Asian Market Update: USD takes a beating; Oil touches $119/bbl as Gustav approaches Gulf
- Forex: The USD extended losses during a quiet Asian session, with traders hearing rumors of Asian central banks buying EUR. The ECB's Weber's comments on Wednesday were quite hawkish, correcting some of the easing expectations in 2009, and further supporting the EUR. EUR/USD broke above hourly resistance at 1.4740, and also triggered stops after breaking above yesterday's high at 1.4777. AUD/USD broke above 0.8600, supported by bullish data, and traders reported solid demand out of Tokyo (hearing that there will be "toshin" demand for the fix). Korean authorities once again used verbal jawboning to support the KRW, warning that they will take action if "herd behavior" moves the KRW.
- Japan's Nikkei business daily reported that the United States, Europe and Japan planned to intervene and rescue the USD when it was plunging in March, citing sources familiar with the situation. According to the paper, authorities drew up a currency contingency plan over the weekend of March 15-16, at the time when Bear Stearns collapsed. The officials did not specify levels that would initiate intervention, but in the event of a free-fall they agreed to aggressively buy the greenback. Analysts stressed the importance of this new information: Even though a rescue never took place at the time, it shows that global monetary officials had agreed on action to support the USD, which would be important in the future if the currency were to tumble again. Officials declined to comment on the report.
- Australia's leading index continues to deteriorate: (AU JUNE CONFERENCE BOARD LEADING INDEX: -0.5% V -0.1% prior) The leading index declined again in June, the fifth monthly decrease in the index this year. Share prices, rural goods exports, and the yield spread made large negative contributions to the index in June, more than offsetting sizable increases in money supply and building approvals. The six-month change in the index stands at -1.3% (a -2.6% annual rate), down sharply from 2.8% (a 5.7% annual rate) in the second half of 2007. Remaining unchanged in June, the coincident index now stands at 145.1. The coincident index has been flat in recent months, and is only slightly higher than its level in January.
- Surprise jump in Australia's Q2 capital expenditure makes an economic contraction the June quarter less likely: (AU Q2 PRIVATE CAPITAL EXPENDITURE: 5.7% V 2.0% expected, prior revised to 1.0% from -2.5%) Commonwealth Bank of Australia chief economist Michael Blythe said the surprise jump in capital spending showed the global credit crunch had failed to affect business plans, which would make a June quarter economic contraction less likely. “It says, more importantly, that the changes to business confidence and the slowdown in the first half of the year and concerns about the global credit crunch haven't dented the positive story for Australia,” he said.
- The Bank of Japan's Suda said that they will not put down their guard against inflation, adding that Japan's growth momentum is slowing. Suda added that the slowdown in Europe and the U.S. is intensifying.
- Equities: At 0:13 EDT Japan's Nikkei is flat, the S&P/ASX200 is +1.00%, South Korea's KOSPI is -0.57%, Hong Kong's Hang Seng index is -1.29%, and the Shanghai composite index is +0.51%. The S&P500 futures contract lost -0.19% since the U.S. close, last trading at 1,279.70. Wall Street's positive lead quickly fizzled in Tokyo, with property developers adding to most of the downside and banks trading flat. Mining companies once again provided most of the support to the S&P/ASX200, with yesterday's close above 5,000 sparking some technical buying at the open. Automakers led the declines in Seoul, while financial companies traded sharply higher in Shanghai. Sentiment in Shanghai got a boost on unconfirmed reports that the Chinese government may lower or abolish the tax on stock dividends.
- Commodities: Nymex crude oil gained +0.63% between 18:00 EDT and 0:17 EDT, last trading at $118.90/bbl. Investors continue to worry about the potential impact of Tropical Storm Gustav, which may impact production in the Gulf of Mexico. According to the NHC, Gustav could reach Louisiana's coast by Labor Day. Since the storm is anticipated to hit the oil drilling region of the Gulf in the middle of the weekend the potential for substantial movement before and after the holiday is high, according to analysts. Bullish U.S. weekly oil inventories data and a weakening USD also added to oil's upside. Spot gold gained +0.60%, last trading at $839/oz.

European Market Update: German Unemployment Continues its Decline
·*** DATA ***
·GE July Unemployment Rate: 7.3% v 7.3% || Prior revised from 7.3% to 7.4%
·UK Aug Nationwide House Prices: M/M -1.9% v -1.5%e || Prior revised from -1.7% to -1.5% |||| Y/Y -10.5% v -9.6%e
·SP Aug Preliminary Harmonized CPI Y/Y; 4.9% v 5.2%e
·SP June House Transactions Y/Y: -29.6% v -34.3% prior
·SP June Mortgages on Houses Y/Y; -37.7% v -36.2% prior
·SP June Mortgages-Capital Loaned: -37.0% v -36.5% prior
·SZ Q2 Employment Level: 2.4% v 2.1%e
·SW Jul Retail Sales: M/M -0.5% v -0.5%e || Y/Y 1.3% v 1.4%e
·IT July PPI: M/M 0.5% v 0.5%e || Y/Y 8.3% v 8.4%e
·EU July M3 Y/Y: 9.3% v 9.0%e
·EU July M3 3-Month Average: 9.6% v 9.5%e
·BE Aug CPI: M/M -0.61% v 0.53% prior || Y/Y 5.39% v 5.91% prior
·*** SPEAKERS/FIXED INCOME/FX/COMMODITIES/ERRATUM ***
·Ahold [AH.NV] reported Q2 net income from continuing operations of €177M above estimates of €169M, and operating income of €235M, below the €247M consensus. Revenue of €5.8B, was just above the €5.74B estimate. Ahold guided their FY08 operating margin at 4.8%-5.3%. [Shares were -4.4% in early trading]. Accor [AC.FR] reported 1H net income of €310M, above the €275M consensus, and pretax of €393M, just below the €398.6M consensus. Accor guided FY08 pretax of €910-€930M, below the €943.5M consensus. [Shares were -3.2% in early trading]. Credit Agricole [ACA.FR] reported a Q2 operating loss of €263M, down from a profit of €1.52B a year ago. Net income of €76M was below the €126M consensus, while revenue of €3.15B was down from €5.27B a year ago. Credit Agricole noted a H1 monoline impact of €1.34B on net income. At June 30th the company's Tier 1 ratio of was 8.9%, while the Core Tier 1 ratio was 6.5%. [Shares were -0.5% in early trading]. Swiss Life Holding [SLHN.SZ] reported 1H net income of CHF1.64B, below the CHF1.84B consensus. Swiss Life had net earned premiums of CHF8.56B, up from CHF8.4B a year ago, and gross premiums of CHF10.9B, down from CHF12.3B a year ago. Swiss Life said that it will not meet its FY09 EPS target without a buyback. [Shares were -9.4% in early trading]. GFK [GFK.GE] reported Q2 net income of €22.2M v €19.3M a year ago, and revenue of €321.6M, above the €292.4M consensus. GFK raised its FY08 revenue growth forecast to 6% from 5%. [Shares were +1.7% in early trading]. Casino Guichard Perrachon [CO.FR] reported 1H net income of €229M, above estimates of €215M, operating income of €525M, below estimates of €542Me, EBITDA of €863M in line with the €864M consensus, and revenue of €13.8B, in line with estimates. Casino confirmed its FY08 targets. [Shares were -0.3% in early trading]. Carillion [CLLN.UK] reported 1H net income of £53.6M, up from the £33.7M a year ago, pretax of £27M, up from the £19M a year ago, and revenue of £2.4B, above the sole estimate of £2.24Be. Carillion reaffirmed their FY08 guidance, and noted that it will have materially enhanced earnings in 2009. [Shares were +0.8% in early trading]. Pendragon [PDG.UK] reported 1H net income of £13M, down form £28M a year ago, pretax of £21.1M, down from £33.5M a year ago, and revenue of £2.48B down from £2.7B. [Shares were +2.9% in early trading]. Diageo [DGE.UK] reported FY08 net income of £1.52B, in line with the £1.56B consensus. Pretax was £2.09B, below the £2.19B consensus, while revenue of £8.09B was in line with estimates of £8.05Be. Diageo guided FY09 operating profit growth of 7%-9%, and double digit reported EPS growth. [Shares were -0.75% in early trading]. AMEC [AMEC.UK] reported 1H pretax of £90.4M, up from £66.9M a year ago, and revenue of £1.26B, up from £1.15B a year ago. AMEC guided their FY08 EBITDA margin at 6.5%. [Shares were +0.8% in early trading]. Premier Foods [PFD.UK] reported 1H net income of £1.3M, up from the £10.2M a year ago, pretax of £3.6M, up from £5.1M a year ago and revenue of £1.29B up from £899.1M a year ago. Premier reiterated its FY08 outlook. [Shares were -3.3% in early trading].
·In energy news overnight the Venezuelan Energy Minister said that OPEC should cut production or maintain current output levels at the September meeting. The UAE Central Bank Governor said overnight that he expects oil prices to fall as the global economy slows.
·According to an article in the Financial Times Deutschland the Fed, the ECB and other major central banks are seeking to make it easier to access liquidity during times of emergency. The plan could allow European banks to have access to funds from the Fed in return for securities denominated in euros as currently, central banks only accept securities in their own currency.
·In new supply overnight Italy sold €4.0B in 4.25% 2011 bonds with an average yield of 4.51% and a bid-to-cover of 1.4x, as well as €2.5B in 4.50% 2018 bonds with an average yield of 4.76% and a bid-to-cover of 1.5x, and €2.0B in 2015 floating rate notes with an average yield of 4.86% and a bid-to-cover of 2.04x. In fixed income related news overnight, S&P release a report that said that the second quarter performance in the German RMBS market was solid. The report said that "the overall performance of the German residential mortgage-backed securities (RMBS) market has been broadly sound”. The report noted however that, "despite this solid performance, some transactions reported higher losses, or registered a loss for the first time. Our total delinquency index remains at 3%; some strongly performing pools which had significant weight in the index have recently been removed, following regulatory calls related to the introduction of Basel II, and this has placed upward pressure on the index. "
·In currencies the USD was mildly softer during the European session as higher oil prices weighed upon sentiment with tropical storm Gustav approaching the Gulf of Mexico. Currency showed little reaction to German labor and M3 data, which beat expectations. The GBP/USD rebounded from earlier lows of 1.8325 as UK Nationwide Housing data continued to suggest softness in the UK economy. Carry related crosses were softer as Equity markets remained in negative territory.
·On the speaker front the Norwegian stats agency raised their 2008 non-Oil GDP growth forecast to 3.1% from 2.9% overnight, and cut its 2009 forecast to 1.7% from 1.9%. The stats agency forecasted 2008 Core CPI 2.6%, up from its previous forecast of 2.5%, and raised the 2009 forecast to 2.5% from 2.3%. Furthermore the stats agency left its 2008 wage growth forecast unchanged at 6.0%, and raised the 2009 forecast to 5.0% from 4.8%. The stats agency said that Norwegian interest rates have peaked, adding that they expected lower interest rates in 2009.
·*** NOTES ***
·Much of the focus overnight fell upon the Euro-Zone M3 money supply. Money supply was above expectations, but declined from the prior month's readings, which muted any major market reaction. The German unemployment rate, which declined to its lowest level since May of 1992, also drew some attention overnight. Despite the above, following yesterday's comments from a number of ECB members, it appears that any chance of a rate hike in 2008 is off of the table. As the ECB continues to focus on second round inflation effects, specifically wages as oil prices have come off of recent highs, the question has become 'when will the ECB cut rates if they do in fact decide to do so?'
·“Even if what you're working on doesn't go anywhere, it will help you with the next thing you're doing. Make yourself available for something to happen. Give it a shot.” - Cormac McCarthy