By Ben Sharples - Aug 30, 2011
Oil declined, heading for the biggest monthly drop since May, as investors speculated that increasing crude stockpiles in the U.S. indicate fuel demand will falter in the world’s biggest consumer of the commodity.
Futures slipped as much as 0.5 percent, snapping four days of gains, after the industry-funded American Petroleum Institute said supplies rose 5.13 million barrels last week, the biggest gain since March. An Energy Department report today may say inventories fell 500,000 barrels, according to the median estimate in a Bloomberg News survey. Seven respondents forecast a drop and six expected an increase.
“Inventories continue to build, which gives us the real state of play in the market,” said Jonathan Barratt, a managing director of Commodity Broking Services Pty in Sydney. “I don’t think prices will go higher, I think we’re in a range and we’re just testing the top-side of that.”
Crude for October delivery slid as much as 45 cents to $88.45 a barrel in electronic trading on the New York Mercantile Exchange and was at $88.49 at 12 p.m. Sydney time. The contract yesterday advanced $1.63 to $88.90. Prices are down 7.5 percent this month and 3 percent this year.
Brent oil for October settlement was at $114.05, up 3 cents, on the London-based ICE Futures Europe exchange. The European benchmark contract was at a premium of $25.57 to U.S. West Texas Intermediate futures, compared with a record close of $26.21 on Aug. 19. Brent is down 2.3 percent this month.
Oil Stockpiles
Crude oil stockpiles increased to 352 million, data from the American Petroleum Institute showed. Supplies are about 3.8 percent above the 5-year average, according to Bloomberg data.
Gasoline inventories declined 3.11 million barrels to 210.8 million last week, according to the API. The Energy Department report may show they fell 950,000 barrels, according to the median of 14 analyst estimates in a Bloomberg News survey.
The API collects stockpile data on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed for its weekly survey. Oil-supply totals from the API and the department have moved in the same direction 71 percent of the time in the past year and 75 percent in the past four years.
Oil slid this month amid signs developed economies are weakening. U.S. consumer confidence tumbled to the lowest level since April 2009 and European confidence fell the most since December 2008 in reports for August yesterday from the Conference Board in New York and the European Commission in Brussels.
To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net
To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Tuesday, August 30, 2011
Monday, August 29, 2011
Reserve Bank of India Proposes Tougher Capital, Sale Rules for New Banks
Reserve Bank of India Proposes Tougher Capital, Sale Rules for New Banks
By Ruth David and Anoop Agrawal - Aug 29, 2011
India’s central bank recommended tougher capital rules for new lenders and mandatory share sales within two years as conditions for issuing new licenses for the first time in seven years.
New lenders will also have to open at least one in four branches in rural areas that have a population of no more than 9,999 people, the Reserve Bank of India said in draft guidelines posted on its website yesterday. The banks may need to meet a minimum capital requirement of 5 billion rupees ($109 million), more than double the requirement for banks in 2004. Foreign shareholding may be capped at 49 percent for new lenders for five years, the central bank said.
Stringent rules may restrict the number of entrants, according to Viren H. Mehta, a director at Ernst & Young LLP. The license winners will also face competition from State Bank of India (SBIN), which accounts for almost a fourth of India’s loans, and ICICI Bank Ltd. (ICICIBC) Companies including Larsen & Toubro Ltd. (LT) and billionaire Anil Ambani’s Reliance ADA Group have expressed interest in operating in a market where credit is forecast to expand 18 percent in the year to March 31.
“If a business group wants to get into the banking business, they have to be serious players,” said Mumbai-based Mehta. “Serious enough to even change their group structures to become eligible for a license.”
New banks will also need to maintain a 12 percent capital adequacy ratio, compared with the 10 percent mandated by the regulator when it set guidelines for new lenders in 2001.
‘Impractical’ Guidelines
The owners of the banks will have to reduce their stake to 40 percent within two years after they are given a license, according to the central bank. Governor Duvvuri Subbarao on Aug. 23 said public ownership of banks would inspire confidence in the financial system and mitigate issues of conflict of interest between shareholders and depositors in the banks.
“The guideline asking for a listing within two years appears to be a bit impractical,” said Hemant Kanoria, chairman and managing director at SREI Infrastructure Finance Ltd. (SREI) “It will be very difficult for branches in the rural areas to start generating profits in the first two years.”
SREI will wait for final guidelines before deciding on applying for a license, Kanoria said in a phone interview yesterday. The regulator has sought feedback by Oct. 31.
SREI climbed as much as 12 percent after the guidelines were released while L&T Finance Holdings Ltd. rose 10.1 percent to 50.8 rupees at the 3:30 p.m. close in Mumbai. Reliance Capital Ltd. (RCAPT) gained 9.6 percent to 377.25 rupees.
India’s Bankex index, which tracks 14 stocks including State Bank and ICICI, climbed 4.1 percent yesterday, trimming its loss this year to 20 percent.
‘Private Pool’
The proposed rules will ensure companies don’t use their banks as a “private pool of readily available funds,” Subbarao said on Aug. 23.
Business groups controlled by Indian residents with at least 10 years of experience may be eligible to set up banks, the central bank said yesterday. Companies that get 10 percent or more of their income or assets from real estate or broking in the last three years won’t be eligible for the licenses, according to the guidelines.
“We want a banking license and the guidelines announced are positive for us,” R. Sridhar, managing director of Shriram Transport Finance Co. said in an interview yesterday. “We may need some time to meet some conditions.”
To contact the reporters on this story: Ruth David in Mumbai at rdavid9@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
By Ruth David and Anoop Agrawal - Aug 29, 2011
India’s central bank recommended tougher capital rules for new lenders and mandatory share sales within two years as conditions for issuing new licenses for the first time in seven years.
New lenders will also have to open at least one in four branches in rural areas that have a population of no more than 9,999 people, the Reserve Bank of India said in draft guidelines posted on its website yesterday. The banks may need to meet a minimum capital requirement of 5 billion rupees ($109 million), more than double the requirement for banks in 2004. Foreign shareholding may be capped at 49 percent for new lenders for five years, the central bank said.
Stringent rules may restrict the number of entrants, according to Viren H. Mehta, a director at Ernst & Young LLP. The license winners will also face competition from State Bank of India (SBIN), which accounts for almost a fourth of India’s loans, and ICICI Bank Ltd. (ICICIBC) Companies including Larsen & Toubro Ltd. (LT) and billionaire Anil Ambani’s Reliance ADA Group have expressed interest in operating in a market where credit is forecast to expand 18 percent in the year to March 31.
“If a business group wants to get into the banking business, they have to be serious players,” said Mumbai-based Mehta. “Serious enough to even change their group structures to become eligible for a license.”
New banks will also need to maintain a 12 percent capital adequacy ratio, compared with the 10 percent mandated by the regulator when it set guidelines for new lenders in 2001.
‘Impractical’ Guidelines
The owners of the banks will have to reduce their stake to 40 percent within two years after they are given a license, according to the central bank. Governor Duvvuri Subbarao on Aug. 23 said public ownership of banks would inspire confidence in the financial system and mitigate issues of conflict of interest between shareholders and depositors in the banks.
“The guideline asking for a listing within two years appears to be a bit impractical,” said Hemant Kanoria, chairman and managing director at SREI Infrastructure Finance Ltd. (SREI) “It will be very difficult for branches in the rural areas to start generating profits in the first two years.”
SREI will wait for final guidelines before deciding on applying for a license, Kanoria said in a phone interview yesterday. The regulator has sought feedback by Oct. 31.
SREI climbed as much as 12 percent after the guidelines were released while L&T Finance Holdings Ltd. rose 10.1 percent to 50.8 rupees at the 3:30 p.m. close in Mumbai. Reliance Capital Ltd. (RCAPT) gained 9.6 percent to 377.25 rupees.
India’s Bankex index, which tracks 14 stocks including State Bank and ICICI, climbed 4.1 percent yesterday, trimming its loss this year to 20 percent.
‘Private Pool’
The proposed rules will ensure companies don’t use their banks as a “private pool of readily available funds,” Subbarao said on Aug. 23.
Business groups controlled by Indian residents with at least 10 years of experience may be eligible to set up banks, the central bank said yesterday. Companies that get 10 percent or more of their income or assets from real estate or broking in the last three years won’t be eligible for the licenses, according to the guidelines.
“We want a banking license and the guidelines announced are positive for us,” R. Sridhar, managing director of Shriram Transport Finance Co. said in an interview yesterday. “We may need some time to meet some conditions.”
To contact the reporters on this story: Ruth David in Mumbai at rdavid9@bloomberg.net; Anoop Agrawal in Mumbai at aagrawal8@bloomberg.net
To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Saturday, August 27, 2011
Bernanke Outlook Revives Risk Appettite
By John Detrixhe and Catarina Saraiva - Aug 27, 2011
The dollar slid versus the majority of its most-traded peers as Federal Reserve Chairman Ben S. Bernanke said the economy hasn’t deteriorated enough to need immediate stimulus, fueling appetite for higher-risk assets.
Switzerland’s franc had the biggest weekly drop against the euro since July 1 on speculation policy makers will take new steps to curb its strength. The greenback fell for a second week versus the 17-nation currency as Bernanke said yesterday the Fed still has tools to stimulate the economy, spurring bets it may yet take action and damping the currency’s refuge appeal. Data next week may show U.S. employers added fewer jobs this month.
“Bernanke doesn’t want anyone to think that his finger isn’t on the big red button to do more,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “September could bring the trigger for whatever more is going to be.”
The dollar fell against 10 of its 16 major counterparts, dropping 0.7 percent versus the euro to $1.4499 yesterday in New York, from $1.4397 on Aug. 19. It was little changed versus the yen at 76.64, compared with 76.55 a week earlier. Europe’s shared currency appreciated 0.9 percent to 111.17 yen, from 110.20 yen.
New Zealand’s dollar gained the most against the greenback as stocks climbed after Bernanke, in a speech in Jackson Hole, Wyoming, sought to reassure investors that U.S. growth is safe in the long run and the Fed can aid the recovery if needed. The Standard & Poor’s 500 Index rose 1.5 percent yesterday.
The South Pacific currency strengthened 1.7 percent yesterday to end the week at 84.07 U.S. cents, up 2.8 percent over five days, the most since May.
Canada’s Dollar
The Canadian dollar, another currency of a commodities exporter, rose for the first time in five weeks, gaining 0.9 percent to 98.14 cents per U.S. dollar.
The greenback traded within a two-cent range against the euro this week before Bernanke’s speech at the Kansas City Fed’s annual conference in Jackson Hole, between $1.4328 and $1.45, as investors speculated what the Fed chief would say.
At last year’s conference, Bernanke foreshadowed the second round of quantitative easing to spur growth, the purchase of $600 billion of Treasuries from November through June.
The Fed still “has a range of tools that could be used to provide additional monetary stimulus,” Bernanke said yesterday, without specifying when or whether it might deploy them.
A second day has been added to the bank’s next policy meeting in September to “allow a fuller discussion” of the economy and possible responses, Bernanke said.
‘Continue to Ease’
“The Fed will continue to ease, most likely at its next meeting,” Diane Swonk, chief economist at Mesirow Financial Holdings Inc. in Chicago, wrote on the firm’s website. “Ben didn’t specify what they would do at their next meeting, as he still needs to deal with internal opposition to additional easing, but that will not stop him.”
The U.S. economy grew more slowly from April through June than first estimated, Commerce Department data showed yesterday 90 minutes before the Fed chief’s address. That capped the weakest six months of the economic recovery that began in mid- 2009. Gross domestic product gained at a 1 percent annual rate, versus the earlier estimate of 1.3 percent.
U.S. payroll growth slowed in August to 75,000 jobs, from 117,000 in July, economists in a Bloomberg News survey forecast before the Labor Department reports the data Sept. 2.
European Crisis
The euro gained this week versus the yen and greenback even amid concern Europe’s sovereign-debt crisis is worsening. Greek government two-year note yields climbed 46 percent, a euro-era record. The European Central Bank bought Italian and Spanish government bonds, according to people familiar with the transactions, to hold down borrowing costs and keep the crisis from spreading to the two countries.
The shared currency dropped against most major counterparts on Aug. 25 as French, Italian and Spanish stock-market regulators extended temporary short-selling bans they introduced this month in a bid to stem stock-market volatility.
Short investors sell borrowed shares with plans to buy them back later at a lower price, a practice politicians and some investors blame for roiling markets.
The euro appreciated 0.6 percent over the past three months against nine developed-nation peers, according to Bloomberg Correlation-Weighted Currency Indexes, while the dollar declined 2.1 percent. The Swiss franc strengthened the most, 5.9 percent, and the yen gained 4.5 percent as investors sought refuge amid the slowing U.S. economy and Europe’s debt crisis.
Yen Trading
Japanese Finance Minister Yoshihiko Noda said he’s examining how much speculative trading is influencing the yen, which surged to a post-World War II record of 75.95 per dollar on Aug. 19.
Japan last intervened in the currency market, selling yen to try to curb its climb, on Aug. 4, when it touched 76.97 to the dollar. The yen weakened as much as 4.1 percent that day. It was trading at pre-intervention levels within a week.
The franc tumbled versus all of its 16 most-traded peers this week amid speculation the Swiss National Bank will introduce new measures to damp demand for the currency. Policy makers cut borrowing costs to zero earlier this month, increased bank sight deposits almost sevenfold and left the door open for additional measures.
The Swiss currency fell against the euro and the dollar for a third week, sliding 3.4 percent to 1.1690 per euro in the biggest drop in almost two months, and weakening 2.7 percent to 80.63 centimes per greenback.
To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net.
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The dollar slid versus the majority of its most-traded peers as Federal Reserve Chairman Ben S. Bernanke said the economy hasn’t deteriorated enough to need immediate stimulus, fueling appetite for higher-risk assets.
Switzerland’s franc had the biggest weekly drop against the euro since July 1 on speculation policy makers will take new steps to curb its strength. The greenback fell for a second week versus the 17-nation currency as Bernanke said yesterday the Fed still has tools to stimulate the economy, spurring bets it may yet take action and damping the currency’s refuge appeal. Data next week may show U.S. employers added fewer jobs this month.
“Bernanke doesn’t want anyone to think that his finger isn’t on the big red button to do more,” said Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London. “September could bring the trigger for whatever more is going to be.”
The dollar fell against 10 of its 16 major counterparts, dropping 0.7 percent versus the euro to $1.4499 yesterday in New York, from $1.4397 on Aug. 19. It was little changed versus the yen at 76.64, compared with 76.55 a week earlier. Europe’s shared currency appreciated 0.9 percent to 111.17 yen, from 110.20 yen.
New Zealand’s dollar gained the most against the greenback as stocks climbed after Bernanke, in a speech in Jackson Hole, Wyoming, sought to reassure investors that U.S. growth is safe in the long run and the Fed can aid the recovery if needed. The Standard & Poor’s 500 Index rose 1.5 percent yesterday.
The South Pacific currency strengthened 1.7 percent yesterday to end the week at 84.07 U.S. cents, up 2.8 percent over five days, the most since May.
Canada’s Dollar
The Canadian dollar, another currency of a commodities exporter, rose for the first time in five weeks, gaining 0.9 percent to 98.14 cents per U.S. dollar.
The greenback traded within a two-cent range against the euro this week before Bernanke’s speech at the Kansas City Fed’s annual conference in Jackson Hole, between $1.4328 and $1.45, as investors speculated what the Fed chief would say.
At last year’s conference, Bernanke foreshadowed the second round of quantitative easing to spur growth, the purchase of $600 billion of Treasuries from November through June.
The Fed still “has a range of tools that could be used to provide additional monetary stimulus,” Bernanke said yesterday, without specifying when or whether it might deploy them.
A second day has been added to the bank’s next policy meeting in September to “allow a fuller discussion” of the economy and possible responses, Bernanke said.
‘Continue to Ease’
“The Fed will continue to ease, most likely at its next meeting,” Diane Swonk, chief economist at Mesirow Financial Holdings Inc. in Chicago, wrote on the firm’s website. “Ben didn’t specify what they would do at their next meeting, as he still needs to deal with internal opposition to additional easing, but that will not stop him.”
The U.S. economy grew more slowly from April through June than first estimated, Commerce Department data showed yesterday 90 minutes before the Fed chief’s address. That capped the weakest six months of the economic recovery that began in mid- 2009. Gross domestic product gained at a 1 percent annual rate, versus the earlier estimate of 1.3 percent.
U.S. payroll growth slowed in August to 75,000 jobs, from 117,000 in July, economists in a Bloomberg News survey forecast before the Labor Department reports the data Sept. 2.
European Crisis
The euro gained this week versus the yen and greenback even amid concern Europe’s sovereign-debt crisis is worsening. Greek government two-year note yields climbed 46 percent, a euro-era record. The European Central Bank bought Italian and Spanish government bonds, according to people familiar with the transactions, to hold down borrowing costs and keep the crisis from spreading to the two countries.
The shared currency dropped against most major counterparts on Aug. 25 as French, Italian and Spanish stock-market regulators extended temporary short-selling bans they introduced this month in a bid to stem stock-market volatility.
Short investors sell borrowed shares with plans to buy them back later at a lower price, a practice politicians and some investors blame for roiling markets.
The euro appreciated 0.6 percent over the past three months against nine developed-nation peers, according to Bloomberg Correlation-Weighted Currency Indexes, while the dollar declined 2.1 percent. The Swiss franc strengthened the most, 5.9 percent, and the yen gained 4.5 percent as investors sought refuge amid the slowing U.S. economy and Europe’s debt crisis.
Yen Trading
Japanese Finance Minister Yoshihiko Noda said he’s examining how much speculative trading is influencing the yen, which surged to a post-World War II record of 75.95 per dollar on Aug. 19.
Japan last intervened in the currency market, selling yen to try to curb its climb, on Aug. 4, when it touched 76.97 to the dollar. The yen weakened as much as 4.1 percent that day. It was trading at pre-intervention levels within a week.
The franc tumbled versus all of its 16 most-traded peers this week amid speculation the Swiss National Bank will introduce new measures to damp demand for the currency. Policy makers cut borrowing costs to zero earlier this month, increased bank sight deposits almost sevenfold and left the door open for additional measures.
The Swiss currency fell against the euro and the dollar for a third week, sliding 3.4 percent to 1.1690 per euro in the biggest drop in almost two months, and weakening 2.7 percent to 80.63 centimes per greenback.
To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net.
To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Friday, August 26, 2011
Swaps Below RBI Rate for First Time in 15 Month Signal Halt: India Credit
By Unni Krishnan - Aug 26, 2011
For the first time in 15 months, traders in the swap market are anticipating the Reserve Bank of India will stop raising interest rates and may start to ease policy in the next year as the economy slows.
The cost to lock in one-year borrowing costs dropped below the central bank’s 8 percent benchmark rate this month for the first time since May 2010 and was 7.73 percent today, according to data compiled by Bloomberg. The gap has narrowed 58 basis points in August, compared with 110 in Brazil and 37 in China.
India’s central bank has boosted borrowing costs 11 times since March 2010, the most of the biggest emerging nations known as the BRICs. The bid to contain inflation will probably cut economic growth, according to Morgan Stanley and Standard Chartered Plc, which have both reduced their forecasts for India this year. Gross domestic product rose 7.6 percent in the three months through June, the least since the fourth quarter of 2009, according to the median estimate of economists surveyed by Bloomberg ahead of data next week.
“Swaps are signifying that the market is expecting the end of the rate-hike cycle as growth slows,” Vivek Rajpal, a Mumbai based fixed-income strategist at Nomura Holdings Inc., said in an interview yesterday. “Easing at some point of time is possible, but it may be in the form of liquidity-easing measures, not necessarily a cut in interest rates.”
Swap Movements
India’s swap rates, which are pegged to the overnight money-market rate, climbed to a three-year high of 8.37 percent on July 27, a day after the Reserve Bank unexpectedly raised borrowing costs by 50 basis points, or 0.50 percentage point. The cost needed to receive floating payments for one year dropped the most this month since December 2008 after traders pared expectations for rate increases on signs the global economy is slowing.
The one-year swap rate in Brazil is at 11.5 percent, one percentage point below the nation’s benchmark rate. In China, the 3.80 percent swap rate compares with the one-year deposit rate of 3.50 percent. In Russia, which doesn’t target one policy rate, the gauge is 5.31 percent, 52 basis points above the three-month MosPrime interbank rate, data compiled by Bloomberg show. Traders use swaps to guard against fluctuations in borrowing costs.
India’s bonds have rallied amid evidence Asia’s third- biggest economy is slowing. Manufacturing grew in July at the slowest pace in 20 months, the Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics showed this month. Car sales fell in July from a year earlier for the first time since January 2009, the Society of Indian Automobile Manufacturers said on Aug. 10.
Bond Returns
The yield on benchmark 7.8 percent rupee-denominated notes due in April 2021 has dropped 17 basis points this month to 8.28 percent, according to the central bank’s trading system. The yield rose three basis points today before a debt auction, where the central bank will sell 110 billion rupees ($2.4 billion) of securities due in 2018, 2021 and 2027, according to the government’s debt calendar.
India’s bonds due in 10 years yielded 600 basis points more than similar-maturity U.S. Treasuries yesterday, down from a record-high 621 basis points reached on Aug. 18. Sovereign rupee notes returned 1.7 percent this month, outperforming four of 10 Asian debt markets, according to indexes compiled by HSBC.
The central bank may signal it is equally concerned over slowing growth and inflation when it meets next on Sept. 16, according to Mumbai-based Religare Capital Markets.
Growth Outlook
India’s economy may expand 7.2 percent in the year through March, compared with an earlier prediction of 7.7 percent, Morgan Stanley said on Aug. 1. Standard Chartered cut its forecast on July 26 to 7.7 percent from 8.1 percent. Increases in wholesale prices, which have held above 9 percent for eight months, will retreat to 7 percent by March, the Reserve Bank said in a statement on July 26.
“The RBI’s predominant concern until now was inflation, but now growth is also suddenly coming on the radar,” Jay Shankar, a Mumbai-based chief economist at Religare Capital, said in an interview on Aug. 24. “I hope they won’t raise rates in September.”
Policy makers will need to raise borrowing costs aggressively to attract global investors, according to Mumbai- based IndusInd Bank Ltd. International funds’ holdings of rupee debt totaled $21.7 billion as of Aug. 24, according to the Securities & Exchange Board of India, below the $50 billion ceiling set by the government.
‘No Option’
“To attract global investors you need to keep inflation below the growth rate,” J. Moses Harding, a Mumbai-based executive vice president at IndusInd Bank, said in an interview on Aug. 24. “I think the RBI has no option but to deliver a half percentage point rate hike in September.”
Harding predicts that the 10-year bond yield will be about 8.15 percent by December.
The rupee has dropped 4 percent this month, headed for the biggest slide since May 2010, as exchange data show global funds reduced holdings of Indian stock by $2 billion. The currency was little changed at 46.0738 per dollar today, according to data compiled by Bloomberg.
The cost of insuring the debt of State Bank of India against default using five-year credit-default swaps has climbed this month. The contracts rose 81 basis points to 273, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets.
The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The central bank will raise borrowing costs by 25 basis points in September before pausing for the rest of the year, Shubhada Rao, chief economist at Mumbai-based Yes Bank Ltd., said in an interview on Aug. 23.
“While we expect RBI to remain significantly hawkish in its tone, we believe that the interest-rate cycle is close to peaking,” Rao said.
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
For the first time in 15 months, traders in the swap market are anticipating the Reserve Bank of India will stop raising interest rates and may start to ease policy in the next year as the economy slows.
The cost to lock in one-year borrowing costs dropped below the central bank’s 8 percent benchmark rate this month for the first time since May 2010 and was 7.73 percent today, according to data compiled by Bloomberg. The gap has narrowed 58 basis points in August, compared with 110 in Brazil and 37 in China.
India’s central bank has boosted borrowing costs 11 times since March 2010, the most of the biggest emerging nations known as the BRICs. The bid to contain inflation will probably cut economic growth, according to Morgan Stanley and Standard Chartered Plc, which have both reduced their forecasts for India this year. Gross domestic product rose 7.6 percent in the three months through June, the least since the fourth quarter of 2009, according to the median estimate of economists surveyed by Bloomberg ahead of data next week.
“Swaps are signifying that the market is expecting the end of the rate-hike cycle as growth slows,” Vivek Rajpal, a Mumbai based fixed-income strategist at Nomura Holdings Inc., said in an interview yesterday. “Easing at some point of time is possible, but it may be in the form of liquidity-easing measures, not necessarily a cut in interest rates.”
Swap Movements
India’s swap rates, which are pegged to the overnight money-market rate, climbed to a three-year high of 8.37 percent on July 27, a day after the Reserve Bank unexpectedly raised borrowing costs by 50 basis points, or 0.50 percentage point. The cost needed to receive floating payments for one year dropped the most this month since December 2008 after traders pared expectations for rate increases on signs the global economy is slowing.
The one-year swap rate in Brazil is at 11.5 percent, one percentage point below the nation’s benchmark rate. In China, the 3.80 percent swap rate compares with the one-year deposit rate of 3.50 percent. In Russia, which doesn’t target one policy rate, the gauge is 5.31 percent, 52 basis points above the three-month MosPrime interbank rate, data compiled by Bloomberg show. Traders use swaps to guard against fluctuations in borrowing costs.
India’s bonds have rallied amid evidence Asia’s third- biggest economy is slowing. Manufacturing grew in July at the slowest pace in 20 months, the Purchasing Managers’ Index compiled by HSBC Holdings Plc and Markit Economics showed this month. Car sales fell in July from a year earlier for the first time since January 2009, the Society of Indian Automobile Manufacturers said on Aug. 10.
Bond Returns
The yield on benchmark 7.8 percent rupee-denominated notes due in April 2021 has dropped 17 basis points this month to 8.28 percent, according to the central bank’s trading system. The yield rose three basis points today before a debt auction, where the central bank will sell 110 billion rupees ($2.4 billion) of securities due in 2018, 2021 and 2027, according to the government’s debt calendar.
India’s bonds due in 10 years yielded 600 basis points more than similar-maturity U.S. Treasuries yesterday, down from a record-high 621 basis points reached on Aug. 18. Sovereign rupee notes returned 1.7 percent this month, outperforming four of 10 Asian debt markets, according to indexes compiled by HSBC.
The central bank may signal it is equally concerned over slowing growth and inflation when it meets next on Sept. 16, according to Mumbai-based Religare Capital Markets.
Growth Outlook
India’s economy may expand 7.2 percent in the year through March, compared with an earlier prediction of 7.7 percent, Morgan Stanley said on Aug. 1. Standard Chartered cut its forecast on July 26 to 7.7 percent from 8.1 percent. Increases in wholesale prices, which have held above 9 percent for eight months, will retreat to 7 percent by March, the Reserve Bank said in a statement on July 26.
“The RBI’s predominant concern until now was inflation, but now growth is also suddenly coming on the radar,” Jay Shankar, a Mumbai-based chief economist at Religare Capital, said in an interview on Aug. 24. “I hope they won’t raise rates in September.”
Policy makers will need to raise borrowing costs aggressively to attract global investors, according to Mumbai- based IndusInd Bank Ltd. International funds’ holdings of rupee debt totaled $21.7 billion as of Aug. 24, according to the Securities & Exchange Board of India, below the $50 billion ceiling set by the government.
‘No Option’
“To attract global investors you need to keep inflation below the growth rate,” J. Moses Harding, a Mumbai-based executive vice president at IndusInd Bank, said in an interview on Aug. 24. “I think the RBI has no option but to deliver a half percentage point rate hike in September.”
Harding predicts that the 10-year bond yield will be about 8.15 percent by December.
The rupee has dropped 4 percent this month, headed for the biggest slide since May 2010, as exchange data show global funds reduced holdings of Indian stock by $2 billion. The currency was little changed at 46.0738 per dollar today, according to data compiled by Bloomberg.
The cost of insuring the debt of State Bank of India against default using five-year credit-default swaps has climbed this month. The contracts rose 81 basis points to 273, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets.
The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
The central bank will raise borrowing costs by 25 basis points in September before pausing for the rest of the year, Shubhada Rao, chief economist at Mumbai-based Yes Bank Ltd., said in an interview on Aug. 23.
“While we expect RBI to remain significantly hawkish in its tone, we believe that the interest-rate cycle is close to peaking,” Rao said.
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
Thursday, August 11, 2011
India’s Industrial Output Growth Quickens to 8.8%, Weathering Higher Rates
By Kartik Goyal - Aug 12, 2011
India’s industrial production grew at the quickest pace in three months in June, weathering the fastest interest-rate increases among Asia’s major economies.
Output at factories, utilities and mines rose 8.8 percent from a year earlier, following a revised 5.9 percent gain in May, the Central Statistical Office said in a statement in New Delhi today. The median of 23 estimates in a Bloomberg News survey was for a 5.5 percent advance.
Reserve Bank of India Governor Duvvuri Subbarao, whose term was extended by two years on Aug. 9, has to weigh the risks to expansion posed by Europe’s debt crisis and a faltering U.S. recovery after tightening monetary policy to slow inflation. Asian central banks from South Korea to Indonesia kept borrowing costs unchanged this week as they assess the global economy.
“The Indian central bank’s job has become even more challenging at this juncture,” Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai, said before the report. “The RBI has to control inflation at a time when the global economic turmoil poses risks to growth.”
The Bombay Stock Exchange Sensitive Index was little changed at 17,052.10 at 11:12 a.m. in Mumbai. The rupee gained 0.1 percent to 45.34 per dollar, and the yield on the 7.80 percent bond due April 2021 held at 8.26 percent.
Inflation Forecast
India’s benchmark wholesale-price inflation in July will probably be 9.2 percent, according to the median estimate in a Bloomberg News survey, staying above 9 percent for eight straight months. The commerce ministry will release the data on Aug. 16.
The Reserve Bank has increased borrowing costs 11 times since mid-March 2010. Its repurchase rate is 8 percent.
Inflation is a political issue in India as it erodes spending power in a nation where the World Bank estimates more than three-quarters of the population live on less than $2 a day.
Steel and cement production, and an expansion in bank loans in India, show demand pressures are growing, stoking prices.
Steel output by companies including Tata Steel Ltd. rose 12.5 percent in June from a year earlier, compared with a 6.1 percent gain in May, according to the commerce ministry. Cement production rose 0.8 percent after a 2.3 percent decline in May, the ministry said.
Bank Loans
Commercial loans given by lenders such as ICICI Bank Ltd. (ICICIBC), the nation’s biggest private lender, jumped 19.33 percent in the 12 months to July 15, exceeding the central bank’s 18 percent projection, according to Reserve Bank data.
Concerns that the global economy will slow wiped more than $8 trillion of stocks worldwide between July 22 and Aug. 8, according to data compiled by Bloomberg.
Finance ministers and central bankers from the Group of Seven nations, which include the U.S., U.K. and Germany, said in a statement on Aug. 8 that they will “take all necessary measures to support financial stability and growth in a spirit of close cooperation and confidence.”
India’s central bank said Aug. 8 that while “downside risks” to India’s expansion may have increased amid weakness in the global economy, “they are likely to have limited impact.”
Finance Minister Pranab Mukherjee said Aug. 6 that India’s challenge is to tame inflation.
The Reserve Bank last month maintained its growth forecast of 8 percent for the current fiscal year ending March 31. The economy expanded 8.5 percent the previous year.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
India’s industrial production grew at the quickest pace in three months in June, weathering the fastest interest-rate increases among Asia’s major economies.
Output at factories, utilities and mines rose 8.8 percent from a year earlier, following a revised 5.9 percent gain in May, the Central Statistical Office said in a statement in New Delhi today. The median of 23 estimates in a Bloomberg News survey was for a 5.5 percent advance.
Reserve Bank of India Governor Duvvuri Subbarao, whose term was extended by two years on Aug. 9, has to weigh the risks to expansion posed by Europe’s debt crisis and a faltering U.S. recovery after tightening monetary policy to slow inflation. Asian central banks from South Korea to Indonesia kept borrowing costs unchanged this week as they assess the global economy.
“The Indian central bank’s job has become even more challenging at this juncture,” Indranil Pan, chief economist at Kotak Mahindra Bank Ltd. in Mumbai, said before the report. “The RBI has to control inflation at a time when the global economic turmoil poses risks to growth.”
The Bombay Stock Exchange Sensitive Index was little changed at 17,052.10 at 11:12 a.m. in Mumbai. The rupee gained 0.1 percent to 45.34 per dollar, and the yield on the 7.80 percent bond due April 2021 held at 8.26 percent.
Inflation Forecast
India’s benchmark wholesale-price inflation in July will probably be 9.2 percent, according to the median estimate in a Bloomberg News survey, staying above 9 percent for eight straight months. The commerce ministry will release the data on Aug. 16.
The Reserve Bank has increased borrowing costs 11 times since mid-March 2010. Its repurchase rate is 8 percent.
Inflation is a political issue in India as it erodes spending power in a nation where the World Bank estimates more than three-quarters of the population live on less than $2 a day.
Steel and cement production, and an expansion in bank loans in India, show demand pressures are growing, stoking prices.
Steel output by companies including Tata Steel Ltd. rose 12.5 percent in June from a year earlier, compared with a 6.1 percent gain in May, according to the commerce ministry. Cement production rose 0.8 percent after a 2.3 percent decline in May, the ministry said.
Bank Loans
Commercial loans given by lenders such as ICICI Bank Ltd. (ICICIBC), the nation’s biggest private lender, jumped 19.33 percent in the 12 months to July 15, exceeding the central bank’s 18 percent projection, according to Reserve Bank data.
Concerns that the global economy will slow wiped more than $8 trillion of stocks worldwide between July 22 and Aug. 8, according to data compiled by Bloomberg.
Finance ministers and central bankers from the Group of Seven nations, which include the U.S., U.K. and Germany, said in a statement on Aug. 8 that they will “take all necessary measures to support financial stability and growth in a spirit of close cooperation and confidence.”
India’s central bank said Aug. 8 that while “downside risks” to India’s expansion may have increased amid weakness in the global economy, “they are likely to have limited impact.”
Finance Minister Pranab Mukherjee said Aug. 6 that India’s challenge is to tame inflation.
The Reserve Bank last month maintained its growth forecast of 8 percent for the current fiscal year ending March 31. The economy expanded 8.5 percent the previous year.
To contact the reporter on this story: Kartik Goyal in New Delhi at kgoyal@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, August 10, 2011
Cookies, Potato Chips Sales Seen Driving India Palm Oil Imports to Record
By Swansy Afonso - Aug 11, 2011
Palm oil imports by India, the largest buyer, may climb to a record this year as rising incomes stoke demand for cookies and potato chips, potentially stemming a decline in prices from a more than nine-month low.
Purchases may jump as much as 10 percent to about 7 million metric tons in the year ending Oct. 31 from 6.38 million tons a year earlier, according to five processors and analysts in a Bloomberg News survey. The highest-ever palm oil imports previously were 6.43 million tons in 2008-09 season, data from the Solvent Extractors’ Association of India showed.
Rising Indian imports may help palm oil futures limit losses after slumping 26 percent from a 35-month high of 3,967 ringgit ($1,320) a ton reached on Feb. 10 as output expands in Indonesia and Malaysia, the biggest producers. A rebound in prices may also boost earnings at producers including Sime Darby Bhd. (SIME) and Indonesia’s PT Astra Agro Lestari and raise costs for users including Nestle SA and Unilever.
“India’s buying will support prices,” Prasoon Mathur, senior agriculture analyst at Religare Commodities Ltd., said in a phone interview yesterday. “News on the U.S. debt and weakness in crude oil prices will be other major factors” influencing prices, he said.
Mathur expects palm oil to trade between 2,800 ringgit a ton and 3,100 ringgit for the rest of the year.
Palm oil plunged to a nine-month low on Aug. 9 on concern that demand for commodities may drop as the U.S. economic recovery stalls. Standard & Poor’s on Aug. 5 cut the rating of the U.S.’s long-term debt. The Federal Reserve on Aug. 9 pledged to keep its benchmark interest rate at a record low for another two years to bolster the economy.
‘Huge Discount’
Indian importers are being lured by the “huge discount” that palm oil offers compared with its rival soybean oil, Murali Krishna P.V., chief executive officer of TransGraph Consulting Pvt., said from the southern city of Hyderabad.
Soybean oil’s premium over palm oil widened to $213.22 a ton today from the 12-month average of $119.43 a ton, according to data compiled by Bloomberg. The premium climbed to $271.68 a ton on July 13, the highest since December 2008.
Palm oil for October delivery gained as much as 0.8 percent to 2,959 ringgit per ton on the Malaysia Derivatives Exchange in Kuala Lumpur today. December-delivery soybean oil climbed as much as 0.8 percent to 54.03 cents per pound.
“Soybean oil is expected to become more expensive in the next three months, which also coincide with India’s festival season,” said Raj Kumar Shah, deputy managing director of Kuala Lumpur-based Josovina Commodities Sdn. Bhd.
Peak Season
The peak season for India’s edible oils demand starts with the Muslim fasting month of Ramadan this month and ends with the Hindu festival of Diwali in late October. Imports may climb to about 720,000 tons a month in the three months through October, compared with an average 659,000 tons bought during the same period last year, according to the Bloomberg survey.
“Palm oil imports will be higher for rest of the season as the local production is almost over now and festivals are early this year,” Ashok Sethia, senior vice president of the Central Organisation for Oil Industry & Trade, said in a telephone interview from Kolkata.
Prices of palm oil are lower in India compared with rapeseed, cotton seed and soybean oils and the gap may widen further as output in Malaysia and Indonesia rises, said Vijay Data, vice president of the Solvent Extractors’ Association.
India’s edible oil consumption may expand around 3 percent this year as population and percapita income grow, TransGraph’s Krishna said. India consumes 1.2 million tons to 1.5 million tons of edible oil each month, he said.
Brazil, Argentina
Soybean oil purchases may fall to 1 million tons in the year ending Oct. 31, from 1.67 million tons a year earlier, Sandeep Bajoria, chief executive officer of Sunvin Group said on July 5. India meets more than half its edible oil demand through imports. The nation buys palm oil from Indonesia and Malaysia, and soybean oil from Brazil and Argentina.
Vegetable oil imports by India fell 8 percent to 5.1 million tons in the eight months through June because of higher domestic oilseed production, according to the extractors’ association. Palm oil imports in the November-June period were almost unchanged at 3.9 million tons from a year earlier, while purchases of soybean and sunflower oils slumped 24 percent to 986,213 tons, the group said.
To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Palm oil imports by India, the largest buyer, may climb to a record this year as rising incomes stoke demand for cookies and potato chips, potentially stemming a decline in prices from a more than nine-month low.
Purchases may jump as much as 10 percent to about 7 million metric tons in the year ending Oct. 31 from 6.38 million tons a year earlier, according to five processors and analysts in a Bloomberg News survey. The highest-ever palm oil imports previously were 6.43 million tons in 2008-09 season, data from the Solvent Extractors’ Association of India showed.
Rising Indian imports may help palm oil futures limit losses after slumping 26 percent from a 35-month high of 3,967 ringgit ($1,320) a ton reached on Feb. 10 as output expands in Indonesia and Malaysia, the biggest producers. A rebound in prices may also boost earnings at producers including Sime Darby Bhd. (SIME) and Indonesia’s PT Astra Agro Lestari and raise costs for users including Nestle SA and Unilever.
“India’s buying will support prices,” Prasoon Mathur, senior agriculture analyst at Religare Commodities Ltd., said in a phone interview yesterday. “News on the U.S. debt and weakness in crude oil prices will be other major factors” influencing prices, he said.
Mathur expects palm oil to trade between 2,800 ringgit a ton and 3,100 ringgit for the rest of the year.
Palm oil plunged to a nine-month low on Aug. 9 on concern that demand for commodities may drop as the U.S. economic recovery stalls. Standard & Poor’s on Aug. 5 cut the rating of the U.S.’s long-term debt. The Federal Reserve on Aug. 9 pledged to keep its benchmark interest rate at a record low for another two years to bolster the economy.
‘Huge Discount’
Indian importers are being lured by the “huge discount” that palm oil offers compared with its rival soybean oil, Murali Krishna P.V., chief executive officer of TransGraph Consulting Pvt., said from the southern city of Hyderabad.
Soybean oil’s premium over palm oil widened to $213.22 a ton today from the 12-month average of $119.43 a ton, according to data compiled by Bloomberg. The premium climbed to $271.68 a ton on July 13, the highest since December 2008.
Palm oil for October delivery gained as much as 0.8 percent to 2,959 ringgit per ton on the Malaysia Derivatives Exchange in Kuala Lumpur today. December-delivery soybean oil climbed as much as 0.8 percent to 54.03 cents per pound.
“Soybean oil is expected to become more expensive in the next three months, which also coincide with India’s festival season,” said Raj Kumar Shah, deputy managing director of Kuala Lumpur-based Josovina Commodities Sdn. Bhd.
Peak Season
The peak season for India’s edible oils demand starts with the Muslim fasting month of Ramadan this month and ends with the Hindu festival of Diwali in late October. Imports may climb to about 720,000 tons a month in the three months through October, compared with an average 659,000 tons bought during the same period last year, according to the Bloomberg survey.
“Palm oil imports will be higher for rest of the season as the local production is almost over now and festivals are early this year,” Ashok Sethia, senior vice president of the Central Organisation for Oil Industry & Trade, said in a telephone interview from Kolkata.
Prices of palm oil are lower in India compared with rapeseed, cotton seed and soybean oils and the gap may widen further as output in Malaysia and Indonesia rises, said Vijay Data, vice president of the Solvent Extractors’ Association.
India’s edible oil consumption may expand around 3 percent this year as population and percapita income grow, TransGraph’s Krishna said. India consumes 1.2 million tons to 1.5 million tons of edible oil each month, he said.
Brazil, Argentina
Soybean oil purchases may fall to 1 million tons in the year ending Oct. 31, from 1.67 million tons a year earlier, Sandeep Bajoria, chief executive officer of Sunvin Group said on July 5. India meets more than half its edible oil demand through imports. The nation buys palm oil from Indonesia and Malaysia, and soybean oil from Brazil and Argentina.
Vegetable oil imports by India fell 8 percent to 5.1 million tons in the eight months through June because of higher domestic oilseed production, according to the extractors’ association. Palm oil imports in the November-June period were almost unchanged at 3.9 million tons from a year earlier, while purchases of soybean and sunflower oils slumped 24 percent to 986,213 tons, the group said.
To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Tuesday, August 9, 2011
Asian Stocks Gain on U.S. Fed Low-Rate Pledge
By Shiyin Chen - Aug 10, 2011
Asian stocks climbed for the first time in seven days, and commodities rallied, with oil rebounding from a 10-month low, after the Federal Reserve pledged to keep interest rates near zero through mid-2013. Treasuries dropped.
The MSCI Asia Pacific Index added 2.3 percent as of 3:05 p.m. in Tokyo as global equities rebounded from a nine-day, $7.8 trillion rout. Euro Stoxx 50 futures jumped 1.4 percent, while Standard & Poor’s 500 Index futures slid 0.1 percent. Treasury 10-year notes increased four basis points. The cost of insuring Asian debt from default sank the most since May 2010. The Swiss franc weakened against all 16 major peers. Crude rose 3 percent in New York and copper gained for the first time in six days.
Fed Chairman Ben S. Bernanke and his colleagues vowed to keep borrowing costs at an all-time low and discussed a range of policy tools to bolster the economy, saying they are prepared to use them “as appropriate.” Analysts surveyed by Bloomberg say China and Australia may leave rates unchanged for the rest of this year, adding to signs policy makers will take steps to spur growth and restore confidence amid the global market turmoil.
“Stocks became oversold on the back of global growth worries” Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has $100 billion under management, said in a Bloomberg Television interview. “We’re due for a bounce and Bernanke has provided that.”
Stocks Rebound
More than three shares rose for every one that retreated on MSCI’s Asia index, helping the gauge halt a six-day, 13 percent slump. The MSCI All-Country World Index fell 15 percent in the nine days ended Aug. 8 before rebounding 2.1 percent yesterday. Global equity markets recovered about $923 billion in values.
Japan’s Nikkei 225 Stock Average rose 1.1 percent and Australia’s S&P/ASX 200 Index jumped 2.8 percent. South Korea’s Kospi Index advanced 0.3 percent after the government yesterday banned short selling for three months and the two biggest state- run pension funds said they may boost equity investments.
Tokyo Electric Power Co. rallied 15 percent after the utility said there was no chance of insolvency even after a 572 billion yen ($7.4 billion) quarterly loss. Zijin Mining Group Co. climbed 7.2 percent in Hong Kong after China’s largest gold producer by market value reported first-half profit that beat analyst estimates.
The S&P 500 jumped 4.7 percent yesterday, the most since March 2009. The U.S. gauge rebounded from a 6.7 percent sell-off on Aug. 8 that was spurred by S&P’s unprecedented downgrade of the U.S. government’s credit rating to AAA to AA+. The reduction left America’s rating above countries such Japan and China and wasn’t matched by Fitch Ratings and Moody’s Investors Service, which affirmed the U.S. at the top grade.
Demand for Treasuries
Yields on 10-year Treasuries increased to 2.29 percent today. They briefly fell to record low of 2.03 percent yesterday following the Fed statement before closing at 2.25 percent. The Treasury is scheduled to sell $24 billion of 10-year notes today and $16 billion of 30-year debt tomorrow. Yesterday’s sale of $32 billion in three-year notes drew stronger-than-average demand, with a bid-to-cover ratio of 3.29. That compares with an average of 3.15 for the past 10 sales.
The rate decision represents the biggest effort since November to spark the U.S. economy and revive confidence. The Fed stopped stopping short of initiating further large-scale asset purchases, following the completion of the second round of so-called quantitative easing in June, in which it bought $600 billion of government bonds.
The central bank offered a dimmer view of the economy than it did in the last statement in late June, saying that it expects a “somewhat slower pace of recovery over coming quarters.”
‘Vote of Confidence’
“We’re starting the process of finding a bottom after the panic,” James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, said on Bloomberg TV. “I like what the Fed did. They took a calmer approach and said, we’re going to pay attention to the economy, and the market, you’re on your own. That was a vote of confidence.”
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan decreased 13.5 basis points to 135.5 basis points, according to Credit Agricole CIB prices. That would be its biggest one-day decline since May 27, 2010, according to data provider CMA.
The Markit iTraxx Australia index fell 11.5 basis points to 137.5, Credit Agricole prices show. The gauge snapped six days of increases and is on course for the steepest daily decline since June 21, 2010, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Franc Slides
Switzerland’s franc weakened after having gained 23 percent this year against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Currency Indexes. The Swiss currency slid to 72.93 centimes per dollar after yesterday surging to a record high of 70.71 centimes.
South Korea’s won climbed 0.7 percent to 1,080.20 per dollar after earlier gaining to 1,073.35, while Malaysia’s ringgit strengthened 0.6 percent to 3.0090 per dollar, rebounding from near its weakest level since June.
“The market interpreted the Fed statement as a possible sign of quantitative easing,” said Disawat Tiaowvanich, a foreign-exchange trader at Bangkok Bank Pcl. “More quantitative easing would lead to investors diversifying into other currencies, and that would support Asian currencies.”
Asia’s Rates
Australia’s dollar slid 0.1 percent to $1.0348. The currency, which fell yesterday below parity with the U.S. dollar since March, erased earlier gains of as much as 0.6 percent after a Westpac Banking Corp. and Melbourne Institute survey showed consumer confidence slumped this month to its lowest in more than two years.
The Reserve Bank of Australia will maintain borrowing costs at 4.75 percent until the first quarter of next year, according to the median of 22 estimates in a Bloomberg News survey. A poll six days ago showed the consensus was for a quarter percentage point increase on Nov. 1. Interbank cash-rate futures indicate the RBS’s key rate may fall to 3.49 percent by December from 4.75 percent.
Central banks elsewhere in Asia may also delay interest- rate increases. The People’s Bank of China will leave borrowing costs unchanged for the rest of this year, according to eight of 10 analysts surveyed yesterday. Economists’ median forecast is for South Korea to extend a pause for a second month tomorrow, while Indonesia stayed on hold yesterday.
Crude for September delivery rose to $81.69 a barrel on the New York Mercantile Exchange, recovering from a two-day, 8.7 percent slump. U.S. crude inventories declined the most since June, according to the industry-funded American Petroleum Institute. Gasoline inventories also fell.
Metals gained on the London Metal Exchange, with three- month delivery copper climbing as much as 3.1 percent to $9,005 a ton. The contract sank to an eight-month low yesterday. Nickel and zinc both increased more than 3 percent to $21,899 a ton and $2,176.75 a ton, respectively.
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Asian stocks climbed for the first time in seven days, and commodities rallied, with oil rebounding from a 10-month low, after the Federal Reserve pledged to keep interest rates near zero through mid-2013. Treasuries dropped.
The MSCI Asia Pacific Index added 2.3 percent as of 3:05 p.m. in Tokyo as global equities rebounded from a nine-day, $7.8 trillion rout. Euro Stoxx 50 futures jumped 1.4 percent, while Standard & Poor’s 500 Index futures slid 0.1 percent. Treasury 10-year notes increased four basis points. The cost of insuring Asian debt from default sank the most since May 2010. The Swiss franc weakened against all 16 major peers. Crude rose 3 percent in New York and copper gained for the first time in six days.
Fed Chairman Ben S. Bernanke and his colleagues vowed to keep borrowing costs at an all-time low and discussed a range of policy tools to bolster the economy, saying they are prepared to use them “as appropriate.” Analysts surveyed by Bloomberg say China and Australia may leave rates unchanged for the rest of this year, adding to signs policy makers will take steps to spur growth and restore confidence amid the global market turmoil.
“Stocks became oversold on the back of global growth worries” Shane Oliver, the Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has $100 billion under management, said in a Bloomberg Television interview. “We’re due for a bounce and Bernanke has provided that.”
Stocks Rebound
More than three shares rose for every one that retreated on MSCI’s Asia index, helping the gauge halt a six-day, 13 percent slump. The MSCI All-Country World Index fell 15 percent in the nine days ended Aug. 8 before rebounding 2.1 percent yesterday. Global equity markets recovered about $923 billion in values.
Japan’s Nikkei 225 Stock Average rose 1.1 percent and Australia’s S&P/ASX 200 Index jumped 2.8 percent. South Korea’s Kospi Index advanced 0.3 percent after the government yesterday banned short selling for three months and the two biggest state- run pension funds said they may boost equity investments.
Tokyo Electric Power Co. rallied 15 percent after the utility said there was no chance of insolvency even after a 572 billion yen ($7.4 billion) quarterly loss. Zijin Mining Group Co. climbed 7.2 percent in Hong Kong after China’s largest gold producer by market value reported first-half profit that beat analyst estimates.
The S&P 500 jumped 4.7 percent yesterday, the most since March 2009. The U.S. gauge rebounded from a 6.7 percent sell-off on Aug. 8 that was spurred by S&P’s unprecedented downgrade of the U.S. government’s credit rating to AAA to AA+. The reduction left America’s rating above countries such Japan and China and wasn’t matched by Fitch Ratings and Moody’s Investors Service, which affirmed the U.S. at the top grade.
Demand for Treasuries
Yields on 10-year Treasuries increased to 2.29 percent today. They briefly fell to record low of 2.03 percent yesterday following the Fed statement before closing at 2.25 percent. The Treasury is scheduled to sell $24 billion of 10-year notes today and $16 billion of 30-year debt tomorrow. Yesterday’s sale of $32 billion in three-year notes drew stronger-than-average demand, with a bid-to-cover ratio of 3.29. That compares with an average of 3.15 for the past 10 sales.
The rate decision represents the biggest effort since November to spark the U.S. economy and revive confidence. The Fed stopped stopping short of initiating further large-scale asset purchases, following the completion of the second round of so-called quantitative easing in June, in which it bought $600 billion of government bonds.
The central bank offered a dimmer view of the economy than it did in the last statement in late June, saying that it expects a “somewhat slower pace of recovery over coming quarters.”
‘Vote of Confidence’
“We’re starting the process of finding a bottom after the panic,” James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, said on Bloomberg TV. “I like what the Fed did. They took a calmer approach and said, we’re going to pay attention to the economy, and the market, you’re on your own. That was a vote of confidence.”
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan decreased 13.5 basis points to 135.5 basis points, according to Credit Agricole CIB prices. That would be its biggest one-day decline since May 27, 2010, according to data provider CMA.
The Markit iTraxx Australia index fell 11.5 basis points to 137.5, Credit Agricole prices show. The gauge snapped six days of increases and is on course for the steepest daily decline since June 21, 2010, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Franc Slides
Switzerland’s franc weakened after having gained 23 percent this year against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Currency Indexes. The Swiss currency slid to 72.93 centimes per dollar after yesterday surging to a record high of 70.71 centimes.
South Korea’s won climbed 0.7 percent to 1,080.20 per dollar after earlier gaining to 1,073.35, while Malaysia’s ringgit strengthened 0.6 percent to 3.0090 per dollar, rebounding from near its weakest level since June.
“The market interpreted the Fed statement as a possible sign of quantitative easing,” said Disawat Tiaowvanich, a foreign-exchange trader at Bangkok Bank Pcl. “More quantitative easing would lead to investors diversifying into other currencies, and that would support Asian currencies.”
Asia’s Rates
Australia’s dollar slid 0.1 percent to $1.0348. The currency, which fell yesterday below parity with the U.S. dollar since March, erased earlier gains of as much as 0.6 percent after a Westpac Banking Corp. and Melbourne Institute survey showed consumer confidence slumped this month to its lowest in more than two years.
The Reserve Bank of Australia will maintain borrowing costs at 4.75 percent until the first quarter of next year, according to the median of 22 estimates in a Bloomberg News survey. A poll six days ago showed the consensus was for a quarter percentage point increase on Nov. 1. Interbank cash-rate futures indicate the RBS’s key rate may fall to 3.49 percent by December from 4.75 percent.
Central banks elsewhere in Asia may also delay interest- rate increases. The People’s Bank of China will leave borrowing costs unchanged for the rest of this year, according to eight of 10 analysts surveyed yesterday. Economists’ median forecast is for South Korea to extend a pause for a second month tomorrow, while Indonesia stayed on hold yesterday.
Crude for September delivery rose to $81.69 a barrel on the New York Mercantile Exchange, recovering from a two-day, 8.7 percent slump. U.S. crude inventories declined the most since June, according to the industry-funded American Petroleum Institute. Gasoline inventories also fell.
Metals gained on the London Metal Exchange, with three- month delivery copper climbing as much as 3.1 percent to $9,005 a ton. The contract sank to an eight-month low yesterday. Nickel and zinc both increased more than 3 percent to $21,899 a ton and $2,176.75 a ton, respectively.
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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