Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Equity gains held in check as dollar stabilises
Copyright The Financial Times Limited 2010
Published: October 11 2010 03:45 | Last updated: October 11 2010 16:39
http://www.ft.com/cms/s/0/6bb787d2-d4db-11df-b230-00144feabdc0.html


Monday 16:40 BST. Stocks are at five-month highs on growing optimism that additional stimulus measures from central banks around the world will support asset prices and help the global economic recovery gain momentum.

The FTSE All-World equity index is up 0.2 per cent, close to its best level since late April, as traders consider bad news, such as Friday’s disappointing US jobs report, to be good news, in that it will hasten the arrival of further quantitative easing by the Federal Reserve.

The S&P 500 on Wall Street is up 0.1 per cent. However, it is being held in check by signs the dollar may be stabilising, for now. The dollar has of late been used as an inverse proxy for risk appetite.

“It is perfectly clear to most now that equities have moved from a barometer of financial and economic strength to a currency of liquidity and this will pour confusion on many investment plans,” says Maurice Pomery, chief executive officer of Strategic Alpha Limited in London.

The prospect of the Fed buying assets in order to pump money into the financial system is also one of the factors helping to keep US government short-term debt yields at record lows.

This in turn has been hurting the dollar, as yield seekers get less bang for their buck, and the lower greenback is also part of the reason why several dollar-denominated commodities are challenging record and multi-month highs.

In addition, some commentators argue that extra liquidity will not be put to work in the US but will seep into foreign assets. Evidence that this trend may already be occurring can be seen in the latest global fund flows from EPFR.

The Market Eye

Economists like to focus on “core” prices when deciding upon inflationary pressures. It allows them to strip out volatile elements such as food. But as we all need food every day, the effect of food price changes can, arguably, have a disproportionately large impact on a consumer’s inflation expectations – itself a crucial factor determining future inflation. So when food prices trundle higher beyond cyclical trends – note corn et al – it perhaps makes sense for inflation worriers to adjust portfolios accordingly. Of course, with central banks distorting so many markets at the moment, it is more difficult to gauge the weight of traditional asset drivers. But the recent underperformance of the particularly inflation-sensitive 30-year Treasury suggests the CRB index’s leap to 2-year highs and the not unconnected move to more QE are taking their toll.

For example, the fund tracker says that inflows into emerging market equities were $6bn last week, their highest levels since late 2007, while redemptions from US equity funds hit $3.2bn, a five-week high. Similarly, investors are coming out of US bond funds and moving into EM bonds.

Factors to Watch. Though equity markets are open in the US, the Columbus Day holiday means the government debt complex is shut and no economic data of note are set for release. Equally, the third-quarter earnings season only comes back to life on Tuesday, when Intel steps to the plate.

Asia-Pacific. Shares were higher, led by Australian miners as Friday’s weaker than expected US jobs data fuel expectations that the Fed will embark on a second round of QE.

The FTSE Asia-Pacific index is up 0.2 per cent, though trading is thinned by the absence of Japan, which is closed for a holiday. Australia’s S&P/ASX 200 rose 0.3 per cent and New Zealand’s NZX-50 was 0.1 per cent higher.

Chinese stocks were in fine fettle. The Shanghai Composite rose 2.5 per cent, while the Hang Seng in Hong Kong added 1.2 per cent to a 26-month high as property stocks saw buying ahead of a large land auction on Tuesday, reported Reuters.

After the markets closed it was reported that Beijing had raised reserve requirements for six big banks by 50 basis points in order to drain liquidity.

In Seoul, the Kospi benchmark rose 0.4 per cent on continued foreign buying, but investors are cautious ahead of the Bank of Korea’s policy meeting on Thursday.

Europe. Bourses tracked Asia higher, with the FTSE Eurofirst 300 up 0.3 per cent and London’s FTSE 100 up 0.3 per cent. Turkish stocks advanced 2.7 per cent to a record high after the government’s mid-term economic plan forecast higher growth and a reduced budget deficit

Forex. The dollar is having a mini-bounce as some traders take profits in those crosses that have tracked the buck’s dive to 10-month lows. The US dollar index, which tracks the greenback against a basket of its peers, is up 0.3 per cent at 77.38 a fraction above last week’s 10-month low of 76.91. The euro is trading at $1.3889, down 0.7 per cent..

Chinese officials over the weekend rejected calls for a significantly stronger renminbi. “Very fast” appreciation probably would not bring balance to the world economy, Zhou Xiaochuan, People’s Bank of China governor, said in Washington. However, such verbal broadsides in the global currency war have not halted the renminbi’s crawl higher.

China’s currency hit a new post-2005 revaluation high versus the dollar of Rmb6.6645. Gains were later pared, however, though Reuters reported traders were unsure whether this was a result of the Chinese authorities trying to slow the advance. The renminbi is currently up just 0.05 per cent at Rmb6.6679.

The yen is at Y82.08 to the dollar after reaching a 15-year high of Y81.39 early in the global session.

Commodities. The fallout from Friday's US government forecast that grain supplies will fall to their lowest in 14 years is continuing to impact the agricultural complex. Corn futures went limit up in overnight Chicago trading for the second day in a row, soaring 9 per cent to a two-year high of $5.73 a bushel, while soybeans also advanced strongly.

Gold is trying for a new peak as the prospects of QE2 and continuing currency spats encouraged demand. Profit-taking on Thursday saw gold fall back from the day’s nominal record high of $1,364.60 an ounce. But the up-trend has swiftly resumed once the dollar began to slide again and today the precious metal is up 0.4 per cent at $1,348.

Industrial commodities are mostly higher on hopes that demand from developing nations such as China will keep the market tight. A lower dollar and the chance of more speculative funds flowing into the complex are also supporting prices. Copper is up 0.2 per cent to $8,294 a tonne. Oil is down 0.1 per cent to $82.57 a barrel.

Rates. Core debt dynamics will be hobbled by the closure for holidays of the US, Japanese and Canadian markets. On Friday. the US two-year note finished at a record low of 0.347 per cent after the jobs data added to conviction that further monetary easing was on its way. The 10-year yield is 2.4 per cent, its lowest since January 2009.

In Europe, the anxiety surrounding peripheral debt continues to ease somewhat. Greek 10-year yields are down 57 basis points to 9.38 per cent, and less angst reduces the haven attraction of Bunds, up 2 basis points at 2.28 per cent.

Additional reporting by Song Jung-a in Seoul

Follow the market comments of Jamie Chisholm in London and Telis Demos in New York on Twitter: @JamieAChisholm and @telisdemos





Corn prices surge to two-year high
By Javier Blas in London
Copyright The Financial Times Limited 2010
Published: October 11 2010 08:48 | Last updated: October 11 2010 08:48
http://www.ft.com/cms/s/0/7ea9b2d0-d502-11df-ad3a-00144feabdc0.html


Corn prices hit a two-year high on Monday, jumping more than 8 per cent, as traders scrambled to buy after the US Department of Agriculture warned last week of “dramatically” lower supplies because of bad weather.

Corn prices have surged more than 15 per cent over the past two days, making the jump one of the biggest in recent history and prompting some analysts to warn that the world was fast moving into another food crisis.

UN officials acknowledged over the weekend that the balance between supply and demand in the corn market was “fragile”, but insisted that the world would not see a repetition of the 2007-08 crisis.

In early trading in Chicago on Monday, CBOT December corn surged by an expanded daily limit of 45 cents, or 8.5 per cent, to $5.73¼ per bushel, the highest since September 2008.

In normal circumstances, the daily limit in Chicago is 30 cents, but the exchange widened the barrier to 45 cents after the market closed on Friday after corn prices rose 30 cents during the final session of the week.

Analysts believe corn prices could hit $6 a bushel, a level only seen during the peak of the 2007-08 food crisis, which saw the cost of agricultural commodities from corn to rice hit record highs, sparking food riots in poor countries.

“Meaningfully higher prices are now required in order to ration demand, principally ethanol consumption,” said Lewis Hagedorn, agricultural commodities analyst at JPMorgan in New York.

The USDA shocked traders by forecasting in its monthly report on Friday that the country’s corn farmers would harvest about 12.7bn bushels in the 2010-11 crop year that started in September. This is down 4 per cent from the USDA’s previous estimate.

The drop would slash the country’s stocks to 900m bushels, the lowest level in 14 years. The USDA also cut wheat and soya production estimates.

The US is the world’s largest corn grower and its exports make up the majority of global trade in the grain. The USDA had earlier forecast a record corn crop this year but a combination of unfavourable heat and heavy rains forced a re-evaluation of yields. The USDA cut yields to 155.9 bushels per acre, down from an earlier estimate of 162.5 bushels. The monthly reduction in yield was the largest on record.

The surge in corn dragged up wheat, soyabean and palm oil prices. The weakness of the US dollar against other currencies, including the yen, also propelled the rally.

In Chicago, CBOT November soyabean surged to a year high of $11.79 a bushel, up 3.9 per cent on the day. CBOT December wheat rose 1.5 per cent to $7.30 a bushel.

The meat industry has warned of a “game changer” in prices and profitability due to the surprise contraction in the US corn supply.

Meat analysts forecast higher prices for beef, pork and poultry as producers pass on higher feeding cost.

On Friday, the USDA warned of a “much tighter supply picture” for corn and barley, the two main feedstocks used to fatten cows, sheep, pigs and poultry.

Shares of some of the world’s largest meat producers fell sharply on Friday, but shares of fertiliser producers and sellers of farm equipment such as tractors soared.

Richard Feltes, analyst at brokers RJ O’Brien in Chicago, said: “Buy farm equipment stocks and sell food company stocks.”






Battle lines drawn over currency war
By Chris Giles and Alan Beattie in Washington
Copyright The Financial Times Limited 2010
Published: October 10 2010 19:13 | Last updated: October 10 2010 19:13
http://www.ft.com/cms/s/0/55e103f2-d495-11df-b230-00144feabdc0.html



Dominique Strauss-Kahn, IMF managing director: ‘The language is ineffective. The language is not going to change things. Policy has to be adapted’
Global economic co-operation was in disarray and further battles in the currency war looked likely after the weekend’s international meetings of finance ministers and central bankers broke up with no resolution.

The world’s largest economies remained as far apart as ever on currencies. China accused the US of destabilising emerging economies by allowing ultra-loose monetary policy to flood the emerging world with money, while the US insisted the International Monetary Fund should intensify its focus on exchange rates and the reserve accumulation of China.

The lack of any substantive agreements and brinkmanship on proposed reforms to the IMF is likely to exacerbate currency volatility in the month running up to the Seoul Group of 20 summit.

Mohamed El-Erian, chief executive of Pimco, the world’s largest bond investor, said: “A once promising global response has now been replaced by inadequately co-ordinated national economic policies and growing frictions among countries.”

The communiqué following the main IMF meeting spoke of countries working “co- operatively” but contained no evidence that leading economies could find agreement on any of the issues that divide them.

Dominique Strauss-Kahn, IMF managing director, called on countries not just to sign up to warm words but to take concrete steps. “The language is ineffective. The language is not going to change things. Policy has to be adapted.”

But there was little sign that China would let the renminbi appreciate faster, to the growing frustration of the US. “The IMF must strengthen its surveillance of exchange-rate policies and reserve accumulation practices,” said Tim Geithner, US Treasury secretary.

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This pressure on China is now being met with stiffer resistance. Zhou Xiaochuan, China’s central bank governor, told the IMF meeting the focus on currencies was one-sided. “The continuation of extremely low interest rates and unconventional monetary policies by major reserve currency issuers have created stark challenges for emerging market countries in the conduct of monetary policy.”

Prof Eswar Prasad of Cornell University said: “China’s aggressive pushback against criticism of its currency policy by shifting the line of attack towards loose monetary policies and rising public debt in advanced economies reflects its growing assertiveness and strong resistance to international pressure.”

Other finance ministers told the Financial Times of their despair at the intransigence of both sides. Pravin Gordhan, of South Africa, said: “If you listen to the Chinese, they have one interpretation of what is going on. If you listen to the Americans, they have another. There has to be give and take by all.”

To try to regain the initiative, the IMF has proposed a new mechanism to enhance its scrutiny of different countries’ economic policies by focusing on the ways one economy affects others. But experts do not see this as likely to resolve the deep divisions over policy.