July 10 (Bloomberg) -- Leaders of developing countries confronted advanced nations with a demand for a greater role in the management of the global economy, signaling the drift in power away from the financially distressed West.
Five countries with almost half the world’s population -- China, India, Brazil, Mexico and South Africa -- challenged the hegemony of the U.S. dollar, balked at the industrial world’s strategy for fighting climate change and sought more clout in global markets and institutions.
The encounter yesterday in L’Aquila, Italy at the annual Group of Eight summit dramatized the ascendance of emerging nations -- led by China -- as the worst economic calamity since World War II batters the U.S. and its European allies.
“Everyone was of the opinion that the G-8 isn’t any longer the most ideal structure for dealing with the governance of the world economy,” Italian Prime Minister Silvio Berlusconi told reporters after chairing the session.
Leaders of the G-5 -- representing 3 billion people with gross domestic product of $7 trillion -- appeared as a united front for a fifth time at the summit of the G-8, the advanced world’s forum founded in 1975.
“What is happening here is simply the acknowledgment of a reality,” Angel Gurria, secretary-general of the Organization for Economic Cooperation and Development, said in a Bloomberg Television interview. “Be it the fight against poverty, climate change, trade -- whatever you want that is global in nature -- you need those large emerging economies.”
Climate Clash
The eight -- the U.S., Japan, Germany, Britain, France, Italy and Canada, along with Russia, a member since 1998 -- unite 880 million people with combined GDP of $32 trillion.
Russia, which has joined Brazil, India and China in the BRIC bloc, views the G-8 as a forum for “brainstorming,” said Sergei Prikhodko, an aide to President Dmitry Medvedev. “It’s too early to talk about burying the G-8.”
The G-5 took aim at the advanced economies’ call for a 50 percent cut in greenhouse-gas emissions by 2050, saying the policy would suppress the economic growth needed to lift millions out of poverty. No target can be set until world climate talks wrap up in December, they said, insisting on money and technology to help clean up the atmosphere.
“While we don’t expect to solve this problem in one meeting or one summit, I believe we’ve made some important strides,” President Barack Obama said.
Growth Gap
The contrast was highlighted July 7 when the International Monetary Fund said developing countries are leading the way out of the economic morass spawned by the industrial world.
Emerging economies led by China will expand 4.7 percent next year, the IMF said, up from an April prediction of 4 percent. The Washington-based lender forecast growth of 0.6 percent in the advanced economies, up from expectations of stagnation.
China is “better situated to deal with this crisis,” billionaire investor George Soros said in a Bloomberg Radio interview July 7. “The Chinese in my opinion are going to gain in power and influence in a way that people currently don’t recognize.”
In a statement in L’Aquila, the G-5 warned the industrial world against backsliding on aid commitments and sought “a new global governance,” including better representation in the IMF and United Nations.
After parallel summits July 8 in a region rebuilding from an earthquake in April, the G-8 and G-5 met yesterday to work out a statement to at least paper over the diverging worldviews.
Dollar Dispute
Central to their dispute is the status of the dollar, its role as the world’s dominant reserve currency under threat from the $2.3 trillion in debt run up by the U.S. since the start of 2008 to stem the financial crisis.
The G-5 -- mainly China -- held around $1 trillion in U.S. Treasury debt in April, giving them leverage over decisions made in Washington.
While officials from China, Russia, India and Brazil grumbled outside the conference room about the dollar’s hegemony, there was “not a serious discussion” of currencies on the inside, U.K. Prime Minister Gordon Brown said.
“There has been concern on the dollar, but there hasn’t been a coherent strategy put forth,” said Brian Kim, a currency strategist at UBS AG in Stamford, Connecticut. “We don’t think that’s going to be an issue weighing on the dollar for the balance of this year. It’s a much longer term issue.”
Brazilian and Russian officials said they intended to raise the issue at a G-20 meeting in Pittsburgh in September. The dollar “may well be” brought up there, Brazilian Foreign Minister Celso Amorim said. Arkady Dvorkovich, Medvedev’s economic aide, said currencies are a G-20 matter.
Hu’s Absence
Chinese President Hu Jintao didn’t need to show up in L’Aquila to project his influence. The Chinese leader hustled back to Beijing before the summit started to deal with ethnic disturbances along China’s western border, leaving State Councilor Dai Bingguo as a representative.
“Hu’s absence ironically demonstrated China’s presence,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo.
Thursday, July 9, 2009
Philippine Exports Decline the Least in Six Months
July 10 (Bloomberg) -- Philippine exports fell the least in six months, adding to signs the global recession that hurt demand for Asian-made electronics is easing.
Shipments abroad declined 27 percent from a year earlier to $3.09 billion in May after dropping 35.2 percent the previous month, the National Statistics Office said in Manila today. That compares with the median forecast for a 32 percent plunge in a Bloomberg News survey of nine economists.
The central bank cut its benchmark interest rate to a record low of 4 percent yesterday to revive the economy after the global slump crimped orders for Philippine-produced Intel Corp. computer chips and other goods. The government predicts growth will accelerate in the coming quarters after slumping to a decade low of 0.4 percent in the first three months.
“The bottom happened in the first quarter and we are now seeing an improvement,” said Arthur Young, chairman of Semiconductor and Electronics Industries of the Philippines Inc., an industry association. “There is pretty good strength in demand from certain markets such as China because of their stimulus plan.”
China’s new loans surged almost fivefold in June from a year earlier, helped by a 4 trillion-yuan government stimulus plan and a loosening of lending restrictions to spur growth. Japan’s industrial output rose for a third month in May and Australian consumer confidence jumped in July to the highest level in 19 months.
Semiconductor Sales
Electronics sales, which make up more than half of Philippine exports, fell 26.8 percent to $1.81 billion in May from a year earlier after dropping 33.2 percent in April.
The Philippine association raised its forecast for exports this year two weeks ago, predicting a drop of 15 percent to 20 percent compared with a previous estimate for a decline of as much as 30 percent, Young said.
Worldwide semiconductor sales rose 5.4 percent in May from April, according to the San Jose, California-based Semiconductor Industry Association.
Shipments abroad declined 27 percent from a year earlier to $3.09 billion in May after dropping 35.2 percent the previous month, the National Statistics Office said in Manila today. That compares with the median forecast for a 32 percent plunge in a Bloomberg News survey of nine economists.
The central bank cut its benchmark interest rate to a record low of 4 percent yesterday to revive the economy after the global slump crimped orders for Philippine-produced Intel Corp. computer chips and other goods. The government predicts growth will accelerate in the coming quarters after slumping to a decade low of 0.4 percent in the first three months.
“The bottom happened in the first quarter and we are now seeing an improvement,” said Arthur Young, chairman of Semiconductor and Electronics Industries of the Philippines Inc., an industry association. “There is pretty good strength in demand from certain markets such as China because of their stimulus plan.”
China’s new loans surged almost fivefold in June from a year earlier, helped by a 4 trillion-yuan government stimulus plan and a loosening of lending restrictions to spur growth. Japan’s industrial output rose for a third month in May and Australian consumer confidence jumped in July to the highest level in 19 months.
Semiconductor Sales
Electronics sales, which make up more than half of Philippine exports, fell 26.8 percent to $1.81 billion in May from a year earlier after dropping 33.2 percent in April.
The Philippine association raised its forecast for exports this year two weeks ago, predicting a drop of 15 percent to 20 percent compared with a previous estimate for a decline of as much as 30 percent, Young said.
Worldwide semiconductor sales rose 5.4 percent in May from April, according to the San Jose, California-based Semiconductor Industry Association.
Wednesday, July 8, 2009
IMF sees end to the global recession
By Krishna Guha and Sarah O'Connor in Washington and,Michael Mackenzie in New York
Published: July 9 2009 03:00 | Last updated: July 9 2009 03:00
The world economy is starting to pull out of recession, the International Monetary Fund said yesterday, marking up its growth forecasts for next year and hinting that it might reduce its estimates for bank losses.
"The recovery is coming," said Olivier Blanchard, IMF chief economist. But he cautioned "it is likely to be a weak recovery" and said policymakers needed to guard against ongoing economic and financial risks. However, investors signalled their doubts about the strength of any economic recovery by selling off commodities, notably oil and gold, and stocks.
The yen, a barometer of risk aversion, also shot up 3 per cent against the euro and the dollar.
Since the release of a much weaker-than-expected US jobs report for June last week, investors' appetite for risky assets has soured.
"When we do get a recovery, it will be pretty anaemic," said Jay Mueller, portfolio manager at Wells Capital. "The third quarter will be tough and the fourth does not look much better. People who had been optimistic that the economy has bottomed are rethinking . . . since last week's jobs report."
The IMF now forecasts global growth of 2.5 per cent next year, up from 1.9 per cent in April, led by strong growth in China and India, a rebound in Japan and positive but sub-trend growth in the US. It upgraded its forecasts for Europe too, but still expects the eurozone to contract 0.3 per cent next year, with Germany declining 0.6 per cent.
The Fund inched down its forecast for global growth this year to minus 1.4 per cent.
The IMF did not update its estimates for losses facing banks. However, José Viñals, IMF financial counsellor, said it would be reasonable to guess that the figures would end up being lowered. He said markdowns on securities "would be likely to be somewhat better now" following the improvements in financial markets.
However, the IMF warned against complacency, saying it was too soon to implement "exit strategies" and highlighting several risks to recovery. It urged further efforts to clean up the banking system, noting that "bank capitalisation remains a concern, notably in Europe".
The Fund also signalled concern that governments on both sides of the Atlantic had only "limited" success in dealing with problem assets.
Mr Blanchard said governments should prepare for the possibility that further stimulus could be needed. "It may be that private demand is going to be very weak for longer than we anticipated.
Published: July 9 2009 03:00 | Last updated: July 9 2009 03:00
The world economy is starting to pull out of recession, the International Monetary Fund said yesterday, marking up its growth forecasts for next year and hinting that it might reduce its estimates for bank losses.
"The recovery is coming," said Olivier Blanchard, IMF chief economist. But he cautioned "it is likely to be a weak recovery" and said policymakers needed to guard against ongoing economic and financial risks. However, investors signalled their doubts about the strength of any economic recovery by selling off commodities, notably oil and gold, and stocks.
The yen, a barometer of risk aversion, also shot up 3 per cent against the euro and the dollar.
Since the release of a much weaker-than-expected US jobs report for June last week, investors' appetite for risky assets has soured.
"When we do get a recovery, it will be pretty anaemic," said Jay Mueller, portfolio manager at Wells Capital. "The third quarter will be tough and the fourth does not look much better. People who had been optimistic that the economy has bottomed are rethinking . . . since last week's jobs report."
The IMF now forecasts global growth of 2.5 per cent next year, up from 1.9 per cent in April, led by strong growth in China and India, a rebound in Japan and positive but sub-trend growth in the US. It upgraded its forecasts for Europe too, but still expects the eurozone to contract 0.3 per cent next year, with Germany declining 0.6 per cent.
The Fund inched down its forecast for global growth this year to minus 1.4 per cent.
The IMF did not update its estimates for losses facing banks. However, José Viñals, IMF financial counsellor, said it would be reasonable to guess that the figures would end up being lowered. He said markdowns on securities "would be likely to be somewhat better now" following the improvements in financial markets.
However, the IMF warned against complacency, saying it was too soon to implement "exit strategies" and highlighting several risks to recovery. It urged further efforts to clean up the banking system, noting that "bank capitalisation remains a concern, notably in Europe".
The Fund also signalled concern that governments on both sides of the Atlantic had only "limited" success in dealing with problem assets.
Mr Blanchard said governments should prepare for the possibility that further stimulus could be needed. "It may be that private demand is going to be very weak for longer than we anticipated.
Australian Employers Cut 21,400 Jobs as Exports Slow
July 9 (Bloomberg) -- Australian employment fell in June as the global recession reduced demand for exports such as iron ore and coal, prompting mining companies to fire workers.
The number of people employed dropped 21,400 from May, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for a decline of 20,000. The jobless rate rose to 5.8 percent, the highest level in almost six years, from 5.7 percent.
Central bank Governor Glenn Stevens left borrowing costs at a half-century low of 3 percent this week for a third month to help stem firings at companies including BHP Billiton Ltd. Advertisements for job vacancies tumbled in June for a 14th month, a sign unemployment may rise in coming months.
“Forward-looking indicators continue to imply a fall in employment at least as pronounced as” when Australia was last in a recession in 1991, Riki Polygenis, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne, said ahead of today’s report.
The number of full-time jobs dropped 21,900 in June and part-time employment increased 400 today’s report showed.
The Australian dollar traded at 78.17 U.S. cents at 11:44 a.m. in Sydney from 78.04 cents before the report was released. The two-year bond yield was little changed at 3.68 percent.
Australia’s economy has so far skirted the worst global recession since the Great Depression. Gross domestic product rose 0.4 percent in the first quarter, making it one of the few major economies including China and India to expand.
Cash Handouts
Consumer confidence jumped to the highest level since December 2007 and home-loan approvals rose for an eighth month, reports showed yesterday.
To help boost employment and cushion the economy against slower global demand for natural resources, Prime Minister Kevin Rudd’s government has distributed A$12 billion ($9.3 billion) in cash handouts to households this year and is spending A$22 billion to upgrade roads, railways, hospitals and ports.
Central bank policy makers also slashed the overnight cash rate target by a record 4.25 percentage points between September and April to 3 percent.
BHP Billiton, the world’s biggest miner, is shedding 3,400 workers in Australia after shuttering a nickel mine in January and reducing coking coal output. Qantas Airways, the nation’s largest carrier, said in April that it will cut 1,750 jobs as demand for business and first-class travel wanes.
ANZ Bank said today it will scrap 248 jobs as it closes mortgage administration offices in cities including Sydney, Brisbane and Perth. The bank is Australia’s fourth largest.
Exports Slump
“Weaker demand for labor is leading to lower growth in labor costs,” Reserve Bank Governor Glenn Stevens said on July 7. That gives policy makers “some scope for further easing of monetary policy, if needed,” he added.
Reports this month showed the construction industry shrank in June at a faster pace, exports slumped 5 percent in May from April and home-building approvals tumbled 12.5 percent, the biggest drop since November 2002.
Jobs advertisements dropped 6.7 percent last month from May and 51.4 percent from a year earlier, the largest annual decline since ANZ Bank began recording the figures in 1998.
Still, other reports suggest Australia’s economy will continue expanding this year. An index of consumer sentiment published yesterday by Westpac Banking Corp. climbed 23.2 percent in June and July, the largest two-month gain since the survey began in 1975.
Global Outlook
The International Monetary Fund said the global economic rebound next year will be stronger than it forecast in April as the financial system stabilizes and the pace of contractions from the U.S. to Japan moderates.
The Washington-based lender said in a revised forecast released yesterday that the world economy will expand 2.5 percent in 2010, compared with its April projection of 1.9 percent growth.
Woolworths, Australia’s biggest retailer, has said it expects to add 7,000 workers and reaffirmed its forecast for an increase in annual profit of as much as 12 percent.
David Jones Ltd., Australia’s second-biggest department store chain, said last week that earnings after tax will rise by between 20 percent and 30 percent in the six months ending July 25. “The stimulus package has been good for confidence,” Chief Executive Officer Mark McInnes told reporters on a conference call on June 30.
Investors expect Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading. Traders forecast the key interest rate will be 43 basis points higher in a year, the index showed at 8:51 a.m. in Sydney. Late yesterday they tipped 48 basis points of gains.
The participation rate, which measures the labor force as a percentage of the population aged over 15, fell to 65.3 percent in June from a revised 65.4 percent, today’s report showed.
The number of people employed dropped 21,400 from May, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for a decline of 20,000. The jobless rate rose to 5.8 percent, the highest level in almost six years, from 5.7 percent.
Central bank Governor Glenn Stevens left borrowing costs at a half-century low of 3 percent this week for a third month to help stem firings at companies including BHP Billiton Ltd. Advertisements for job vacancies tumbled in June for a 14th month, a sign unemployment may rise in coming months.
“Forward-looking indicators continue to imply a fall in employment at least as pronounced as” when Australia was last in a recession in 1991, Riki Polygenis, an economist at Australia & New Zealand Banking Group Ltd. in Melbourne, said ahead of today’s report.
The number of full-time jobs dropped 21,900 in June and part-time employment increased 400 today’s report showed.
The Australian dollar traded at 78.17 U.S. cents at 11:44 a.m. in Sydney from 78.04 cents before the report was released. The two-year bond yield was little changed at 3.68 percent.
Australia’s economy has so far skirted the worst global recession since the Great Depression. Gross domestic product rose 0.4 percent in the first quarter, making it one of the few major economies including China and India to expand.
Cash Handouts
Consumer confidence jumped to the highest level since December 2007 and home-loan approvals rose for an eighth month, reports showed yesterday.
To help boost employment and cushion the economy against slower global demand for natural resources, Prime Minister Kevin Rudd’s government has distributed A$12 billion ($9.3 billion) in cash handouts to households this year and is spending A$22 billion to upgrade roads, railways, hospitals and ports.
Central bank policy makers also slashed the overnight cash rate target by a record 4.25 percentage points between September and April to 3 percent.
BHP Billiton, the world’s biggest miner, is shedding 3,400 workers in Australia after shuttering a nickel mine in January and reducing coking coal output. Qantas Airways, the nation’s largest carrier, said in April that it will cut 1,750 jobs as demand for business and first-class travel wanes.
ANZ Bank said today it will scrap 248 jobs as it closes mortgage administration offices in cities including Sydney, Brisbane and Perth. The bank is Australia’s fourth largest.
Exports Slump
“Weaker demand for labor is leading to lower growth in labor costs,” Reserve Bank Governor Glenn Stevens said on July 7. That gives policy makers “some scope for further easing of monetary policy, if needed,” he added.
Reports this month showed the construction industry shrank in June at a faster pace, exports slumped 5 percent in May from April and home-building approvals tumbled 12.5 percent, the biggest drop since November 2002.
Jobs advertisements dropped 6.7 percent last month from May and 51.4 percent from a year earlier, the largest annual decline since ANZ Bank began recording the figures in 1998.
Still, other reports suggest Australia’s economy will continue expanding this year. An index of consumer sentiment published yesterday by Westpac Banking Corp. climbed 23.2 percent in June and July, the largest two-month gain since the survey began in 1975.
Global Outlook
The International Monetary Fund said the global economic rebound next year will be stronger than it forecast in April as the financial system stabilizes and the pace of contractions from the U.S. to Japan moderates.
The Washington-based lender said in a revised forecast released yesterday that the world economy will expand 2.5 percent in 2010, compared with its April projection of 1.9 percent growth.
Woolworths, Australia’s biggest retailer, has said it expects to add 7,000 workers and reaffirmed its forecast for an increase in annual profit of as much as 12 percent.
David Jones Ltd., Australia’s second-biggest department store chain, said last week that earnings after tax will rise by between 20 percent and 30 percent in the six months ending July 25. “The stimulus package has been good for confidence,” Chief Executive Officer Mark McInnes told reporters on a conference call on June 30.
Investors expect Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading. Traders forecast the key interest rate will be 43 basis points higher in a year, the index showed at 8:51 a.m. in Sydney. Late yesterday they tipped 48 basis points of gains.
The participation rate, which measures the labor force as a percentage of the population aged over 15, fell to 65.3 percent in June from a revised 65.4 percent, today’s report showed.
New Zealand Lawmakers Urge Banks to Lower Interest Rates
July 9 (Bloomberg) -- New Zealand banks should lower lending rates and sacrifice profits to prevent business failures, according to a parliamentary committee.
“We encourage the banks to recognize the national importance of lowering interest rates because unduly high interest costs could lead to the closure of businesses that may be fundamentally sound,” the finance and expenditure select committee said in a report posted on its Web site.
Reserve Bank Governor Alan Bollard has said there is scope for banks to lower variable home-loan interest rates further and Prime Minister John Key this week said banks “should listen carefully” to what the central bank was saying. The committee last week rejected calls to hold an inquiry into bank lending.
“A low-interest-rate environment is critical to New Zealand’s economic recovery,” it said in the today’s report.
“We recognize the need for the banking sector to remain profitable in the current economic environment, but we also believe that it should not be unduly so,” the committee said. “We are concerned that this may be the case at present.”
Local units of Australia’s biggest banks, National Australia Bank Ltd., Westpac Banking Corp., Australia & New Zealand Banking Group Ltd., and Commonwealth Bank of Australia, own about 90 percent of all New Zealand’s banking assets.
New Zealand’s economy began contracting in the first quarter last year and a prolonged global recession has stalled business investment and fanned unemployment. Many trading banks didn’t adjust lending rates when the central bank cut the official cash rate to a record-low in April.
The committee made its report after considering the Reserve Bank’s quarterly monetary policy statement. The committee comprises lawmakers from all parties and is chaired by a member of the governing National Party.
“We encourage the banks to recognize the national importance of lowering interest rates because unduly high interest costs could lead to the closure of businesses that may be fundamentally sound,” the finance and expenditure select committee said in a report posted on its Web site.
Reserve Bank Governor Alan Bollard has said there is scope for banks to lower variable home-loan interest rates further and Prime Minister John Key this week said banks “should listen carefully” to what the central bank was saying. The committee last week rejected calls to hold an inquiry into bank lending.
“A low-interest-rate environment is critical to New Zealand’s economic recovery,” it said in the today’s report.
“We recognize the need for the banking sector to remain profitable in the current economic environment, but we also believe that it should not be unduly so,” the committee said. “We are concerned that this may be the case at present.”
Local units of Australia’s biggest banks, National Australia Bank Ltd., Westpac Banking Corp., Australia & New Zealand Banking Group Ltd., and Commonwealth Bank of Australia, own about 90 percent of all New Zealand’s banking assets.
New Zealand’s economy began contracting in the first quarter last year and a prolonged global recession has stalled business investment and fanned unemployment. Many trading banks didn’t adjust lending rates when the central bank cut the official cash rate to a record-low in April.
The committee made its report after considering the Reserve Bank’s quarterly monetary policy statement. The committee comprises lawmakers from all parties and is chaired by a member of the governing National Party.
Tuesday, July 7, 2009
Australian Dollar Falls to Two-Week Low on Stocks, Jobs Report
July 8 (Bloomberg) -- The Australian dollar fell to its lowest level in two weeks before a government report tomorrow that economists say will show the nation’s jobless rate climbed to a six-year high. New Zealand’s currency declined.
The currencies also weakened versus the yen as Australia’s S&P/ASX 200 Index fell for a fourth day after the Standard & Poor’s 500 index yesterday slumped to the lowest since May 1. Higher interest rates in Australia and New Zealand attract investors to the South Pacific nations’ assets with the risk being that currency market moves will erase profits.
“The downturn in equities is reflecting a rise in risk aversion,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “The pressure on the downside may be maintained for the Aussie,” with markets preparing for a “weaker unemployment number,” she said referring to the currency by its nickname.
Australia’s currency fell 0.4 percent to 78.63 U.S. cents as of 11:48 a.m. in Sydney from 78.91 cents in New York yesterday. The currency slipped 0.7 percent to 74.39 yen. New Zealand’s dollar declined 0.2 percent to 62.78 U.S. cents from 62.89 cents in New York and slid 0.5 percent to 59.39 yen.
Australia’s unemployment rate climbed to 5.9 percent last month, the highest level since July 2003, according to the median forecast of 21 economists surveyed by Bloomberg News before the July 9 report. Employers probably cut 20,000 positions last month, the survey showed.
Jobs, Earnings
“The Australian dollar is looking a little vulnerable,” said Katie Dean, a senior economist in Melbourne at Australia & New Zealand Banking Group Ltd. “The main game is tomorrow’s employment data and, even if there are risks for an upside surprise, markets are unlikely to want to be long Australian dollar going into this very volatile release.” Long positions are a bet that a currency is going to gain.
The Australian dollar will find buyers at 78.60 cents and then 77.90 cents, she said.
Australian home-loan approvals rose in May for an eighth month, climbing 2.2 percent from April, the statistics bureau said today. Confidence among consumers increased in July to the highest level in 19 months, a Westpac Banking Corp. and Melbourne Institute survey conducted between June 29 and July 5 showed. The index climbed 23.2 percent in June and July, the largest two-month gain since the survey began in 1975.
Alcoa Earnings
The South Pacific nations’ currencies fell for a second day against the dollar as Asian equities declined for a sixth session, the longest losing streak since September. U.S. markets fell yesterday on concern second-quarter earnings will fail to justify a four-month rally in stocks. Alcoa Inc. will kick off the U.S. earnings season today as the first company in the Dow Jones Industrial Average to report results.
TD Securities recommended yesterday that investors sell the Australian dollar against the U.S. currency as it may decline to 76 U.S. cents. They should exit the trade if the so-called Aussie rises to 82 cents, the company said.
“We are firmly of the view that a distressed corporate sector -- spilling over into investment and employment loss -- will create inflation undershooting for some time to come,” wrote Annette Beacher, a senior strategist at TD Securities in Singapore, in a note to clients yesterday. “The next move from the RBA is still more likely to be down.”
Australian government bonds advanced. The yield on 10-year notes fell eight basis points, or 0.08 percentage point, to 5.41 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.610, or A$6.10 per A$1,000 face amount, to 98.836.
Two-Year Swap
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.71 percent from 3.74 percent yesterday.
Bill English, finance minister for New Zealand, said today the government may help local councils raise financing for roads and pipelines by combining all borrowing needs into a so-called “bond bank.” New Zealand councils may spend as much as NZ$30 billion ($19 billion) on infrastructure projects over the next 10 years, much of which would be funded by debt.
The currencies also weakened versus the yen as Australia’s S&P/ASX 200 Index fell for a fourth day after the Standard & Poor’s 500 index yesterday slumped to the lowest since May 1. Higher interest rates in Australia and New Zealand attract investors to the South Pacific nations’ assets with the risk being that currency market moves will erase profits.
“The downturn in equities is reflecting a rise in risk aversion,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “The pressure on the downside may be maintained for the Aussie,” with markets preparing for a “weaker unemployment number,” she said referring to the currency by its nickname.
Australia’s currency fell 0.4 percent to 78.63 U.S. cents as of 11:48 a.m. in Sydney from 78.91 cents in New York yesterday. The currency slipped 0.7 percent to 74.39 yen. New Zealand’s dollar declined 0.2 percent to 62.78 U.S. cents from 62.89 cents in New York and slid 0.5 percent to 59.39 yen.
Australia’s unemployment rate climbed to 5.9 percent last month, the highest level since July 2003, according to the median forecast of 21 economists surveyed by Bloomberg News before the July 9 report. Employers probably cut 20,000 positions last month, the survey showed.
Jobs, Earnings
“The Australian dollar is looking a little vulnerable,” said Katie Dean, a senior economist in Melbourne at Australia & New Zealand Banking Group Ltd. “The main game is tomorrow’s employment data and, even if there are risks for an upside surprise, markets are unlikely to want to be long Australian dollar going into this very volatile release.” Long positions are a bet that a currency is going to gain.
The Australian dollar will find buyers at 78.60 cents and then 77.90 cents, she said.
Australian home-loan approvals rose in May for an eighth month, climbing 2.2 percent from April, the statistics bureau said today. Confidence among consumers increased in July to the highest level in 19 months, a Westpac Banking Corp. and Melbourne Institute survey conducted between June 29 and July 5 showed. The index climbed 23.2 percent in June and July, the largest two-month gain since the survey began in 1975.
Alcoa Earnings
The South Pacific nations’ currencies fell for a second day against the dollar as Asian equities declined for a sixth session, the longest losing streak since September. U.S. markets fell yesterday on concern second-quarter earnings will fail to justify a four-month rally in stocks. Alcoa Inc. will kick off the U.S. earnings season today as the first company in the Dow Jones Industrial Average to report results.
TD Securities recommended yesterday that investors sell the Australian dollar against the U.S. currency as it may decline to 76 U.S. cents. They should exit the trade if the so-called Aussie rises to 82 cents, the company said.
“We are firmly of the view that a distressed corporate sector -- spilling over into investment and employment loss -- will create inflation undershooting for some time to come,” wrote Annette Beacher, a senior strategist at TD Securities in Singapore, in a note to clients yesterday. “The next move from the RBA is still more likely to be down.”
Australian government bonds advanced. The yield on 10-year notes fell eight basis points, or 0.08 percentage point, to 5.41 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 rose 0.610, or A$6.10 per A$1,000 face amount, to 98.836.
Two-Year Swap
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, fell to 3.71 percent from 3.74 percent yesterday.
Bill English, finance minister for New Zealand, said today the government may help local councils raise financing for roads and pipelines by combining all borrowing needs into a so-called “bond bank.” New Zealand councils may spend as much as NZ$30 billion ($19 billion) on infrastructure projects over the next 10 years, much of which would be funded by debt.
Bank of Japan Considers Extending Credit Policies
July 8 (Bloomberg) -- The Bank of Japan may extend its emergency-credit programs as soon as next week as policy makers await evidence that banks are increasing lending to companies.
Officials may want to decide on the matter months before the programs expire at the end of September to quell any speculation they’re ready to scale back their efforts, said Masaaki Kanno, who worked at Japan’s central bank from 1974 to 1999 and served as a senior adviser on research and statistics. The Bank of Japan’s board next meets July 14-15 in Tokyo.
The debate reflects concern that the world’s second-biggest economy will struggle to emerge from its deepest postwar slump, and is a contrast from the U.S., where the Federal Reserve has already taken steps toward ending emergency-credit measures. BOJ Governor Masaaki Shirakawa this week said many companies are still struggling to borrow, after the bank’s quarterly Tankan survey last week showed access to credit remains constrained.
“Policy makers may conclude the bank had better decide on the extension this month if they need to do so anyway,” said Kanno, who is now chief economist in Tokyo at JPMorgan Chase & Co. “Making such an announcement in July can work as an anchor to prevent premature speculation about an exit policy.”
The Bank of Japan started purchasing commercial paper and corporate bonds this year, after lowering the overnight lending rate to 0.1 percent in December. Policy makers also offered unlimited loans to commercial banks at 0.1 percent in exchange for approved collateral. The three programs are scheduled to expire on Sept. 30.
Tankan Report
The Bank of Japan’s Tankan report showed on July 1 that the nation’s largest companies still consider their access to financing at close to the lowest level on record, and small firms perceived banks as reluctant to lend. Lending growth at Japanese banks slowed in June for a sixth straight month, a report showed today.
The Tankan also showed businesses plan deeper spending cuts than three months ago. Large firms estimate profit will fall 20 percent this year, almost twice the March forecast.
Another report today showed that machinery orders unexpectedly fell 3 percent in May from April, as sliding profits forced companies to cut spending on plant and equipment. The median estimate of 25 economists surveyed by Bloomberg was for a 2 percent increase.
The Nikkei 225 Stock Average dropped 1.9 percent at 10:02 a.m. in Tokyo. The yield on the benchmark 10-year bond fell two basis points to 1.285 percent, the lowest in more than three months.
Policy Makers
Bank of Japan policy makers have said they aren’t confident yet whether a recent rebound in exports and output will be sustained.
“The Tankan results turned out to be worse than expected, and there are no reasons in sight to be optimistic about the economy’s outlook,” said Teizo Taya, a former central-bank board member and now adviser to the Daiwa Institute of Research in Tokyo. “There is no merit for the Bank of Japan to adopt an exit policy too early.”
In the U.S., the Fed last month announced it will let one of its emergency-lending programs expire later this year, and trim two others.
Fed policy makers also said in their June 24 statement that they “currently anticipate that a number of these facilities may not need to be extended beyond February 1.” At the same time, they pledged to extend the terms of the remaining credit programs beyond February “as needed to promote financial stability and economic growth.”
Special Programs
Shirakawa said last month that Japan’s central bank will make a judgment on its special programs “by the end of September in a predictable manner to market participants” based on an assessment of the economy, financial markets and funding conditions for businesses.
“There is some speculation that the BOJ may want to be pro-active and indicate an extension of the programs rather than waiting for either next month or September,” said Marc Chandler, head of currency strategy at Brown Brothers Harriman & Co. in New York. “On balance, the BOJ most likely will have to extend the programs, probably until next March, but look for a decision in August, not next week.”
The Bank of Japan already extended the emergency-credit policies at its February board meeting, one month before the initial expiration date of March 31. That example led some analysts to anticipate the bank will again make its announcement a month before the expiration.
Gains Momentum
That view gained momentum in May after minutes of the BOJ’s April meeting showed one board member said the bank should consider ways to unwind the emergency measures should the economy recover in line with the bank’s forecast.
Board member Atsushi Mizuno said in May that it’s necessary for the bank to have discussions on how to unwind the emergency steps even while the global economy remains fragile.
There may not be much point in waiting, said Naomi Hasegawa, a senior bond strategist in Tokyo at Mitsubishi UFJ Securities Co.
“It’s not conceivable that environments for corporate financing will improve just over the next one month,” Hasegawa said. “Rather, tension in financial markets may rise” if the bank postpones its decision.
An early decision would also allow policy makers to avoid acting in the middle of a potential general-election campaign. Prime Minister Taro Aso, whose support fell below 20 percent in recent polls, has to call the vote by mid-September.
Officials may want to decide on the matter months before the programs expire at the end of September to quell any speculation they’re ready to scale back their efforts, said Masaaki Kanno, who worked at Japan’s central bank from 1974 to 1999 and served as a senior adviser on research and statistics. The Bank of Japan’s board next meets July 14-15 in Tokyo.
The debate reflects concern that the world’s second-biggest economy will struggle to emerge from its deepest postwar slump, and is a contrast from the U.S., where the Federal Reserve has already taken steps toward ending emergency-credit measures. BOJ Governor Masaaki Shirakawa this week said many companies are still struggling to borrow, after the bank’s quarterly Tankan survey last week showed access to credit remains constrained.
“Policy makers may conclude the bank had better decide on the extension this month if they need to do so anyway,” said Kanno, who is now chief economist in Tokyo at JPMorgan Chase & Co. “Making such an announcement in July can work as an anchor to prevent premature speculation about an exit policy.”
The Bank of Japan started purchasing commercial paper and corporate bonds this year, after lowering the overnight lending rate to 0.1 percent in December. Policy makers also offered unlimited loans to commercial banks at 0.1 percent in exchange for approved collateral. The three programs are scheduled to expire on Sept. 30.
Tankan Report
The Bank of Japan’s Tankan report showed on July 1 that the nation’s largest companies still consider their access to financing at close to the lowest level on record, and small firms perceived banks as reluctant to lend. Lending growth at Japanese banks slowed in June for a sixth straight month, a report showed today.
The Tankan also showed businesses plan deeper spending cuts than three months ago. Large firms estimate profit will fall 20 percent this year, almost twice the March forecast.
Another report today showed that machinery orders unexpectedly fell 3 percent in May from April, as sliding profits forced companies to cut spending on plant and equipment. The median estimate of 25 economists surveyed by Bloomberg was for a 2 percent increase.
The Nikkei 225 Stock Average dropped 1.9 percent at 10:02 a.m. in Tokyo. The yield on the benchmark 10-year bond fell two basis points to 1.285 percent, the lowest in more than three months.
Policy Makers
Bank of Japan policy makers have said they aren’t confident yet whether a recent rebound in exports and output will be sustained.
“The Tankan results turned out to be worse than expected, and there are no reasons in sight to be optimistic about the economy’s outlook,” said Teizo Taya, a former central-bank board member and now adviser to the Daiwa Institute of Research in Tokyo. “There is no merit for the Bank of Japan to adopt an exit policy too early.”
In the U.S., the Fed last month announced it will let one of its emergency-lending programs expire later this year, and trim two others.
Fed policy makers also said in their June 24 statement that they “currently anticipate that a number of these facilities may not need to be extended beyond February 1.” At the same time, they pledged to extend the terms of the remaining credit programs beyond February “as needed to promote financial stability and economic growth.”
Special Programs
Shirakawa said last month that Japan’s central bank will make a judgment on its special programs “by the end of September in a predictable manner to market participants” based on an assessment of the economy, financial markets and funding conditions for businesses.
“There is some speculation that the BOJ may want to be pro-active and indicate an extension of the programs rather than waiting for either next month or September,” said Marc Chandler, head of currency strategy at Brown Brothers Harriman & Co. in New York. “On balance, the BOJ most likely will have to extend the programs, probably until next March, but look for a decision in August, not next week.”
The Bank of Japan already extended the emergency-credit policies at its February board meeting, one month before the initial expiration date of March 31. That example led some analysts to anticipate the bank will again make its announcement a month before the expiration.
Gains Momentum
That view gained momentum in May after minutes of the BOJ’s April meeting showed one board member said the bank should consider ways to unwind the emergency measures should the economy recover in line with the bank’s forecast.
Board member Atsushi Mizuno said in May that it’s necessary for the bank to have discussions on how to unwind the emergency steps even while the global economy remains fragile.
There may not be much point in waiting, said Naomi Hasegawa, a senior bond strategist in Tokyo at Mitsubishi UFJ Securities Co.
“It’s not conceivable that environments for corporate financing will improve just over the next one month,” Hasegawa said. “Rather, tension in financial markets may rise” if the bank postpones its decision.
An early decision would also allow policy makers to avoid acting in the middle of a potential general-election campaign. Prime Minister Taro Aso, whose support fell below 20 percent in recent polls, has to call the vote by mid-September.
Subscribe to:
Posts (Atom)
Posts
