the deal. Intel shares dropped 3.2 per cent, and the US’s technology-heavy Nasdaq Composite index, which normally loves a deal, is down 1.6 per cent.

The Market Eye
Japan may now only be the world’s third largest economy – behind rising China – but its investors’ cash has played a big role in markets of late. Japanese investors have been voracious consumers of US Treasury bonds, buying them at a record rate and helping push yields to record-lows.

Japanese retail investors, a famously aggressive bunch of leveraged speculators in currencies, have also been stalwart supporters of the dollar, betting it will rise against the surging yen, according to positioning data. Meanwhile, investors in US markets last week had their largest net short position of the year, according to the CTFC, against the dollar.

That balancing out has helped bring some measure of calm to risk appetite, as the yen pushed to 15-year highs against the dollar in early August but has struggled to move further. If stimulus is successful in leading bearish Japanese cash flows to reverse, it could signal a shift in sentiment across global markets.

The Bundesbank also raised its 2010 gross domestic product growth forecast to 3 per cent, from 2 per cent. And in the UK, shoppers had a surprisingly spry July, even as growth in public borrowing slowed more than expected thanks to improved business tax receipts.

Investors remain fundamentally sceptical, and of late have been much keener to follow bad news. Outflows from US equity funds continued in July and August, despite a relative uptick in shares, and despite a rise in flows to emerging market stocks.

“The hate retail investors have for US equities runs deep,” said Vincent Deluard, executive vice president at TrimTabs Investment Research. “Beefy rallies, robust profits, and record cash stashes on Wall Street stand in sharp contrast to foreclosures, declining incomes, and job losses on Main Street.”

Trading has also entered a summer lull, exacerbating any moves. Volumes over the past five sessions were the lowest since last December.

• Europe. The UK's FTSE 100 index was down 1.7 per cent, with consumer firms in media and airlines among the top declining sectors. Bank shares were volatile following mixed reports. Basel III capital rules were found to likely not dramatically impact economic growth. But with yield curves flattening, bank profits will probably weaken going forward.

The broader FTSE Eurofirst 300 index was down 1.5 per cent. Germany’s Dax was down 1.8 per cent. The blue-chip German index has slipped nearly 5 per cent after reaching a 2010 high in early August, following its forecast-beating second quarter growth.

• Currencies. Fear is driving dollar strength. The euro is down 0.3 per cent, to $1.2820. It has fallen since beginning August near $1.34, as investors switched back into the dollar and yen as worries about the European “periphery” countries rose.

Earlier, the pound reversed its multi-day tumble after the UK economic data. It had fallen after the Bank of England said it would not raise rates, and did not appear any closer to doing so in the minutes detailing its decision. But it is now almost flat against the dollar to $1.5595 and down 0.2 per cent to £0.82225 against the euro.

The Canadian dollar is falling 1 per cent against the greenback after seeing its strongest exchange rate in a week, as speculation of a Bank of Canada rate hike in September fades.

• Debt. “Havens” were also seeing selling pressure early. Japanese benchmarks rose from their all-time low yield. The yield on 10-year JGBs was up 2 basis points to 0.93 per cent.

That reversed after the US jobless claims report. Yields on the 10-year US Treasury bond are down 6 basis points at 2.57 per cent. German 10-year Bunds were down 3bp to 2.31 per cent, after rising 4bp earlier – seeing a fresh all-time low.

Spreads on 10-year sovereign bonds in Greece, Ireland and Portugal were wider. Yet earlier, other European risk measures eased: Interbank lending rates were little changed overnight, have risen in recent days. Borrowing from the European Central Bank reached a three-month high on Tuesday and Wednesday, but has declined today.

• Commodities. The price of a barrel of US crude gave up gains, and is down by 1.4 per cent, following supply glut warnings, to $74.37. The US Department of Energy said US crude stocks were at a record high last week, following the private American Petroleum Institute’s own figures showing a jump in surplus supplies.

Gold jumped after the jobless report, adding to a six-week high, as investors fear for the global economy and the possible longer-term inflationary consequences of stimulus in the US. Bullion is up 0.2 per cent to $1,231 an ounce.

Follow Global Market Overview on Twitter: @telisdemos






German economic growth set to hit 3%
By Ralph Atkins in Frankfurt and David Oakley in London
Copyright The Financial Times Limited 2010
Published: August 19 2010 16:49 | Last updated: August 19 2010 18:04
http://www.ft.com/cms/s/0/d164d0da-aba5-11df-9f02-00144feabdc0.html


Germany’s economy will grow by 3 per cent this year, according to a sharply upward revised Bundesbank forecast issued as investors pushed the cost of borrowing by its government towards fresh record lows.

The economic recovery in Europe’s largest economy was increasingly generating its own momentum, the country’s central bank said on Thursday, with positive ripple effects spreading to other eurozone countries. In June, the Bundesbank had forecast almost 2 per cent growth in 2010.

The upbeat prognosis underscored policymakers’ confidence that the eurozone will avoid falling back into recession.

However, Germany is seen increasingly as an isolated success story within the eurozone, with its “safe haven” status boosted by a re-intensification of worries about Ireland and southern European countries worst hit by this year’s crisis over public finances.

German 10-year bund yields, which have an inverse relationship with prices, were trading at 2.35 per cent on Thursday – around record all-time lows – compared with 3.35 per cent at the start of the year.

Alan Wilde, head of fixed income and currency at Baring Asset Management, said: “This is good news for Germany. The country is seeing growth pick up while at the same time the interest rate costs for the country are very low. They can borrow without much cost. For the eurozone, it is not so good.” Steven Major, head of fixed income research at HSBC, added: “The eurozone is not out of the crisis – and that is what the markets are telling us. We do not think the single currency will break up but there are still risks.”

Germany’s gross domestic product rose by a headline-grabbing 2.2 per cent in the second quarter compared with the previous three months. The Bundesbank pointed out that still only about a half of the fall in German production resulting from the global economic crisis had been made good. But a 3 per cent growth rate overall in 2010 would be the fastest pace of expansion since 2006 and one of the best performances since reunification in 1990.

Growth has been export-led and boosted by demand from China. As if to address criticism that Germany is not helping European prospects, however, the Bundesbank pointed out that imports from other eurozone countries in the first two quarters of this year had grown twice as fast as exports to the same countries. “In this way, European partner countries are benefiting to a considerable degree from the current fast pace of growth in the German economy.”

It said evidence was mounting that Germany’s upswing “is becoming increasingly self-sustaining” – suggesting it would withstand the withdrawal of government and central bank stimulus measures. Investment in new equipment was picking up and it appeared that private consumption had risen, after three successive quarterly contractions.

In contrast, weaker growth in the so-called “peripheral” eurozone economies, such as Spain, Portugal, Greece and Ireland, is making it harder for them to service their higher borrowing costs.








Bank of Japan pushed to take action on yen
By Michiyo Nakamoto in Tokyo
Copyright The Financial Times Limited 2010
Published: August 20 2010 14:44 | Last updated: August 20 2010 14:44
http://www.ft.com/cms/s/0/24b4fb66-ac50-11df-a532-00144feabdc0.html


The Japanese government has stepped up pressure on the Bank of Japan to take measures to try to stem the rise of the yen amid concern that the economic recovery is running out of steam.

Two cabinet ministers on Friday called on the central bank to tackle the yen, which last week surged to a 15-year high of Y84.72 against the US dollar.

Earlier this week, the Japanese government said the economy had grown by only a seasonally adjusted 0.4 per cent in the second quarter, a sharp drop from the 4.4 per cent growth rate for the first quarter. The poor performance meant that China overtook Japan in economic size in the second quarter.

Koichiro Genba, minister of state for civil service reform, blamed the yen’s appreciation, which he said was delaying the economic recovery, on the Bank of Japan’s failure to take additional monetary easing measures.

“The cause [of the yen’s rise] is the difference in approach between the US Federal Reserve Board and the Bank of Japan” towards their respective currencies, said Mr Genba.

The Fed last week announced additional easing measures as it downgraded its outlook for the US economy. However, the Japanese central bank has failed to respond to hopes for further easing.

“I think there are a diverse range of monetary measures the [Bank of Japan] could implement,” Mr Genba said.

Seiji Maehara, transport minister, also called on the Bank of Japan and the finance ministry to send a strong message to halt the strengthening yen. He said a higher yen could wipe out the beneficial impact of any new economic stimulus measures.

“It is important to adopt specific financial and monetary policies in cooperation with other countries,” Mr Maehara said, indicating the need for international coordination.

The Japanese currency has risen steadily this year against the US dollar and the euro, making Japan’s exporters less competitive.

On Thursday a senior finance ministry official also expressed concern about the yen’s rise and accused the US and Europe of allowing their currencies to weaken in order to support exports.

“There is no doubt that a strong yen is having a very severe impact on exporters,” said Naoki Minezaki, vice finance minister.

“It is better if [countries] do not take a beggar-thy-neighbour policy,” he added.

The comments come as Naoto Kan, prime minister, asks cabinet ministers to consider deregulation and tax measures to address the yen’s rise, which has not only hurt exporters but has also damped market sentiment.

The Japanese stock market has been depressed by the yen’s rise, with the benchmark Nikkei average falling nearly 2 per cent on Friday to 9,179.38.

The government is expected to come up with a new economic stimulus package as early as next week. However, Japan’s mounting public debt prevents it from splashing out to boost economic activity.

The ratio of Japanese government debt to GDP is approaching 200 per cent, making it difficult for the government to issue new debt to stimulate the economy.

Mr Kan, who is scheduled to meet Masaaki Shirakawa, the central bank governor, next week to discuss the state of the economy and the yen, suggested the government could adopt stimulus measures without additional government spending.