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Euro Rises After ECB’s Nowotny Doubts Rate Cut; Rand Gains

The euro strengthened versus the dollar after European Central Bank Governing Council member Ewald Nowotny said he doesn’t see a need to cut interest rates further at the moment.
The shared currency was supported as investors speculated a weak bond sale by Spain would add to pressure for the nation to request a bailout. South Africa’s rand rallied for a third day as investors bought the nations assets before an anticipated interest-rate cut. Canada’s dollar rallied after retail sales rose at the fastest pace in nine months.
“There has been speculation that an interest-rate cut would be coming in October as the ECB tries to ease policy further,” said Eimear Daly, a currency market analyst at Monex Europe Ltd. in London. “The market wants Spain to ask for a bailout. The market will start to test Spain and force them in to a bailout, which is ultimately euro positive.”
The euro gained 0.1 percent to $1.2945 at 9:20 a.m. New York time, after declining to $1.2887, the lowest since Sept. 13. It was little changed at 100.66 yen. The Japanese currency rose 0.1 percent to 77.77 per dollar, after earlier touching 77.66, the strongest level since Sept. 14.
The ECB cut the main refinancing rate in July to a record low of 0.75 percent and economists forecast another reduction by the end of the year, according to a Bloomberg News survey.
The yield on three-month Spanish debt auctioned today was 1.203 percent, compared with 0.946 percent at a previous sale on Aug. 28.

Source: Bloomberg

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Aussie Dollar Gains Versus Peers on Chinese Economic Data

Australia’s dollar gained against most of its major counterparts as a leading indicator for China’s economy rose in August, improving trade prospects for the South Pacific nation.
The Australian and New Zealand currencies erased declines after the Conference Board said its leading economic index for China rose 1.7 percent to 240.4 in August from the previous month. Demand for the so-called Aussie and kiwi dollars was limited amid concern disagreement among the euro region’s leaders is curbing prospects for growth.
“Risk aversion eased after the release of the Chinese economic indicator,” buoying riskier assets such as the Australian dollar, said Yuji Saito, director of the foreign exchange department in Tokyo at Credit Agricole SA. (ACA)
Australia’s currency climbed 0.1 percent to $1.0432 as of 2:45 p.m. in Sydney and lost 0.1 percent to 81.12 yen.
New Zealand’s dollar gained 0.1 percent to 82.34 U.S. cents, after sliding as much as 0.2 percent. The currency dropped 0.1 percent to 64.03 yen.
China is Australia’s largest trading partner and New Zealand’s second-biggest export destination.

European Focus

A report tomorrow will probably show a gauge of French consumer confidence fell to 86 in September from 87 last month, according to the median estimate of economists surveyed by Bloomberg News. That would be the lowest since February.
Economists estimate an index of French business confidence fell to 89 this month from 90 in August. The national statistics office releases the data today.
“Markets are still cautious. Europe is still going to be the key event this week,” said Alvin Pontoh, a Singapore-based strategist at TD Securities Inc.
The Aussie has weakened 1.5 percent in the past month, the second-worst performance among 10 currencies tracked by Bloomberg Correlation-Weighted Indexes. New Zealand’s currency was little changed over the same period.
“The Australian dollar is looking softer,” said Kumiko Gervaise, an analyst at Gaitame.com Research Institute Ltd. in Tokyo. “It looks as though the unstable situation in Europe could last for some time.”
Australian bonds advanced before the central bank’s policy board meets on Oct. 2. The yield on the benchmark 10-year note fell 3 basis points, or 0.03 percentage point, to 3.2 percent. Reserve Bank of Australia Assistant Governor Guy Debelle is scheduled to speak in Melbourne at 6:30 p.m. local time today.

RBA Meeting

“If we see another significant move up in the Aussie dollar to $1.06-$1.07, I think the RBA could lean against cutting rates to bring the currency down,” TD’s Pontoh said.
Swaps indicate an 83 percent chance policy makers will cut the overnight cash-rate target to 3.25 percent from 3.5 percent when they meet Oct. 2, according to data compiled by Bloomberg.
The RBA said Australian households are building a financial cushion by repaying mortgages faster and saving more, while businesses are indicating renewed willingness to borrow.
“Given the large share of households with mortgage prepayment buffers, along with relatively low unemployment and moderate income growth, most households appear well placed to meet their debt obligations,” the central bank said in its semiannual financial stability review released in Sydney today.

Source: Bloomberg

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Qatar Shares Fall to Week Low on Oil, Before Results; Oman Gains

Qatar’s benchmark stock index declined to the lowest intraday level in a week after oil posted its biggest weekly decline in three months and ahead of third- quarter results.
Industries Qatar QSC (IQCD), the Middle East’s second-largest petrochemicals maker, fell 0.4 percent. Masraf Al Rayan, the second-largest Qatari lender by market value, was set for the biggest decrease in two months. Qatar’s QE Index retreated 0.4 percent to 8,566, the lowest intraday level since Sept. 13, at 10:27 a.m. in Doha. The measure has gained 5.4 percent this quarter. Dubai’s DFM General Index (DFMGI) also dropped 0.4 percent.
“We’re getting closer to third-quarter results, so traders are waiting for signals, especially because the markets have already rallied,” said Nabil Rantisi, managing director of brokerage at Abu Dhabi-based Menacorp.
Companies in the Persian Gulf are scheduled to announce quarterly results next month. Industries Qatar, which posted a 3 percent retreat in first-half profit, may announce results on Oct. 11 and Masraf al Rayan (MARK) on Oct. 17. The Qatar benchmark’s 14-day relative strength index rose above 70 last week and dropped to 62 today. A reading above 70 signals to some investors that a security is poised to decline.
Crude oil tumbled 6.2 percent last week to $92.89 a barrel on the New York Mercantile Exchange. Oil may decline this week after data from Asia, Europe and North America increased investors’ concern that global economic growth is slowing, a Bloomberg survey showed. A Chinese manufacturing survey last week signaled the industry contracted for an 11th consecutive month, while Japan’s exports declined in August.

Profit Rises

Industries Qatar slipped to 141 riyals, set for the lowest close since Sept. 18. The company may this year post a 6 percent increase in earnings to 8.4 billion riyals ($2.3 billion), according to the mean estimate of 10 analysts compiled by Bloomberg. Masraf al Rayan fell 0.7 percent, set for the biggest drop since July 19, to 27.15 riyals.
The Bloomberg GCC 200 Index (BGCC200), Bahrain’s BB All Share Index (BHSEASI) and Abu Dhabi’s ADX General Index (ADSMI) declined less than 0.1 percent, while Oman’s MSM30 Index (MSM30) rose less than 0.1 percent and Kuwait’s Stock Exchange Price Index (KWSEIDX) gained 0.6 percent. Saudi Arabia (SABIC)’s stock market is closed for a national holiday.

Source: Bloomberg

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Getting Real On US Stock Market Gains

Since the US program of quantitative easing began in earnest in October 2008, stocks and gold are up -- that's no surprise. But how have your stocks performed if we measure them against gold instead of the usual dollar terms?

Security:   SPX, GLD, DXY
Position:   N/A

On September 13, 2012, Federal Reserve chairman Ben Bernanke ended speculation with his announcement that the Fed would begin a third round of quantitative easing (QE3) by spending $40 billion a month of mortgage-backed securities (MBS). But unlike QE1 and QE2, this latest QE program has no expiration date. The move followed on the heels of a similar move by European central bank president Mario Draghi a few days earlier to launch its Outright Monetary Transaction (OMT) program to buy the government bonds of distressed European nations. And while the two programs are patently different in detail, they both have the same broadcasted goal: to boost economic growth and reduce unemployment. Not broadcasted was the timing of the Fed's announcement with the surreptitious goal to provide a short-term lift to November 6. As Figure 1 shows, investors began to bet that QE on both sides of the pond was a forgone conclusion in the first week of September. In the first two weeks of September, the Standard & Poor's 500 gained 4%, GLD was up 4.4%, and the US Dollar Index fell 2.5%. So to gain 400 basis points, it cost the US dollar 250 basis points, leaving the nondollar gain of 150 basis points (1.5%).

FIGURE 1: DXY, SPX, GLD, DAILY. Here's a daily chart comparing the US Dollar Index (DXY), the S&P 500 in purple, and the SPDRS Gold Trust ETF (GLD) in orange since the beginning of September 2012.

However, if we look at the same chart since early October 2008 when the first round of quantitative easing began, we get a longer-term view of the effect that QE programs have had in real terms (see Figure 2). Since then, GLD is up 100%, the SPX has gained 16%, and the DXY is basically flat, compared to the basket of other currencies against which it is measured.

FIGURE 2: DXY, SPX, GLD, WEEKLY. Here's a weekly chart showing the longer-term relationship between the DXY, SPX and GLD.

When measured in gold, the S&P 500 has lost nearly 50% since October 2008. In a September 17, 2012, Bloomberg interview (http://goo.gl/rzhwT ), Frank Holmes of US Global Investors was asked if gold could go to $2,000 per ounce thanks to the latest round of quantitative easing. He gave this target a 12-month window. "Whenever you have negative real interest rates, gold rises," he says. In a healthy economy, interest rates generally run about 2% above the inflation rate, but in today's reality, 5% interest rates would be devastating to the economy, Holmes said. When asked what the "craziest" gold price target he'd heard lately, Holmes replied that if you looked in terms of money supply (M2) growth, gold should be worth $7,000 per ounce. But if the world were to go back to the days of the Bretton Woods agreement pre-August 1971 when gold was convertible into dollars, gold would be worth $40,000 per ounce. Although Holmes doesn't see either of those scenarios happening anytime soon, here is another fact for traders and investors to consider. Since July 1999, when the US stocks peaked in gold terms, the S&P 500 has lost 85% of its value when priced in gold. Given the current penchant for central banks to print their way to prosperity, don't expect this trend to end anytime soon.

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Asian Stocks Drop From 4-Month High on Japan, China Data

Asian stocks fell, with the regional benchmark retreating from its highest close since May, after Japan’s exports fell for a third month and on signs China’s manufacturing may contract for an 11th month.
Kyocera Corp. (6971), a maker of electronic parts that gets more than half of its sales outside Japan, slid 3.2 percent. Nippon Telegraph & Telephone Corp. (9432) surged 7.1 percent after Japan’s leading fixed-line phone company said it plans to buy back as much as 3.4 percent of its shares. Billabong International Ltd. (BBG) slumped 7.3 percent as a second bidder withdrew from the sale of Australia’s largest surfwear c

 

KDDI Corp.'s au brand smartphone Urbano Progresso by Kyocera Corp. Photographer: Kiyoshi Ota/Bloomberg

The MSCI Asia Pacific Index slid 1.3 percent to 122.60 as of 6:30 p.m. in Tokyo, with about four stocks falling for each that rose. The equity gauge yesterday rallied to its highest since May 3 as central banks from Europe to the U.S. and Japan took action to stimulate growth.
“We’ve very concerned about the near-term outlook for the global economic picture,” said Peter Elston, Singapore-based head of Asia-Pacific strategy at Aberdeen Asset Management, which oversees about $270 billion. “There’s some fairly significant weakness just around the corner and that’s going to have a fairly big impact on corporates and markets. We’re fairly cautious,” he told Bloomberg TV.
Japan’s Nikkei 225 Stock Average slid 1.6 percent after a Finance Ministry report today showed exports from the world’s third-largest economy declined 5.8 percent in August from a year earlier.
Australia’s S&P/ASX 200 Index (AS51) lost 0.5 percent, South Korea’s Kospi Index slipped 0.9 percent and Singapore’s Straits Times Index declined 0.4 percent.
Futures on the Standard & Poor’s 500 Index slid 0.3 percent today. The gauge rose 0.1 percent yesterday, snapping a two-day decline, after the Bank of Japan (8301) increased its asset-purchase target and sales of existing U.S. homes rose more than expected.

China Manufacturing

Hong Kong’s Hang Seng Index lost 1.2 percent and China’s Shanghai Composite dropped 2.1 percent as a preliminary report today showed China’s manufacturing may contract for an 11th month in September. The reading was 47.8 for a purchasing managers’ index released by HSBC Holdings Plc and Markit Economics. A number below 50 signals a contraction.
Exporters fell, with Kyocera sliding 3.2 percent to 6,700 yen. Canon Inc., a camera maker that gets 80 percent of its sales overseas, fell 3.2 percent to 2,771 yen. TDK Corp., a Japanese manufacturer of electronic parts that gets more than 25 percent of its revenue from China, declined 3.2 percent to 3,135 yen.

Annual Gain

The MSCI Asia Pacific (MXAP) Index gained 9.1 percent this year through yesterday compared with a 16 percent increase on the S&P 500 and a 12 percent advance for the Stoxx Europe 600 Index. The Asian benchmark traded at 12.9 times estimated earnings compared with 14.1 for the S&P 500 and 12.2 for the Stoxx Europe 600 Index.
New Zealand’s NZX 50 Index rose 0.6 percent after a report today showed the nation’s economic growth slowed less than forecast last quarter. Taiwan’s Taiex Index dropped 0.7 percent.
Billabong tumbled 7.3 percent to A$1.34 in Sydney, the biggest decline in two months, amid concern TPG may reduce its offer after a competing bidder walked away.
Luk Fook Holdings International Ltd. (590) fell 6.8 percent to HK$24.85. Paul Law, the company’s executive director and financial controller, will resign Dec. 1, the jeweler said yesterday.
Among stocks that rose, Nippon Telegraph advanced 7.1 percent to 3,855 yen. NTT will buy back as many as 42 million shares of common stock from Sept. 20 until March 29 “to improve capital efficiency,” the company said yesterday in a statement to the Tokyo Stock Exchange.

Source: Bloomberg

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Euro Remains Lower Before Region’s PMI Data; Kiwi Gains

The euro dropped the most in two months against the dollar as an index of services and manufacturing in the region shrank to a three-year low.
The 17-nation currency declined for a third day versus the yen as the data added to evidence the debt crisis is sapping growth in the euro area. The yen and the dollar strengthened against most of their major counterparts after separate reports showed China’s manufacturing and Japanese exports declined, spurring demand for safer assets. Australia’s dollar and South Africa’s rand led losses among high-yielding currencies.
“One of the big problems that remains unresolved in the euro area is a lack of growth,” said Lee Hardman, a foreign- exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “We still anticipate the euro will continue to weaken and expect a move back to $1.20 over the next six to 12 months.”
The euro dropped 0.5 percent to $1.2978 at 9:48 a.m. in London after falling as much as 0.8 percent, the biggest decline since July 20. The shared currency weakened 0.8 percent to 101.50 yen after sliding as much as 1.2 percent. The yen strengthened 0.2 percent to 78.23 per dollar.
A composite index based on a survey of purchasing managers in both industries in the euro area dropped to 45.9 for September, the lowest since June 2009, London-based Markit Economics said in an initial estimate. A reading below 50 indicates contraction.

‘Get Worse’

“At these levels, euro is a sell” because of the state of the European economy, said Joseph Capurso, a strategist at Commonwealth Bank of Australia (CBA) in Sydney. “The economy is going to get worse before it gets better in Europe.”
The euro has slumped 4.4 percent in the past year, the worst performer among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 1.1 percent and the yen weakened 3.1 percent.
The Dollar Index advanced for the third time in four days after the data from China and Japan added to evidence that Asian economies are slowing.
A preliminary reading was 47.8 for a China purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics, compared with a final level of 47.6 last month. Japan’s overseas shipments slid 5.8 percent on weakness in demand from Europe and China.
The Dollar Index (DXY), which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, rose 0.5 percent to 79.432.
Australia’s currency fell as the Chinese data clouded the prospects for the South Pacific nation’s resource exports.
“The market was probably expecting a bit more of a bounce” in the Chinese data, said Emma Lawson, a currency strategist at National Australia Bank Ltd. in Sydney. “The Aussie is a little bit lower. There’s just a little bit of disappointment there.”
The so-called Aussie dropped 0.8 percent to $1.03983. South Africa’s rand declined 0.7 percent to 8.3286 per dollar.

Source: Bloomberg

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