The U.S. Federal Reserve is on track to raise interest rates for the first time in nearly a decade in September, according to a Reuters poll that suggests economists now are mostly confident about that timing.
Debate over when the first hike will come has been one of the main drivers of global financial markets this year and those expectations have propped up the dollar, now in the midst of a historic rally since last June.
In a survey conducted over the past week, 37 of 55 economists said their conviction around the timing held steady over the past month, with 10 saying it had increased.
Despite continued tame inflation, news that the economy created 280,000 new jobs in May, along with an improvement in retail sales, has likely helped to cement the now well-established September view.
“Even though the rate of inflation is likely to be well below target, the Fed can justify raising interest rates in September,” said Hugh Johnson, an independent economic adviser.
Financial markets will be watching the statement and press conference on Wednesday following the central bank’s two-day meeting this week for confirmation of that view. Only 2 of 70 economists polled expect a rate hike this week.
The Fed cut its federal funds target rate to a range of zero percent to 0.25 percent in December of 2008.
The poll showed the fed funds target rate would be hiked to 0.375 percent by the end of the third quarter and further to 0.625 percent by end-December.
Among those surveyed, there was no clear consensus on whether the Fed will continue to set interest rates in a band or identify a fixed rate.
The Fed’s last rate increase was in June of 2006.
The survey predicted the economy will likely grow at an annualized rate of 2.5 percent in the second quarter before picking pace to 3.0 percent between July to September after a mild contraction in the first few months of the year.
But that second-quarter consensus is a 0.2 percentage point downgrade from last month’s view and there has been no upgrade to the growth consensus for any of the three following quarters, ranging from 3.0 to 2.7 percent.
Nearly two-thirds of participants, however, said they were confident that growth is back on a strong and sustainable path, with eight saying they were very confident.
The 18 percent dollar rally since last summer, however, poses a risk to the Fed’s plans to normalize monetary policy. By rising sharply against almost every other currency in the world, the dollar makes U.S. exports less competitive.
Economists in the survey were split on whether continued strength of the dollar would significantly impede the Fed’s ability to deliver a series of rate hikes, with 30 saying it would not be an impediment and 24 saying it would.
“Any further strengthening could make the FOMC (Federal Open Market Committee) more wary about the outlook,” said Terry Sheehan, economist at Stone & McCarthy.
“However, as long as overall measures of growth remain at least moderate, it should be a lesser concern among the risks the FOMC has to assess.”
In May, Federal Reserve Chair Janet Yellen said she expected the U.S. economy to strengthen after a slowdown due to “transitory factors” in recent months, and noted that some of the weakness might be due to “statistical noise.”
Inflation as measured by the consumer price index is expected to pick up to 1.0 percent by year-end, rising to 2.1 percent in each of the first three quarters of next year, barely changed from last month’s poll. Core CPI is forecast at 2.0 percent over the same period next year.
So far wage inflation has largely remained muted despite millions of workers finding jobs over the past few years.
A pickup is expected in the coming months according to the poll, with more than half saying a meaningful and sustained increase is likely in the second half of this year.
Source: Reuters (Writing by Tariro Mzezwa and Sumanta Dey; Polling by Sarbani Haldar and Khushboo Mittal; Editing by Ross Finley and W Simon)
The dollar was higher against the yen in otherwise quiet Asia trade Tuesday, with the greenback holding on to some of its gains after Bank of Japan Gov. Haruhiko Kuroda clarified controversial remarks he made last week about the Japanese currency.
What upset the market last Wednesday was Kuroda’s comment during a parliamentary session that a measure of the yen’s relative value against other currencies was unlikely to weaken further. The remarks caused the dollar to fall roughly ¥2 from around ¥124.60 in a matter of few hours.
“In making those comments I was neither trying to assess the nominal exchange rate (of the yen) nor forecast its future movement,” Kuroda said Tuesday during a session of the upper house financial affairs committee.
Following his remark, the greenback USDJPY, +0.09% jumped as high as ¥123.81 before weakening to ¥123.56 . That compares with ¥123.37 late Monday in New York.
“His comments (today) gave the impression that what he said just slipped out last time,” a senior Japanese bank dealer said. “Revising earlier comments this way will result in denial of his earlier comments,” said the bank dealer.
The dealer said that the comment came in otherwise quiet market mood in which investors “became fed up with Greece-related headlines and just waiting for what will come out” from the Federal Open Market Committee meeting scheduled to wrap up Wednesday, said the dealer.
The dollar is showing itself resilient in what may underscore the currency market’s prognosis that a U.S. rate increase is coming closer, said Takuya Kanda, senior researcher at Gaitame.Com Research Institute in a note.
Despite headwinds from U.S. and eurozone stock weakness on Greek debt worries, the dollar managed to stay above the ¥123-mark overnight, showing “there’s a small room (for the dollar) to go lower,” adding that the greenback may remain firm centered around the ¥123-level ahead of the FOMC statement.
Amid concerns over the future status of Greece, the euro EURUSD, -0.2393% was at $1.1280 from $1.1284, while the single currency EURJPY, -0.14% was at ¥139.38 from ¥139.23.
European Central Bank President Mario Draghi raised pressure on the Greek government Monday to come to an agreement with its international creditors to unlock financing. “While all actors will now need to go the extra mile, the ball lies squarely in the camp of the Greek government to take the necessary steps, “ Draghi said.
The WSJ Dollar Index BUXX, +0.16% , a measure of the dollar against a basket of major currencies, was up 0.05% at 86.26.
As Greece hurtles toward a collision with its creditors in late June, German Chancellor Angela Merkel faces one of the hardest choices of her career: whether to let Greece default, or to bend Europe’s bailout rules and risk a revolt at home.
Greece’s rejection of its creditors’ terms for bailout aid–which Prime Minister Alexis Tsipras repeated in stark terms on Monday–points to a likely showdown at a European Union summit on June 25, where either the German or Greek leader must perform a dramatic U-turn to keep Greece’s bailout program on course.
For months, Ms. Merkel has sought to convince Mr. Tsipras that Greece will only receive financial aid from Europe if it enacts tough austerity and economic overhauls, approved by inspectors from the EU and the International Monetary Fund. But Berlin officials are increasingly resigned to Mr. Tsipras refusing to swallow such terms until it is too late.
Without a massive last-minute climb-down by Greece, that means Ms. Merkel will soon be forced to make the choice that Mr. Tsipras has been trying to confront her with all year: between relaxing Greece’s required overhauls, or potentially jeopardizing European stability.
“Angela Merkel is stuck between Scylla and Charybdis,” said Jürgen Falter, a prominent political scientist at Germany’s University of Mainz, referring to famous sea hazards in Greek mythology. “Whatever she does–it could be wrong.”
Ms. Merkel hasn’t commented publicly on Greece since Friday, when she called for talks to continue, saying: “Where there’s a will, there’s a way.”
The chancellor is loath to risk Greek bankruptcy and exit from the euro, Berlin officials say–and Greece’s leaders know it. The famously cautious German leader views the consequences of such outcomes as economically unpredictable, geopolitically damaging and harmful to her own legacy, people familiar with her thinking say. But agreeing to finance a Greek government that rejects its lenders’ economic medicine, which Ms. Merkel has for years called essential if Greece is to grow and be solvent, would undermine her credibility at home and in Europe, German officials fear.
At issue are the fiscal terms of further financial aid for Athens from eurozone governments and the IMF. The creditors are demanding that Greece agree to cut pensions and other public spending as the price of extending its bailout beyond June 30. Syriza and the austerity-weary country it governs want to end such measures, which they believe have only deepened Greece’s economic depression since its bailout began in 2010.
Greece’s counterproposals include spending cuts, tax rises and broader economic reforms. But lenders, especially Germany and the IMF, believe they don’t go nearly far enough to put Greece’s economy and finances on a stable long-term footing.
In early June, Ms. Merkel orchestrated a final offer to Greece from the IMF and European institutions, laying out the budget targets and policy measures that Athens must sign up to. Lenders view the offer as the minimum that meets the aim of Greece’s bailout: to make the country able to finance itself on bond markets again.
Mr. Tsipras doubled down on his rejection of that offer on Monday. “One can only suspect political motives behind the fact that the institutions insist on further pension cuts, despite five years of pillaging via the (bailout) memoranda,” the Greek premier said.
“We are carrying our people’s dignity as well as the aspirations of Europeans,” Mr. Tsipras said, alluding to Syriza’s belief that its antiausterity campaign is for the good of all of Europe.
His words added to the mounting concern in Berlin about the chances of reaching an agreement by next week. Without a deal by the of June, Greece will likely default on its IMF debts, could well lose central-bank liquidity support for its banks, and–depending on how panicky Greek savers get–may have to impose capital and deposit controls. A shortage of euros could force Greece to print IOU’s to pay pensions and wages and keep its banks alive, putting it on a slippery slope to a national currency.
Even a deal in late June would only open up the path to further struggles over the measures that Greece must implement to get cash and avoid defaulting on large bonds that fall due on July 20 and August 20.
German politicians across the spectrum are fuming at what they see as Greece’s irresponsible effort to blackmail Ms. Merkel. Vice Chancellor Sigmar Gabriel, head of the left-of-center Social Democrats who are coalition partners to Ms. Merkel’s conservatives, warned on Monday that Greece is testing Europe’s patience to the breaking point.
“The game theorists of the Greek government are currently gambling their country’s future away,” Mr. Gabriel wrote in mass-market tabloid Bild. “They are turning away Europe’s offers of billions in aid in the hope that we will, in the end, avoid requiring the Greek government to do anything in return because everyone is too afraid of a Greek exit from the eurozone.”
If the Syriza-led government forced Berlin to cave in, it would invite populist politicians on the right to try to blackmail Europe too, Mr. Gabriel wrote.
Volker Kauder, parliamentary leader of Ms. Merkel’s conservative Christian Democrats, has repeatedly said German lawmakers would only consent to more bailout financing for Greece if it accepted IMF-approved reforms. “The Greece government has to get back to reality,” Mr. Kauder told German state television on Monday.
Mr. Tsipras, for his part, said Greece would wait patiently until the EU and IMF “adhere to realism.”
Greece’s government denied a German newspaper report on a euro zone plan that involves Athens imposing capital controls this weekend if it fails to reach a deal with creditors this week, a government official told Reuters.
A spokesman for the German government said he could not confirm or deny the report. A European Commission spokesman declined to comment on the report.
The German daily Sueddeutsche Zeitung online edition said that the euro zone had agreed on a contingency plan for Greece that also involved imposing capital controls on Greek banks if no cash-for-reforms deal is reached by the weekend.
However, the unsourced report also said that the Greek government itself had to pass a special law to introduce such capital controls.
The newspaper said “it became known in Berlin and Brussels” that Greece’s international creditors wanted to give Athens another chance and see if the euro zone finance ministers could clinch a deal by the end of the week.
If the finance ministers, who are scheduled to meet on Thursday and Friday, are not able to seal an agreement, an EU emergency summit should be convened in Brussels, possibly on Friday evening, the report said.
At this summit, a political solution should be sought again, the report said.
A French diplomat told Reuters when asked about the report that there were “plenty of things that circulate”, but no meeting had been scheduled. “We’ll see,” the diplomat said.
Source: Reuters (Reporting by Lefteris Papadimas in Athens and Andreas Rinke/Michael Nienaber in Berlin; Additional reporting by Alastair Macdonald in Brussels and Elizabeth Pineau in Algiers; Editing by Louise Ireland)
Two thirds of Greeks believe their leftist government will have to climb down in its standoff with international creditors and deliver the bulk of concessions needed to seal a deal, an opinion poll showed.
In the poll by GPO for Mega TV, 67.8 percent of respondents expected most of the compromises to be made by Athens. Only 19.4 percent believed the lenders, including the European Union, the European Central Bank and the International Monetary Fund, will yield more to reach an agreement to unlock remaining aid.
Greece and its creditors hardened their stances on Monday after the collapse of talks aimed at preventing a default and possible euro exit, prompting Germany’s EU commissioner to say the time had come to prepare for a “state of emergency”.
The poll showed that 56.3 percent of Greeks blame the creditors for the talks dragging on over the past four months while 37.4 percent said the Greek government’s stance was at fault.
Source: Reuters (Reporting by George Georgiopoulos; Editing by Mark Heinrich)
Greek shares fell for a third day after fears that it could leave the euro intensified and the French president warned there was “little time” to reach a deal on economic reforms.
Shares on the Athens stock exchange fell by 1.3% in early trade.
That was relatively benign compared with the two previous days’ falls of 4.7% and 5.9%.
Ten-year bond yields also rose 20 basis points to 12.97%, as fears of a wider eurozone crisis loomed.
Greek bank stocks were hit hardest. The Greek FTSE bank index fell 4.5% on Tuesday, after falling 12% on Monday.
Elsewhere in Europe, the FTSE 100 in London fell 0.74% to 6660.65, while the Dax in Frankfurt lost 1.44% and the Cac 40 in Paris shed 1.32%.
On Tuesday, Greek Prime Minister Alexis Tsipras said Athens was seeking a workable, long-term deal that would end the economic crisis,
“It is crucial that we strike a viable deal,” he said. “It is crucial to end this vicious cycle and to not be forced to go to a deal which, in six months’ time, will bring us back to the same point.”
Mr Tsipras said the main factor blocking a deal was a difference between its European and International Monetary Fund (IMF) creditors over debt restructuring.
“The big contradiction is the IMF’s presence, which wants measures and a restructuring, (whereas) the others want measures but no restructuring. They want an a-la-carte IMF.”
‘State of denial’
Meanwhile, a senior member of German Chancellor Angela Merkel’s Christian Democrat (CDU) party said on Tuesday that a Greek exit from the eurozone would have to be accepted if Athens failed to present a convincing economic reform package.
Michael Grosse-Broemer, the CDU’s deputy floor leader in parliament, said: “In the event a solid reform package is not presented, then a ‘Grexit’ would have to be accepted if necessary.”
Mr Grosse-Broemer added it was up to Greece to give up its “state of denial” and move towards more reforms that creditors are seeking to unlock aid.
“I’m not so sure anymore if the Greek government is really interested in averting damage for the people of Greece,” he said.
In another development on Tuesday, the European Court of Justice (ECJ) ruled the European Central Bank (ECB) had not acted unlawfully in 2012 when it said it stood ready to buy government bonds.
Germany objected to the ECB’s announcement of a bond-buying programme, despite the fact it was never used, saying it contravened EU law.
The action of the ECB at the time helped to calm markets which, at the time, were being buffeted by one crisis after another.
On Monday, French President Francois Hollande warned there was “little time” to prevent Greece from leaving the eurozone adding the ball was firmly in Greece’s court.
“It’s not France’s position to impose on Greece further cuts to smaller pensions, but rather to ask that they propose alternatives,” he said on a visit to Algiers.
“We have to get to work… everything must be done in order that Greece remains in the eurozone.”
Talks with Greek and EU officials in Brussels on Sunday failed to reach an agreement that would release bailout funds to Greece.
A European Commission spokesman said while progress was made at Sunday’s talks, “significant gaps” remained.
Eurozone finance ministers will meet on Thursday, but Greek Finance Minister Yanis Varoufakis said he did not plan to present new proposals at the meeting.
“The Eurogroup [of eurozone finance ministers] is not the right place to present proposals which haven’t been discussed and negotiated on a lower level before,” he told German newspaper Bild.
Europe wants Greece to make spending cuts worth €2bn (£1.44bn) to secure a deal that will unlock bailout funds.
Greece must also repay a €1.5bn in loans to the IMF and a further €5.2bn in short term loans by the end of the month amid a growing sense that the country has simply run out of cash altogether.
But disagreements over further economic reforms have led to delays in the government receiving €7.2bn of bailout funds.
EU green energy law added 47 euro cents a barrel to costs for Europe’s refineries, according to European Commission research made public this week.
Preliminary findings late last year had put the regulatory cost at 40 euro cents.
“The cost impact is visible. It’s significant, but there are other factors,” Ruslan Lukach, a scientific policy officer from the Joint Research Centre (JRC), the European Commission’s scientific unit, told a refining industry seminar.
A much greater game-changer for EU refineries has been the shale boom in the United States that started in 2008.
Between 2000 and 2012, the Commission has said EU energy costs rose roughly four-fold, compared with a doubling elsewhere in the world, where prices were held back by the rise in shale production.
Industry says the impact of regulatory costs in the European Union will become much more marked.
Gianni Murano, CEO of Esso Italiana, quoted findings from Concawe, a body set up by refiners to carry out research on environmental issues.
Between 2010 and 2020, it anticipates EU law will generate additional costs of $2.50 to $4 per barrel of oil processed, which could be the difference between a refinery continuing to operate and being forced to close, Murano said.
Some of that will come from the Emissions Trading System (ETS), the EU’s carbon emissions market.
Allowances that trade on the ETS, which price carbon at around 7.60 euros per tonne, are expected to strengthen as planned reforms are rolled out.
Lukach said between 2000 and 2012 the refining industry had been given more allowances than it needed.
The refining sector says it is vital to keep the sector in the EU to shore up security of supply, especially as it faces the prospect of increased dependency on imported products from Russia, the EU’s biggest energy supplier.
The JRC’s full refinery “fitness check” assessing the impact of relevant EU law will be officially published later this year.
Source: Reuters (Editing by Philip Blenkinsop and Jason Neely)
A gauge of the dollar slid for a third day as traders sought further signs that the U.S. economy is strong enough for the Federal Reserve to raise interest rates for the first time since 2006.
The greenback headed for its biggest slide against the yen this year after Bank of Japan Governor Haruhiko Kuroda said the Japanese currency’s real effective rate is unlikely to fall further. The dollar also dropped against its Australian and New Zealand counterparts before U.S. retail sales figures Thursday.
“It is a classic case of markets entering a highly sensitive phase preceding a rate increase,” said Nobuo Ichikawa, chief manager of foreign exchange financial products trading at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “It ultimately comes down to data.”
The Bloomberg Dollar Spot Index fell 0.4 percent to 1,175.50 as of 7:57 a.m. in London from Tuesday, set for its longest drop since May 15. The dollar slid 1.2 percent to 122.88 yen, headed for it’s biggest decline since Dec. 16.
The greenback has lost ground since jobs data on June 5 beat forecasts, extending losses even after President Barack Obama on Monday denied expressing concern about the currency’s strength in private conversations at a Group of Seven summit. It reached a 13-year high of 125.86 yen on June 5.
The Japanese currency surged Wednesday after Kuroda said the real effective exchange rate, which adjusts for inflation and trade with other nations, is already very weak.
The rate is 1.8 standard deviations lower than its average over the past 10 years, according to data compiled by Bloomberg based on Bank for International Settlements figures. The currency has already dropped to levels it was at before the collapse of Lehman Brothers Holdings Inc. in 2008, Kuroda told lawmakers in the Japanese parliament on Wednesday.
“The impact was very strong as markets were getting wary about the dollar’s run-up past 125 yen, and the comments came from a big name,” said Daisaku Ueno, chief currency strategist at MUFJ Morgan Stanley in Tokyo. “The yen is pressured to weaken as long as the BOJ continues its easing, and trying to stop its further decline verbally is not the right way.”
Economy Minister Akira Amari said on Tuesday abrupt moves in currencies aren’t good for the economy and he will closely monitor developments in the market. Prime Minister Shinzo Abe said it’s desirable to see the exchange rate be stable.
“Japanese officials clearly don’t like to see their currency moving in one direction too fast,” said Sue Trinh, senior currency strategist at Royal Bank of Canada in Hong Kong.
The Australian dollar and New Zealand’s currency both erased losses after Kuroda’s comment dragged the greenback down against the yen. The Aussie had fallen earlier after central bank Governor Glenn Stevens said policy makers retain the option to cut record-low interest rates.
Australia’s currency rallied 0.6 percent to 77.33 U.S. cents, while the kiwi rebounded 0.7 percent to 71.82 cents.
President Dilma Rousseff unveiled an effort to draw 198.4 billion reais ($64 billion) in private investment to build, upgrade and operate Brazilian roads, railways, airports and harbor terminals.
The infrastructure plan is meant to restore growth to Brazil’s faltering economy and raise Rousseff’s popularity, which has been battered by high inflation, rising unemployment and a corruption scandal at state-run oil company Petrobras.
A government presentation, however, said 65 percent of the investment would only kick in as of 2019, after the end of Rousseff’s second term in office.
The World Economic Forum ranks Brazil only 120th out of 144 countries for overall quality of infrastructure, with roads and air transport being especially bad – a shortcoming long seen as being a drag on productivity and efficiency.
The plan aims to correct the failings of previous concession sales which drew scant interest because of excessive state intervention. Rousseff is offering investors better terms this time, though low-cost financing from development bank BNDES has been reduced in the midst of Brazil’s fiscal crunch.
Bidders will be expected to partially fund projects with private financing raised through infrastructure bonds.
Rousseff said the new round of concessions will expand the government’s partnership with private companies and bolster confidence in the economy, now on the brink of recession.
“Our model of concessions will guarantee that consumers get quality services at fair prices and companies get an adequate return on their investments,” Rousseff said during the presentation at the presidential palace.
A previous effort by Rousseff to lure 210 billion reais in private investment in 2012 managed to attract only about 20 percent of the targeted funds, with no bidders at all for the 14 railways and 160 port terminals on offer.
Private consortia will be invited to bid for airports in the cities of Porto Alegre, Fortaleza, Salvador and Florianopolis, and the stake of state airport agency Infraero will be reduced to minimum of 15 percent from 49 percent in the previous round, involving Brazil’s busiest airports.
Civil Aviation Minister Eliseu Padilha said Infraero would be restructured and an airport services company created in partnership with Fraport Frankfurt Airport Services Worldwide AG (FRAG.DE).
The new concessions include 4,371 kilometers of highways, the expansion of existing freight railways and the building of new ones on a free access model, to help Brazil’s powerful agribusiness get soy beans and other commodities to market.
To decongest Brazil’s inefficient ports, Brazil will open 29 state-owned port terminals to private operators in Santos, the country’s largest port, and in the state of Para. A second round of auctions will include terminals at Paranagua, Itaqui and other ports.
The government expects 66.1 billion reais in investments in highways, 86.4 billion in railways, 37.4 billion in ports and 8.5 billion in airports. Auctions for the airport concessions will start in the first quarter of 2016.
BNDES will continue to have a “relevant” role in financing infrastructure building, Rousseff said, providing low-cost financing of up to 70 percent of project costs for railways if private financing is raised.
Road concessions will have a maximum access to the BNDES’ low interest rate of up to 40 percent of the project as long as they raise 10 percent by selling infrastructure bonds.
Brazil’s top engineering firms implicated in the kickback scandal at Petroleo Brasileiro SA (PETR4.SA) will be free to bid for the infrastructure projects, officials said. That could provide a vital lifeline to some of them facing bankruptcy after their contracts with Petrobras were put on hold.
Source: Reuters (Additional reporting by Silvio Cascione; Editing by Andrew Hay and Christian Plumb)
The European Central Bank’s supervisory chief pledged to stick with stringent capital requirements for banks, arguing this would lead to sustainable economic growth in the long run.
The ECB’s Single Supervisory Mechanism (SSM) took over the supervision of the banking sector this year, promising a tough line with banks, their capital levels and the models they use to calculate risk.
“More stringent and sustainable prudential requirements have a positive impact on sustainable growth,” Danièle Nouy, chair of the supervisory board of the SSM, said in remarks prepared for a speech she delivered in Berlin on Tuesday.
“We … take a medium to long-term perspective on this, resisting those who argue for short-term relief.”
Nouy said last week euro zone banks should expect another round of health checks in 2016 after the one last year.
Source: Reuters (Reporting By Georgina Prodhan; Writing by Francesco Canepa)
A planned meeting between the leaders of Germany, France, and Greece on Wednesday was in doubt as Greece’s reform proposals to unlock new funding to ward off a debt default fell well short, European Union officials said.
Chancellor Angela Merkel, President Francois Hollande and Prime Minister Alexis Tsipras were to have met on the fringes of a summit of EU leaders and heads of state and government of Latin American countries in Brussels, to clinch a political agreement on technical proposals submitted earlier by Greece.
An agreement on a set of reforms that Greece would implement in exchange for new loans would save the country from bankruptcy and a possible exit from the euro.
But the meeting looked doubtful on Tuesday evening as new proposals presented by Greece to the institutions representing the creditors were seen as insufficient and no new talks with Greek representatives were scheduled for Tuesday.
“If there is no movement, there is no meeting,” one EU official said. “Germany and France don’t see the point of a meeting for now,” the official said.
Greece submitted late on Monday to the institutions representing its creditors a proposal on fiscal targets but did not address in them how it would arrive at them. The primary surplus targets in the Greek paper were also marginally below those requested by the creditors, officials said.
Athens also sent in a document on debt restructuring, which the creditors dismissed as irrelevant now, because Greek debt sustainability could only be discussed once it implements reforms promised in exchange for aid it has already received.
Reforms that would ensure reaching the discussed fiscal goals have been the main point of negotiations between Greece and the European Commission, the International Monetary Fund and the European Central Bank which represent Athens’ creditors.
After a meeting between European Commission President Jean-Claude Juncker and Tsipras on June 3, the Commission requested a revised proposal from Greece that would explain how it wanted to reach fiscal targets in an alternative way, given it rejected measures on pensions and Value Added Tax proposed by the lenders. Greece promised it by last Thursday.
But the proposal arrived only late on Monday night and the creditors said that it lacked answers to the concerns they expressed last week.
While more talks between Athens and the institutions could take place on Wednesday, the creditors say it is now impossible to disburse the reminder of the money available to Greece under the existing bailout — 7.2 billion euros — without a formal extension of the bailout beyond its June 30 expiry date.
Source: Reuters (Reporting by Jan Strupczewski; Editing by Mark Heinrich)
Asian stocks ended mixed near three-month lows on Wednesday as higher U.S. bond yields, uncertainty about the timing of a Fed rate increase and the apparent lack of progress in talks between Greece and its creditors kept investors on edge.
Chinese and Hong Kong shares drifted lower after index provider MSCI Inc. said it would hold off including China-listed shares in its Emerging Markets Index until a few important remaining issues related to market accessibility are resolved.
China’s benchmark index Shanghai Composite edged down 7.50 points or 0.15 percent to 5,106.04. Shares of China National Nuclear Power, a subsidiary of one of the country’s two state-owned nuclear reactor builders, soared 44 percent on its debut on the Shanghai Stock Exchange, helping ease investor disappointment over MSCI’s decision to some extent.
Hong Kong’s Hang Seng index dropped 301.88 points or 1.12 percent to close at 26,687.64, a two-month low, after a 22-year-old woman was rushed to a Hong Kong hospital Wednesday on suspicion she had contracted the potentially deadly MERS virus.
Japanese shares fell for a fourth consecutive session, as the yen strengthened after Bank of Japan Governor Haruhiko Kuroda said a further decline in the currency is “unlikely” on a real effective exchange rate basis because it is already very weak. The yen rose more than one percent against the dollar and the euro, leaving investors in a tizzy.
The benchmark Nikkei average fell 49.94 points or 0.25 percent to close at 20,046.36, its lowest level since May 19, while the broader Topix index closed down 0.38 percent at 1,628.23.
Investors ignored positive data that showed Japan’s core machinery orders unexpectedly jumped 3.8 percent in April from the previous month, in a sign that companies may be boosting capital expenditure. The headline figure beat forecasts for a decline of 1.8 percent after a 2.9 percent gain in March. On a yearly basis, core machine orders added 3.0 percent, topping expectations for a 1.4 percent decline.
Among the worst performers, West Japan Railway, Isuzu Motors and Nissan Chemical Industries fell 3-4 percent. Banks and brokerages fell, with Mitsubishi UFJ Financial Group, Mizuho Financial and Nomura Holdings closing down between 0.8 percent and 1.4 percent. Mitsui Mining and Smelting topped the buying list with a 5.6 percent gain, while Sumitomo Metal Mining, KDDI Corp and Mitsubishi Materials Corp climbed 2-4 percent.
Australian shares swung between gains and losses before closing marginally firmer despite weak consumer confidence data and a downbeat speech from Reserve Bank of Australia governor Glenn Stevens leaving open the possibility of another rate cut to sustain growth. The benchmark S&P/ASX 200 index closed up 7 points or 0.1 percent at 5,478.60.
A measure of Australian consumer sentiment tumbled in June, reversing the previous month’s promising increase, on the back of broader concerns about the outlook for the economy, the latest survey from Westpac Bank and the Melbourne Institute showed. The index fell by 6.9 percent in June to a score of 95.3, following a 6.4 percent spike in May to 102.4.
Miners turned in a mixed performance, with BHP Billiton rising 0.2 percent, while Rio Tinto shed half a percent and Fortescue Metals Group tumbled 2.5 percent. Newcrest Mining gained 0.8 percent and rival Evolution Mining rallied 1.8 percent after gold prices rose overnight on a weaker dollar.
Lender Westpac closed marginally higher after announcing plans to revamp its retail and business banking units. Commonwealth edged up 0.1 percent and NAB advanced 0.7 percent, while ANZ eased 0.2 percent. In the oil sector, Santos, Woodside Petroleum and Oil Search rose 1-3 percent. Crude oil prices jumped more than 3 percent on Tuesday, with expectations of another weekly drop in U.S. stockpiles and a weaker dollar underpinning prices.
Retailer Myer Holdings dropped 1.9 percent, Harvey Norman fell 1.7 percent and JB Hi-Fi retreated 3.6 percent on the back of the disappointing consumer confidence data. Qantas Airways slipped 0.3 percent on news that it will operate a direct flight from Los Angeles to Sydney for the first time.
Seoul shares fell notably as concerns over the fallout of the Middle East Respiratory Syndrome (MERS) weighed on tourism-related stocks. Two more deaths were reported on Wednesday, bringing to nine the total number of deaths in the current outbreak. The benchmark Kospi average fell 12.71 points or 0.62 percent to 2,051.32. Leading carrier Korean Air Lines plummeted 4.3 percent, while smaller rival Asiana Airlines slumped 6.8 percent. Market bellwether Samsung Electronics dropped 1.6 percent, extending Tuesday’s 2 percent loss.
In economic news, South Korea’s jobless rate edged down to 3.8 percent last month from 3.9 percent in April as more people were hired in the manufacturing and service sectors, official data showed. The number of employed people stood at 26.18 million, up from 25.9 million in April, with 379,000 new jobs being created from a year earlier, marking the largest monthly job creation in five months.
New Zealand shares fell sharply after Orion Health revealed a delay to an expected contract signing with a United States health insurer. While Orion shares plunged 9.7 percent to a record low, the benchmark NZX-50 index dropped 58.24 points or 0.99 percent to close at 5,803.87. Energy shares such as Meridian Energy, Mighty River Power and Contact Energy fell about 3 percent each after a fresh wave of selling swept through government bond markets on both sides of the Atlantic on Tuesday.
National carrier Air New Zealand slumped 5 percent to one-month low after rival Qantas announced a deal with American Airlines to strengthen their trans-Pacific partnership. Units of Fonterra Shareholders Fund eased 0.2 percent. The world’s largest dairy exporter said it would lay off hundreds of employees at its head office and support functions as part of a restructuring which will be unveiled to the Fonterra board next week.
In economic releases, the value of core retail spending, which strips out fuel and vehicle related items, rose 0.4 percent to $3.9 billion in May after a 0.9 percent fall in April, Statistics New Zealand data showed.
India’s Sensex was up over 300 points or 1 percent, snapping its six-day losing streak, as MSCI’s decision not to include China-listed shares in one of its key benchmark indexes eased worries over short-term capital flight.
Elsewhere, the benchmark indexes in Indonesia, Malaysia, Singapore and Taiwan were up between 0.4 percent and 1.2 percent.
U.S. stocks ended a choppy session largely unchanged overnight, although the S&P 500 snapped a three-day losing streak, led by gains in financial and consumer staples shares. Treasury bond yields resumed their upward trend and food distributor United Natural Foods reported disappointing results, offsetting news of a big General Electric asset sale and encouraging data on job openings, small business confidence and inventories.
The Singapore Exchange Ltd aims to expand in the energy sector and is considering creating a global market in spot liquefied natural gas (LNG) trading as well as an Asian benchmark for crude oil, its president said.
Its push in the sector gained momentum after SGX’s purchase of a majority stake late last year in Energy Market Company (EMC), which provides spot prices for electricity in Singapore.
“We launched an electricity futures contract based on that and so we would look to develop other energy products,” SGX President Muthukrishnan Ramaswami said.
“We’d look at things that would be interesting in an Asian context, where business is moving from what used to be long-term contracts to more of a spot market,” he told reporters at the International Derivatives Expo in London.
The move away from long-term contracts in iron ore allowed the SGX to create a very successful business in that commodity, where volumes of derivatives traded on the exchange have roughly doubled in volume each year since their launch in 2009, reaching around 550 million tonnes last year.
“Now LNG is going through that transition because there’s more sea-borne trade. There are many storage facilities coming up in Singapore and the rest of Asia, so there is a market that is developing,” Ramaswami said.
SGX hopes to use EMC as a platform for its expansion in other energy products, he added.
“That same company could very easily run a spot market for LNG or a spot market for other energy markets.”
There was no specific time frame for going into the LNG market, but it was not “imminent” since it can take years to develop new physical markets, Ramaswami said.
There was also a hope to create an Asian benchmark in crude oil, adding to the two existing benchmarks — West Texas Intermediate (WTI) for the United States and Brent in Europe — but this would be a challenge.
“We would also look for an Asian benchmark in oil. Today the Asian user only has WTI or Brent,” he said.
“That has been a quest for a long time, not just for us but other exchanges in Asia. The liquidity tends to be in the major contracts, so you don’t end up being able to easily develop something like that.”
Besides commodities, SGX’s products include equities and financial derivatives such as interest rate swaps. The commodities sector includes iron ore, coking coal, freight, rubber and gold.
Source: Reuters (Reporting by Eric Onstad; editing by Susan Thomas)
Early release surveys, high frequency market prices and big data provide insights on critical aspects of China’s economy ahead of the official numbers. The signs for May are tentatively optimistic, with real estate sales picking up and the factory sector stabilizing.
PMIs Show Manufacturing Stabilizing in May
China’s purchasing managers’ indexes point to stabilization in the factory sector, albeit with activity at a low level. Both the official and the HSBC Markit manufacturing PMI edged up in May. That’s raised expectations May’s industrial output will hold at or above April’s 5.9 percent annual increase.
Services Sector Continues to Outperform
PMIs for the services sector continued to show China’s hairdressers and accountants expanding business. Relatively robust growth and job creation in the services sector offsets weakness in manufacturing.
UnionPay Data Points to Rebounding Property Sales
Early signs on the real estate sector are positive. UnionPay Advisors captures data from transactions on China’s dominant payment network to track the main categories of spending. The Tsinghua UnionPay Advisors Real Estate Index was up 27.1 percent year on year in May — the third consecutive month of acceleration.
Metal Prices Mixed
Metal prices present a mixed picture. On the one hand, iron ore has come off its earlier lows. On the other, copper has given up previous gains and steel continues to decline. If there is a recovery in real estate sales, it’s evidently too soon for that to impact expectations on construction.
UnionPay Data Suggests Consumers Are Still Spending
UnionPay Advisors’ data also provide an insight into what’s going on in the consumer sector. Their numbers show growth in spending on hotels and catering held steady in May, at about 13 percent and 6 percent annual growth, respectively.
Exports Continue Contraction
Early indicators on trade pointed to contraction. The flash reading for Korea’s exports — which track closely with China’s overseas sales — slid 10.9 percent year on year in May. While that proved slightly too pessimistic, China’s overseas sales still fell 2.5 percent, a fourth month of decline so far this year.
Food Prices Suggest Inflation Edged Down
Inflation remained decidedly subdued. Our food price tracker rose 2.2 percent year on year in May, down from 2.7 percent in April. Assuming non-food inflation remains unchanged, that should be enough to knock the CPI down from 1.5 percent in April.
Falling Money Market Rates Show Easing Bias
With growth weak and inflation low, policy has begun to shift more decisively into pro-growth mode. The seven-day repo rate fell to 1.9 percent at the end of May from 2.4 percent a month earlier as rumors of expanded easing swirled.
Italian Economy Minister Pier Carlo Padoan said on Tuesday he was confident a deal would soon be found to keep Greece in the euro zone and even if it did exit, the currency bloc was now much better placed to withstand the shock.
Greece is running out of money and needs to find an agreement quickly with its European Union and International Monetary Fund lenders to grant it financial aid to prevent the risk of default and possible exit from the euro.
“I am confident we will get a deal soon,” Padoan told CNBC in a television interview. “If there is an accident there might be some shockwaves in the system but the system is very strong, it is much stronger than it was when it all started in 2010 and 2012.”
Padoan dismissed suggestions Italy would be next in line if Greece exited the euro zone and said signs of an increase in interest rates were not a threat for Italy’s public debt.
He said rising interest rates should be seen as a “return to normalcy” and were good for the European and global economy in the longer term.