Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Tokyo stocks boosted by yen intervention
Copyright The Financial Times Limited 2010
Published: September 13 2010 06:14 | Last updated: September 15 2010 16:52
http://www.ft.com/cms/s/0/483c5a1a-bedf-11df-a755-00144feab49a.html


Wednesday 16:35 BST. Wall Street and European bourses are under pressure after soft US data wrestled traders’ attention from action in the forex markets.

The FTSE All World index is down 0.1 per cent, oil is lower, and core bond yields are mixed along the curve.

Tokyo’s attempt to halt the rise in the yen had been the early focus as traders assessed the impact such a move may have on the broader market.

Not much, seems to be the initial reaction. It’s just a yen thing, is the verdict. The move helped Japanese exporters’ shares bounce sharply, pushing the Nikkei 225 up 2.4 per cent, but other risk assets remain wary that the gains seen so far in September may be vulnerable should upcoming data disappoint.

Sure enough, a weaker than forecast reading of the New York Fed's manufacturing index – and a merely in-line reading for industrial production – helped push the S&P 500 in New York below its 200-day moving average of 1,116 at the open.

This level is seen as an important support, and bulls will be pleased that the benchmark has bounced back above it for the second consecutive session. The S&P is currently down fractionally at 1,120.

The Market Eye

The S&P 500’s successful move above its 100-day moving average, now 1,001 – after failing at that level in May, June and July – is a positive for US stocks, says New York based Strategas Research Partners. In a note published on Tuesday, the broker-dealer says that upward momentum may be supported by several factors, including: early-cyclical markets like South Korea and India breaking above recent ranges; the strong copper price; growth currencies such as the Aussie dollar at recent highs; the Vix volatility index at multi month lows; and a sharp back-up in Treasury yields. “We wouldn’t be so quick to fade the market as resistance [on the S&P 500] at 1,131 approaches.”

Adding to the caution is the return of some vintage danger signals: a rallying gold price and strong Swiss franc. Both assets are normally craved at times of heightened risk aversion.

Gold is within several bucks of Tuesday’s new peak of $1,275, while the Swissie remains close to parity with the dollar, a 10-month high.

Former Federal Reserve chairman Alan Greenspan was on CNBC television today declaring gold is “the canary in the coal mine to keep an eye on”.

● Asia-Pacific. Tokyo’s decision to intervene in the currency market for the first time in more than six years immediately sent the yen down by 2 per cent against the dollar, giving a boost to the nation’s exporters, who have long complained that a strong yen has hurt profits overseas.

As the yen fell from a 15-year high of Y82.85 against the dollar – a level reached after Naoto Kan, prime minister, won his Democratic party’s leadership challenge on Tuesday – the Nikkei 225 rose at one stage by 3 per cent to 9,578. It closed up 2.3 per cent at 9,517.

The news from Japan had little impact on the rest of the region’s markets, where most indices retreated from earlier gains on profit-taking in spite of stronger-than-expected US retail sales published overnight. The FTSE Asia-Pacific index is barely changed.

In Sydney, the benchmark stock index briefly hit a fresh four-month high but pared early gains to close up 0.7 per cent. Resource stocks were higher on strong overnight metal prices.

The Vital Statistics
Risk aversion, central bank buying, and miners’ de-hedging have all been cited as drivers for gold’s push to a new nominal peak on Tuesday. The move has led to more nervousness in the market, however. The CBOE’s Gold Vix index, a gauge of expected price volatility, rose 9.3 per cent in Tuesday’s session as investors sought protection. This still left the Gold Vix at 18.24, however, near Monday’s record intraday low of 16.64. The 200-day average is 21.9.

The Kospi index in Seoul rose 0.5 per cent, the Hang Seng in Hong Kong added 0.1 per cent and the Shanghai Composite finished down 1.3 per cent.

● Europe. Little guidance overnight from the US or Asia left the region’s investors somewhat nonplussed and plumping for a spot of profit taking. The NY Fed data and subsequent dip on Wall Street today have led to further selling.

The FTSE Eurofirst 300, which had climbed 6 per cent in September, is down 0.2 per cent with no clear sectoral theme emerging. The FTSE 100 in London is down 0.1 per cent, supported by gold miners.

● Forex. The yen is trading at Y85.58 against the dollar, down 3.1 per cent, after Tokyo’s intervention. It is down 3.1 per cent versus the euro at Y111.23.

The renminbi has touched a new high against the dollar for the fourth consecutive day ahead of Congressional hearings in Washington on the currency’s value. The renminbi hit a peak of Rmb6.7300 to the dollar in early Asian trading and is now stronger by just a fraction to Rmb6.7414, taking its advance over the past five sessions to 0.6 per cent.

Trading appears muted in non-yen crosses and the US dollar is down just 0.1 per cent versus the euro at $1.3004. The yen’s sharp drop is primarily responsible for the dollar’s trade-weighted index gaining 0.3 per cent to 81.47.

The dollar is up 0.8 per cent relative to the Swiss franc at SFr1.0039. Sterling initially saw little impact from a mixed UK jobs report but has gained ground as the day progressed and is now up 0.5 per cent versus the euro at 83.2p.

● Commodities. Gold remains close to its new nominal high of $1,275 an ounce, supported by hopes of more central bank buying and news that AngloGold Ashanti was looking to eliminate its hedging position. The bullion is currently down 0.1 per cent at $1,268 an ounce. Silver is trading at $20.54 an ounce, close to its most expensive reading since March 2008.

Nymex-traded crude is down 1.5 per cent at $75.67 a barrel on news that engineers were close to fixing an important pipeline taking oil from Canada to the US and after the American Petroleum Institute said late on Tuesday that stocks of crude had risen by 3.3m barrels. The NY Fed survey is not helping either, although a dip in EIA inventory, released today, is providing support.

Copper is lower in a mixed metals complex, possibly in reaction to the stronger dollar, in which many such assets are denominated. The red metal is down 0.1 per cent to $7,620a tonne.

● Rates. Core sovereign debt has a downward bias, with traders seemingly unsure about whether to be attracted by the recent move higher in yields or wary that the complex’s bull run could be fading following some generally better economic data over the past few weeks.

The US 10-year yield, which hit 2.41 per cent at the end of August, is up 1 basis point at 2.68 per cent. Higher than forecast US import prices in August may be adding to the upward pressure in yields, as may a report by Bloomberg that investment giant Pimco has made a $8.1bn bet against a long period of US deflation. However, shorter duration bonds are seeing buying, with the 2-year yield down 2 basis points at 0.48 per cent.

Ten-year Bund yields are up 4 basis points at 2.40 per cent, despite a well-received €4.4bn auction of fresh benchmark paper.

Portuguese 10-year yields are up 5 basis points to 5.83 per cent, close to a five-month high, after €750m worth of 12-month bills were sold by Lisbon at a sharply higher yield than previous auctions.

Japanese 10-year yields are down 5 basis points to 1.05 per cent as Tokyo’s unsterilised forex intervention is deemed a form of quantitative easing.

Follow Jamie Chisholm’s market comments on Twitter: @JamieAChisholm




Gold gains as central banks stock up
By Javier Blas in London
Copyright The Financial Times Limited 2010
Published: September 14 2010 19:06 | Last updated: September 14 2010 19:06
http://www.ft.com/cms/s/0/f99f518a-c025-11df-b77d-00144feab49a.html


Gold prices have pushed to a fresh record amid forecasts that central banks will be net buyers of bullion this year for the first time in two decades, the clearest sign of the rehabilitation of bullion after the financial crisis.

The shift marks a turnround after heavy disposals by European central banks over the past 10 years, when gold was seen as a non-yielding unattractive asset. Monetary institutions then swapped their bullion for yielding sovereign debt.

GFMS, the consultancy that compiles benchmark statistics for gold, said that central banks would buy about 15 tonnes of bullion on a net basis this year, a situation last seen in 1988. The swing comes on the back of buying by Russia and several Asia-based central banks and the collapse of sales in Europe.

The shift in central banks’ attitude towards gold, coupled with renewed US dollar weakness on Tuesday, propelled gold prices to a fresh nominal high of $1,274.75 a troy ounce, up nearly 2 per cent on the day. Gold prices have risen about 15 per cent since January, boosted by worries about sovereign risks. Adjusted for inflation, gold prices are, however, still a long way from their all-time high above $2,300 in 1980 reached during the Soviet invasion of Afghanistan.

Philip Klapwijk, GFMS chairman, said gold prices could set fresh highs in the near term, trading above $1,300 an ounce, on the back of uncertainty about the global economy and concerns about high levels of debt in developed countries.

China, India, Saudi Arabia and other countries have announced large additions of gold to their reserves since the start of the financial crisis in 2008, providing a psychological boost to bullion.

The consultancy said that even if current net buying by central banks remains relatively low the shift is an important departure from the past decade, when central banks sold on average 442 tonnes of gold per year, equal to about 10 per cent of total bullion demand.




US industrial production slows in August
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: September 15 2010 15:15 | Last updated: September 15 2010 15:15
http://www.ft.com/cms/s/0/f43dae22-c0c9-11df-94f9-00144feab49a.html


US factory output slowed in August, as carmakers pulled back production after a midsummer surge, draining momentum from the manufacturing sector.

Federal Reserve figures showed on Monday that US industrial production rose 0.2 per cent in August after climbing by a revised 0.6 per cent in July. That was in line with economists’ expectations and left production up 6.2 per cent from a year ago.

“Following the initial inventory-led boost for the manufacturing sector, which appears to be drawing to a close, a key element going forward will be whether final demand picks up sufficiently to keep the upward impetus in place,” said Joshua Shapiro, chief US economist at MFR.

Manufacturing production was hit by a 5.2 per cent drop in output of cars and car products. Production of consumer goods was off by 0.4 per cent, as factories made fewer appliances and less furniture and carpeting.

In August, output at mines picked up but weaker production of electricity and natural gas slowed utilities.

Carmakers after the crisis

FT In depth: Carmakers still face tough markets and unprecedented pressures

“These production trends reflect the patterns of final demand growth in the overall economy,” said John Ryding and Conrad DeQuadros, at RDQ Economics. “Going forward, we expect continued growth in manufacturing activity although at a slower pace than we have seen over the past year.”

Meanwhile, capacity utilisation, which measures the percentage of plants in use, rose to 74.7 per cent. Although that is 4.7 percentage points higher than August 2009, it remains almost 6 percentage points below the historical average, suggesting substantial resource slack in the economy.




Japan intervenes to weaken yen
By Lindsay Whipp and Mure Dickie in Tokyo and Alan Beattie in Washington
Copyright The Financial Times Limited 2010
Published: September 15 2010 04:29 | Last updated: September 15 2010 12:48
http://www.ft.com/cms/s/0/43627416-c074-11df-8a81-00144feab49a.html


Tokyo intervened in the currency markets for the first time in more than six years to weaken the yen, sending it nearly Y3 lower against the dollar to mitigate the threat its strength posed to Japan’s export-reliant economy.

The unilateral intervention on Wednesday marks a further easing of monetary policy, since the Bank of Japan has decided to leave the yen used to buy dollars in the market, where they will add to general market liquidity.

The action comes at a sensitive time that could complicate the debate on China’s controls on the renminbi and raise the possibility of competitive devaluations.

The intervention sent the yen from a 15-year high of Y82.88 to as low as Y85.52 in a matter of hours. The Nikkei 225 share index rose more than 2 per cent in response as investors took heart that Japanese exporters might get relief.

Yoshihiko Noda, the finance minister, told reporters that the yen’s sharp gains from Tuesday following Prime Minister Naoto Kan’s victory in his Democratic party’s leadership battle were “a problem that could not be overlooked”, given that the Japanese economy has faced difficult circumstances for some time, including its ongoing struggles with deflation.

Mr Kan, who spoke later in the day, told reporters that the intervention had had “a certain effect” on the currency and that he would continue to watch movements closely.

The action caught many market participants by surprise, as they had thought intervention would be less likely under Mr Kan than with his opponent in the leadership race, Ichiro Ozawa.

The move though won praise from business executives. “What is important is to signal to the world and particularly to currency speculators that the government will take firm action on irrational yen strength,” said Atsushi Saito, chief executive of the Tokyo Stock Exchange.

Japan’s intervention is likely to heighten tension around the already charged issue of China’s persistence in holding down the renminbi, which is set to be one of the most contentious issues at the forthcoming meeting of the G20 group of countries in Seoul.

The US is disappointed that China has allowed the currency to rise by less than 1 per cent against the dollar after its decision to unpeg the renminbi in June. This week, the US Congress will hold hearings to investigate options for penalising Chinese imports or having the currency intervention declared illegal by the World Trade Organisation.

Tetsufumi Yamakawa, head of research at Barclays Capital in Tokyo, said Japan’s intervention “at least, would give a good excuse to China for not moving by claiming that the Japanese authorities are manipulating their currency [as well].”

He said that this consideration had probably put Tokyo off intervening for a significant amount of time.

A person familiar with Bank of Japan’s thinking suggested that the government’s decision to intervene and the central bank’s to allow the move to expand the money supply was aimed at improving sentiment rather than setting a specific level for the currency.

“It’s more to do with business confidence. We are of the view that the higher yen could undermine business confidence,” the person said. “The yen was appreciating a bit too rapidly.”

Before Wednesday’s action, debate as to if and when Tokyo would intervene had been intensifying given that previous unilateral interventions in the market had only proved successful over the short term, such as days or weeks. The last time that the finance ministry ordered the central bank to intervene produced unrealised losses of Y32,300bn over a 15-month period in 2003-04.

Noriko Hama, an economics professor at Japan’s Doshisha University said: “We need.... people to come together and think about where currencies should be going, how to soft-land the dollar to a lower plane without the destructiveness of competitive devaluation.”




EU unveils crackdown on derivatives
By Nikki Tait in Brussels
Copyright The Financial Times Limited 2010
Published: September 15 2010 10:28 | Last updated: September 15 2010 11:45
http://www.ft.com/cms/s/0/c5f6b70a-c0a3-11df-94f9-00144feab49a.html


The European Union has unveiled tough new rules to control derivative trading and restrict short-selling in response to the financial crisis.

The proposed rules, covering over-the-counter derivatives, will require standardised contracts to be cleared centrally for the first time.

They will also require OTC contracts – bilateral agreements between buyers and sellers – to be reported to “trade repositories” or data banks, and for this information to be available to regulators.

The proposals follow agreement by G20 leaders last year to standardise derivative trading move them onto exchanges or electronic trading platforms where appropriate. The proposals will closely align the EU with the new regime which is coming into force in the US.

The new rules will need approval from member states and the European parliament, but the aim is to operate them from the end of 2012.

OTC derivatives usually involve banks on at least one side of the deal, and historically have not been traded through exchanges. In the wake of the confusion that surrounded the collapse of Lehman Brothers two years ago, regulators decided that they needed better oversight of this huge market to reduce the risk within the global financial system.

“No financial market can afford to remain a Wild West territory. The absence of any regulatory framework for OTC derivatives contributed to the financial crisis and the tremendous consequences,” Michel Barnier, EU internal market commissioner, said on Wednesday.

“Today, we are proposing rules which will bring more transparency and responsibility to derivatives markets – so we know who is doing what and who owes what to whom”.

The new rules will cover contracts used to manage commodity and financial risk. However, where these products are used by non-financial firms – such as manufacturing companies – for genuine hedging (or risk mitigation) purposes, they will be exempt from the central clearing requirement after lobbying from non-financial groups.

Officials are proposing a dual system for deciding which contracts have to be cleared centrally – either “bottom-up”, in which a central counterparty (CCP) applies to the authorities, who then decide whether this should occur on a pan-EU basis, or “top-down”, when the authorities impose a clearing requirement on the industry.

A new European Securities Markets Authority will have a key role in deciding which contracts must be cleared and overseeing the trade repositories.

The commission also unveiled its proposed rules to restrict short-selling and trading in credit default swaps.

It proposes that investors must disclose significant net short positions to regulators once these amount to 0.2 per cent of the issued share capital and to the market at a higher 0.5 per cent threshold.

There will also be a specific regime for telling regulators about significant net short positions in CDS positions related to EU sovereign debt issuers. The proposals also include powers national regulators to restrict short-selling in sovereign CDSs during volatile trading.

In order to restrict naked short-selling, investors will have to have either borrowed the instruments concerned, entered an agreement to borrow them or have an arrangement with a third party to locate and reserve them, so that they are delivered by the settlement date.

National regulators would also be given clear powers in exceptional circumstances to temporarily restrict or ban short-selling in any financial instrument, subject to co-ordination by ESMA.

The rules – which are somewhat milder than some of the ideas discussed earlier – are still likely to run into some resistance among traders and hedge funds. They are not opposed to the mandatory reporting requirements to regulators, but are unhappy about reporting to the market. They argued that this may give a confusing picture and dissuade funds from engaging in some deals, so reducing market liquidity and price discovery.