Nov. 8 (Bloomberg) -- European central bankers should begin reversing expansionary monetary policies before governments roll back their economic stimulus measures, according to a study by Allianz SE, Europe’s biggest insurer.
“Given the long time-lag of monetary policy, an exit from monetary-policy expansion should begin earlier than for fiscal policies,” the authors said in the study, which was released in conjunction with Brussels-based research group Lisbon Council. “If exit strategies are delayed too long, we risk entering a new boom-bust cycle.”
European Central Bank President Jean-Claude Trichet said on Nov. 5 that the ECB will withdraw some liquidity operations after evidence mounted that the region’s economy is pulling out of the recession. The Bank of England on the same day slowed the pace of bond purchases. Both central banks kept their benchmark interest rates at record lows.
“We must make sure that the progress we see will lead to sustainable growth, not more financially fueled growth,” Michael Heise, chief economist of Munich-based Allianz and principal author of the study, said in a statement. “We must learn the lessons of the past, and not allow another bubble to develop.”
Governments have committed billions of euros to boost the economy, while the ECB is lending banks as much money as they want for up to a year and purchasing covered bonds in an effort to get credit flowing again. The banking industry “remains fragile” and further losses at financial institutions may total 400 billion euros ($596 billion) through next year, the European Commission said last week.
‘Active Consolidation’
The Allianz study forecasts the euro-area economy will expand 2 percent next year, compared with the 0.7 percent growth projected by the commission. Both see a 1.5 percent increase in gross domestic product in 2011.
The authors of the study call for “active consolidation of government expenses” beginning in 2011. Starting that year, state spending “should be held 2 percentage points below nominal GDP growth,” according to the study.
Saturday, November 7, 2009
IMF Says Dollar Funding ‘Carry Trade,’ May Be Still Overvalued
Nov. 8 (Bloomberg) -- The International Monetary Fund said traders are probably using the dollar to fund “carry trades” around the world and the currency may still be overvalued even after its slide this year.
“There are indications that the U.S. dollar is now serving as the funding currency for carry trades,” the IMF said in a report published yesterday. “These trades may be contributing to upward pressure on the euro and some emerging-economy currencies.” While the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.”
With investors able to borrow at near-zero interest rates in the U.S., some economists are concerned that markets may become distorted as traders plow those funds into riskier assets. Nouriel Roubini, the economist who forecast the financial crisis in 2006, said Nov. 4 that investors are milking the “mother of all carry trades.”
“U.S. interest rates look to remain near zero through the first half of 2010 at the very least, which provides traders plenty of time to continue with carry trades,” said Boris Schlossberg, director of currency research at the online currency trader GFT Forex in New York. “Labor-market conditions are still very challenging in the U.S., and the rest of the world is improving faster. The dollar remains the weakest link.”
Dollar’s Slide
The dollar has dropped about 13 percent against a basket of currencies from its major trading partners in the past seven months. Meanwhile, the MSCI All-Countries World Index of global equities has gained about two-thirds since March and sugar has soared 90 percent this year.
U.S. Federal Reserve policymakers, at the end of a two-day policy meeting on Nov. 4, reiterated their intention to keep interest rates “exceptionally low” for “an extended period.”
Speculation that the Fed will keep rates on hold into next year was further fueled by U.S. Labor Department figures on Nov. 6 that showed the nation’s unemployment rate jumped to 10.2 percent in October, exceeding 10 percent for the first time since 1983.
In a carry trade, investors borrow in countries with low interest rates to invest in higher-yielding assets. Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S. compare with 7 percent in South Africa and 2.5 percent in New Zealand, making the yen and dollar favored targets for investors seeking to fund carry trades.
Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York, said the dollar carry trade is likely to continue in coming months, and he expects the U.S. currency will decline further.
Risk Appetite
“The key wildcard to dollar carry trades is whether people continue to show an appetite for risk,” Chandler said. “That’ll weigh on the dollar.”
The euro’s exchange rate “is on the strong side of its equilibrium,” the Washington-based IMF said.
The fund, which published the report as officials from the Group of 20 nations gathered in St. Andrews, Scotland, also said that China’s yuan is “significantly undervalued.”
The Chinese currency “has depreciated in real effective terms in tandem with the U.S. dollar and remains significantly undervalued from a medium-term perspective,” the IMF said.
China has kept the exchange rate at about 6.83 to the dollar since July 2008, after letting the currency strengthen 21 percent in the previous three years. Appreciation was halted to help sustain exports amid a global recession.
Chinese central bank Governor Zhou Xiaochuan told Bloomberg News on Nov. 6 that “the pressure from the international community to allow yuan appreciation is not that big,” deflecting calls from Europe and Japan to let it rise.
Since President Barack Obama took office this year, “the U.S. hasn’t been as vocal” about the Chinese currency as it was previously, Brown Brothers’ Chandler said.
“There are indications that the U.S. dollar is now serving as the funding currency for carry trades,” the IMF said in a report published yesterday. “These trades may be contributing to upward pressure on the euro and some emerging-economy currencies.” While the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.”
With investors able to borrow at near-zero interest rates in the U.S., some economists are concerned that markets may become distorted as traders plow those funds into riskier assets. Nouriel Roubini, the economist who forecast the financial crisis in 2006, said Nov. 4 that investors are milking the “mother of all carry trades.”
“U.S. interest rates look to remain near zero through the first half of 2010 at the very least, which provides traders plenty of time to continue with carry trades,” said Boris Schlossberg, director of currency research at the online currency trader GFT Forex in New York. “Labor-market conditions are still very challenging in the U.S., and the rest of the world is improving faster. The dollar remains the weakest link.”
Dollar’s Slide
The dollar has dropped about 13 percent against a basket of currencies from its major trading partners in the past seven months. Meanwhile, the MSCI All-Countries World Index of global equities has gained about two-thirds since March and sugar has soared 90 percent this year.
U.S. Federal Reserve policymakers, at the end of a two-day policy meeting on Nov. 4, reiterated their intention to keep interest rates “exceptionally low” for “an extended period.”
Speculation that the Fed will keep rates on hold into next year was further fueled by U.S. Labor Department figures on Nov. 6 that showed the nation’s unemployment rate jumped to 10.2 percent in October, exceeding 10 percent for the first time since 1983.
In a carry trade, investors borrow in countries with low interest rates to invest in higher-yielding assets. Benchmark interest rates of 0.1 percent in Japan and as low as zero in the U.S. compare with 7 percent in South Africa and 2.5 percent in New Zealand, making the yen and dollar favored targets for investors seeking to fund carry trades.
Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York, said the dollar carry trade is likely to continue in coming months, and he expects the U.S. currency will decline further.
Risk Appetite
“The key wildcard to dollar carry trades is whether people continue to show an appetite for risk,” Chandler said. “That’ll weigh on the dollar.”
The euro’s exchange rate “is on the strong side of its equilibrium,” the Washington-based IMF said.
The fund, which published the report as officials from the Group of 20 nations gathered in St. Andrews, Scotland, also said that China’s yuan is “significantly undervalued.”
The Chinese currency “has depreciated in real effective terms in tandem with the U.S. dollar and remains significantly undervalued from a medium-term perspective,” the IMF said.
China has kept the exchange rate at about 6.83 to the dollar since July 2008, after letting the currency strengthen 21 percent in the previous three years. Appreciation was halted to help sustain exports amid a global recession.
Chinese central bank Governor Zhou Xiaochuan told Bloomberg News on Nov. 6 that “the pressure from the international community to allow yuan appreciation is not that big,” deflecting calls from Europe and Japan to let it rise.
Since President Barack Obama took office this year, “the U.S. hasn’t been as vocal” about the Chinese currency as it was previously, Brown Brothers’ Chandler said.
Brown Says G-20 Should Consider Tax on Speculation
Nov. 7 (Bloomberg) -- U.K. Prime Minister Gordon Brown said the Group of 20 nations should consider measures such as taxing financial transactions to penalize excessive risk taking and limit the burden on taxpayers of bank failures.
“It cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us,” Brown told G-20 finance ministers and central bankers at a meeting today in St. Andrews, Scotland. Tighter capital rules and pooled bank resolution funds could also be considered, he said.
The comments add momentum to a global debate on how governments should rein in markets after bad bets almost toppled the global financial system, triggering a worldwide recession and a string of government bailouts. French President Nicolas Sarkozy and Adair Turner, chairman of the U.K.’s Financial Services Authority, have both supported a so-called Tobin tax.
Brown, who didn’t say whether he’d endorse a levy, said any policy would need to be implemented by all financial centers including those in the Middle East, Asia and Switzerland. He also acknowledged the “enormous and difficult” issues that need to be overcome to set up a “globally cohesive system.”
The debate over whether to implement a global levy on speculation has mounted in recent months with the G-20 asking the International Monetary Fund in September to study it. Twelve nations including Britain, France, Germany and Brazil agreed last month to set up a panel of economists to research its feasibility.
Currency Trading
Their inspiration is a 1971 proposal by U.S. economist James Tobin to tax currency trading to deter speculation in the wake of the collapse of the Bretton Woods system of pegging exchange rates. Tobin, who died in 2002, won the 1981 Nobel Prize for his work on financial markets.
For Brown, who is trailing in polls less than seven months before the next U.K. election is due, the comments are designed to open a divide with the Conservative opposition. While the Conservatives say the biggest risk to the economy is the government’s record budget deficit, Brown has stepped up his attacks on banks.
Brown and Chancellor of the Exchequer Alistair Darling say loose oversight of the banking industry allowed institutions to take on too much risk, destabilizing the financial system by the time the subprime crisis dried up credit in 2007.
Social Contract
“There must be a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards,” Brown said today. “We need a better economic and social contract to reflect the global responsibilities of financial institutions to society.”
Some G-20 members are already acting alone on trading taxes. Brazil last month imposed a 2 percent tax on foreign purchases of equities and fixed-income securities in a bid to fend off excess speculation.
“Various countries have discussed the measure and are even thinking of adopting it,” Brazilian Finance Minister Guido Mantega said in a Nov. 5 interview with Bloomberg Television.
G-20 finance ministers and central bankers are meeting in the so-called home of golf to hammer out policies that will cement a recovery from the worst global recession since World War II and prevent a repeat of the financial crisis. After channelling more than $500 billion to bail out banks such as Royal Bank of Scotland Group Plc and Citigroup Inc., they’re also looking to impose tougher banking regulations.
Banking Mess
Brown’s speech “clearly opens the door for a financial transactions tax to make the bankers pay for the mess they’ve caused,” said Max Lawson, a policy adviser at aid organization Oxfam International. “There is a real rage against the banks which the prime minister is speaking to. There are big obstacles for such a tax, but this is a big moment.”
A tax of 0.05 percent on financial transactions may raise up to $700 billion a year, according to the WWF, a global environmental pressure group.
The British Bankers’ Association issued a statement saying that regulatory changes must be “properly costed” and the “timetable for change clearly set out.”
Economists are divided over whether any tax on financial transactions could work.
Former European Central Bank Chief Economist Otmar Issing said Oct. 26 that talk of such a measure is “like the Loch Ness monster; it appears once or twice a year, then goes away,” arguing it could never be imposed across borders and investors would circumnavigate it.
French officials including Sarkozy have suggested a levy on speculation for most of this decade without success.
“It cannot be acceptable that the benefits of success in this sector are reaped by the few but the costs of its failure are borne by all of us,” Brown told G-20 finance ministers and central bankers at a meeting today in St. Andrews, Scotland. Tighter capital rules and pooled bank resolution funds could also be considered, he said.
The comments add momentum to a global debate on how governments should rein in markets after bad bets almost toppled the global financial system, triggering a worldwide recession and a string of government bailouts. French President Nicolas Sarkozy and Adair Turner, chairman of the U.K.’s Financial Services Authority, have both supported a so-called Tobin tax.
Brown, who didn’t say whether he’d endorse a levy, said any policy would need to be implemented by all financial centers including those in the Middle East, Asia and Switzerland. He also acknowledged the “enormous and difficult” issues that need to be overcome to set up a “globally cohesive system.”
The debate over whether to implement a global levy on speculation has mounted in recent months with the G-20 asking the International Monetary Fund in September to study it. Twelve nations including Britain, France, Germany and Brazil agreed last month to set up a panel of economists to research its feasibility.
Currency Trading
Their inspiration is a 1971 proposal by U.S. economist James Tobin to tax currency trading to deter speculation in the wake of the collapse of the Bretton Woods system of pegging exchange rates. Tobin, who died in 2002, won the 1981 Nobel Prize for his work on financial markets.
For Brown, who is trailing in polls less than seven months before the next U.K. election is due, the comments are designed to open a divide with the Conservative opposition. While the Conservatives say the biggest risk to the economy is the government’s record budget deficit, Brown has stepped up his attacks on banks.
Brown and Chancellor of the Exchequer Alistair Darling say loose oversight of the banking industry allowed institutions to take on too much risk, destabilizing the financial system by the time the subprime crisis dried up credit in 2007.
Social Contract
“There must be a better economic and social contract between financial institutions and the public based on trust and a just distribution of risks and rewards,” Brown said today. “We need a better economic and social contract to reflect the global responsibilities of financial institutions to society.”
Some G-20 members are already acting alone on trading taxes. Brazil last month imposed a 2 percent tax on foreign purchases of equities and fixed-income securities in a bid to fend off excess speculation.
“Various countries have discussed the measure and are even thinking of adopting it,” Brazilian Finance Minister Guido Mantega said in a Nov. 5 interview with Bloomberg Television.
G-20 finance ministers and central bankers are meeting in the so-called home of golf to hammer out policies that will cement a recovery from the worst global recession since World War II and prevent a repeat of the financial crisis. After channelling more than $500 billion to bail out banks such as Royal Bank of Scotland Group Plc and Citigroup Inc., they’re also looking to impose tougher banking regulations.
Banking Mess
Brown’s speech “clearly opens the door for a financial transactions tax to make the bankers pay for the mess they’ve caused,” said Max Lawson, a policy adviser at aid organization Oxfam International. “There is a real rage against the banks which the prime minister is speaking to. There are big obstacles for such a tax, but this is a big moment.”
A tax of 0.05 percent on financial transactions may raise up to $700 billion a year, according to the WWF, a global environmental pressure group.
The British Bankers’ Association issued a statement saying that regulatory changes must be “properly costed” and the “timetable for change clearly set out.”
Economists are divided over whether any tax on financial transactions could work.
Former European Central Bank Chief Economist Otmar Issing said Oct. 26 that talk of such a measure is “like the Loch Ness monster; it appears once or twice a year, then goes away,” arguing it could never be imposed across borders and investors would circumnavigate it.
French officials including Sarkozy have suggested a levy on speculation for most of this decade without success.
Friday, November 6, 2009
Asia Currencies Make Gains, Led by Won, Peso on U.S. Recovery
Nov. 7 (Bloomberg) -- Asian currencies rose this week, paced by South Korea’s won and the Philippine peso, as signs the U.S. economy is recovering from a recession spurred risk-taking.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, climbed after data showed fewer U.S. jobless claims than economists forecast. Indonesia’s rupiah gained on speculation investors will favor higher-yielding assets after the U.S. Federal Reserve repeated it will keep interest rates near zero for “an extended period.” Bank Indonesia’s benchmark rate is 6.5 percent.
“The initial claims figure gave hope that unemployment won’t be so grim, that the fundamental picture is still showing improvement,” said David Cohen, an economist at Action Economics in Singapore. “The Fed were cautious about the risks to the sustained recovery, but so far the data from Asia, including Korea, have been encouraging.”
The won climbed 1.3 percent to 1,167.45 per dollar, according to data compiled by Bloomberg. The Philippine peso gained 0.8 percent to 47.205 and the rupiah strengthened 1.3 percent to 9,460. The Asia Dollar Index advanced 0.6 percent and the MSCI Asia-Pacific Index of shares fell 0.1 percent.
U.S. initial jobless claims dropped by 20,000 to 512,000 in the week ended Oct. 31, the fewest since January, the government reported Nov. 5. The Institute for Supply Management’s factory index rose to a three-year high last month, exceeding all 70 estimates in a Bloomberg survey of economists before the data was released Nov. 2.
Investors should buy won as Korea’s recovery gathers pace, attracting foreign investment fueled by “easy liquidity conditions,” RBC Capital Markets wrote in a note on Nov. 5.
Taiwan Dollar
Taiwan’s dollar rose after a central bank report showed foreign-exchange reserves climbed for a 12th month in October. It strengthened 0.1 percent in the week to NT$32.509.
“There’re more people selling U.S. dollars,” said Tarsicio Tong, a currency trader at Union Bank of Taiwan. “Foreign-exchange reserves rose, which means there were fund inflows and the value of the Taiwan dollar will rise.”
Taiwan’s foreign-exchange reserves, the world’s fourth largest, rose 2.7 percent to $341.2 billion last month, the central bank reported on Nov. 5. A Nov. 9 government report will show exports fell 7.2 percent from a year earlier in October, the least in 13 months, a Bloomberg survey showed.
Overseas investors bought $10.8 billion more Taiwan shares than they sold this year, helping lift the Taiex stock index 63 percent and the local currency 1 percent. The economy may return to growth in the October-to-December period after contracting for five straight quarters, the statistics bureau said in August.
Philippine Peso
The Philippine peso yesterday rose to its highest level in more than a week after the Standard & Poor’s 500 index climbed for a fourth day.
“With Wall Street’s rally, clearly, it seems the market’s preference for riskier assets is there,” said Jonathan Ravelas, a strategist at Manila-based Banco de Oro Unibank Inc. “There is no reason for the dollar to remain strong.”
Elsewhere, the Malaysian ringgit strengthened 0.4 percent this week to 3.402 per dollar and the Thai baht rose 0.2 percent to 33.37. China’s yuan was little changed at 6.8273 in the week versus 6.8275 on Oct. 30. India’s rupee gained 0.4 percent to 46.815.
--Judy Chen, Bob Chen. Editors: Sandy Hendry, James Regan.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, climbed after data showed fewer U.S. jobless claims than economists forecast. Indonesia’s rupiah gained on speculation investors will favor higher-yielding assets after the U.S. Federal Reserve repeated it will keep interest rates near zero for “an extended period.” Bank Indonesia’s benchmark rate is 6.5 percent.
“The initial claims figure gave hope that unemployment won’t be so grim, that the fundamental picture is still showing improvement,” said David Cohen, an economist at Action Economics in Singapore. “The Fed were cautious about the risks to the sustained recovery, but so far the data from Asia, including Korea, have been encouraging.”
The won climbed 1.3 percent to 1,167.45 per dollar, according to data compiled by Bloomberg. The Philippine peso gained 0.8 percent to 47.205 and the rupiah strengthened 1.3 percent to 9,460. The Asia Dollar Index advanced 0.6 percent and the MSCI Asia-Pacific Index of shares fell 0.1 percent.
U.S. initial jobless claims dropped by 20,000 to 512,000 in the week ended Oct. 31, the fewest since January, the government reported Nov. 5. The Institute for Supply Management’s factory index rose to a three-year high last month, exceeding all 70 estimates in a Bloomberg survey of economists before the data was released Nov. 2.
Investors should buy won as Korea’s recovery gathers pace, attracting foreign investment fueled by “easy liquidity conditions,” RBC Capital Markets wrote in a note on Nov. 5.
Taiwan Dollar
Taiwan’s dollar rose after a central bank report showed foreign-exchange reserves climbed for a 12th month in October. It strengthened 0.1 percent in the week to NT$32.509.
“There’re more people selling U.S. dollars,” said Tarsicio Tong, a currency trader at Union Bank of Taiwan. “Foreign-exchange reserves rose, which means there were fund inflows and the value of the Taiwan dollar will rise.”
Taiwan’s foreign-exchange reserves, the world’s fourth largest, rose 2.7 percent to $341.2 billion last month, the central bank reported on Nov. 5. A Nov. 9 government report will show exports fell 7.2 percent from a year earlier in October, the least in 13 months, a Bloomberg survey showed.
Overseas investors bought $10.8 billion more Taiwan shares than they sold this year, helping lift the Taiex stock index 63 percent and the local currency 1 percent. The economy may return to growth in the October-to-December period after contracting for five straight quarters, the statistics bureau said in August.
Philippine Peso
The Philippine peso yesterday rose to its highest level in more than a week after the Standard & Poor’s 500 index climbed for a fourth day.
“With Wall Street’s rally, clearly, it seems the market’s preference for riskier assets is there,” said Jonathan Ravelas, a strategist at Manila-based Banco de Oro Unibank Inc. “There is no reason for the dollar to remain strong.”
Elsewhere, the Malaysian ringgit strengthened 0.4 percent this week to 3.402 per dollar and the Thai baht rose 0.2 percent to 33.37. China’s yuan was little changed at 6.8273 in the week versus 6.8275 on Oct. 30. India’s rupee gained 0.4 percent to 46.815.
--Judy Chen, Bob Chen. Editors: Sandy Hendry, James Regan.
Thursday, November 5, 2009
Global Stocks May Fall as U.S. Yields Rise: Technical Analysis
Nov. 6 (Bloomberg) -- Global stocks may be headed for a “correction” as an increase in U.S. 10-year yields prompts a reduction of carry trades, according to Citigroup Inc.
The yield on 10-year government bonds climbed 37 basis points from a July 31 low to Aug. 8. Using that range, the resistance level stands at 3.55 percent from a low of 3.18 percent on Oct. 1, said Yutaka Yoshino, chief technical analyst at Citigroup in Tokyo, who uses the Japanese technical analysis method of “ichimoku kinko,” which looks at wave patterns and repeating trends. Yields move inversely to bond prices and 1 basis point is equal to 0.01 percentage point.
“If we pass that 3.55 level on the yield, we stop being in a rebound phase and enter into a rising trend,” said Yoshino. “Inflation concerns are starting to creep in and the Federal Reserve has no control over long-term interest rates.”
The yield on the 10-year note finished at 3.53 percent yesterday and will keep rising should it break above the resistance level, Yoshino said. Rising U.S. interest rates mean investors can’t borrow as cheaply in dollars to fund purchases of higher-yielding assets including stocks, a strategy known as a carry trade, he said.
The Dow Jones Industrial Average could decline 14 percent to as low as 8,600 and the Nikkei 225 Stock Average may slide 13 percent to 8,450, he said.
Fed officials said on Nov. 4 they’re more optimistic about the economic outlook and maintained a commitment to keeping interest rates near zero for an “extended period.” The central bank specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline.
Ichimoku kinko, a strategy developed by a Japanese journalist prior to World War II, translates as “one glance equilibrium chart” because of the cloud-like patterns formed by trend lines that make it easy to understand at a glance. The style of analysis is similar to the Elliott Wave theory developed by accountant Ralph Nelson and popularized by Robert Prechter.
Technical analysts make predictions based on patterns in price charts and market data.
The yield on 10-year government bonds climbed 37 basis points from a July 31 low to Aug. 8. Using that range, the resistance level stands at 3.55 percent from a low of 3.18 percent on Oct. 1, said Yutaka Yoshino, chief technical analyst at Citigroup in Tokyo, who uses the Japanese technical analysis method of “ichimoku kinko,” which looks at wave patterns and repeating trends. Yields move inversely to bond prices and 1 basis point is equal to 0.01 percentage point.
“If we pass that 3.55 level on the yield, we stop being in a rebound phase and enter into a rising trend,” said Yoshino. “Inflation concerns are starting to creep in and the Federal Reserve has no control over long-term interest rates.”
The yield on the 10-year note finished at 3.53 percent yesterday and will keep rising should it break above the resistance level, Yoshino said. Rising U.S. interest rates mean investors can’t borrow as cheaply in dollars to fund purchases of higher-yielding assets including stocks, a strategy known as a carry trade, he said.
The Dow Jones Industrial Average could decline 14 percent to as low as 8,600 and the Nikkei 225 Stock Average may slide 13 percent to 8,450, he said.
Fed officials said on Nov. 4 they’re more optimistic about the economic outlook and maintained a commitment to keeping interest rates near zero for an “extended period.” The central bank specified for the first time that policy will stay unchanged as long as inflation expectations are stable and unemployment fails to decline.
Ichimoku kinko, a strategy developed by a Japanese journalist prior to World War II, translates as “one glance equilibrium chart” because of the cloud-like patterns formed by trend lines that make it easy to understand at a glance. The style of analysis is similar to the Elliott Wave theory developed by accountant Ralph Nelson and popularized by Robert Prechter.
Technical analysts make predictions based on patterns in price charts and market data.
RBA Says Australian GDP to Grow Faster, Rates to Rise
Nov. 6 (Bloomberg) -- Australia’s central bank said the nation’s economy will expand at more than three times the pace forecast in August, and signaled it will continue to lead the world in raising interest rates.
“A further gradual lessening of monetary stimulus is likely to be required over time,” the Reserve Bank said in Sydney today. Gross domestic product will rise 1.75 percent this year and 3.25 percent in 2010, the bank said. Three months ago, it forecast gains of 0.5 percent and 2.25 percent respectively.
Governor Glenn Stevens this week became the first central banker to raise borrowing costs twice this year, citing a rebound in consumer confidence and strengthening Chinese demand for exports, which rose in September by the most in almost a year. Most economists surveyed by Bloomberg expect Stevens will increase the benchmark rate by another quarter point next month.
The economy will continue its expansion in 2011 and 2012 as companies boost investment in resources, including Western Australia’s A$43 billion ($39 billion) Gorgon liquefied natural gas project, the bank said in today’s quarterly monetary policy statement.
“Growth in business investment and exports is expected to be strong, underpinned by the ongoing expansion of the resources sector,” the bank said. “The outlook for Australia’s terms of trade has also improved, with some increase now expected over the next year or two.”
The Australian dollar traded at 91.11 U.S. cents at 11:32 a.m. in Sydney from 91.01 cents before the statement was released. The two-year government bond yield was little changed at 4.66 percent.
Government Stimulus
Stevens and his board raised the overnight cash rate target by a quarter percentage point in October and this week to 3.5 percent, and signaled further “gradual” increases.
The economy is growing faster and generating more jobs than the government and central bank forecast earlier this year, helped by Prime Minister Kevin Rudd’s decision to distribute A$20 billion in cash to households. He is also spending another A$22 billion updating roads, railways and schools.
Core inflation is forecast to slow to 2.25 percent in 2010 from 3.25 percent in 2009, the bank said. Policy makers aim to keep inflation between 2 percent and 3 percent on average.
The headline consumer price index, which includes more volatile prices such as gasoline, will hold within that target range through to the June quarter of 2012.
Slower wages growth and falling costs for imported goods because of the recent gain in the Australian dollar “suggest that a further moderation in underlying inflation is likely over the period ahead,” today’s report said.
Currency Parity
Speculation that Stevens will continue raising borrowing costs, as counterparts in the U.S., Europe and the U.K. to keep their own benchmark rates at historic lows, has pushed Australia’s currency toward parity with the U.S. dollar.
Australia’s currency will trade for 1 U.S. dollar next year, according to forecasters at Citigroup Inc., Calyon, Barclays Capital and National Australia Bank Ltd., implying an additional 10 percent gain. Hedge funds and other large traders last month had more bets than at any time since July 15, 2008, that the rally will continue, data from the Washington-based Commodity Futures Trading Commission show.
Traders are betting there is a 60 percent chance policy makers will increase the key rate by another quarter point on Dec. 1, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 6:20 a.m. today. That would be the first time in history the bank has raised borrowing costs at three successive meetings.
Rates Low
“The cash rate remains at a low level,” today’s statement said.
GDP will rise 3.25 percent in 2011 and 3.5 percent in the year through June 30, 2012, according to today’s forecasts, which the bank said it prepared using the assumption that the benchmark lending rate “increases gradually.”
“Conditions in the global and Australian economies are significantly better than was expected when the board lowered the cash rate to 3 percent,” a half-century low, in April, today’s statement said.
‘The Australian economy is operating with less spare capacity than earlier thought likely, and the outlook for the next few years has improved,’’ the bank added.
While employment growth is expected “to be subdued” over the next couple of quarters, before accelerating in 2010, the outlook for the labor market has “improved” since the bank’s August policy statement. The bank didn’t provide specific forecasts for the unemployment rate, which unexpectedly fell in September for the first time in five months, declining to 5.7 percent from 5.8 percent.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
“A further gradual lessening of monetary stimulus is likely to be required over time,” the Reserve Bank said in Sydney today. Gross domestic product will rise 1.75 percent this year and 3.25 percent in 2010, the bank said. Three months ago, it forecast gains of 0.5 percent and 2.25 percent respectively.
Governor Glenn Stevens this week became the first central banker to raise borrowing costs twice this year, citing a rebound in consumer confidence and strengthening Chinese demand for exports, which rose in September by the most in almost a year. Most economists surveyed by Bloomberg expect Stevens will increase the benchmark rate by another quarter point next month.
The economy will continue its expansion in 2011 and 2012 as companies boost investment in resources, including Western Australia’s A$43 billion ($39 billion) Gorgon liquefied natural gas project, the bank said in today’s quarterly monetary policy statement.
“Growth in business investment and exports is expected to be strong, underpinned by the ongoing expansion of the resources sector,” the bank said. “The outlook for Australia’s terms of trade has also improved, with some increase now expected over the next year or two.”
The Australian dollar traded at 91.11 U.S. cents at 11:32 a.m. in Sydney from 91.01 cents before the statement was released. The two-year government bond yield was little changed at 4.66 percent.
Government Stimulus
Stevens and his board raised the overnight cash rate target by a quarter percentage point in October and this week to 3.5 percent, and signaled further “gradual” increases.
The economy is growing faster and generating more jobs than the government and central bank forecast earlier this year, helped by Prime Minister Kevin Rudd’s decision to distribute A$20 billion in cash to households. He is also spending another A$22 billion updating roads, railways and schools.
Core inflation is forecast to slow to 2.25 percent in 2010 from 3.25 percent in 2009, the bank said. Policy makers aim to keep inflation between 2 percent and 3 percent on average.
The headline consumer price index, which includes more volatile prices such as gasoline, will hold within that target range through to the June quarter of 2012.
Slower wages growth and falling costs for imported goods because of the recent gain in the Australian dollar “suggest that a further moderation in underlying inflation is likely over the period ahead,” today’s report said.
Currency Parity
Speculation that Stevens will continue raising borrowing costs, as counterparts in the U.S., Europe and the U.K. to keep their own benchmark rates at historic lows, has pushed Australia’s currency toward parity with the U.S. dollar.
Australia’s currency will trade for 1 U.S. dollar next year, according to forecasters at Citigroup Inc., Calyon, Barclays Capital and National Australia Bank Ltd., implying an additional 10 percent gain. Hedge funds and other large traders last month had more bets than at any time since July 15, 2008, that the rally will continue, data from the Washington-based Commodity Futures Trading Commission show.
Traders are betting there is a 60 percent chance policy makers will increase the key rate by another quarter point on Dec. 1, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 6:20 a.m. today. That would be the first time in history the bank has raised borrowing costs at three successive meetings.
Rates Low
“The cash rate remains at a low level,” today’s statement said.
GDP will rise 3.25 percent in 2011 and 3.5 percent in the year through June 30, 2012, according to today’s forecasts, which the bank said it prepared using the assumption that the benchmark lending rate “increases gradually.”
“Conditions in the global and Australian economies are significantly better than was expected when the board lowered the cash rate to 3 percent,” a half-century low, in April, today’s statement said.
‘The Australian economy is operating with less spare capacity than earlier thought likely, and the outlook for the next few years has improved,’’ the bank added.
While employment growth is expected “to be subdued” over the next couple of quarters, before accelerating in 2010, the outlook for the labor market has “improved” since the bank’s August policy statement. The bank didn’t provide specific forecasts for the unemployment rate, which unexpectedly fell in September for the first time in five months, declining to 5.7 percent from 5.8 percent.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net
E.U. Finds Trade Barriers Rising Since Global Crisis
BRUSSELS — European exporters have faced more than 220 new and restrictive trade measures since the start of the global economic crisis, but a “protectionist worst-case scenario has been avoided,” according to a report due to be published Friday.
The document from the European Union’s trade commissioner, Catherine Ashton, says that in the 12 months since October 2008, “roughly 223” measures had been introduced by the E.U.’s trading partners or were under consideration, with Russia and Argentina responsible for the most.
However, the report says there is no sign of the spiral of protectionism that some had feared when the worldwide downturn took hold last year.
“Although, new trade-restrictive and distortive policy initiatives have been implemented since the start of the crisis,” the document says, “a widespread and systemic escalation of protectionism has been prevented.”
“Proliferation of the kind of beggar-thy-neighbor protectionist policies of the 1930s has been prevented,” adds the document, which was reviewed by the International Herald Tribune. “The current multilaterally based world trade system seems to have passed one of the most serious stress tests in its entire history.”
Global trade volumes in August 2009 were 18 percent below their 2008 peak but the report concludes that this slump was caused by the reaction to the financial crisis rather than protectionism.
The E.U. says that the commitments of Group of 20 leaders to defend free trade have sent an important signal. However, the range of restrictive measures reported include classical tariff increases, import and export bans or ceilings, non-tariff barriers and government procurement and investment measures which discriminate against foreign companies. Classical barriers alone potentially affect roughly 5 percent of E.U. exports.
And the document warns that some of the measures will remain in place as the global economy recovers — especially in countries that have not acceded to the World Trade Organization.
Russia and Belarus, which are among the nations still outside the W.T.O. framework, “are among the countries that have used border measures more widely.”
Argentina, together with Russia, has “yet again introduced the majority of new potentially trade-restrictive measures,” the document states.
Argentina and Indonesia have made much use of the “flexibility” offered by W.T.O. rules to raise applied tariffs up to their maximum levels.
Mexico, Vietnam, Paraguay, Egypt, and Brazil “have also taken advantage of this policy space but they have done so in a more ‘selective’ fashion,” the report adds.
For the United States, one potentially trade-distorting measure is listed: the Foreign Manufacturers Legal Accountability Act of 2009. The report says that this law aims to protect U.S. consumers and businesses from injuries caused by defective products manufactured abroad.
Four are listed as under consideration, including one draft bill that risks granting “unfair tax disadvantages” to subsidiaries of European companies in the United States in the insurance sector.
The document from the European Union’s trade commissioner, Catherine Ashton, says that in the 12 months since October 2008, “roughly 223” measures had been introduced by the E.U.’s trading partners or were under consideration, with Russia and Argentina responsible for the most.
However, the report says there is no sign of the spiral of protectionism that some had feared when the worldwide downturn took hold last year.
“Although, new trade-restrictive and distortive policy initiatives have been implemented since the start of the crisis,” the document says, “a widespread and systemic escalation of protectionism has been prevented.”
“Proliferation of the kind of beggar-thy-neighbor protectionist policies of the 1930s has been prevented,” adds the document, which was reviewed by the International Herald Tribune. “The current multilaterally based world trade system seems to have passed one of the most serious stress tests in its entire history.”
Global trade volumes in August 2009 were 18 percent below their 2008 peak but the report concludes that this slump was caused by the reaction to the financial crisis rather than protectionism.
The E.U. says that the commitments of Group of 20 leaders to defend free trade have sent an important signal. However, the range of restrictive measures reported include classical tariff increases, import and export bans or ceilings, non-tariff barriers and government procurement and investment measures which discriminate against foreign companies. Classical barriers alone potentially affect roughly 5 percent of E.U. exports.
And the document warns that some of the measures will remain in place as the global economy recovers — especially in countries that have not acceded to the World Trade Organization.
Russia and Belarus, which are among the nations still outside the W.T.O. framework, “are among the countries that have used border measures more widely.”
Argentina, together with Russia, has “yet again introduced the majority of new potentially trade-restrictive measures,” the document states.
Argentina and Indonesia have made much use of the “flexibility” offered by W.T.O. rules to raise applied tariffs up to their maximum levels.
Mexico, Vietnam, Paraguay, Egypt, and Brazil “have also taken advantage of this policy space but they have done so in a more ‘selective’ fashion,” the report adds.
For the United States, one potentially trade-distorting measure is listed: the Foreign Manufacturers Legal Accountability Act of 2009. The report says that this law aims to protect U.S. consumers and businesses from injuries caused by defective products manufactured abroad.
Four are listed as under consideration, including one draft bill that risks granting “unfair tax disadvantages” to subsidiaries of European companies in the United States in the insurance sector.
Wednesday, November 4, 2009
U.S., EU Seek WTO Probe of Chinese Raw-Materials Export Curbs
Nov. 5 (Bloomberg) -- The U.S. and the European Union requested a World Trade Organization investigation of China’s restrictions on exports of raw materials used by the steel and chemical industries.
The complaint says China uses special taxes intended to discourage the export of 20 metals or chemicals as a way to keep them inexpensive and available to domestic manufacturers.
Officials from the U.S. and the EU, along with Mexico, asked the WTO yesterday to determine the legality of the curbs on materials that are “critical” to manufacturers and workers, the U.S. Trade Representative’s office and the EU said in separate statements. The materials, including coke, bauxite and manganese, are used by the steel, aluminum and chemicals industries.
Trade tensions between China and the U.S. and the EU have grown as the economic crisis crimps exports and sparks job cuts. China is the 27-nation EU’s second-biggest trading partner. China also passed Canada to become the largest source of U.S. imports in 2007.
The request to the WTO was made more than four months after the U.S. and EU filed a request for consultations at the Geneva- based WTO, setting off a period of discussions with China aimed at resolving the dispute. The EU, the U.S. and Mexico, which filed a request for talks on Aug. 21, “tried to resolve this issue through consultations, but did not succeed,” said Debbie Mesloh, a USTR spokeswoman in Washington.
Hurting Competition
Export restrictions, which have multiplied in recent years because of surging prices for raw materials, discourage companies from being more productive and competitive, according to the European Commission, the EU’s trade authority. Such curbs drive up prices and choke off supplies of raw materials, which affects a broad range of finished products including airplanes, semiconductors, detergent and steel, the commission says.
“China’s restrictions on raw materials continue to distort competition and increase global prices, making conditions for our companies even more difficult in this economic climate,” European Trade Commissioner Catherine Ashton said in a statement. The nation is either a major supplier or the only source of the materials at issue, according to the EU.
China, the world’s fastest-growing major economy and biggest consumer of metals, has defended its policy. The measures are designed to protect the environment and natural resources and are “in accordance with WTO rules,” the government said on June 24.
Measures and Products
The panel requested yesterday focuses on a specific batch of measures and products, said the EU, adding that “further legal action cannot be ruled out if these concerns are not effectively addressed.”
Trade volume between China and the EU grew to more than 326 billion euros ($484 billion) last year. The industries in the EU that are potentially affected by the Chinese restrictions represent about 4 percent of the bloc’s industrial activity and a half-million jobs. Trade between the U.S. and China expanded to $408 billion last year.
U.S. steelmakers and unions have ramped up their complaints of China this year, arguing that cheap government loans, tax rebates and grants give manufacturers an unfair advantage. After filing a WTO case in 2007 against Chinese tax breaks, which the U.S. argued was another subsidy, China agreed to drop them.
The WTO’s dispute settlement body will consider the request for the establishment of a panel at its Nov. 19 meeting, the USTR said.
The complaint says China uses special taxes intended to discourage the export of 20 metals or chemicals as a way to keep them inexpensive and available to domestic manufacturers.
Officials from the U.S. and the EU, along with Mexico, asked the WTO yesterday to determine the legality of the curbs on materials that are “critical” to manufacturers and workers, the U.S. Trade Representative’s office and the EU said in separate statements. The materials, including coke, bauxite and manganese, are used by the steel, aluminum and chemicals industries.
Trade tensions between China and the U.S. and the EU have grown as the economic crisis crimps exports and sparks job cuts. China is the 27-nation EU’s second-biggest trading partner. China also passed Canada to become the largest source of U.S. imports in 2007.
The request to the WTO was made more than four months after the U.S. and EU filed a request for consultations at the Geneva- based WTO, setting off a period of discussions with China aimed at resolving the dispute. The EU, the U.S. and Mexico, which filed a request for talks on Aug. 21, “tried to resolve this issue through consultations, but did not succeed,” said Debbie Mesloh, a USTR spokeswoman in Washington.
Hurting Competition
Export restrictions, which have multiplied in recent years because of surging prices for raw materials, discourage companies from being more productive and competitive, according to the European Commission, the EU’s trade authority. Such curbs drive up prices and choke off supplies of raw materials, which affects a broad range of finished products including airplanes, semiconductors, detergent and steel, the commission says.
“China’s restrictions on raw materials continue to distort competition and increase global prices, making conditions for our companies even more difficult in this economic climate,” European Trade Commissioner Catherine Ashton said in a statement. The nation is either a major supplier or the only source of the materials at issue, according to the EU.
China, the world’s fastest-growing major economy and biggest consumer of metals, has defended its policy. The measures are designed to protect the environment and natural resources and are “in accordance with WTO rules,” the government said on June 24.
Measures and Products
The panel requested yesterday focuses on a specific batch of measures and products, said the EU, adding that “further legal action cannot be ruled out if these concerns are not effectively addressed.”
Trade volume between China and the EU grew to more than 326 billion euros ($484 billion) last year. The industries in the EU that are potentially affected by the Chinese restrictions represent about 4 percent of the bloc’s industrial activity and a half-million jobs. Trade between the U.S. and China expanded to $408 billion last year.
U.S. steelmakers and unions have ramped up their complaints of China this year, arguing that cheap government loans, tax rebates and grants give manufacturers an unfair advantage. After filing a WTO case in 2007 against Chinese tax breaks, which the U.S. argued was another subsidy, China agreed to drop them.
The WTO’s dispute settlement body will consider the request for the establishment of a panel at its Nov. 19 meeting, the USTR said.
BOE May Expand Bond Plan as Officials ‘Throw Money’ at Economy
Nov. 5 (Bloomberg) -- The Bank of England may increase its bond-purchase plan by 50 billion pounds ($83 billion) today as central bankers and politicians scramble to shore up Britain’s banking system and drag the economy out of recession.
Governor Mervyn King’s nine-member Monetary Policy Committee will expand the asset-buying program to 225 billion pounds at 12 p.m. in London, the median of 48 forecasts in a Bloomberg News survey shows. That follows Prime Minister Gordon Brown’s pledge this week to spend almost 40 billion pounds in a second bailout of two the nation’s biggest banks.
Any increase in the Bank of England’s emergency program would be the third since King unveiled the plan in March. Brown’s first bank bailout, the government’s fiscal stimulus measures and an injection of 175 billion pounds in newly printed central bank money have so far failed to end Britain’s longest recession on record.
“They’ve got to throw money at it,” said Neil Mackinnon, an economist at VTB Capital Plc and a former U.K. Treasury official. “The fact of the matter is that the U.K. economy is lagging behind. As to whether quantitative easing is working, the jury is still out.”
The central bank will keep its benchmark interest rate at a record low of 0.5 percent, according to all 60 economists in a Bloomberg survey. The European Central Bank, which also meets today, will maintain its main rate at 1 percent at 1:45 p.m. in Frankfurt, a separate survey showed.
Vote Split
The Bank of England’s bond plan already split the rate panel once this year when King’s push to increase the plan to 200 billion pounds was defeated in August. While he argued that being too cautious was less of a risk than spending too much, Chief Economist Spencer Dale says that there is a danger of stoking asset prices too much.
“It is a lot of money, but if it does restart the economy and gets it moving again then it’s worth it,” said George Buckley, an economist at Deutsche Bank AG in London. “It’s very difficult to say if quantitative easing is working, but it is doing something.”
Service industries showed the fastest pace of expansion since August 2007 in October in a survey by Markit Economics released yesterday, while Nationwide Building Society said that consumer confidence held at the highest level in 1 1/2 years.
Some economists say the pickup may have more to do with record-low interest rates than the bank’s bond purchases.
‘Full Impact’
“When you have a 500 basis point cut in interest rates that is bound to impact the economy with a bit of a lag and that lag is coming to an end and we’re seeing the full impact now,” former U.K. policy DeAnne Julius said in a Bloomberg Television interview this week.
While the Bank of England says that one of the aims of the bond purchases is to increase the amount of money in the economy, a gauge of money supply favored by the bank fell an annualized 1.7 percent in the third quarter, the weakest reading on record.
“If reviving bank lending and in turn money supply growth is the objective, it’s clearly not working,” VTB’s Mackinnon said. “The evidence for any upturn in lending is still very tentative.”
Gross domestic product shrank 0.4 percent in the three months through September, dragging Britain’s recession into a record sixth quarter. By contrast, the U.S., German and French economies have all returned to growth.
Marks & Spencer Group Plc, the nation’s largest clothing retailer, said yesterday it’s “cautious” about the outlook for the next year. HSBC Holdings Plc, Europe’s largest bank, said this week it will cut 1,700 jobs in the U.K.
Brown’s Challenge
Brown is seeking to revive the banking system and the economy in preparation for an election due by June. He pledged this week to inject 31.2 billion pounds into Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, allowing the institutions to scale back dependence on state guarantees for their most toxic assets. The government also promised up to 8 billion pounds for RBS to use “in exceptional circumstances.”
“Every effort must be made to bring the recession to an end,” David Kern, economic adviser at the British Chambers of Commerce, said today. “The current economic situation -- in which our economy is still declining while other countries are already growing -- entails serious dangers and must not be allowed to continue.”
Governor Mervyn King’s nine-member Monetary Policy Committee will expand the asset-buying program to 225 billion pounds at 12 p.m. in London, the median of 48 forecasts in a Bloomberg News survey shows. That follows Prime Minister Gordon Brown’s pledge this week to spend almost 40 billion pounds in a second bailout of two the nation’s biggest banks.
Any increase in the Bank of England’s emergency program would be the third since King unveiled the plan in March. Brown’s first bank bailout, the government’s fiscal stimulus measures and an injection of 175 billion pounds in newly printed central bank money have so far failed to end Britain’s longest recession on record.
“They’ve got to throw money at it,” said Neil Mackinnon, an economist at VTB Capital Plc and a former U.K. Treasury official. “The fact of the matter is that the U.K. economy is lagging behind. As to whether quantitative easing is working, the jury is still out.”
The central bank will keep its benchmark interest rate at a record low of 0.5 percent, according to all 60 economists in a Bloomberg survey. The European Central Bank, which also meets today, will maintain its main rate at 1 percent at 1:45 p.m. in Frankfurt, a separate survey showed.
Vote Split
The Bank of England’s bond plan already split the rate panel once this year when King’s push to increase the plan to 200 billion pounds was defeated in August. While he argued that being too cautious was less of a risk than spending too much, Chief Economist Spencer Dale says that there is a danger of stoking asset prices too much.
“It is a lot of money, but if it does restart the economy and gets it moving again then it’s worth it,” said George Buckley, an economist at Deutsche Bank AG in London. “It’s very difficult to say if quantitative easing is working, but it is doing something.”
Service industries showed the fastest pace of expansion since August 2007 in October in a survey by Markit Economics released yesterday, while Nationwide Building Society said that consumer confidence held at the highest level in 1 1/2 years.
Some economists say the pickup may have more to do with record-low interest rates than the bank’s bond purchases.
‘Full Impact’
“When you have a 500 basis point cut in interest rates that is bound to impact the economy with a bit of a lag and that lag is coming to an end and we’re seeing the full impact now,” former U.K. policy DeAnne Julius said in a Bloomberg Television interview this week.
While the Bank of England says that one of the aims of the bond purchases is to increase the amount of money in the economy, a gauge of money supply favored by the bank fell an annualized 1.7 percent in the third quarter, the weakest reading on record.
“If reviving bank lending and in turn money supply growth is the objective, it’s clearly not working,” VTB’s Mackinnon said. “The evidence for any upturn in lending is still very tentative.”
Gross domestic product shrank 0.4 percent in the three months through September, dragging Britain’s recession into a record sixth quarter. By contrast, the U.S., German and French economies have all returned to growth.
Marks & Spencer Group Plc, the nation’s largest clothing retailer, said yesterday it’s “cautious” about the outlook for the next year. HSBC Holdings Plc, Europe’s largest bank, said this week it will cut 1,700 jobs in the U.K.
Brown’s Challenge
Brown is seeking to revive the banking system and the economy in preparation for an election due by June. He pledged this week to inject 31.2 billion pounds into Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, allowing the institutions to scale back dependence on state guarantees for their most toxic assets. The government also promised up to 8 billion pounds for RBS to use “in exceptional circumstances.”
“Every effort must be made to bring the recession to an end,” David Kern, economic adviser at the British Chambers of Commerce, said today. “The current economic situation -- in which our economy is still declining while other countries are already growing -- entails serious dangers and must not be allowed to continue.”
Tuesday, November 3, 2009
RBS Sacrifices More Than Lloyds to Get Biggest Banking Bailout
Nov. 4 (Bloomberg) -- Royal Bank of Scotland Plc will sacrifice more than Lloyds Banking Group Plc to secure its bailout by the British government.
RBS said yesterday that asset sales and limits on its banking activities imposed by its rescue may curb pretax profit by 1.1 billion pounds ($1.8 billion) a year. Lloyds’s bailout, also announced yesterday, will erase about 500 million pounds of pretax profit, finance director Tim Tookey told analysts on a conference call.
Lloyds Chief Executive Officer Eric Daniels is raising money from institutional investors to avoid insuring the bank’s riskiest assets with the government. The bank said yesterday that loan impairments will drop in the second half. By contrast, Stephen Hester, RBS’s CEO, will insure 282 billion pounds of assets through the U.K.’s Asset Protection Scheme.
“RBS has been more severely treated,” said Robert Talbut, who helps manage about 32 billion pounds at Royal London Asset Management. “The earnings power of the new group has been pretty severely diluted.”
RBS fell 7 percent to 35.93 pence in London trading yesterday, for a market value of 20.3 billion pounds. Lloyds rose 2.7 percent to 87.33 pence.
RBS agreed to sell its Churchill, Direct Line and Green Flag insurance units, its commodities trading unit and 318 branches in return for 25.5 billion pounds of state aid, the Edinburgh-based bank said in a statement. The units on sale generated about a fifth of RBS’s revenue in 2008. In return, RBS secured the costliest bailout of a bank in the world.
EU Pressure
The European Union is forcing banks that had government help to sell assets to stop them having an unfair advantage and boost competition. Last month, it forced ING Groep NV, the biggest Dutch financial services company, to sell its insurance units to win approval for a bailout. By contrast, U.S. regulators have provided financial assistance to banks that expanded during the crisis through acquisitions.
“It’s far more onerous for RBS,” than Lloyds, said Joe Dickerson, an analyst at Execution Ltd. in London who has a “sell” rating on RBS and a “buy” on Lloyds. “Visibility on the earnings prospects of RBS is very low.”
Both RBS and Lloyds yesterday agreed they won’t pay cash bonuses to workers earning more than 39,000 pounds a year. RBS will also be banned from being ranked higher than fifth in debt league tables as one of the conditions of its bailout. RBS is the top arranger of company bonds in Bloomberg’s Euromarket Corporates league table, beating Deutsche Bank AG.
Bonus Curbs
The bonus decision will place RBS’s investment bank at a “material disadvantage,” Dickerson added. The asset sales will also make it harder for the bank to raise capital, he said.
CEO Stephen Hester is unwinding acquisitions made by his predecessor, Fred Goodwin, who helped lead RBS through $140 billion of takeovers, swelling the balance to 2.2 trillion pounds, exceeding Britain’s annual economic output.
The “one positive” for RBS is it wasn’t forced to sell its Citizens Financial Group unit in the U.S., said Danny Clarke, a Liverpool-based analyst at Shore Capital Group Plc. “They will be grateful to hold onto it.”
Lloyds, which kept the government’s stake at 43 percent, will also sell 600 branches to gain EU approval for state aid. The outlets will include 164 Cheltenham & Gloucester branches it had earmarked for closure in June, a decision it reversed in August. The bank also planned to cut branches to reduce costs by more than 1.5 billion pounds after its acquired HBOS Plc, the U.K.’s biggest mortgage lender in January, according to analysts.
‘Greatest Triumph’
“The greatest ‘triumph’ of this entire episode for Lloyds is probably the capitulation by Brussels, possibly assisted by the U.K. government, apparently choosing to give Lloyds special treatment in comparison with other state-aided banks,” wrote Ian Gordon, an analyst at Exane BNP Paribas SA in London. Lloyds will sell assets “it might well have chosen to sell anyway.”
“We have neither sought nor received special treatment,” Lloyds spokesman Shane O’Riordain said in a telephone interview. “We believe we had a fair an appropriate deal.”
Lloyds will relinquish 4.6 percentage points of its 30 percent share of the U.K. current account market. Officials at the bank declined to comment.
“In terms of what would have happened had we entered into the APS, what we do know from Europe, we received very specific guidance that the remedies would have been more, considerably more,” Daniels told analysts yesterday.
RBS will be forced by the EU to reduce its market share in retail banking by 2 percentage points and SME banking by 5 percentage points. The bank had a 20 percent market share of current accounts, 10 percent of savings and 6 percent of mortgages at the end of 2008, Hester said in a presentation last month.
“The damage in the long term is much more severe at RBS than Lloyds,” said Richard Champion, who helps manage about $2 billion at Principal Asset Management in Sevenoaks, England.
RBS said yesterday that asset sales and limits on its banking activities imposed by its rescue may curb pretax profit by 1.1 billion pounds ($1.8 billion) a year. Lloyds’s bailout, also announced yesterday, will erase about 500 million pounds of pretax profit, finance director Tim Tookey told analysts on a conference call.
Lloyds Chief Executive Officer Eric Daniels is raising money from institutional investors to avoid insuring the bank’s riskiest assets with the government. The bank said yesterday that loan impairments will drop in the second half. By contrast, Stephen Hester, RBS’s CEO, will insure 282 billion pounds of assets through the U.K.’s Asset Protection Scheme.
“RBS has been more severely treated,” said Robert Talbut, who helps manage about 32 billion pounds at Royal London Asset Management. “The earnings power of the new group has been pretty severely diluted.”
RBS fell 7 percent to 35.93 pence in London trading yesterday, for a market value of 20.3 billion pounds. Lloyds rose 2.7 percent to 87.33 pence.
RBS agreed to sell its Churchill, Direct Line and Green Flag insurance units, its commodities trading unit and 318 branches in return for 25.5 billion pounds of state aid, the Edinburgh-based bank said in a statement. The units on sale generated about a fifth of RBS’s revenue in 2008. In return, RBS secured the costliest bailout of a bank in the world.
EU Pressure
The European Union is forcing banks that had government help to sell assets to stop them having an unfair advantage and boost competition. Last month, it forced ING Groep NV, the biggest Dutch financial services company, to sell its insurance units to win approval for a bailout. By contrast, U.S. regulators have provided financial assistance to banks that expanded during the crisis through acquisitions.
“It’s far more onerous for RBS,” than Lloyds, said Joe Dickerson, an analyst at Execution Ltd. in London who has a “sell” rating on RBS and a “buy” on Lloyds. “Visibility on the earnings prospects of RBS is very low.”
Both RBS and Lloyds yesterday agreed they won’t pay cash bonuses to workers earning more than 39,000 pounds a year. RBS will also be banned from being ranked higher than fifth in debt league tables as one of the conditions of its bailout. RBS is the top arranger of company bonds in Bloomberg’s Euromarket Corporates league table, beating Deutsche Bank AG.
Bonus Curbs
The bonus decision will place RBS’s investment bank at a “material disadvantage,” Dickerson added. The asset sales will also make it harder for the bank to raise capital, he said.
CEO Stephen Hester is unwinding acquisitions made by his predecessor, Fred Goodwin, who helped lead RBS through $140 billion of takeovers, swelling the balance to 2.2 trillion pounds, exceeding Britain’s annual economic output.
The “one positive” for RBS is it wasn’t forced to sell its Citizens Financial Group unit in the U.S., said Danny Clarke, a Liverpool-based analyst at Shore Capital Group Plc. “They will be grateful to hold onto it.”
Lloyds, which kept the government’s stake at 43 percent, will also sell 600 branches to gain EU approval for state aid. The outlets will include 164 Cheltenham & Gloucester branches it had earmarked for closure in June, a decision it reversed in August. The bank also planned to cut branches to reduce costs by more than 1.5 billion pounds after its acquired HBOS Plc, the U.K.’s biggest mortgage lender in January, according to analysts.
‘Greatest Triumph’
“The greatest ‘triumph’ of this entire episode for Lloyds is probably the capitulation by Brussels, possibly assisted by the U.K. government, apparently choosing to give Lloyds special treatment in comparison with other state-aided banks,” wrote Ian Gordon, an analyst at Exane BNP Paribas SA in London. Lloyds will sell assets “it might well have chosen to sell anyway.”
“We have neither sought nor received special treatment,” Lloyds spokesman Shane O’Riordain said in a telephone interview. “We believe we had a fair an appropriate deal.”
Lloyds will relinquish 4.6 percentage points of its 30 percent share of the U.K. current account market. Officials at the bank declined to comment.
“In terms of what would have happened had we entered into the APS, what we do know from Europe, we received very specific guidance that the remedies would have been more, considerably more,” Daniels told analysts yesterday.
RBS will be forced by the EU to reduce its market share in retail banking by 2 percentage points and SME banking by 5 percentage points. The bank had a 20 percent market share of current accounts, 10 percent of savings and 6 percent of mortgages at the end of 2008, Hester said in a presentation last month.
“The damage in the long term is much more severe at RBS than Lloyds,” said Richard Champion, who helps manage about $2 billion at Principal Asset Management in Sevenoaks, England.
Morgan Stanley Said to Seek Bids for Stake in China’s CICC
Nov. 4 (Bloomberg) -- Morgan Stanley, the U.S. bank that last month posted its first profit in a year, is soliciting bids for its 34.3 percent stake in a joint-venture investment bank it formed in China in 1995, said three people familiar with the situation.
Potential bidders for the stake in China International Capital Corp., known as CICC, include U.S. private-equity firms, said the people, who spoke anonymously because the bidding process is confidential. The stake could be worth $1 billion, according to one of the people. The Wall Street Journal reported the sale plans earlier today.
John Mack, Morgan Stanley’s chairman and chief executive officer, is seeking to sell the firm’s CICC stake so that the company can build a brokerage in China that it controls. Morgan Stanley invested $35 million in CICC when it was established in 1995 as the first Sino-foreign bank. The New York-based bank ceded management control in 2000 and CICC is now run by Levin Zhu, the son of former Chinese Premier Zhu Rongji.
CICC is the top manager of Chinese domestic equity offerings this year and second to HSBC Holdings Plc in managing Asian debt offerings, excluding Japan, according to data compiled by Bloomberg. In September, CICC said it plans to open a New York office as early as this year as it seeks to trade Chinese stocks in the U.S.
China Investment Corp., the nation’s sovereign wealth fund, acquired a 9.9 percent stake in Morgan Stanley for $5 billion two years ago, when Morgan Stanley reported its first quarterly loss as a public company. Last year, Japan’s Mitsubishi UFJ Financial Group Inc. acquired a 21 percent sake in Morgan Stanley for $9 billion.
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net. Cathy Chan in Hong Kong at kchan14@bloomberg.net
Potential bidders for the stake in China International Capital Corp., known as CICC, include U.S. private-equity firms, said the people, who spoke anonymously because the bidding process is confidential. The stake could be worth $1 billion, according to one of the people. The Wall Street Journal reported the sale plans earlier today.
John Mack, Morgan Stanley’s chairman and chief executive officer, is seeking to sell the firm’s CICC stake so that the company can build a brokerage in China that it controls. Morgan Stanley invested $35 million in CICC when it was established in 1995 as the first Sino-foreign bank. The New York-based bank ceded management control in 2000 and CICC is now run by Levin Zhu, the son of former Chinese Premier Zhu Rongji.
CICC is the top manager of Chinese domestic equity offerings this year and second to HSBC Holdings Plc in managing Asian debt offerings, excluding Japan, according to data compiled by Bloomberg. In September, CICC said it plans to open a New York office as early as this year as it seeks to trade Chinese stocks in the U.S.
China Investment Corp., the nation’s sovereign wealth fund, acquired a 9.9 percent stake in Morgan Stanley for $5 billion two years ago, when Morgan Stanley reported its first quarterly loss as a public company. Last year, Japan’s Mitsubishi UFJ Financial Group Inc. acquired a 21 percent sake in Morgan Stanley for $9 billion.
To contact the reporter on this story: Christine Harper in New York at charper@bloomberg.net. Cathy Chan in Hong Kong at kchan14@bloomberg.net
Monday, November 2, 2009
IMF Sells Gold to Central Bank of India, Netting $6.7 Billion
Nov. 3 (Bloomberg) -- The International Monetary Fund said it is selling 200 metric tons of gold to the Reserve Bank of India for about $6.7 billion, its first sale of the precious metal in nine years.
The sale accounts for almost half the 403.3 tons that the Washington-based lender in September agreed to sell as part of a plan to shore up its finances and lend at reduced rates to low- income countries.
“This transaction is an important step toward achieving the objectives of the IMF’s limited gold sales program, which are to help put the fund’s finances on a sound long-term footing and enable us to step up much-needed concession lending to the poorest countries,” IMF Managing Director Dominique Strauss- Kahn said in an e-mailed statement yesterday.
The transaction, which involved daily sales from Oct. 19-30 at market prices, is in the process of being settled, the IMF said in the statement. The average price in the transaction with India was about $1,045 an ounce, an IMF official said on a conference call with reporters.
The lender has said it is ready to sell directly to central banks and later make transactions on the open market if necessary. The IMF official declined to say whether other central banks have expressed interest in purchases.
The 403.3 tons the IMF board agreed to sell amount to one- eight of its stockpile. Gold prices reached a record of $1,072 an ounce on Oct. 14 and have gained 45 percent from a year ago.
Gold futures for December delivery jumped $13.60, or 1.3 percent, to $1,054 an ounce on the New York Mercantile Exchange’s Comex division yesterday, the highest closing price for a most-active contract since Oct. 23.
Low-Income Countries
Proceeds from the sales and other IMF resources as well as individual contributors would help pay for discounted interest rates on loans to low-income countries, the IMF said in July. It plans to grant as much as $17 billion in extra loans to poor nations through 2014.
The IMF, which helped shore up economies from Pakistan to Iceland over the past year, has sold gold on several occasions in the past. The last transaction was authorized in December 1999 and took place off-market between then and April 2000.
The sale accounts for almost half the 403.3 tons that the Washington-based lender in September agreed to sell as part of a plan to shore up its finances and lend at reduced rates to low- income countries.
“This transaction is an important step toward achieving the objectives of the IMF’s limited gold sales program, which are to help put the fund’s finances on a sound long-term footing and enable us to step up much-needed concession lending to the poorest countries,” IMF Managing Director Dominique Strauss- Kahn said in an e-mailed statement yesterday.
The transaction, which involved daily sales from Oct. 19-30 at market prices, is in the process of being settled, the IMF said in the statement. The average price in the transaction with India was about $1,045 an ounce, an IMF official said on a conference call with reporters.
The lender has said it is ready to sell directly to central banks and later make transactions on the open market if necessary. The IMF official declined to say whether other central banks have expressed interest in purchases.
The 403.3 tons the IMF board agreed to sell amount to one- eight of its stockpile. Gold prices reached a record of $1,072 an ounce on Oct. 14 and have gained 45 percent from a year ago.
Gold futures for December delivery jumped $13.60, or 1.3 percent, to $1,054 an ounce on the New York Mercantile Exchange’s Comex division yesterday, the highest closing price for a most-active contract since Oct. 23.
Low-Income Countries
Proceeds from the sales and other IMF resources as well as individual contributors would help pay for discounted interest rates on loans to low-income countries, the IMF said in July. It plans to grant as much as $17 billion in extra loans to poor nations through 2014.
The IMF, which helped shore up economies from Pakistan to Iceland over the past year, has sold gold on several occasions in the past. The last transaction was authorized in December 1999 and took place off-market between then and April 2000.
New Zealand Wages Accelerate as Recession Ends
Nov. 3 (Bloomberg) -- New Zealand wages rose more than economists estimated in the third quarter as the nation emerged from a recession and companies began paying more to attract and retain workers.
Wages for non-government workers, excluding overtime, increased 0.4 percent from the second quarter when they gained 0.3 percent, according to Statistics New Zealand’s labor cost index released in Wellington today. The median estimate of 10 economists surveyed by Bloomberg was for a 0.3 percent gain.
New Zealand’s economy grew for the first time in six quarters in the three months to June, buoying business confidence and encouraging employers to expand production and retain workers. Wages are unlikely to accelerate rapidly because the jobless rate rose to a nine-year high in the second quarter and may increase further.
“We expect wage growth to remain reasonably soft for some time yet,” said Philip Borkin, an economist at ANZ National Bank Ltd. in Wellington. “The labor market remains weak and will continue to act as a drag on households.”
New Zealand’s dollar bought 71.86 U.S. cents at 11:50 a.m. in Wellington from 71.74 cents immediately before the report was released.
From a year earlier, wages rose 1.9 percent. That’s less than the 2.6 percent in the previous three months and was the smallest increase since the year ended June 30, 2001.
Teachers’ Pay
Including overtime, wages for non-government workers rose 0.4 percent from the second quarter when they increased 0.3 percent, today’s report showed. From a year earlier, wages including overtime gained 2 percent.
Wages for government workers rose 1.1 percent in the quarter, led by new pay deals for teachers and health workers.
A separate series based on reported salary and ordinary- time wage rates of non-government workers gained 0.8 percent in the third quarter from the previous three months. From a year earlier, reported wage rates rose 3.7 percent.
Business confidence rose to a 10-year high in September, according to a survey by ANZ National Bank Ltd. Reserve Bank Governor Alan Bollard said last week there are “welcome signs” the economy is growing again. He kept the official cash rate at a record-low 2.5 percent and said he is unlikely to raise borrowing costs until the second half of 2010.
Filling Vacancies
As the economy recovers, filling vacancies isn’t as easy as it was three months earlier. A net 25 percent of companies said it was easier to find skilled workers in the third quarter, down from 42 percent in the second quarter, according to a survey by the New Zealand Institute of Economic Research Inc. Forty eight percent said it was easier to find unskilled employees.
Finance Minister Bill English said on Oct. 13 that signs of improving business confidence haven’t translated into increased jobs. He expects the unemployment rate will rise to about 7 percent by mid-2010, less than the 8 percent peak the government was forecasting earlier in the year.
Fisher & Paykel Appliances Holdings Ltd. returned its Auckland refrigerator plant to 40-hour-a-week production after scaling it back to 35 hours in April. The company took government subsidies to keep the factory operating on reduced hours, saving 60 jobs.
Labor Demand
The jobless rate probably rose to 6.4 percent in the third quarter, the highest level since 2000, according to a Bloomberg survey of seven economists. The government will publish its employment report on Nov. 5 in Wellington.
Average ordinary time hourly earnings for non-government workers rose 1.7 percent in the quarter, the statistics agency said in its quarterly employment survey also published today. Economists expected a 0.5 percent increase.
Companies reduced demand for labor in the quarter, led by manufacturing, according to the survey.
Filled jobs fell 0.8 percent in the quarter and 2.6 percent from a year earlier, the report showed. The number of full-time equivalent employees declined 1 percent. Total paid hours rose 0.2 percent.
Wages for non-government workers, excluding overtime, increased 0.4 percent from the second quarter when they gained 0.3 percent, according to Statistics New Zealand’s labor cost index released in Wellington today. The median estimate of 10 economists surveyed by Bloomberg was for a 0.3 percent gain.
New Zealand’s economy grew for the first time in six quarters in the three months to June, buoying business confidence and encouraging employers to expand production and retain workers. Wages are unlikely to accelerate rapidly because the jobless rate rose to a nine-year high in the second quarter and may increase further.
“We expect wage growth to remain reasonably soft for some time yet,” said Philip Borkin, an economist at ANZ National Bank Ltd. in Wellington. “The labor market remains weak and will continue to act as a drag on households.”
New Zealand’s dollar bought 71.86 U.S. cents at 11:50 a.m. in Wellington from 71.74 cents immediately before the report was released.
From a year earlier, wages rose 1.9 percent. That’s less than the 2.6 percent in the previous three months and was the smallest increase since the year ended June 30, 2001.
Teachers’ Pay
Including overtime, wages for non-government workers rose 0.4 percent from the second quarter when they increased 0.3 percent, today’s report showed. From a year earlier, wages including overtime gained 2 percent.
Wages for government workers rose 1.1 percent in the quarter, led by new pay deals for teachers and health workers.
A separate series based on reported salary and ordinary- time wage rates of non-government workers gained 0.8 percent in the third quarter from the previous three months. From a year earlier, reported wage rates rose 3.7 percent.
Business confidence rose to a 10-year high in September, according to a survey by ANZ National Bank Ltd. Reserve Bank Governor Alan Bollard said last week there are “welcome signs” the economy is growing again. He kept the official cash rate at a record-low 2.5 percent and said he is unlikely to raise borrowing costs until the second half of 2010.
Filling Vacancies
As the economy recovers, filling vacancies isn’t as easy as it was three months earlier. A net 25 percent of companies said it was easier to find skilled workers in the third quarter, down from 42 percent in the second quarter, according to a survey by the New Zealand Institute of Economic Research Inc. Forty eight percent said it was easier to find unskilled employees.
Finance Minister Bill English said on Oct. 13 that signs of improving business confidence haven’t translated into increased jobs. He expects the unemployment rate will rise to about 7 percent by mid-2010, less than the 8 percent peak the government was forecasting earlier in the year.
Fisher & Paykel Appliances Holdings Ltd. returned its Auckland refrigerator plant to 40-hour-a-week production after scaling it back to 35 hours in April. The company took government subsidies to keep the factory operating on reduced hours, saving 60 jobs.
Labor Demand
The jobless rate probably rose to 6.4 percent in the third quarter, the highest level since 2000, according to a Bloomberg survey of seven economists. The government will publish its employment report on Nov. 5 in Wellington.
Average ordinary time hourly earnings for non-government workers rose 1.7 percent in the quarter, the statistics agency said in its quarterly employment survey also published today. Economists expected a 0.5 percent increase.
Companies reduced demand for labor in the quarter, led by manufacturing, according to the survey.
Filled jobs fell 0.8 percent in the quarter and 2.6 percent from a year earlier, the report showed. The number of full-time equivalent employees declined 1 percent. Total paid hours rose 0.2 percent.
Sunday, November 1, 2009
Myer Shares Fall in Trading Debut in Australia
Nov. 2 (Bloomberg) -- Myer Holdings Ltd., Australia’s biggest department store chain, fell in Sydney as its shares began trading for the first time on the nation’s stock market.
Myer stock began trading at A$3.88 in Sydney, compared with the A$4.10 paid by investors last week in the nation’s largest initial public offering this year.
Buyout firms TPG Inc. and Blum Capital, which teamed with members of the founding Myer family to buy the retailer in 2006, sold all their shares in the IPO, taking advantage of a 44 percent rise in the benchmark stock index since March. More than A$2.1 billion ($1.9 billion) was raised, compared with the A$1.4 billion paid for the chain less than four years ago.
Myer, which has 65 stores, plans to open 15 more in the next five years, it said in the prospectus for the share sale.
Myer sold 529 million shares, with the proceeds of more than A$2.1 billion making it Australia’s largest since drilling services provider Boart Longyear Ltd. raised A$2.4 billion in April 2007.
The IPO priced Myer stock at 15.1 times forecast earnings. David Jones Ltd., Australia’s second-largest department store, is trading at 15.8 times earnings.
While Blum and TPG sold all their shares, management retain about 7.7 percent of the company’s issued capital and the Myer Family Co. Pty. has about 1.5 percent.
The Myer chain was founded in 1900, when Sidney and Elcon Myer, immigrants from Russia, opened their first shop in the town of Bendigo in Victoria state. In 1985 it was purchased by G.J. Coles & Coy, creating Coles Myer Ltd., Australia’s biggest retailer and largest publicly traded corporation at the time.
Myer stock began trading at A$3.88 in Sydney, compared with the A$4.10 paid by investors last week in the nation’s largest initial public offering this year.
Buyout firms TPG Inc. and Blum Capital, which teamed with members of the founding Myer family to buy the retailer in 2006, sold all their shares in the IPO, taking advantage of a 44 percent rise in the benchmark stock index since March. More than A$2.1 billion ($1.9 billion) was raised, compared with the A$1.4 billion paid for the chain less than four years ago.
Myer, which has 65 stores, plans to open 15 more in the next five years, it said in the prospectus for the share sale.
Myer sold 529 million shares, with the proceeds of more than A$2.1 billion making it Australia’s largest since drilling services provider Boart Longyear Ltd. raised A$2.4 billion in April 2007.
The IPO priced Myer stock at 15.1 times forecast earnings. David Jones Ltd., Australia’s second-largest department store, is trading at 15.8 times earnings.
While Blum and TPG sold all their shares, management retain about 7.7 percent of the company’s issued capital and the Myer Family Co. Pty. has about 1.5 percent.
The Myer chain was founded in 1900, when Sidney and Elcon Myer, immigrants from Russia, opened their first shop in the town of Bendigo in Victoria state. In 1985 it was purchased by G.J. Coles & Coy, creating Coles Myer Ltd., Australia’s biggest retailer and largest publicly traded corporation at the time.
Australian Dollar Pares Decline Versus U.S. Currency on Futures
Nov. 2 (Bloomberg) -- The Australian dollar pared declines against the greenback after futures signaled U.S. stocks may recover from their biggest weekly slump since May, supporting demand for higher-yielding assets.
Australia’s currency also found buyers as a gauge of house prices in the nation rose 4.2 percent in third quarter, beating analysts’ expectations for a 3 percent gain. The Reserve Bank of Australia will raise its benchmark interest rate by 25 basis points to 3.5 percent at a meeting tomorrow, according to a Bloomberg News survey of economists.
“The market is very skittish from the liquidation we had last week and this morning,” said Phil Burke, chief foreign- exchange dealer at JPMorgan Chase & Co. in Sydney. “Equity futures have turned positive so we could see the Aussie climb up to 90.50 U.S. cents.”
Australia’s currency traded at 89.93 U.S. cents as of 12:33 p.m. in Sydney from 89.97 cents in New York on Oct. 30. It earlier fell as low as 89.07 cents, the least since Oct. 8. The currency was little changed at 81.04 yen from 81.05 last week. It touched 79.47 yen, also the weakest since Oct. 8.
New Zealand’s dollar fetched 71.51 U.S. cents, after earlier trading as low as 70.83, the weakest since Oct. 2, from 71.81 in New York last week. It dropped as low as 63.21 yen, a one-month low, before buying 64.46 yen.
Economic Growth
Asian equities declined 1.3 percent with the Standard & Poor’s 500 index dropping 4 percent to 1,036.19 in the week ended Oct. 30. S&P 500 futures traded as high as 1,037.90 today.
Australia’s government said today that the nation’s economy will expand 1.5 percent, compared with a May prediction of a 0.5 percent contraction, in the 12 months ending June 30, 2010. The government will have a cash deficit of A$57.7 billion ($51.8 billion), compared with A$57.6 billion forecast in May, Treasurer Wayne Swan told reporters today.
An index measuring the weighted average of prices for established houses in Australia’s eight capital cities climbed 4.2 percent in the third quarter from the second, the Australian Bureau of Statistics said in Sydney today.
Benchmark interest rates are 3.25 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Stop Loss
The South Pacific currencies earlier dropped to their weakest in more than three weeks against the yen as traders said so-called stop-loss orders were activated, said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.
“Stop-loss orders set by margin traders were triggered almost on all cross-currencies, accelerating the pace of declines of these currencies,” against the yen, Kudo said. “For instance, such orders were triggered at below the 80.50 yen mark for Aussie.”
A stop-loss order is an automatic instruction to sell or buy a currency should it reach a particular level.
Futures traders cut their bets that the Australian dollar will gain against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show. This is the first fall in bets on a gain in the Aussie since September.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the Aussie compared with those on a drop -- so-called net longs -- was 52,887 on Oct. 27, compared with net longs of 53,990 a week earlier.
Australian government bonds were little changed. The yield on 10-year notes fell one basis point, or 0.01 percentage point, to 5.49 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.096, or A$0.96 per A$1,000 face amount, to 98.272.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell for a sixth session to 4.47 percent.
Australia’s currency also found buyers as a gauge of house prices in the nation rose 4.2 percent in third quarter, beating analysts’ expectations for a 3 percent gain. The Reserve Bank of Australia will raise its benchmark interest rate by 25 basis points to 3.5 percent at a meeting tomorrow, according to a Bloomberg News survey of economists.
“The market is very skittish from the liquidation we had last week and this morning,” said Phil Burke, chief foreign- exchange dealer at JPMorgan Chase & Co. in Sydney. “Equity futures have turned positive so we could see the Aussie climb up to 90.50 U.S. cents.”
Australia’s currency traded at 89.93 U.S. cents as of 12:33 p.m. in Sydney from 89.97 cents in New York on Oct. 30. It earlier fell as low as 89.07 cents, the least since Oct. 8. The currency was little changed at 81.04 yen from 81.05 last week. It touched 79.47 yen, also the weakest since Oct. 8.
New Zealand’s dollar fetched 71.51 U.S. cents, after earlier trading as low as 70.83, the weakest since Oct. 2, from 71.81 in New York last week. It dropped as low as 63.21 yen, a one-month low, before buying 64.46 yen.
Economic Growth
Asian equities declined 1.3 percent with the Standard & Poor’s 500 index dropping 4 percent to 1,036.19 in the week ended Oct. 30. S&P 500 futures traded as high as 1,037.90 today.
Australia’s government said today that the nation’s economy will expand 1.5 percent, compared with a May prediction of a 0.5 percent contraction, in the 12 months ending June 30, 2010. The government will have a cash deficit of A$57.7 billion ($51.8 billion), compared with A$57.6 billion forecast in May, Treasurer Wayne Swan told reporters today.
An index measuring the weighted average of prices for established houses in Australia’s eight capital cities climbed 4.2 percent in the third quarter from the second, the Australian Bureau of Statistics said in Sydney today.
Benchmark interest rates are 3.25 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
Stop Loss
The South Pacific currencies earlier dropped to their weakest in more than three weeks against the yen as traders said so-called stop-loss orders were activated, said Takashi Kudo, director of foreign-exchange sales in Tokyo at NTT SmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp.
“Stop-loss orders set by margin traders were triggered almost on all cross-currencies, accelerating the pace of declines of these currencies,” against the yen, Kudo said. “For instance, such orders were triggered at below the 80.50 yen mark for Aussie.”
A stop-loss order is an automatic instruction to sell or buy a currency should it reach a particular level.
Futures traders cut their bets that the Australian dollar will gain against the U.S. dollar, figures from the Washington- based Commodity Futures Trading Commission show. This is the first fall in bets on a gain in the Aussie since September.
The difference in the number of wagers by hedge funds and other large speculators on an advance in the Aussie compared with those on a drop -- so-called net longs -- was 52,887 on Oct. 27, compared with net longs of 53,990 a week earlier.
Australian government bonds were little changed. The yield on 10-year notes fell one basis point, or 0.01 percentage point, to 5.49 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 gained 0.096, or A$0.96 per A$1,000 face amount, to 98.272.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell for a sixth session to 4.47 percent.
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