Asian Stocks Rise After Fed Begins Tapering U.S. Stimulus

By Adam Haigh and Yoshiaki Nohara Dec 19, 2013 11:18 AM GMT+0800

Asian stocks rose after the Federal Reserve expressed enough confidence in the U.S. labor market to taper asset purchases while still promising to hold interest rates close to zero.
Fast Retailing Co., Asia’s biggest apparel chain, climbed 3.5 percent, pushing Japan’s Nikkei 225 Stock Average toward the highest closing level since 2007 as the yen touched a five year-low against the dollar. Fanuc Corp. (6954), a Japanese maker of factory robots, rose 4 percent to be headed for the highest close on record. Caltex Australia Ltd. surged 11 percent as the petroleum refiner said profit may climb to A$340 million ($300 million).
The MSCI Asia Pacific Index advanced 0.2 percent to 138.56 as of 12:01 p.m. in Tokyo, with more than two stocks rising for each that fell. The Fed announced plans to cut its monthly bond purchases to $75 billion from $85 billion, taking its first step toward unwinding the unprecedented stimulus put in place by outgoing Chairman Ben S. Bernanke to help the economy recover from the worst recession since the 1930s.
“It’s a win win for markets,” Shane Oliver, who helps oversee $131 billion as head of investment strategy at AMP Capital Investors Ltd. in Sydney, said by phone. “They are more optimistic on the employment rate and the economy while still keeping loose monetary policy in place with low rates to support the economy. We’re happy to stay overweight equities and if anything buy a bit more.”

Regional Gauges

Japan’s Topix index rose 0.9 percent and the Nikkei 225 climbed 1.6 percent as the yen touched the lowest intraday level since October 2008. It traded at 103.99 per dollar as of 12:11 p.m. in Tokyo.
Australia’s S&P/ASX 200 Index (AS51) jumped 1.6 percent. Trading volume was 50 percent higher than the 30-day intraday average as equity index and single stock options contracts expired. New Zealand’s NZX 50 Index gained 0.7 percent after a report showed economic growth accelerated to the fastest pace in almost four years in the third quarter. South Korea’s Kospi index increased 0.1 percent.
Hong Kong’s Hang Seng Index added 0.2 percent, paring gains of as much as 1.1 percent. The Hang Seng China Enterprises Index of mainland shares traded in the city lost 0.2 percent, reversing earlier gains. The Shanghai Composite Index was little changed. China’s interest-rate swaps jumped the most since July, touching a record, as the central bank refrained from injecting cash into the financial system.
Fu Shou Yuan International Group Ltd., a death-care provider, jumped 50 percent in Hong Kong in its trading debut.
Taiwan’s Taiex index added 0.4 percent and Singapore’s Straits Time Index increased 0.1 percent.
The Fed said its benchmark interest rate is likely to stay low “well past the time that the unemployment rate declines below 6.5 percent, especially if projected inflation continues to run below” the Fed’s 2 percent goal.

Bernanke Comments

“Reflecting cumulative progress and an improved outlook for the job market, the committee decided today to modestly reduce the monthly pace at which it is adding to the longer-term securities on its balance sheet,” Bernanke told reporters in Washington yesterday after concluding a two-day policy meeting of the Federal Open Market Committee.
The U.S. Senate yesterday cleared and sent to President Barack Obama a $1.01 trillion budget deal, lowering the U.S. deficit over 10 years and easing $63 billion in automatic spending cuts. The plan keeps in place about half of the reductions known as sequestration for next year, and about three-quarters of the planned cuts for 2015.
The MSCI Asia Pacific Index gained 6.9 percent this year through yesterday as central-bank stimulus shored up global economic growth. The gauge yesterday traded at 13.7 times estimated earnings, compared with 16.3 for the Standard & Poor’s 500 Index and 14.8 for the Stoxx Europe 600 Index, according to data compiled by Bloomberg.

Best Performer

The Topix rose 45 percent this year through yesterday, the most among 24 major developed markets tracked by Bloomberg, amid unprecedented stimulus by the Bank of Japan in support of Prime Minister Shinzo Abe’s efforts to end 15 years of deflation. The yen slumped 15 percent this year, the most among G-10 nation currencies tracked by Bloomberg.
Futures on the S&P 500 Index dropped 0.2 percent today after the equities gauge surged 1.7 percent to a record 1,810.65 yesterday. The Dow Jones Industrial Average soared 1.8 percent to 16,167.97, also a record. The cost of protecting against equity losses as measured by the Chicago Board Options Exchange Volatility Index slid 15 percent, the biggest drop in two months.

Asian shares fall on Fed taper fears after jobs data

(Reuters) - Asian shares tumbled on Monday as strong U.S. jobs growth reinforced the likelihood that the Federal Reserve will roll back its stimulus in coming months, sending the dollar to a three-year high against a basket of major currencies.

Chinese stocks and regional sentiment were hurt by Beijing's plan to choke off credit to force consolidation in industries plagued by overcapacity as it seeks to end the economy's reliance on investment funded by cheap debt.

U.S. employers added 195,000 new jobs to their payrolls last month, beating expectations of 165,000. Adding to the positive sentiment, the figures for April and May were revised up by a combined 70,000. The unemployment rate held steady at 7.6 percent as more people entered the workforce.

Friday's sharp selloff in U.S. Treasuries - with the 10-year yield suffering its biggest one-day rise in nearly two years - accelerated losses that started in May over the uncertainty of the Fed's $85 billion a month bond-buying program.

Yields on 10-year U.S. Treasuries, which move opposite to price, were at 2.7171 percent, turning slightly lower after climbing to a nearly two-year high of 2.755 percent in Asian trade. They jumped 23.3 basis points to 2.736 percent on Friday, driving up U.S. dollar borrowing costs.

"The money in the market is very short term right now. Most investors have given up hope for any stimulus from Beijing, but now it seems they could be rolling out stricter ground rules to aid the restructuring of the economy," said Jackson Wong, vice-president for equity sales at Tanrich Securities in Hong Kong.
MANIC MONDAY

Shares in MSCI's Asia-Pacific ex-Japan index .MIAPJ0000PUS, shed 1.6 percent, while Chinese equities .CSI300 fell 1.3 percent after losing as much as 2.9 percent, and Hong Kong's Hang Seng Index .HSI dropped 2.2 percent.

China's resolve to overhaul its economy for long-term improvement will be tested this month if a slew of data show growth is grinding towards a 23-year low, as expected.
The median forecast of 21 economists surveyed by Reuters show China's economy likely expanded 7.5 percent in April-June from a year ago, slowing from the previous three months as weak demand dented factory output and investment growth.

The CSI300 index has lost 13 percent so far this year, while the MSCI Asian gauge is down 10 percent.
The weakness in Chinese markets dragged Tokyo's Nikkei share average .N225 from a six-week high touched earlier in the session on Monday. The Japanese benchmark was up 0.4 percent after climbing as high as 1.3 percent.

"I don't think it's negative for Japan," said a hedge fund manager, who declined to be identified, referring to higher dollar borrowing costs.
"For ASEAN countries, it is more of a concern if rates continue to go up. A lot of the funding for some of these countries is dollar-denominated."

The selloff in Treasuries also hurt Japanese government bonds on Monday, with the 10-year yield up 2 basis points to 0.875 percent.

DOLLAR HIGH

The dollar hit a six-week high of 101.54 yen after gaining 1.2 percent on Friday, its biggest one-day rise in a month.

"The dollar looks likely to gain further. But then again, if Chinese shares face more pressures, we could see a bigger dip in the dollar/yen," said Koichi Takamatsu, forex manager at Nomura Securities in Tokyo.
Against a basket of major currencies, the dollar .DXY advanced 1.5 percent to a three-year high.
The euro was steady at $1.2826 but not far off a seven-week low of $1.2806. The common currency dropped 1.4 percent in the previous two sessions on the U.S. jobs data and the European Central Bank's dovish policy guidance.

Brent crude prices added 0.2 percent to near $108 a barrel, extending Friday's 2.1 percent rise on the strong U.S. data and concerns over Egypt's unrest increasing instability in the Middle East.
Copper prices put on 0.2 percent to just above $6,800 a tonne after shedding 2.3 percent in the previous session as the dollar firmed, while gold eased 0.4 percent, extending Friday's 2 percent decline.

(Additional reporting by Clement Tan in Hong Kong and Hideyuki Sano in Tokyo; Editing by ERic Meijer)

Gold Bulls Split With Buffett as Traders Say Sell: Commodities

Hedge funds increased bets on a gold rally by the most in three weeks as central banks signaled no end to economic stimulus, driving prices higher just as analysts and traders turned the most bearish in three years.
The funds and other large speculators raised their net-long position by 19 percent to 54,762 futures and options as of April 30, U.S. Commodity Futures Trading Commission data show. Holdings of so-called short contracts retreated 9.2 percent, the most since March 19. Net-bullish wagers across 18 U.S.-traded raw materials jumped 28 percent to 550,182, the biggest increase in seven weeks, led by gains in soybeans, cocoa and crude oil.

Gold rallied 4.9 percent in the past two weeks after entering a bear market April 12. The Federal Reserve raised the prospect of increasing its monthly bond buying on May 1 and the European Central Bank cut borrowing costs to a record low the next day. Billionaire investor Warren Buffett said the metal has no appeal even after the slump, and a weekly Bloomberg survey of analysts and traders was the most bearish since February 2010.
“It’s reasonable to say that the currency debasement and easing measures will support gold,” said Alan Gayle, a senior strategist at RidgeWorth Capital Management, which oversees about $48 billion of assets. “The bulls still have to prove a lot. There is lot of skepticism surrounding gold. We have to watch to see if prices have found a near-term bottom.”

Gold Rebounds

Futures climbed 0.7 percent to $1,464.20 an ounce on the Comex last week. Prices rebounded 11 percent since reaching a two-year low on April 16. The Standard & Poor’s GSCI Spot Index of 24 commodities rose 1.4 percent last week, and the MSCI All- Country World of equities gained 1.7 percent. The dollar slid 0.5 percent against a basket of six major peers, and a Bank of America Corp. Index shows Treasuries fell 0.4 percent. Gold was 0.7 percent higher at $1,474 by 11 a.m. in London.
The Fed said at the end of a two-day policy meeting in Washington last week it’s “prepared to increase or reduce the pace of its purchases” of $85 billion in debt a month. Gold surged 66 percent since the end of 2008 as the Fed was joined by central banks in Europe and Japan in printing unprecedented amounts of money, almost doubling sovereign debt to more than $23 trillion, a Bank of America index shows.

Investors’ Faith

The flood of cash spurred investors including billionaire John Paulson to hold the metal as a hedge against inflation. Gold remains the best store of value in an uncertain economy, Elliott Management Corp. told clients even as the $21.8 billion hedge-fund firm founded by Paul Singer lost money on its position this year. Threadneedle Investments, a London-based fund with $131 billion in assets, remains bullish on gold as central banks stick with printing money to weaken their currencies and revive growth.
Some investors’ faith in the metal has waned as inflation fails to accelerate even as central banks add liquidity. Global holdings of the metal through exchange-traded funds slumped to the lowest since October 2011 after touching an all-time high in December. Buffett, the third-richest person in the Bloomberg Billionaires Index, said last year in his annual letter to shareholders that investors should avoid gold.
“If it went to $800, I wouldn’t be a buyer,” Buffett, the chairman and chief executive officer of Berkshire Hathaway Inc., told reporters in Omaha, Nebraska, on May 2. “It just sits there, and you hope somebody pays you more for it.”

Gold Outflows

Money managers withdrew $1.67 billion from commodity funds in the week ended May 1, said Cameron Brandt, the director of research for Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Outflows from gold and precious-metals funds totaled $1.79 billion, he said.
Gold prices had the biggest two-day drop in more than three decades last month, and a majority of the 38 analysts surveyed by Bloomberg said the metal’s 12-year winning streak is over. While the hedge funds’ short holdings declined in the week through April 30, they are still more than triple the average since 2006, when the data begins. Goldman Sachs Group Inc. said April 23 the precious metal may slide to $1,390 in 12 months, and Deutsche Bank AG predicts a drop to as low as $1,050.
“There are no inflationary worries, and gold is responding to the global deflationary pressure,” said Jim Russell, a senior equity strategist in Cincinnati at U.S. Bank Wealth Management, which oversees about $110 billion in assets. “There are no catalysts for gold to rise at the moment.”

Mint Sales

Last month’s declines attracted retail buyers. Sales of gold coins by the U.S. Mint in April rose to the highest since December 2009, while the U.K. Mint said it is increasing output after demand more than tripled. Australia’s Perth mint has stayed open through the weekend to meet orders that reached a five-year high. Physical flows into India, the biggest consumer, climbed to at least five times the average of the past 12 months, UBS AG said May 3.
Central banks are still adding to gold reserves that are now at an eight-year high, according to International Monetary Fund data. Banks bought 534.6 metric tons last year, the most since 1964, according to the London-based World Gold Council. They are on pace to exceed that this year, Jason Toussaint, the managing director of investments at the council, said April 30.
Investors raised their bets on a rally for crude oil by 6.3 percent to 193,962 contracts, the first gain in three weeks, the CFTC data show. The funds increased platinum holdings by 17 percent to 22,355, the biggest gain since January. Palladium and silver wagers also increased.

Farm Bets

A measure of speculative positions across 11 agricultural products surged 86 percent to 197,692 contracts. The funds narrowed their bets on a decline in wheat to a net-short position of 5,779 contracts, from 20,870 a week earlier. Bullish corn holdings more than tripled to 45,497.
Wheat output in Kansas, the biggest U.S. grower of winter varieties, will fall 18 percent in 2013 to 313.1 million bushels after drought last year was followed by an April freeze, surveys from a three-day annual crop tour showed.
“Weather conditions could push wheat prices higher, and it could outperform other agriculture commodities,” said Nic Johnson, who helps manage $30 billion of commodity assets at Pacific Investment Management Co. in Newport Beach, California. “It’s not a one-way direction for gold. While many have changed their minds and gone bearish, we stick to the fact that gold prices will likely go higher.”

FOREX-Yen weakens, euro rallies as gold-induced worries ease

By Daniel Bases and Wanfeng Zhou
NEW YORK, April 16 (Reuters) - The yen tumbled against the dollar and the euro on Tuesday, reversing the previous session's sharp gains as investor anxiety triggered by a record plunge in gold prices eased, denting demand for the safe-haven Japanese currency.
A drop in U.S. consumer prices and slippage of U.S. factory output strengthened the argument for the U.S. Federal Reserve to maintain its monetary stimulus in hopes of boosting the economy.
"The CPI data reinforces the view that the Fed is likely to engage in quantitative easing for some time," said Eric Viloria, senior currency strategist at Forex.com. "That is one of the reasons for support of the markets and sentiment in general. I think that is aiding the rebound here (in the yen) and why the U.S. dollar is weak."
Finance minister and central bankers from the world's leading economies will discuss economic and financial market outlooks, including the Cyprus crisis and asset price reactions, at the talks among the Group of 20 advanced and emerging economies beginning on Thursday in Washington.
The euro rallied to a seven-week high against the dollar, partly helped by its 2 percent jump against the yen. Investors shrugged off data showing a sharp fall in German investor sentiment in April.
A break of the euro above its 100-day moving average against the greenback around midday in New York spurred some blackbox algorithmic trading that further boosted the euro.
"A more significant signal is if we close above that level, and it looks like we might do that," said Viloria.
The euro rose 1.1 percent to $1.3184, with central bank buying reported. It hit a session peak of $1.3201, the strongest since Feb. 25, after breaking resistance around $1.3140/50. The next key level on traders' charts is in the $1.3270/1.3300 area.
REVERSAL
Gold rose on Tuesday, one day after a record-breaking drop sparked a broad selloff in commodities and equities alike. Monday's explosions in Boston added to the nervous tone in financial markets.
Two bombs ripped through the crowd at the finish line of the Boston Marathon on Monday afternoon, killing three people and maiming and injuring more than 100. President Barack Obama on Tuesday called the bombings an "act of terror."
"Yesterday there was a lot of fear in the market, especially as people were watching what's going on in gold," said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York. "There's a thought that maybe things were overdone in the yen cross."
But as gold and stock prices stabilized and investors concluded that the bombings may have been an isolated incident, they resumed buying higher-risk assets and selling the safe-haven yen.
A senior Canadian financial official said Canada was supportive of Japan's effort to kick-start its economy and that the G20 believed policy should target domestic economies and not exchange rates. The comments added to buying sentiment for the euro against the yen from oversold levels, analysts said.
The dollar peaked at 98.15 yen, according to Reuters data. It last traded up 0.83 percent to 97.55 yen.
A sharp rally in the dollar against the yen stalled in recent sessions as investors booked profits ahead of significant resistance and option barriers at the psychological 100-yen-per-dollar level. Analysts said, however, that the weakening yen trend remained intact after the Bank of Japan's aggressive monetary easing earlier this month.
"The fundamental picture still remains supportive of a weaker yen going forward as the recent rebound over the last couple of days is unlikely to prove sustainable," said Lee Hardman, currency economist at BTMU, which forecasts the dollar at 109 yen in 12 months.
Investors will also closely monitor gold prices, and another plunge could renew demand for the most liquid currencies such as the dollar and yen.
The euro rose 2 percent to 128.66 yen, having hit a session peak of 128.99 yen, according to Reuters data.
The Australian dollar rose 0.75 percent to $1.0389, while the New Zealand dollar gained 1 percent to $0.8497 . Both saw steep losses in the previous session.

Raid on Cypriot deposits shakes Europeans' faith in savings

By Harry Papachristou and Sonya Dowsett ATHENS/MADRID
Sun Mar 17, 2013 5:01pm EDT

(Reuters) - Europeans' faith in the safety of their savings has been shaken by a levy on Cypriot bank deposits to pay for a bailout, even though there was no sign of a rush to withdraw cash in Madrid or Dublin.
People told Reuters they were angered but unsurprised that politicians should dip into citizens' deposits. And as bankers expressed concern the proposed terms of Cyprus's bailout could unnerve savers elsewhere, some leftist leaders voiced outrage.

Euro zone finance ministers want Cypriots to pay up to 9.9 percent of their deposits in return for a 10 billion euro ($13 billion) aid package. If approved by the island's parliament on Monday, it will be the first time savers have had to foot part of the bill for a European bailout.

"What they did to the Cypriots was a disgrace," said Maria Spyrou, 57-year-old Athens housewife who says she must support a daughter, a nurse, who hasn't been paid for nine months.
"We won't pull our money from the bank here," she said. "In Greece, they have found other ways to rob us, more ingenious and sly ways -- with fuel taxes, property poll taxes, you name it."

The chief of Greece's main opposition, anti-bailout Syriza party, leftist Alexis Tsipras, blamed the move on German Chancellor Angela Merkel.
"We must all together raise a shield to protect the peoples (of Europe) from Ms Merkel's criminal strategy," said Tsipras, who wants a pan-European debt conference to forgive debt.

In Lisbon, Joao Semedo, leader of Left Bloc, one of the country's smaller left-wing parties, warned Portuguese deposits would be at risk if European creditors insist on more austerity.
"The Portuguese government will not hesitate in resorting to bank deposits," said Semedo.
Greece and Portugal, like Ireland and Spain, have received European aid to shore up their economies, in return for painful cuts to spending and tax hikes.

In northern European countries, concerned at how much they might have to pay for bailing out indebted states, there was little sign of anxiety on Sunday. Finnish Prime Minister Jyrki Katainen said the levy was fair.
European officials have been at pains to stress that Cyprus is a special case - with terms not applicable to other bailouts because of the size of Cyprus's banking sector and its large foreign deposits.

NO SAVINGS TO WITHDRAW

But in Madrid, Ana Garcia, a 62-year-old worker at a mental health centre who was attending a protest against the privatization of the health service on Sunday, thought Spaniards could also face a hit on their savings.

"European countries are very calm thinking it could never happen to them. But we'll all get involved sooner or later," said Garcia, who added she had no savings to take out of the bank even if she wanted to.
News of Cyprus's bailout added anxiety to St Patrick's Day celebrations in Dublin.

"It's outrageous" said Carmel Madden, an Irish 54-year-old former businesswoman. The news from Cyprus made her worry about holding proceeds from a house sale on deposit in a local bank.
"I'm more concerned now than I was eight months ago when I sold the house. I just don't know where my money would be safe."
She said she was not planning any withdrawal in the short term, mainly because she had not found a less risky alternative.

Despite the assurances that Cyprus is an exception, the tax on bank deposits risks unnerving savers elsewhere in Europe, according to the chief executive of one Greek bank.
"It's an extreme move, Cyprus may be a tiny state but this will injure the fragile sentiment in the euro zone's south," said the banker, who declined to be named.

Another senior Greek banker said: "What timing, just when the crisis seemed to be stabilizing. How can savers not worry that this may happen again elsewhere as part of bailouts?"

In Italy, where media and political parties are focused on the quagmire following last month's deadlocked election and support for an anti-establishment party has soared, many turned to social media to express their concerns.

"After Cyprus I suggest we find a way to protect our savings from possible forced levies ... the solutions exist!!," read a tweet by Giovanni Cuniberti, independent financial analyst and lecturer at the University of Turin.

(Writing by Jason Webb; Additional reporting by Conor Humphreys in Dublin, Andrei Khalip in Lisbon, Antonella Ciancio in Milan, Jussi Rosendahl in Helsinki and George Georgiopoulos and Renee Maltezou in Athens; Editing by Matthew Tostevin)

Greece may still have to quit euro - Merkel ally

BERLIN | Sat Mar 9, 2013 6:22pm GMT (Reuters) - Greece remains the biggest risk for the euro zone despite a calming of its economic and political crisis and may still have to leave the common currency, a senior conservative ally of German Chancellor Angela Merkel said. Alexander Dobrindt, general secretary of the Christian Social Union (CSU), the Bavaria-based sister party of Merkel's Christian Democrats (CDU), has long argued that Greece would be better off outside the euro zone. But German conservatives' criticism of Greece has eased since the conservative-led government of Prime Minister Antonis Samaras accelerated harsh austerity measures demanded by Germany and the EU as part of its bailout programme. FREE GUIDES AND REPORTS FROM DIANOMI "The greatest risk for the euro is still Greece... I still believe that Greece's exit would be a possible long-term alternative, for Europe and for Greece itself," Dobrindt told Die Welt am Sonntag newspaper, according to advance excerpts of the interview released on Saturday. "We have created a situation that gives Greece a chance to return to stability and restore competitiveness. But I still hold that, if Greece is not able or willing to restore stability, then there must be a way outside the euro zone." Dobrindt urged the European Commission, the EU's executive arm, to prepare the legal ground to allow for the legal bankruptcy of a euro zone member state and its exit from the currency union. Dobrindt's comments contrasted with those of the CSU chairman and Bavarian state premier, Horst Seehofer, who expressed solidarity with Greece and said it was on the "right path" when Samaras visited Munich last December. Seehofer's conciliatory tone echoed that of Merkel who, for all her frustration with the slow pace of Greek reforms, has decided that a "Grexit" would be far more costly for Germany and Europe than pressing on with the bailout programme. Merkel is also keen to avoid renewed market turbulence in the euro zone ahead of Germany's federal election in September. Bavaria also holds a state election in the autumn which the CSU is tipped to win. Dobrindt made headlines last summer when he suggested Greece should start paying half of its pensions and state salaries in drachmas - the national Greek currency before the euro - as part of a gradual exit from the euro zone. With Athens now enjoying relative political stability, German lawmakers have recently been more focused on how to rescue Cyprus, which is negotiating a bailout after its banks suffered big losses due to their heavy exposure to Greece. Italy, the euro zone's third largest economy, also poses a bigger challenge after a majority of voters there rejected German-backed austerity policies in an election last month that has left no party with a clear majority to govern. (Reporting by Gareth Jones; Editing by Mark Heinrich)

FOREX-Yen selloff fades before high-stakes BOJ decision

By Ian Chua SYDNEY, Jan 22 (Reuters) - The yen's recent violent selloff came to an abrupt halt Tuesday as investors waited to see if the Bank of Japan would deliver its most aggressive effort yet to beat years of economic stagnation, or disappoint as so often in the past. The dollar bought 89.63 yen, having peaked at a 2-1/2 year high of 90.25 on Monday. Since Dec. 4, the dollar has rallied an eye-watering 10 percent on the yen. The BOJ, which is starting its policy-setting meeting earlier than usual, is under intense political pressure to overcome deflation and lift the world's third biggest economy out of recession. But the Japanese central bank has a track record of disappointing markets and traders said if it simply announces a new inflation target of 2 percent and raises the ceiling of its asset-buying programme by 10 trillion yen, the yen could bounce back strongly. "Given the transparency surrounding this meeting...there is a strong possibility that this is a typical 'buy the rumour, sell the news' event," said Christopher Vecchio, currency analyst at DailyFX. On the other hand, if the BOJ committed to an open-ended asset-buying programme until its new inflation target is within grasp, traders said the yen could stay under pressure. The euro was at 119.38 yen, recoiling from a 20-month high around 120.73 set Friday. Trading was subdued overnight with U.S. markets closed on Monday for a public holiday. Against the dollar, the single currency was little changed at $1.3315. Since reaching a 10-month high of $1.3404 a week ago, the euro has struggled with selling interest seen above $1.3400. Still, with the European Central Bank recently sounding more cheerful about the outlook for the euro zone and dimming the prospects of more rate cuts, analysts suspect the euro can continue to outperform the dollar in the near term. The Bundesbank said on Monday Germany's economic slump should be short-lived, adding that the euro zone's largest economy could have already bottomed out. Commodity currencies also had a relatively sedated session overnight, leaving them steady against the greenback. The Australian dollar was at $1.0517, having traded in a slim range roughly between $1.0493/0525. Support is seen under $1.0500. The BOJ aside, there is no major economic news out of Asia on Tuesday. In Europe, a closely watched ZEW survey is expected to show German business morale and investor sentiment improved further in January.

Euro-Area Unemployment Rate Rises to Record 11.8% Amid Recession

By Marcus Bensasson - Jan 8, 2013 6:00 PM GMT+0800

The euro-area jobless rate rose to a record in November as the fiscal crisis and tougher austerity measures deepened Europe’s economic troubles.
Unemployment in the 17-nation region rose to 11.8 percent from 11.7 percent in October, the European Union’s statistics office in Luxembourg said today. That’s the highest since the data series started in 1995 and in line with the median estimate of 27 economists in a Bloomberg News survey.
The euro-area economy has shrunk for two successive quarters and economists foresee a further decline in gross domestic product in the final three months of last year, forcing companies to cut costs by slashing jobs. The European Central Bank estimates contractions of 0.5 percent and 0.3 percent in 2012 and 2013.
“In the southern areas of the euro zone, demand is very weak and therefore there is no way to see fundamental improvement in labor-market conditions,” said Uwe Duerkop, an economist at Landesbank Berlin. “There might be some stabilization in the labor market in the second half of the year where one can expect this trend of growing unemployment numbers to stop, but that’s not the story for the moment.”
Today’s jobless report showed that 18.8 million people were unemployed in the euro area in November, up 113,000 from the previous month. At 26.6 percent, Spain had the highest jobless rate in the currency bloc. Germany’s jobless rate was 5.4 percent and France’s stood at 10.5 percent. Austria had the lowest rate at 4.5 percent.

Youth Unemployment

The data also showed that youth unemployment was at 24.4 percent, with Spain’s rate more than double that at 56.5 percent.
Spanish banks are reducing work places. BFA-Bankia, the biggest Spanish lender set to receive European bailout funds, will cut about 6,000 jobs, or more than a quarter of its workforce. Banco Santander SA plans to cut 3,000 jobs in its Banesto SA unit as part of its buyout plan, Cinco Dias newspaper reported on Jan. 4.
In France, Peugeot SA announced on Dec. 12 that it will eliminate an additional 1,500 jobs by 2014, on top of 8,000 job cuts announced in July. Germany’s Siemens AG said on Dec. 19 it is eliminating 1,100 jobs at two energy units in Germany.
Europe’s economic malaise is deepening as governments across the region impose budget cuts to narrow their fiscal deficits. Spain and Cyprus last year joined the list of countries seeking external aid, following Greece, Portugal and Ireland.
Failure to find a solution to the euro area’s troubles, and the U.S. debt-ceiling debate, will result in a “major world economic crisis,” International Monetary Fund Managing Director Christine Lagarde said on Jan. 5.

FOREX-Yen slumps to 20-mth low following LDP victory

Dec 17 (Reuters)

 The yen fell to its lowest level in over a year-and-a half against the U.S. dollar on Monday as part of a broad skid after Japan's conservative LDP party, pledged to hyper-easy monetary policy, won a landslide victory at an election.

The dollar rose as far as 84.48 yen, reaching its highest since April 2011, from around 83.50 late in New York on Friday. The euro jumped to around 111.30 yen from 109.81.

The higher-yielding Australian dollar climbed above 89.00 yen for the first time since May 2011.
Japan's conservative Liberal Democratic Party (LDP) surged back to power in an election on Sunday just three years, giving ex-Prime Minister Shinzo Abe a chance to push his radical economic recipe.

Abe has called for "unlimited" monetary easing and big spending on public works to rescue the economy from its fourth recession since 2000.
The Bank of Japan meets later this week and analysts expect the central bank will ease policy further to support an economy already in recession.

Soros Buying Gold as Record Prices Seen on Stimulus

By Nicholas Larkin and Debarati Roy - Nov 21, 2012 5:39 AM GMT+0800 Gold’s 12-year rally, the longest in at least nine decades, is poised to continue in 2013 as central bank stimulus spurs investors from John Paulson to George Soros to accumulate the highest combined bullion holdings ever. Enlarge image Soros Buying Gold as Record Prices Seen on Stimulus. The metal will rise every quarter next year and average $1,925 an ounce in the final three months, or 11 percent more than now, according to the median of 16 analyst estimates compiled by Bloomberg. Paulson & Co. has a $3.66 billion bet through the SPDR Gold Trust, the biggest gold-backed exchange- traded product, and Soros Fund Management LLC increased its holdings by 49 percent in the third quarter, U.S. Securities and Exchange Commission filings show. Central banks from Europe to China are pledging more steps to boost growth, raising concern about inflation and currency devaluation. Investors bought 247.5 metric tons through ETPs this year, exceeding annual U.S. mine output. While both sides said talks Nov. 16 between President Barack Obama and Congress over the so-called fiscal cliff were “constructive,” the Congressional Budget Office has warned the U.S. risks a recession if spending cuts and tax rises aren’t resolved. “We see gold as a hedge against the follies of politicians,” said Michael Mullaney, who helps manage $9.5 billion of assets as chief investment officer at Fiduciary Trust in Boston. “It’s a good time to garner some protection in portfolios by having some real asset like gold.” Longest Streak Gold advanced 11 percent to $1,728.85 in London this year, headed for a 12th consecutive annual gain, the longest streak in data compiled by Bloomberg going back to 1920. Prices reached a record $1,921.15 in September 2011. The Standard & Poor’s GSCI gauge of 24 commodities slipped 0.3 percent and the MSCI All- Country World Index (MXWD) of equities climbed 8.2 percent. Treasuries returned 2.7 percent, a Bank of America Corp. index shows. Bullion held through ETPs, the first of which listed in 2003, reached a record 2,604.2 tons yesterday, valued at $144.9 billion. That exceeds the official reserves of every nation except the U.S. and Germany, World Gold Council data show. The SPDR Gold Trust (GLD) alone holds 1,342.2 tons. Soros increased his investment in the trust to 1.32 million shares in the third quarter, the most since 2010, a Nov. 14 SEC filing showed. The stake, with each share representing about a 10th of an ounce, is valued at $221.4 million. Prices advanced 60 percent since January 2010, when Soros called gold the “ultimate asset bubble.” Michael Vachon, a spokesman for the 82-year-old who made $1 billion breaking the Bank of England’s defense of the pound in 1992, declined to comment. Official Reserves Paulson, who became a billionaire in 2007 by wagering against the subprime mortgage market, owns 21.8 million shares in the SPDR Gold Trust, making him the biggest shareholder, a Nov. 15 SEC filing showed. The 56-year-old raised his stake by 26 percent in the second quarter and his holding of about 66 tons exceeds the official reserves of nations from Brazil to Bulgaria to Bolivia. The New York-based hedge fund company reduced its investments in Anglogold Ashanti Ltd. (ANG) and Gold Fields Ltd., the third- and fourth-biggest producers. Armel Leslie of Walek & Associates, a spokesman for Paulson’s fund, declined to comment. Paul Touradji’s Touradji Capital Management LP sold all of its 82,000 shares in the SPDR Gold Trust in the third quarter, according to an SEC filing. Lone Pine Capital LLC, the hedge fund run by Stephen Mandel Jr., cut its stake by 31 percent to 2.6 million shares, and Dan Loeb’s Third Point LLC lowered its bet by 10 percent to 130,000 shares, filings showed last week. Officials from all three companies declined to comment. Nine Strategists While some investors expect stimulus to devalue currencies, the median of nine strategist estimates compiled by Bloomberg show the U.S. Dollar Index, a measure against six major trading partners, will average 82.8 next year, from 80.9 now. Steven Englander, Citigroup Inc.’s head of G-10 strategy, said in an interview this month that the currency market is signaling it isn’t yet convinced the Federal Reserve will fulfill its pledge to pump record amounts of cash into the economy through 2015. Third-quarter demand for gold fell 11 percent, the most since 2009, as China’s slowing growth curbed purchases, the London-based World Gold Council said Nov. 15. India, the biggest buyer in the quarter, consumed 24 percent less in the year’s first nine months as bullion priced in rupees reached a record in September. The Washington-based International Monetary Fund cut its 2013 forecast for world growth twice since July, to 3.6 percent. Inflation Adjusted While prices rose 25 percent since November 2010, the size of the futures market, based on contracts outstanding, fell 30 percent, bourse data show. The metal, down 3.7 percent from this year’s high, has yet to exceed previous records when adjusted for inflation, with its 1980 record of $850 equal to $2,398 today, data compiled by the Fed Bank of Minneapolis show. Hedge funds and other large speculators pared bets on a rally in futures traded on the Comex bourse in New York by 29 percent since Oct. 9, U.S. Commodity Futures Trading Commission data show. They’re still holding a net-long position of 140,162 futures and options, about 10 percent more than this year’s average, and increased wagers by 7.7 percent last week. The Fed said Oct. 24 it will maintain $40 billion in monthly purchases of mortgage debt and probably hold interest rates near zero until mid-2015. The European Central Bank said it’s ready to buy bonds of indebted nations and the Bank of Japan raised its asset-purchase program for the second time in two months on Oct. 30. Quantitative Easing Gold rallied 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011. Investors buying bullion as a hedge against inflation and a weaker dollar generally earn returns only through price gains, increasing its allure as interest rates decline. It rose sixfold since the end of 2000, beating the 34 percent advance in the S&P 500, with dividends reinvested, and the 91 percent return on Treasuries. The Dollar Index fell 26 percent. The first face-to-face meeting between Obama and leaders from Congress on the fiscal cliff yielded optimism and few details about how it would be resolved. The $607 billion of automatic spending cuts and tax increases is scheduled to take effect in January. U.S. equities and Treasuries rose Nov. 16 and gold futures were little changed. Options Trading Credit Suisse Group AG’s Tom Kendall, the most accurate gold forecaster tracked by Bloomberg over the past two years, sees prices averaging $1,880 in the fourth quarter next year and UniCredit SpA’s Jochen Hitzfeld, ranked second, expects $1,950. Deutsche Bank AG’s Daniel Brebner, the next most accurate, predicts $2,300 in the third quarter. Options traders are also bullish, with the seven most widely held contracts conferring the right to buy at prices from $1,800 to $2,200 between November and March, Comex data show. Central banks added to reserves for 19 consecutive months through August, the longest streak since 1964, IMF data show. Nations from Russia to South Korea to Mexico bought more to bring combined holdings to 31,461 tons, equal to about 18 percent of all the metal ever mined. Barrick Gold Corp. (ABX), the world’s largest producer, will report a 41 percent gain in profit to a record $5.04 billion next year, the mean of 10 analyst estimates compiled by Bloomberg shows. The Toronto-based company’s shares fell 25 percent this year and will gain 43 percent in the next 12 months, according to the average of 23 forecasts. Monetary Stimulus Analysts predict Newmont Mining Corp. (NEM) and AngloGold Ashanti, the next-biggest, will also report the most profit ever next year. “It looks as though global monetary stimulus is likely to continue, particularly in the wake of growing fiscal austerity,” said Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion of assets. “That puts pressure on the monetary authorities to stimulate the economy and that will debase the currencies and put a bid under gold.”

BOJ seen defying easing calls as political pressure heats up

By Leika Kihara TOKYO, Nov 20 (Reuters) - The Bank of Japan is expected to stand its ground by keeping monetary policy unchanged on Tuesday in the face of calls from the country's likely next prime minister to pursue "unlimited" easing. The leader of the main opposition, Shinzo Abe, has put the central bank at the centre of economic debate ahead of a Dec. 16 national election that surveys show his party would win, signalling his government would put the bank under much greater pressure to ease policy. Abe has even suggested revising the Bank of Japan law, a step critics say is aimed at clipping the central bank's independence and forcing it to print money to finance public debt that is already double the size of Japan's economy. However, economists expect the central bank to keep monetary policy steady on Tuesday, having eased in September and October. It will prefer to hold fire so it can size up the government to be formed after the Dec. 16 vote for the powerful Lower House. Markets will also look to see how BOJ Governor Masaaki Shirakawa responds to the increased political heat when he addresses a media briefing following the policy meeting. "The BOJ will stand pat this month and probably ease in December by boosting bond purchases by 10 trillion yen ($123 billion)," said Izuru Kato, chief economist at Totan Research. "Even so, it will remain under pressure for more action." Japan's economy shrank 0.9 percent in the September quarter and given headwinds to growth in the current quarter, is widely expected to have slipped into a recession. The BOJ may reflect that by cutting its assessment of the economy and thus signal a readiness to loosen policy as early as next month. Abe, the leader of the Liberal Democratic Party (LDP), has called on the BOJ for bolder policy action, including "unlimited easing", pushing interest rates to zero or below zero and directly underwriting bonds issued to fund public works spending. The comments pushed the yen to a near seven-month low against the dollar and raised expectations the BOJ may act at its next rate review on Dec. 19-20, just after the election. The BOJ is unlikely to give in to some of the extreme demands, such as underwriting debt, but is weighing options beyond its asset-buying and lending programme, its main policy tool, having cut policy rates effectively to zero, sources say. For now, though, many central bankers prefer to hold fire to scrutinise the impact of easing in September and October, which brought the size of the asset buying and lending programme to 91 trillion yen -- roughly equal to Japan's annual state spending. Shirakawa has warned that flooding markets with cash alone will not push up prices when interest rates are already near zero. Japan has been dogged with deflation for years despite the BOJ's ultra-easy policy. The BOJ set a 1 percent inflation target in February and has eased policy four times so far this year. Abe has talked of setting an inflation target of 2 percent or 3 percent. Despite the political pressure, the BOJ is caught in a dilemma. Bank notes in circulation are rising and the balance of deposits that commercial banks park with the BOJ is at a record high of 44 trillion yen as a result of its ultra-loose policy. But bank lending rose a meagre 0.9 percent in the year to October, a sign the extra cash has not prompted companies and households to borrow more for new spending. Under the current law, the BOJ is free to set monetary policy. But the government nominates the governor, deputy governors and board members, which need parliament approval, giving it power to sway the direction of policy. Government pressure has frequently driven the central bank into easing policy, particularly when a rise in the yen raised calls for measures to ease the impact of the stronger currency on the export-reliant economy. While Abe's remarks have helped lift Tokyo share prices on expectations of bolder monetary stimulus, some analysts say his demands are unrealistic and they doubt whether he will stick to them once in power. Many economists also warn that threatening central bank independence or forcing it to underwrite public debt could trigger an unwelcome spike in bond yields by raising doubts in markets about Japan's ability to keep its fiscal house in order.

ECB seen holding rates, waiting to unleash bond plan

By Eva Kuehnen FRANKFURT | Thu Nov 8, 2012 9:01am GMT (Reuters) - The European Central Bank is expected to leave interest rates on hold on Thursday, waiting instead to show its mettle with a new bond-purchase programme that is ready for use as soon as Spain asks for help. The bank said last month it was ready to buy bonds of debt-strained governments such as Spain and Italy once they had signed up to a European bailout programme. So far no request has been made, but the announcement alone has calmed markets. Underlying economic problems persist, however, and gloomy data indicated earlier this week that the euro zone economy risked shrinking more than expected in the fourth quarter, which the ECB could eventually respond to by cutting rates. ECB President Mario Draghi gave a downbeat assessment of the euro zone economy in a speech to German bankers on Wednesday. "Unemployment is deplorably high," he said. "Overall economic activity is weak and it is expected to remain weak in the near term. And the growth of money and credit are subdued." "In this context, inflation is well contained," he added. "We expect it to fall below 2 percent next year." While a Reuters poll gave an 80 percent chance the ECB will hold its main refinancing rate at 0.75 percent on Thursday, most of the 73 analysts polled expected it will be cut to a new record low of 0.5 percent within the next few months. The ECB's policymaking Governing Council began meeting at around 0800 GMT in Frankfurt. It announces its decisions at 1245 GMT. "We expect the ECB to remain firmly on hold," said Goldman Sachs economist Dirk Schumacher. "Neither the data that have become available since last month nor actions from euro area governments justify additional measures at this point." Before cutting rates further, the ECB will focus on making sure that its record low rates reach companies and households across the euro zone, a mechanism that has been broken by the debt crisis. The new bond-purchase plan -- dubbed Outright Monetary Transactions (OMT) -- is the ECB's designated tool to fix this mechanism. It just needs to be activated and that can only be done by the respective governments requesting a bailout. CALLING FOR HELP Investors and euro zone policymakers have been urging Spain to seek aid from Europe's bailout funds, but Spanish Prime Minister Mariano Rajoy has so far avoided seeking help, saying he wants assurances ECB intervention would bring down Spain's debt costs. Pressure has eased somewhat as yields on Spanish government bonds have dropped by around 2 percentage points since Draghi said in late July the ECB was ready to do "whatever it takes to preserve the euro" - a pledge that heralded the bond-buy plan. Some economists have now raised the possibility that the OMT might not have to be activated considering its impact so far. But Matteo Cominetta, European economist at UBS, said eventually the OMT would be put the test because of the large amount of Spanish sovereign debt coming up for renewal next year - roughly 140 billion euros according to Reuters data. "Next year, you will have a record supply of Spanish bonds up for renewal in a situation where macro economic data will remain very bad for a long time in Spain," Cominetta said. The European Commission said in its autumn forecasts on Wednesday that Spain would suffer a recession almost three times deeper at 1.4 percent in 2013 than the 0.5 percent contraction predicted by Madrid, unless it takes additional steps. The Commission also said the euro zone economy would barely grow next year, but pick up in 2014. Euro zone inflation eased in October to 2.5 percent year-on-year from 2.6 percent in September, thanks to slower energy price growth, though it stayed above the ECB target of below but close to 2 percent.

Trade Deficit in the U.S. Widened in August as Exports Dropped

By Alex Kowalski - Oct 11, 2012 8:30 PM GMT+0800 The U.S. trade deficit widened in August as slower global growth reduced demand for American exports. The gap grew 4.1 percent to $44.2 billion from $42.5 billion in July, Commerce Department figures showed today in Washington. Exports decreased to the lowest level since February. A separate report showed the cost of goods shipped to the U.S. rose more than forecast in September. A stagnant Europe and slower growth in China and other emerging markets may curtail demand for American products, which had been a source of strength for U.S. manufacturers earlier this year. At the same time, the pickup in energy costs may push up the nation’s import bill, keeping the trade gap elevated. “You have these headwinds from overseas,” Ryan Wang, an economist at HSBC Securities USA Inc. in New York, said before the report. “There’s an ongoing recession in Europe and growth momentum is positive but slowing in the other parts of the world that matter most for U.S. exports.” The median forecast in a Bloomberg survey of 73 economists projected the deficit would expand to $44 billion. Estimates ranged from a gap of $41 billion to $47.5 billion. July’s deficit was revised from an initially reported $42 billion. Fewer Americans than forecast filed first-time claims for unemployment benefits last week, which may reflect difficulty adjusting the data for seasonal swings at the start of a new quarter, figures from the Labor Department also showed today. Applications for jobless benefits dropped 30,000 to 339,000 in the week ended Oct. 6, the fewest since February 2008. Economists forecast 370,000 claims, according to the median estimate in a Bloomberg survey. One state accounted for most of the plunge in claims, a Labor Department spokesman said as the data were issued to the press. Exports Decline The trade report from the Commerce Department showed exports decreased 1 percent in August to $181.3 billion. Imports decreased 0.1 percent to $225.5 billion, also the weakest since February, from $225.7 billion in the prior month. A drop in purchases of autos, clothing and aircraft swamped a jump in oil imports. After eliminating the influence of prices to produce the numbers used to calculate gross domestic product, the trade deficit climbed to $48.4 billion from $47 billion.

Special Report: Greece's other debt problem

By George Georgiopoulos and Stephen Grey Athens | Thu Sep 27, 2012 4:44am EDT (Reuters) - The two main political parties in Greece are facing their own financial crisis. New Democracy and Pasok, the key members of the country's coalition government, are close to being overwhelmed by debts of more than 200 million euros, say rivals, as the big parties head for a slump in state funding because of falling public support. In Greece's state-financed political system, parties that receive more votes get more funding. Relying on past good results, the big political parties have pledged future state funding as collateral for bank loans. But in the most recent poll their support collapsed, leaving them with big loans and facing much smaller incomes. Banking sources familiar with the issue say that conservative New Democracy and socialist Pasok now owe a combined 232 million euros to Greek banks. Some of the loans are going unpaid, those sources say. The debts far exceed the combined 37 million euros the parties received in state funding last year - a figure set to decline. The parties' debts raise questions about potential conflicts of interest because the government is in hock to a financial system that it also needs to reform. Athens is already struggling to implement spending cuts and reforms demanded by the European Union, International Monetary Fund (IMF) and European Central Bank (ECB) in return for the 130 billion euro bailout keeping Greece afloat. On Wednesday unions called a nationwide strike protesting against austerity. Leandros Rakintzis, Greece's independent inspector-general of public administration, believes the financial crunch the two big parties face is proof that Greece's political funding system is flawed. "This is all about the exchange of favors," he said. "These parties cannot pay the debt so it's a vicious circle in which they come to depend on the banks. It creates an interdependence of politicians and banks." The loan pressures will intensify early next year when state funding is recalculated to reflect declines in the parties' support. At present, funding is still based on the proportion of votes each party won in the June 2009 election. But in January funding will change to reflect votes cast in June 2012. At that election Pasok saw its share of the vote plunge from 43 percent to 12 percent, while New Democracy's share fell from 33 percent to 29 percent. The big winner was leftist Syriza, which opposed the bailout terms. Its share of the vote shot up to 27 percent from 4.6 percent in 2009, and it now stands to receive significantly more funding. Costas Tsimaras, the general manager of New Democracy, the biggest party in the Greek parliament, told Reuters the bulk of its bank loans were currently being paid on time, but "a small proportion of the loans may have become late, non-performing." For the parties to keep on top of the loans, he said, they should be restructured. "It will be very difficult for the parties to pay back the debt if there is no arrangement. Down the road, a political decision needs to be made to give parties the capacity to service their liabilities, some type of settlement on these loans." Pasok did not respond to requests for comment. STATE HANDOUTS Like many European countries, Greece provides some public funding for political parties and their election campaigns: last year the state handed out a total of 54 million euros. Each year parties receive tax-free funding equal to 0.102 percent of annual state revenue, plus another 0.01 percent for "research and education" purposes. When national or European parliamentary elections take place an extra 0.022 percent of annual state revenue is handed out. Private companies, owners of media and foreign nationals are banned from funding parties. Individuals giving more than 600 euros have to be identified and are allowed to give only up to 15,000 euros a year, though it is unclear how well these rules are enforced. The lion's share of the state funding pie, 80 percent, is divided between parties that win seats in parliament, each one receiving amounts proportional to the votes they score. That funding does not include the cost of MPs salaries and other parliamentary expenses, which are paid separately. Greece is among the most generous of EU countries to political parties. It provided an average of 6.5 euros per registered voter per year between 2007 and 2011 - the fourth highest funding in the EU after Luxembourg, Cyprus and Finland, according to Forologoumenos, a Greek taxpayer association that tracks state spending on politics. By another measure, Greece hands out three times the amount spent by Germany on political parties. Per valid vote cast, Athens spends an average 9.4 euros versus Germany's 3.1 euros, says Forologoumenos. In 2011 New Democracy, led by Antonis Samaras, received 16.9 million euros and Pasok, now led by Evangelos Venizelos, 21.7 million. That state funding accounted for about 75 percent of New Democracy's income, the party said, though the proportion fluctuates from year to year. Pasok did not comment on how much it depends on public funds. In 2010, when Greece's debt crisis exploded and forced Athens to seek a bailout, the country spent a total of 65 million euros on funding parties in a country of 11 million people. Germany, with a population more than seven times larger, limits state funding of political parties to 150 million euros. For German lawmaker Klaus-Peter Willsch, the generous state funding in Greece is emblematic of the country's financial malaise. "This self-serving mentality will not come to an end as long as Greece is funded by the solvent states in the euro zone," he said. "The fact that Greek parties get three times as much funding per vote as in Germany is part of the problem." Willsch, a member of Angela Merkel's Christian Democrats who sits on the Bundestag's powerful budget committee, voted against the Greek bailouts. MIND THE GAP Even with state funding, Greek parties have had to borrow to fill the shortfall between their revenue and expenditure. The main lender has been state-owned ATE Bank. By this year New Democracy owed ATE 105 million euros and Pasok owed ATE 96 million, according to banking sources. A senior source in the Greek parliament confirmed these amounts to Reuters. Separately, Piraeus Bank, the country's fourth largest, lent New Democracy 15 million euros and Pasok 6.5 million euros. Three other banks made small loans to the parties. A banker familiar with the matter told Reuters that some of the loans "are non-performing, they are past due more than 90 days". Piraeus denies any problem. "Piraeus Bank's loans to political parties are a small percentage of the total. They were given against guarantees of state funding. The loans are performing," said a Piraeus spokesman. In late July, ATE had to be rescued from collapse, with parts of the bank, including the political loans, being taken over by rival Piraeus Bank. At the time the political loans were performing, said a source at ATE and a senior government official. Piraeus has filed a lawsuit against Reuters, claiming 50 million euros in damages after Reuters published a report about a series of property deals between the bank and companies run by the family of its chairman. Reuters stands by the accuracy of its reports. A banker with knowledge of the political loans said limits should be set "on the percentage of state funding that can be accepted as collateral and for how many years in the future. Otherwise, one would have to be a Houdini to know for sure what amount of state funds a party will be entitled to far out in the future, 10 years down the road." For the parties, some pressures are already evident. One former staff member of Pasok, who asked not to be named, said that payments to party workers had been irregular since September last year. New Democracy said its staff were paid on time. "We do not owe a single euro to anyone on the payroll," said general manager Tsimaras. However, he added: "Our bills to suppliers do face some delays." A Pasok staff member said party funding had sometimes been spent poorly. In 2009, for instance, the party built a fully-equipped gym at its new headquarters and employed a personal trainer. "It is now a smaller party and costs have to be reined in," said the party staffer. Pasok did not respond to requests for comment. RISING ANGER Greece is now in its fifth year of recession and is struggling to meet fiscal targets set by its euro zone partners and the IMF. The gap between government spending and revenues is projected at 7.3 percent this year, based on IMF estimates. The country's accumulated debt stands at 332 billion euros, equal to 163 percent of GDP. Greek Prime Minister Antonis Samaras asked in August to be given a "breathing space" by the EU and IMF, which are pressing for more public spending cuts. At the same time, critics say the political system itself should tighten its belt. "State funding to political parties must be adjusted to what the Greek economy can afford and not be far off from the corresponding average in the European Union," said Yannis Sarris, the general manager of small party Dimiourgia Xana, which calls itself the ‘common sense' party. Others say it is politically unacceptable for parties to be propped up with bank loans when many businesses are unable to obtain credit even against sound collateral. The small Democratic Alliance party (which folded into New Democracy at the June election) has previously called for a 50 percent cut in state funding to parties. "On the one hand we have a country on the brink of bankruptcy, a suffering society, victim of an unprecedented tax onslaught," Democratic Alliance deputy Christos Markoyannakis told parliament in December last year. "On the other, we face the absolute provocation by those bearing the biggest share of responsibility for the country's crisis. As long as the cash flows into party coffers, all is fine and dandy." The Group of States against Corruption (GRECO), a body set up by the Council of Europe, has also leveled serious criticisms at the way Greece funds its politics. It has urged Athens to improve transparency of party funding, to strengthen controls over small donations for fear that rich donors could abuse the system, and to ensure that loans are repaid under their original terms - otherwise they risk becoming de facto donations. The group concluded: "There is in Greece a general public mistrust of the system of political financing and supervision, which may be attributed to an overall inefficient and opaque system of supervision, in which political parties are both judge and jury. "This system has failed, under current law, to uncover and sanction any - even minor - infringement of the rules on political financing." So far, none of GRECO's 16 recommendations have been implemented, the organization says. The omens for reform are not encouraging. Last year Nikos Alivizatos, a constitutional lawyer, helped draft a new law to correct shortcomings of the current system, including barring banks from lending to political parties. The legislation was shelved because the two main parties were keen to maintain the status quo, say political observers.

By Ambrose Evans-Pritchard 8:56PM BST 24 Sep 2012 “The IMF is evolving from a liquidity mechanism into a bank. This is neither in keeping with the legal and institutional role of the IMF or with its ability to handle risks,” said the Bundesbank in its monthly report. The bank said the Fund was right to help rescue Greece, Ireland and Portugal but said monitoring levels were slipping and there had been a “watering down” of standards. The scale of loans risks “overwhelming the IMF’s institutional structure”. The unprecedented attack came as the IMF’s chief, Christine Lagarde, called for urgent measures across the world to head off a fresh global slump. While praising the latest emergency measures of central banks in the US, Europe and Japan, she said this was not enough to secure recovery. The Europeans must activate their new machinery, while the US must prevent a “dramatic tightening” of fiscal policy later this year. Failure to act “would effectively plunge the country off a 'fiscal cliff'", cutting US growth by up to 2pc. She said this would pose a “serious threat for the global economy”. Ms Lagarde also said emerging economies need to bolster their defences against “potential spill-overs”, if necessary by injecting “additional stimulus”. The Bundesbank’s broadside against the Fund caused consternation in Washington, where Asian and Latin American members of the Board think the IMF has been doing Germany’s work for it, shouldering too much of the risk trying to hold the eurozone together. There is irritation in IMF circles over the way the Fund has been dragged into badly-constructed rescue packages. The Fund has refused to lend any more money to Greece, saying the country cannot regain economic viability unless EU bodies take losses. Ms Lagarde’s Keynesian team is deeply at odds with Germany’s hard-money hawks. A leaked memo from Germany’s finance ministry previously called the IMF the “Inflation Maximizing Fund” after it suggested that a burst of inflation might lift the world off the reefs. Germany has weathered the slump so far but there are signs that extreme austerity and deepening slump across southern Europe has begun to engulf the country. Germany’s IFO business confidence index has fallen for the past five months, sinking this month to its lowest since mid-2009. Capital Economics said the crash in the manufacturing expectations index points to a 10pc fall in industrial output. “It is only a matter of time before the economy starts to contract," it said. The OECD expects a “light recession” in Germany, with grave knock-on effects for struggling EMU states relying on the German locomotive to pull them along. Separately, EU diplomats said a taskforce is working on plans to boost the European Stability Mechanism (ESM) or bail-out fund from €500bn to €2 trillion by offering guarantees to private creditors to co-invest. The package should be ready by early November. While it has support from Germany’s government, it may face trouble in the Bundestag and Finland’s parliament since it exposes taxpayers to bigger losses in any default. “We always find a solution in the end,” said one official.

Fasten Your Seatbelts, FX Investors

By: Kelley Holland The forex markets will soon be littered with event risk, this strategist says. Enjoying the dog days of August? You'd better because we're in for a bumpy ride. The slow times are about to end, says Camilla Sutton, chief currency strategist at Scotiabank. "September is littered with event risk," she wrote in a note to clients, with key events likely to sway both the euro and the dollar at different times. The fun actually starts at the tail end of August. That's when China will release its latest PMI report - oh, and Federal Reserve Chairman Ben Bernanke is scheduled to give a little speech in Jackson Hole. European Central Bank President Mario Draghi will speak a day later, and then on September 6, "we expect the ECB to clarify the details of its bond buying program" at its monthly meeting, Sutton says. A week later, Germany's top court is due to issue its ruling on the constitutionality of providing aid to troubled euro zone countries, and on September 13 the Fed could announce another round of quantitative easing, which would probably push the dollar[.DXY 81.34 -0.32 (-0.39%) ] lower. On top of all that, it's unclear when or whether Spain will request aid, Sutton says. "Delaying a request for aid threatens rising yields and ultimately another weight on EUR." And while "commentary following the meetings between Chancellor Merkel, President Hollande and Prime Minister Samaras appear to support the view that Greece will receive its next tranche of €31bn," she says, "a negative report would push Grexit back into the headlines and limit any EUR gains."

U.S. Stocks Advance on Europe as Earnings Beat Estimates

U.S. Stocks Advance on Europe as Earnings Beat Estimates By Rita Nazareth - Aug 7, 2012 4:48 AM GMT+0800 U.S. stocks rose, sending the Standard & Poor’s 500 Index to a three-month high, as German Chancellor Angela Merkel’s government backed the European Central Bank’s bond-buying plan and earnings beat forecasts. Hewlett-Packard Co. (HPQ), Bank of America Corp. (BAC) and Caterpillar Inc. (CAT) increased at least 1.5 percent. Cognizant Technology Solutions Corp. (CTSH), a provider of consulting and outsourcing services, climbed 11 percent after raising its forecast. Best Buy Co. surged 13 percent after founder Richard Schulze offered to take the electronics retailer private at $24 to $26 a share. Knight Capital Group Inc., the firm driven to the brink of bankruptcy by trading losses last week, tumbled 24 percent. About five stocks advanced for every three that fell on U.S. exchanges at 4 p.m. in New York. The S&P 500 (SPX) rose 0.2 percent to 1,394.23, gaining 2.1 percent in two days. The Dow Jones Industrial Average added 21.34 points, or 0.2 percent, to 13,117.51. Volume for exchange-listed stocks in the U.S. was 5.7 billion shares, or 15 percent below the three-month average. “The earnings season has surprised because expectations were so low given the economic soft patch which hit the second quarter,” said James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management. His firm oversees about $320 billion. The prospect for bond purchases by the ECB “has also boosted bullish attitudes among investors.” U.S. stocks followed European shares higher as Merkel’s government backed the ECB’s bond-buying plan announced last week, her deputy spokesman Georg Streiter said today. About 73 percent of the S&P 500 companies which reported second-quarter results have beaten earnings estimates even as 59 percent missed sales projections, data compiled by Bloomberg show. Biggest Gains Seven out of 10 groups in the S&P 500 rose today as commodity and technology shares had the biggest gains. Hewlett- Packard, the world’s largest maker of personal computers, added 2.4 percent to $18.69. Bank of America gained 2.8 percent to $7.64. Caterpillar, the largest maker of construction and mining equipment, climbed 1.6 percent to $86.35. Cognizant surged 11 percent to $64.21. The company is gaining revenue as its clients seek savings by outsourcing tasks to India and other lower-cost nations amid a slowing global economy, Chief Financial Officer Karen McLoughlin said. The company has also been building an emerging-technologies business focused on data analysis and mobile solutions. Best Buy jumped 13 percent to $19.99. Credit Suisse Group AG, Schulze’s financial adviser, is confident it can obtain financing for an offer, according to a letter sent to the board today. The offer is at least 36 percent more than Best Buy’s closing price Aug. 3, and the midpoint of the range gives the company an equity value of $8.5 billion. Job Cuts Navistar International Corp. (NAV) advanced 10 percent to $24.62. The maker of International brand trucks jumped after Crain’s Chicago Business reported that the company has told employees it’s considering options for the business including job cuts. ViroPharma Inc. (VPHM) gained 14 percent to $22.66 after it won U.S. regulatory approval to expand manufacturing of Cinryze, the company’s drug to treat hereditary angioedema, an inherited disease in which patients have attacks of inflammation of the face and throat, which can be fatal. NII Holdings Inc. (NIHD) climbed 19 percent to $8.08. The wireless carrier that operates the Nextel brand in Latin America rose after Wells Fargo & Co. predicted its second-quarter results would top the average analyst estimates. Zimmer Holdings Inc. (ZMH) added 1.3 percent to $59.78. The company and Seikagaku Corp. won a U.S. patent-infringement trial brought by Sanofi’s Genzyme over a treatment for arthritis in the knee. Bankruptcy Risk Investors also watched the latest developments with Knight (KCG) Capital, which received a $400 million cash infusion after a deal reached yesterday. The company faced too much bankruptcy risk to make its share price the top priority as it negotiated a rescue, said Thomas Joyce, the chairman and chief executive officer. The Jersey City, New Jersey-based company, one of the country’s biggest market makers, had to lock up an infusion of capital to preserve its businesses, Joyce said in a telephone interview today. Knight fell 24 percent to $3.07 as investors prepared for hundreds of millions of shares to enter the market via convertible securities. “This was absolutely the right thing to do for this organization,” Joyce said. “We understand the dilution is a large amount, but for the future of Knight Capital Group, as tough as it was to see happen, it was the right thing to do.” ‘Dry Powder’ Tyson Foods Inc. (TSN) slipped 8 percent to $14.17. The largest U.S. meat processor cut its full-year sales forecast and said profit will be lower after the cost of animal feed rose because of the country’s drought. The company is also cutting capital expenditures and stock buybacks partly to keep “a lot of dry powder around for an opportunistic acquisition,” Chief Executive Officer Donnie Smith said. AES Corp. (AES) slumped 4.4 percent to $11.71. The power producer with operations in 27 countries reported that 2012 profit would be at the lower end of guidance. HCA Holdings Inc. (HCA) lost 4 percent to $25.55. The biggest U.S. hospital operator said its cardiology practices had come under scrutiny from the U.S. Justice Department. Interpublic Group of Cos. tumbled 7.8 percent to $10.11 after Publicis Groupe SA said it hasn’t held takeover talks with the ad company or engaged a bank to support discussions, following a newspaper report saying the French company may bid. FreightCar America Inc. (RAIL) slid 8.7 percent to $19.15 after the maker of railroad freight cars posted quarterly profit and sales that trailed analysts’ estimates. S&P Downgrade Global investors can’t get enough American securities a year after S&P downgraded U.S. government debt. The dollar has outperformed its peers in the past 12 months, rising by 10 percent against a basket of six currencies. U.S. stocks have been the best performing equity market in terms of dollars, with the Dow Jones Industrial Average advancing 14 percent. Treasuries also have done better since the S&P action late on Aug. 5, 2011, returning 6.7 percent to investors compared with 6.1 percent for other government bonds. “We’re seeing negative data come in from a lot of parts of the world,” said Kenneth Rogoff, a professor at Harvard University in Cambridge, Massachusetts, and a former chief economist at the International Monetary Fund. “The rest of the world is looking at the United States and saying, ‘I wish we were the United States.’”

Australian Stock Futures Rise on China Stimulus Outlook

By Adam Haigh - Jul 16, 2012 7:11 AM GMT+0800 Australian stock futures rose amid speculation China may take more economic stimulus measures, boosting the earnings outlook for companies that generate sales in the Pacific nation’s biggest trading partner. American Depositary Receipts of BHP Billiton Ltd. (BHP), the world’s largest mining company, gained 1.3 percent. Shares of Whitehaven Coal Ltd. (WHC) may be active after a group led by Australian Nathan Tinkler offered to buy the rest of the miner at a 51 percent premium to its most recent closing price, valuing the company at A$5.3 billion ($5.4 billion). ADRs of Cnooc Ltd. (883), China’s largest offshore oil producer, rose 0.8 percent as crude prices advanced for a fourth day. Futures on Australia’s S&P/ASX 200 Index advanced 0.8 percent to 4,082 as of 6:59 a.m. in Sydney. Japan’s equity markets are closed today for a public holiday. New Zealand’s NZX 50 Index rose 0.3 percent in Wellington. “There remains significant capacity for China to stimulate further,” said George Boubouras, Melbourne-based head of investment strategy at UBS AG’s Australian wealth-management unit. The Swiss bank has about $1.5 trillion in assets under management. “This is not only from a monetary perspective, which includes further rate cuts or lowering the reserve required ratio again, but also the ability for additional targeted fiscal stimulus.” Futures on the Standard & Poor’s 500 Index fell 0.2 percent today. The underlying gauge gained 0.2 percent last week as a rally in JPMorgan Chase & Co. (JPM) and speculation China will boost stimulus measures tempered concern about earnings and the global economy. JPMorgan jumped 6.4 percent for the week as Chief Executive Officer Jamie Dimon said the bank will probably post record earnings for 2012 even after reporting a $4.4 billion trading loss. China Rates China’s central bank may cut interest rates by as much as one percentage point in the coming year to spur lending, the swap market signals, as slowing industrial production and exports cool the economy. China needs to expand consumption and restructure the economy, Vice Premier Li Keqiang said during an inspection tour in central Hubei province, the official Xinhua News Agency reported July 15. This comes two days after a report showed China’s gross domestic product expanded 7.6 percent in the second quarter from a year earlier, the slowest pace in three years. China’s Premier Wen Jiabao warned the momentum for a recovery in economic growth isn’t yet in place and that “difficulties” may persist for a while, the official Xinhua News Agency reported. ‘Bearing Fruit’ Even so, the current pace of economic expansion is within the targeted range and government measures to stabilize growth are “bearing fruit,” the premier said during an inspection tour in southwest Sichuan province, according to Xinhua yesterday. The article didn’t mention government policies for the property market. China is facing downward pressure on economic growth and will maintain “proactive” fiscal policy in 2012, the People’s Bank of China said in its stability report on its website after the close of Hong Kong and Chinese markets on July 13. The MSCI Asia-Pacific (MXAP) fell 2.8 percent last week, the largest weekly drop since May, amid concern slowing economic growth from China and Korea to Australia will hurt corporate profits. Investors are demanding policymakers do more to stimulate growth even after central banks in China, Europe, Taiwan, South Korea and Brazil cut interest rates in the past fortnight to bolster economies against the impact of Europe’s debt crisis and the faltering recovery in the U.S. Commodities Rise The MSCI Asia Pacific Index fell 11 percent from its 2012 high on Feb. 29 through July 13, paring this year’s gain to 1.3 percent. Shares in the measure are valued at 11.7 times estimated earnings on average, compared with 13.1 times for the Standard & Poor’s 500 Index and 10.7 times for the Stoxx Europe 600 Index. The Thomson Reuters/Jefferies CRB Index of raw materials climbed 1.3 percent July 13. West-Texas Intermediate crude oil futures advanced 0.1 percent today, gaining for a fourth day. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in New York gained 1.3 percent to 87.77 on July 13, trimming its loss last week to 3.7 percent.

Asian Stocks Snap Six-Day on European Economic Slowdown

By Jonathan Burgos - Jul 5, 2012 10:14 AM GMT+0800 Asian stocks fell, with the regional benchmark index headed for its first loss in seven days, as a worsening economic slump in Europe overshadowed expectations the European Central Bank will cut interest rates today. Esprit Holdings Ltd. (330), a clothier that counts Europe as its largest market, slid 1.5 percent in Hong Kong. Aquarius Platinum Ltd. tumbled 8.9 percent in Sydney after saying output will decline. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest publicly traded lender by market value, gained 1 percent in Tokyo after Bank of Japan Governor Masaaki Shirakawa said today the BOJ will continue monetary easing. The MSCI Asia Pacific Index (MXAP) lost 0.4 percent to 118.77 as of 11:12 a.m. in Tokyo, with almost three shares falling for every two that rose. The gauge climbed yesterday to its highest level since May 10 after euro-zone leaders last week agreed to relax conditions for rescuing lenders, easing concern about the region’s debt crisis. “The market remains skeptical that policy measures in Europe will be in place in a timely fashion,” said Tim Schroeders, a portfolio manager who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “Significant details still need to be addressed, but for the time being the initiatives to tackle the debt crisis have broadened.” Japan’s Nikkei 225 Stock Average (NKY) lost 0.1 percent after swinging earlier gaining as much as 0.3 percent. Australia’s S&P/ASX 200 Index fell 0.2 percent. Hong Kong’s Hang Seng Index both dropped 0.4 percent, while China’s Shanghai Composite Index declined 1.2 percent.

FOREX-Euro, sterling on defensive as central bank action eyed

FOREX-Euro, sterling on defensive as central bank action eyed By Ian Chua SYDNEY, July 5 (Reuters) - The euro wallowed near one-week lows on Thursday, struggling to find any traction ahead of a widely expected interest rate cut by the European Central Bank. The single currency traded at $1.2522 early in Asia, having fallen around 0.7 percent on Wednesday in trading made subdued by a U.S. holiday. Surveys showing all of Europe's biggest economies are in recession or heading there added to the gloom. Support is seen around $1.2495, the 76.4 percent retracement of Friday's dramatic rally sparked by an EU deal to tackle the region's debt crisis. Traders said part of the euro's weakness overnight was due to heavy selling against the Swedish crown, which surged to an 11-1/2 year high after the Swedish central bank kept interest rates on hold at 1.5 percent. Traders said the absence of stronger hints on future rate cuts by the Riksbank saw the crown squeeze higher, pushing the euro down some 1 percent to as far as 8.6495 crowns, lows not seen since late 2000. The euro also lost ground on the yen, slipping to 100.06 from Wednesday's session high of 100.65. It hit a fresh all-time low on the New Zealand currency at NZ$1.5541 . Softness in the single currency saw the dollar index bounce to 82.199, off Friday's trough of 81.430. Against the yen, the greenback held firm at 79.92, continuing to slowly recover from a low of 79.08 set last Friday. With expectations mounting that the ECB, Federal Reserve and also the Bank of England will have to do more to stimulate their respective economies, the market continued to favour high-beta currencies. The Australian dollar, already lifted by upbeat retail sales data on Wednesday, was at $1.0270, having climbed as high as $1.0320 -- its best level since early May. The ECB is due to announce its decision at 1145 GMT, followed by a news conference at 1230 GMT. A Reuters poll of economists showed the majority expect the ECB to cut its main rate by 25 basis points to 0.75 percent. They were evenly split on whether the ECB will lower its deposit rate. A reactivation of the ECB's bond-buy plan, however, is seen unlikely for now, although it is the tool many investors would like it to use to cap the bond yields of countries embroiled in the euro zone crisis. Barclays Capital analysts expect the ECB to lower its main rate by a more aggressive 50 basis points and see a quarter point cut as well to the deposit rate to zero. "We suggest that selling the EUR and buying a relatively 'high beta' currency, such as the AUD, would perform well in light of a more aggressive ECB response to the problems," they wrote in a note. The BOE is expected to launch a third round of monetary stimulus as it moved to counter a recession and the effects of a worsening debt crisis in the euro zone. That is weighing on sterling, which has fallen to $1.5592 , down more than a full U.S. cent from Friday's peak.