Sunday, 30 December 2012

Merkel Calls for German Patience as Euro Crisis ‘Far From Over’

By Rainer Buergin - Dec 31, 2012 3:00 AM GMT+0400
German Chancellor Angela Merkel said the economic environment will be more difficult in 2013 than this year, and that Europe’s sovereign debt crisis is “far from over,” though progress has been made.
“The reforms that we’ve agreed on are starting to take effect,” Merkel, who faces federal elections in September, said in a New Year’s television speech to the nation, sent today in advance by e-mail. “Nevertheless, we still need a lot of patience. The crisis is far from over.”
Financial-market tensions have abated after the European Central Bank unveiled its Outright Monetary Transactions bond- buying plan on Sept. 6, pledging to spend as much money as needed to restore confidence in bond markets. The program provides support to debt-strapped nations as long as they sign up to economic reforms.
The European Stability Mechanism, which is helping the Spanish government recapitalize the country’s banks, was established Sept. 27 after Germany ratified the agreement. About 200 of the 17-nation euro area’s biggest lenders will come under direct ECB oversight when the single supervisor becomes operational, targeted for March 2014.
In the meantime, the 500 billion-euro ($661 billion) ESM could aid banks directly using its own procedures and asking ECB supervisors to step in. The fund could act as a resolution mechanism as well as providing capital to ailing banks, as long as certain conditions are met, ECB Executive Board member Joerg Asmussen said Dec. 18 in Frankfurt.

Closer Coordination Needed

The euro region needs closer and more “binding” economic coordination, and Germany will make every effort in coming months to bring it about, Merkel’s deputy spokesman Georg Streiter said Dec. 28 at a regular government press conference in Berlin. Improved competitiveness is the key to lasting growth and job creation in the area, he said.
Merkel visited Athens for the first time in five years in October and said she wanted Greece to remain in the euro. A week later, she said Greece’s economic overhaul is taking hold and Germans should restrain finger-pointing at weak neighbors.
“For our prosperity and our cohesion, we need the right balance. We need the willingness to perform and social security for all,” Merkel said in her New Year’s speech. “The European sovereign debt crisis shows how important this balance is.”
With Greek Prime Minister Antonis Samaras delivering on austerity commitments and euro region leaders showing determination to keep the bloc intact, economists have scaled back their predictions of Greece’s euro exit.

Greece, Spain

Citigroup Inc. (C) has reduced the probability of Greece leaving the currency in the next 18 to 24 months to 60 percent. Economist Nouriel Roubini, who predicted the 2008 financial crisis, puts the risk at less than 50 percent.
The yield on Greek 10-year government bonds was little changed at 11.9 percent on Dec. 28 from a peak of more than 35 percent before the March debt restructuring.
Spanish Prime Minister Mariano Rajoy is emulating the policies Merkel’s predecessor Gerhard Schroeder carried out a decade ago, cutting government spending and labor costs. Spain’s trade deficit shrank 28 percent over the first 10 months of the year.
The country’s 10-year bond yield is 5.26 percent, a premium of almost 400 basis points above 10-year German bunds. While that still exceeds last year’s average of 280, it’s down from a euro-era high of 650 on July 25.
Merkel’s comments echo those of Bundesbank President Jens Weidmann. “The crisis seems to have calmed down at the moment,” Weidmann told Frankfurter Allgemeine Sonntagszeitungin an interview published yesterday. “There is progress in reforms. Far from all the causes have been eliminated,” he said, urging governments not to rely on the ECB for help.
Support for Merkel’s Christian Democratic Union and its Christian Social Union Bavarian sister party rose to 41 percent in a Forsa poll published Dec. 27 from 38 percent a week earlier. Backing for Merkel’s Free Democratic Party coalition ally slipped to 4 percent from 5 percent while the opposition Social Democrats held at 27 percent support and the Green Party fell to 13 percent from 14 percent. The anti-capitalist Left Party held at 8 percent support.
To contact the reporter on this story: Rainer Buergin in Berlin at
To contact the editor responsible for this story: James Hertling at

Budget Talks Stall Over Income, Estate Taxes

By James Rowley & Richard Rubin - Dec 31, 2012 5:28 AM GMT+0400

With little more than a day remaining to avert tax increases for almost every U.S. worker and to halt federal spending cuts, Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell worked to bridge gaps over income tax rates, the estate tax and other issues.
Senate Majority Leader Harry Reid
Senate Majority Leader Harry Reid, a Democrat from Nevada, is escorted through a crowd of reporters as he walks to the Senate Floor following a party caucus meeting at the U.S. Capitol in Washington D.C., on Sunday. Photographer: Pete Marovich/Bloomberg
Senate Minority Leader Mitch McConnell
Senate Minority Leader Mitch McConnell, center, is surrounded by members of the media as he walks through the U.S. Capitol in Washington on Sunday. Photographer: Pete Marovich/Bloomberg
House Speaker John Boehner House Speaker John Boehner, a Republican from Ohio, center, is followed by members of the media as he walks through the U.S. Capitol in Washington, D.C. on Sunday. Photographer: Andrew Harrer/Bloomberg
Senator John McCain Senator John McCain, a Republican from Arizona, said his fellow Republicans will stop insisting on using a new inflation measure that would lead to smaller Social Security cost-of-living increases. Photographer: Andrew Harrer/Bloomberg
Senator Olympia Snowe
Senator Olympia Snowe, a Republican form Maine, said “The one thing Congress is predictable about, and that is waiting until the very last hour, and maybe it is going to be the eleventh hour. We got one more day.” Photographer: Andrew Harrer/Bloomberg
U.S. Vice President Joe Biden
Senate Republican Leader Mitch McConnell said he called Vice President Joe Biden to try to “jump start” U.S. budget negotiations. Photographer: Alex Wong/Getty Images
“There’s still significant differences between the two sides but negotiations continue,” Reid, a Nevada Democrat, said on the Senate floor today. The Senate will resume its session tomorrow at 11 a.m. Washington time and “perhaps” have further announcements then, he said. “I certainly hope so.”
McConnell, a Kentucky Republican, reached out to Vice President Joe Biden in an effort to break the impasse.
Congress is working to avert more than $600 billion in tax increases and federal spending cuts, the so-called fiscal cliff, set to start taking effect in two days. The House and Senate held an unusual Sunday session after President Barack Obama on Dec. 28 asked Reid and McConnell to try to find a solution. Both houses adjourned by mid-evening and will resume tomorrow.
“The sticking point appears to be a willingness or interest or frankly, the courage to close the deal,” McConnell said on the Senate floor. “I’m willing to get this done, but I need a dance partner.”
Illinois Senator Dick Durbin, the second-ranking Democrat, said unresolved issues include the income threshold at which tax rates would rise, expiring estate tax levels and how to prevent an expansion of the alternative-minimum tax.

Capital Gains

Durbin also said there is a debate over raising the rate forcapital gains and dividends from 15 percent to 20 percent. The issue is at what income level the rate would jump to the higher percentage, he said.
Regarding talks between McConnell and Biden, Reid said, “I wish them well.” Biden was at the White House, according to an administration official who spoke on condition of anonymity.
During an interview broadcast earlier today on NBC’s “Meet the Press,” Obama made a last-minute appeal for compromise and warned of “an adverse reaction in the markets” if Congress doesn’t act.
Republicans “say that their biggest priority is making sure that we deal with the deficit in a serious way, but the way they’re behaving is that their only priority is making sure that tax breaks for the wealthiest Americans are protected,” Obama said. He said his offers to Republicans have been “so fair that a lot of Democrats get mad at me.”

Comments ‘Ironic’

In a statement, House Speaker John Boehner, an Ohio Republican, called Obama’s comments “ironic, as a recurring theme of our negotiations was his unwillingness to agree to anything that would require him to stand up to his own party.”
Several Senate Republicans leaving a caucus meeting said McConnell told them the talks stalled because Obama insists on using revenue generated from higher tax rates on the wealthy to reduce the spending cuts scheduled to begin in January.
Senator Bob Corker, a Tennessee Republican, said new revenue should go instead to deficit reduction. Democrats “want to spend it all now,” he said.
Democrats have said for more than a year that new revenue should be used to turn off the spending cuts. That was the basis of their proposals in failed talks by a deficit-reduction supercommittee.

Social Security

Earlier today, Senator John McCain of Arizona said his fellow Republicans would stop insisting on using a new inflation measure that would lead to smaller Social Security cost-of- living increases.
“It’s not a winning argument to say benefits for seniors versus tax breaks for rich people,” McCain told reporters.
Reid said earlier today that Democrats wouldn’t agree to use the new inflation measure as part of a short-term deal. He said he would keep trying to come up with an offer to Republicans.
The setback over Social Security followed 24 hours of progress toward a deal, according to a Democratic aide familiar with the talks. During the previous two days, Reid and McConnell had been closing in on agreement on a threshold for letting income tax rates increase for top earners and narrowing differences over the estate tax, the aide said.
Republicans and Democrats agree that George W. Bush-era income tax cuts should be extended for the vast majority of taxpayers. Obama and other Democrats want to let the tax cuts expire for the top 2 percent, or married couples earning more than $250,000 a year. Republicans oppose higher tax rates for any income level.

Bare-Bones Bill

In the event the Senate can’t reach a compromise, Obama has asked Reid to ready a bare-bones bill for a vote by tomorrow to extend expanded unemployment benefits and tax cuts on family income up to $250,000.
In that scenario, Obama said on NBC, “Republicans will have to decide if they’re going to block it, which will mean that middle-class taxes do go up.” Any compromise needs to be passed by the Republican-controlled House of Representatives.
Today marks the first time since Oct. 29, 2000, that both the House and Senate cast votes on a Sunday, according to congressional records. The House has met on 16 Sundays since World War II, according to records of the House clerk and historian’s offices.
Democrats have insisted that the co-called chained CPI inflation yardstick be accompanied by a multiyear increase in the U.S. debt ceiling. The Republican-run House has used its authority over raising the debt ceiling to extract spending cuts from Democrats.

Talks With Boehner

Obama agreed earlier this month to consider the new inflation gauge during budget negotiations with Boehner. After those talks halted, the focus has narrowed to a scaled-back plan in which Democrats and some Republicans say chained CPI has no place.
“That to me is not crucial at all, not at all at this stage,” said South Carolina Senator Lindsey Graham, a Republican.
Graham, a member of the Senate Armed Services Committee, said he had discussed the effect of the spending cuts on the U.S. military with Defense Secretary Leon Panetta last night and was told that it would mean 800,000 layoff notices at the beginning of the year. The result would be destroying “the finest military in the world at the time we need it the most,” he said.

Market Reaction

U.S. stock futures rose, paring the decline indicated for the Standard & Poor’s 500 Index at the open. S&P 500 index futures expiring in March rose 0.3 percent to 1,388.5 at 9:52 a.m. in Tokyo. The gain in the futures contract implies the benchmark gauge for U.S. equities will open about 0.5 percent below its Dec. 28 close of 1,402.43 when stock trading resumes. Dow Jones Industrial Average futures gained 23 points, or 0.2 percent, to 12,800.
If Congress does nothing, taxes will rise in 2013 by an average of $3,446 for U.S. households, according to the nonpartisan Tax Policy Center in Washington.
Tax filing for as many as two-thirds of U.S. taxpayers could be delayed into at least late March. Defense spending would be cut, and the economy would probably enter a recession in the first half of 2013, according to the Congressional Budget Office.
The effects of the higher tax rates and federal spending cuts would accumulate over a matter of months. Congress could reverse them by acting retroactively in 2013.
The current state of talks isn’t necessarily ominous, said Senator Olympia Snowe of Maine, a Republican.
“The one thing Congress is predictable about, and that is waiting until the very last hour, and maybe it is going to be the eleventh hour,” she said. “We got one more day.”
To contact the reporters on this story: James Rowley in Washington at; Richard Rubin in Washington at
To contact the editor responsible for this story: Jodi Schneider at

Thursday, 27 December 2012

Yuan Sets Tone for Asia as Japan Dethroned by China: Currencies

By Lilian Karunungan & Yumi Teso - Dec 28, 2012 9:53 AM GMT+0400

Asian central banks are tolerating gains in their currencies against the yen as China’s economic recovery diminishes concern that stronger exchange rates may damp their export advantages.
South Korea’s won has climbed a record 21 percent against the yen this year, while Taiwan’s dollar rose 16 percent and the yuan gained 13 percent. Asian currencies moved more in sync with the yuan than the yen over the past year, correlation data show.
Yuan Sets Tone for Asia as Japan Dethroned by China
The yuan advanced to a 19-year high of 6.2223 per dollar in November and trades at the strongest level since May 2010 against the yen. Photographer: Jerome Favre/Bloomberg
The outperformance of currencies in developing Asia relative to the yen signals China’s dominance in shaping the region’s economy as Japan’s influence wanes. China, the largest trading partner of South Korea and Taiwan, is rebounding from a slowdown over the past seven quarters, while Japan’s growth is forecast to decelerate next year, according to the median estimate of about 50 economists surveyed by Bloomberg.
“Central banks are not standing in the way of their currency appreciation,” Edwin Gutierrez, who helps oversee $11 billion in emerging-market debt at Aberdeen Asset Management Plc, said in a phone interview from London yesterday. “The yuan is becoming more influential for those currencies. Japan’s role is diminished because of the rise of China.”
South Korea’s new government won’t see the need for intervention because the exchange rateis more influenced by external economic trends rather than domestic ones, said Kim Jong In, an adviser to President-elect Park Geun Hye, by telephone on Dec. 20.

Taiwan Mandate

Taiwan’s central bank Governor Perng Fai-Nan said on Dec. 19 that the monetary authority’s mandate is to keep relative exchange-rate stability and to intervene in the event of abnormal moves. He made similar comments in September when the Taiwan dollar was 12 percent cheaper versus the yen.
Thailand’s policy makers seek to let the baht move in line with the market as foreign inflows increase, Bank of Thailand Deputy Governor Pongpen Ruengvirayudh said on Dec. 15. At 11 percent, foreign ownership in Thailand’s bond market is still low, compared with as much as 40 percent of its peers, he said.
The Bloomberg JP Morgan Asia Dollar Index has risen 2.5 percent this year after closing at 118.14 on Nov. 29, the highest level since September 2011, as the region’s economic growth attracts foreign capital. The yuan advanced to a 19-year high of 6.2223 per dollar in November and trades at the strongest level since May 2010 against the yen.

Stronger Won

The won touched 12.37541 per yen today, the strongest level since May 2010, while Taiwan’s dollar reached a 31-month high versus Japan’s currency. South Korea and Taiwan compete with Japan in electronics and information technology.
Asian economies outside Japan are recovering from the slowest expansion in three years.China’s manufacturing grew in November for the first time in 13 months, an index compiled by HSBC Holdings Plc and Markit Economics showed. Taiwan’s industrial output climbed to the highest in nine months in November while South Korea’s exports increased for a second month.
Japan’s economy is moving in the opposite direction as exports dwindle. Growth will slow to 0.65 percent next year from 1.7 percent in 2012, according to the median forecast of 50 economists surveyed by Bloomberg. That compares with the average expansion of 6.7 percent in the region in 2013 and 8.1 percent in China, surveys show.

Abe’s Pledge

The yen weakened past 85 per dollar on Dec. 26 for the first time since September 2010 as incoming Japanese Prime Minister Shinzo Abe said he would push for “bold monetary easing.” Japan’s cumulative trade deficit for the first 11 months of 2012 amounted to 6.28 trillion yen ($73 billion), more than double the record shortfall in 1980.
China, which surpassed Japan as the world’s second-largest economy in 2010, accounted for 25 percent of South Korea’s exports this year and absorbed 27 percent of the shipments from Taiwan, according to the countries’ customs data. Japan took in less than 10 percent of the exports from South Korea and Taiwan.
The correlation between the Taiwan dollar and the yuan over the past year reached 0.41, compared with 0.13 between the peso and the yen, according to data compiled by Bloomberg. A higher number indicates that one trades more closely to the other, with a reading of one indicating the two move in lockstep.

Yuan Outlook

“As China’s economy rebounds, the yuan should appreciate faster next year than in 2012,” said Vincent Wu, a Taipei-based head of fixed-income at Fuh-Hwa Securities Investment Trust Co., which oversees NT$150 billion ($5.2 billion) of assets, said in an interview Dec. 27. “The yuan’s strength makes them more comfortable in letting their own currencies appreciate.”
South Korea and Philippines will step up efforts to restrain the currency appreciation as they try to protect their exports, according to Brown Brothers Harriman & Co.
The Philippines imposed limits on currency forward positions at banks on Dec. 26 after the peso advanced 6.7 percent in the past year to 41.083 per dollar. The cap for non- deliverable currency forwards at local banks is 20 percent of capital, and 100 percent for foreign lenders. South Korea adopted a similar measure a month earlier.
“We still think that the outperformance of both peso and won over other regional currencies has reached an end for the time being,” currency strategists led by Marc Chandler at Brown Brothers wrote in a note to clients on Dec. 26, citing currency intervention risk.
Asian currencies will keep rallying against the yen over the next two years, according to the median forecast of analysts surveyed by Bloomberg. The yuan may rise 5.8 percent against the yen by 2014, according to the median estimate of analysts in a Bloomberg survey.

China View

China has reduced currency intervention as policy makers increased the daily limit that the yuan is allowed to rise or fall in April to 1 percent from 0.5 percent. China will increase the movement of the yuan “appropriately” to handle the latest rounds of policy easing by the world’s central banks, the official Xinhua News Agency said in an editorial on Dec. 21.
“Even though we think that the yen weakness is going to continue, we don’t think that investors should worry about that when it comes to allocations to Asia currencies,” said Monty Gandhi and Dirk Willer, currency strategists at Citigroup Inc. in New York, wrote in a note on Nov. 28. “Non-Japan Asia’s manufacturing is more similar to that of China than to Japan. Hence policy makers in Asia are more wary of relative strength of their currencies versus China than Japan.”
To contact the reporters on this story: Lilian Karunungan in Singapore at; Yumi Teso in Bangkok at
To contact the editor responsible for this story: James Regan at

Wednesday, 26 December 2012

Yen Touches 16-Month Low Versus Euro Before Japan CPI

By Masaki Kondo - Dec 27, 2012 6:46 AM GMT+0400

The yen slid to a 16-month low against the euro before data tomorrow that may show a decline in Japan’s consumer prices, fanning speculation Prime Minister Shinzo Abe will push the central bank to boost cash infusions.
The currency touched the lowest since September 2010 versus the dollar after Abe said in a media briefing yesterday that “bold’ monetary policy is one of the three pillars of his economic measures. Implied volatility on U.S. stocks jumped to a five-month high yesterday, supporting demand for safer assets.
Yen Touches 16-Month Low Versus Euro Before Japan Inflation Data
The Japanese currency touched 113.48 per euro, the weakest since Aug. 4, 2011, before trading at 113.37 as of 9:12 a.m. Photographer: Akio Kon/Bloomberg
‘‘The birth of the Abe administration is spurring expectations in markets that deflation will end,’’ said Kazuo Shirai, a trader at Union Bank NA in Los Angeles. ‘‘Markets are anticipating that the government will clarify its willingness to bring the yen down.’’
The Japanese currency touched 113.58 per euro, the weakest since Aug. 4, 2011, before trading at 113.54 as of 11:42 a.m. inTokyo, down 0.3 percent from the close yesterday. It was 0.2 percent lower at 85.80 per dollar after touching 85.84, a level unseen since Sept. 17, 2010. The euro was little changed at $1.3231.
Government data may show tomorrow that Japan’s consumer prices excluding fresh food fell 0.1 percent in November from a year earlier, according to the median estimate of economists surveyed by Bloomberg News. That compares with the Bank of Japan (8301)’s target of 1 percent inflation.

Surest Bets

Further depreciation of the yen versus the U.S. dollar is one of the surest bets going into the new year, according to John Taylor, founder and chairman of New York-based currency hedge fund FX Concepts LLC. The yen will weaken to 90 per dollar before a resumption in risk aversion prompts investors to return to traditional refuge currencies, he said.
The Japanese currency has tumbled 14 percent this year, the biggest drop among the 10 developed-market currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar is the second-worst performer with a 2.9 percent slide, while the euro has lost 0.6 percent.
The yen’s 14-day relative strength index fell to 20 against the dollar and 21 versus the euro. Levels below 30 indicate an asset’s price decline is too rapid and may be due for a rebound.
President Barack Obama and U.S. Congress return to Washington today to continue negotiations over the so-called fiscal cliff, or more than $600 billion in automatic tax increases and spending cuts that take effect next month. Treasury Secretary Timothy F. Geithner said there’s ‘‘significant uncertainty” around tax and spending policies, according to a letter he sent to congressional leaders yesterday.

Risk Sentiment

“Uncertainty and concerns about the fiscal cliff are starting to weigh on risk markets,” said Peter Dragicevich, a currency economist in Sydney at Commonwealth bank of Australia. (CBA) “A lot will depend on what the U.S. politicians do. If there’s no sign they will be able to reach an agreement quickly, and if this uncertainty continues to drag on into the middle of next month, we would expect the U.S. dollar to lift broadly.”
The Chicago Board Options Exchange Volatility Index, known as the VIX (VIX), climbed 4.8 percent to 19.48 yesterday, the highest close since July 24. The gauge, based on U.S. stock-option prices, reflects expected market volatility and tends to rise during a period of financial stress, according to the CBOE’s website.
To contact the reporter on this story: Masaki Kondo in Singapore at
To contact the editor responsible for this story: Rocky Swift at

Asian Stocks Advance as Yen Weakens to 27-Month Low

By Yoshiaki Nohara - Dec 27, 2012 6:11 AM GMT+0400

Asian stocks rose, with the regional benchmark index headed for a second month of advance, as Japanese shares rose to their highest this year after the yen slid to a 27-month low on prospects new Prime Minister Shinzo Abe will press for more stimulus.
Mazda Motor Corp. (7261), an automaker that gets 28 percent of its sales in North America, advanced 4.5 percent in Tokyo as a weaker yen boosted the earnings outlook for Japanese exporters. Mitsubishi UFJ Financial Group Inc. (8306)Japan’s biggest lender, advanced 1.8 percent. SK Telecom Co. dropped 4.7 percent as the mobile telephone carrier was among 119 companies trading without rights to year-end dividends on South Korea’s benchmark index.
The MSCI Asia Pacific Index gained 0.6 percent to 129.20 at 10:30 a.m. in Tokyo. About three stocks rose for each that fell on the measure, which has advanced 13 percent this year.
“Abe is keen on changing the Bank of Japan’s inflation target and getting the Bank of Japan to undertake aggressive quantitative easing,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “The market is expecting pretty significant stimulus out of the BOJ in the new year.”
The MSCI Asia Pacific Index advanced this year as U.S. and Chinese economies showed signs of recovery and central banks around the world took action to shore up growth. The Asian benchmark trades at 14.7 times estimated earnings on average, compared with 13.7 for the Standard & Poor’s 500 Index and 12.7 for the Stoxx Europe 600 Index.

Overheating Sign

The Asia-Pacific gauge’s 14-day relative strength index, a measure of trading moment, rose to 73 today. A number above 70 threshold signals to some investors that shares are overbought.
The Nikkei 225 Stock Average added 1.4 percent, heading for the highest close since March 10, 2011, the day before a earthquake and tsunami devastated north eastern Japan and triggered meltdowns at a nuclear power plant. The yen fell against all 16 major counterparts, boosting the earnings outlook for Japan’s exporters.
The MSCI Asia Pacific excluding Japan Index gained 0.3 percent. Australia’s S&P/ASX 200 added 0.2 percent and New Zealand’s NZX 50 Index rose 0.3 percent in Wellington. South Korea’s KOSPI Index slid 0.2 percent.
Hong Kong’s Hang Seng Index rose 0.6 percent, the Shanghai Composite Index added 0.3 percent, and Taiwan’s Taiex Index (TWSE) increased 0.2 percent. Singapore’s Straits Times Index advanced 0.2 percent.
Standard & Poor’s 500 Index futures gained 0.1 percent. The gauge slid 0.5 percent yesterday as President Barack Obama and Congress prepared to resume budget talks and retailers slumped after the Christmas holiday.
To contact the reporter on this story: Yoshiaki Nohara in Tokyo at
To contact the editor responsible for this story: Nick Gentle at