Dow Jones Newswires, 13 Oct 2017 03:41 EDT
Global Forex and Fixed Income Roundup: Market Talk
0741 GMT - The rise in China's consumer price index likely eased to 1.6% in September from a year earlier, compared with a 1.8% rise in August, according to a poll of economists by The Wall Street Journal. The slowdown in consumer inflation was mainly due to lower food prices and a higher comparison base, economists say. China's producer price index likely increased 6.4% on year in September, up from a 6.3% rise in August, according to the poll. Preliminary data from the National Bureau of Statistics suggest higher prices for energy and chemical products during the month. The recovery of PPI inflation has led to a sharp recovery in China's industrial profits. (firstname.lastname@example.org)
0734 GMT - The market environment remains supportive for risky assets as macro data are strong and surprise positively, while the absence of inflation gives central bankers the luxury of being able to adopt a very gradual tightening path, says NN Investment Partners. This backdrop will continue to spur investors' search for yield, despite historically tight valuations in the fixed income spread categories, it says. (email@example.com; @EmeseBartha)
0733 GMT - Initial troubles notwithstanding, BMI economists remains optimistic about the longer-term benefits of GST in India. Relief measures for small businesses announced earlier this month "demonstrate the government's commitment to resolving tax issues and fine-tuning the tax framework to better facilitate economic activity," they adds. (firstname.lastname@example.org)
0730 GMT - The yen has climbed to session highs as Asian trading wraps, with market participants likely bracing for a possible weekend missile launch by North Korea, says Osao Iizuka, head of FX trading at Sumitomo Mitsui Trust Bank. There's no headlines fueling the move since the end of local stock trading, he adds. The dollar fell to Y111.90 after having held above Y112 during the day and versus Y112.29 late Thursday in New York. Meanwhile, the euro has eased to Y132.25 from late New York's Y132.82. (email@example.com)
0728 GMT - Indonesia likely booked a smaller trade surplus in September, as a long holiday in July boosted exports in August by a larger extent. The median forecast of 10 economists polled by The Wall Street Journal is for a $1.52 billion trade surplus, down from a 5-year high surplus of $1.72 billion in August. Still, analysts expect exports to stay buoyant through December, due to improving global demand. The September data will be released at 0400 GMT Monday. (firstname.lastname@example.org)
0727 GMT - The U.K. government's proposed cap on energy tariffs could prompt rating companies to cut their outlook on utilities Centrica and SSE to negative, but they should stop short of downgrading them, according to CreditSights. The big question is what happens to Centrica's rating at S&P, as the rating company already has a negative outlook. CreditSights sees the two utilities as the most exposed to a price cap. It has an underperform view on Centrica and SSE bonds as price cap uncertainty should constrain their performance. (email@example.com; @tasosvos)
0724 GMT - Mizuho is bullish on bund futures prior to the European Central Bank's policy meeting on Oct. 26, reflecting a benign outlook on monetary policy. The ECB is expected to tighten policy only gradually not only due to the downside inflation risks posed by the euro's rally, but also to avoid rocking financial markets and harming its policy's transmission mechanism. Mizuho rates strategist also base their bullishness on technical factors, in particular redemptions from France, Spain and Italy at month's end, which favor long positions. Mizuho's fair-value estimate puts 10-year bund yields at 0.20% by year's end. They currently trade at 0.42%, according to Tradeweb. (firstname.lastname@example.org; @EmeseBartha)
0719 GMT - China's record trade surplus with the US could worsen the already tense trade relations between the countries, after the Trump administration launched an investigation over Chinese intellectual property theft in August. This also comes ahead of President Donald Trump's visit to China in November. China's trade surplus with the US hit a monthly record high of $28.08 billion in September, up from $26.23 billion in August, according to data released by the customs bureau on Friday. The surplus with the US accounts for nearly all the $28.47 billion in trade surplus Beijing made with all its trading partners. (email@example.com)
0714 GMT - Japanese stocks have appeared near-bulletproof of late, including the current 9-session winning streak for the Nikkei. The yen may be set to put at least a momentary end to the bulls' party. The yen has climbed to session highs versus the dollar as trading shifts from Asia to Europe, with the greenback falling below Y111.90 and hitting 3-week lows. With September US retail sales and CPI on the docket later Friday, the greenback could easily rebound by the time Japanese stock traders return on Monday. But after shrugging off modest yen gains during Asian trading, the currency remaining at current levels--or rising further--are liable to be too much for the Nikkei notching a 10th-straight gain. It hasn't done that since May 2015. (firstname.lastname@example.org; @kevinkingsbury)
0706 GMT - Indian Finance Minister Arun Jaitley exudes optimism that the country's economic growth will rebound as impacts from demonetization and GST's implementation start to ease. The "economy is poised for strong, sustainable and balanced growth backed by the government's strong focus on implementing structural reforms," he tells a conference in the US. The Indian government has come under sharp criticism after growth slowed to a 3-year low of 5.7% in 2Q amid weak consumer demand and private investments. (email@example.com)
0701 GMT - Danske Bank expects sterling to rise as the prospect of the Bank of England raising interest rates next month relegates Brexit concerns to the background. It sees EUR/GBP falling toward 0.87, from 0.8913 currently. EUR/GBP rose to a four-week high above 0.90 Thursday after EU chief negotiator Michel Barnier said talks on the U.K.'s EU exit were deadlocked. The pound then rebounded on a report that the EU may agree to a two-year transition period. "We see value in selling EUR/GBP above 0.8950 via a bearish seagull, for move towards 0.87 going into the BoE meeting on 2 November," Danske says. GBP/USD last up 0.2% at 1.3292. (firstname.lastname@example.org)
0700 GMT - BASF's EUR5.9 billion purchase of Bayer seed and herbicide businesses may be manageable in terms of credit quality, but rating companies could still cut their outlooks to negative, UniCredit analysts say. The deal will increase debt leverage, but the acquired assets are highly cash-generative and should boost earnings per share from year one. And while this is BASF's largest acquisition in recent history, it is not transformational but complementary, the analysts add. UniCredit keeps its marketweight recommendation on BASF bonds. BASF's ratings at Moody's, S&P and Fitch currently carry a stable outlook. (email@example.com; @tasosvos)
TOP NEWS • China Sept imports blow past expectations as economy remains in high gear
China's import and export growth accelerated in September, suggesting the world's second-biggest economy is still expanding at a healthy pace despite widespread forecasts of an eventual slowdown. Imports grew 18.7 percent in September from a year earlier, beating analysts' forecasts for a 13.5 percent expansion and accelerating from 13.3 percent in August, customs data showed. The gain was stronger than the most optimistic forecast in a Reuters analysts poll. Exports rose 8.1 percent, below forecasts of 8.8 percent but the most in three months and handily beating August's 5.5 percent. That left the country with a trade surplus of $28.47 billion, less than the near $40 billion expected and down from around $42 billion in August.
• ECB's Draghi pledges rock-bottom rates as Germany calls for change
The head of the European Central Bank defended a pledge to keep interest rates at rock bottom on Thursday, batting back German calls for a speedy exit from years of easy money in the euro zone. With two weeks to go before the ECB decides on the future of its stimulus policy, its president, Mario Draghi, said the promise to maintain rates at their current level "well past" the end of its bond-buying programme was very important for keeping borrowing costs at bay. "The 'well past' is very, very important in anchoring rate expectations," Draghi said at an event in Washington, where he is due to attend the G20 meeting.
• Kuroda says BOJ to keep easy policy, tread different path from Fed, ECB
Bank of Japan Governor Haruhiko Kuroda on Thursday stressed the central bank's resolve to maintain its ultra-loose monetary policy, even as its U.S. and European counterparts begin to dial back their massive, crisis-mode monetary stimulus. Kuroda offered an upbeat view of Japan's economy, saying it was expanding moderately with rising incomes leading to higher corporate and household spending. But he said inflation and wage growth were disappointingly low, despite such improvements in the economy. "Inflation remains around 0.5 percent, still below our target," Kuroda told reporters upon arrival for the Group of 20 finance leaders' gathering. "I would like to explain to the G20 that we will continue our ultra-loose monetary policy to achieve 2 percent inflation at the earliest date possible," he said. • INTERVIEW-Fed 'should defend' inflation target or risk losing credibility -Bullard
The Fed needs to mount a clear defense of its 2 percent inflation target and stop raising rates until the pace of price increases strengthens, St. Louis Fed President James Bullard said on Thursday. The central bank risks losing credibility, and perhaps triggering a recession, if it continues to insist on "normalization" and higher interest rates without better evidence that prices are firming, he said in an interview with Reuters. "If you are going to have an inflation target you should defend it. If you say you are going to hit the inflation target then you should try to hit it and maintain credibility," Bullard said.
• U.S. producer inflation, labor market strengthening
U.S. producer prices rose in September as the price of gasoline recorded its biggest gain in more than two years amid hurricane-related production disruptions at oil refineries in Texas. The Labor Department said its producer price index for final demand rose 0.4 percent also lifted by an increase in the cost of services. Wholesale prices advanced 0.2 percent in August. In the 12 months through September, the PPI jumped 2.6 percent. That was the biggest gain since February 2012 and followed a 2.4 percent increase in August. In a second report, the Labor Department said initial claims for state unemployment benefits decreased 15,000 to a seasonally adjusted 243,000 for the week ended Oct. 7, the lowest level since late August.
ECB RATES AND INFLATION
BREXIT TALKS Brexit talks deadlock on cash, Barnier eyes move by December
Brexit talks are deadlocked over money, the EU's Michel Barnier said on Thursday as he ruled out discussions on future trade being launched by EU leaders next week but spoke of possible progress by December.
Barnier and his British counterpart, Brexit Secretary David Davis, told reporters there had been some progress this week on the other two issues around Britain's March 2019 withdrawal from the bloc on which the EU demands "sufficient progress" before it will agree to discuss a transition and future relationship.
With concern mounting about the possibility they might run out of time for any deal, Davis renewed his call for EU leaders to give a green light to trade talks after they meet Prime Minister Theresa May at a summit in Brussels next Thursday.
Barnier made clear, however, that despite new momentum from concessions given by May in a speech at Florence last month, British proposals on expatriate citizens' rights and the Irish border still failed the EU test, while London's refusal to spell out a detailed cash offer was "very worrying" for business.
May said then that the other 27 countries would not lose out financially from Brexit in the current EU budget period to 2020 and that Britain would honour commitments -- but Barnier said London was failing to say exactly what it was ready to pay.
"Regarding that question, we are at an impasse, which is very worrying for thousands of projects everywhere in Europe and also worrying for those who contribute," he said.
Nonetheless, he offered hope: "I am still convinced that, with political will, decisive progress is within reach in the coming two months. With David Davis, we will organise several negotiating meetings between now and the end of the year."
With signs that nerves are fraying on both sides as less than 18-month remnains before the deadline, some hardline Brexit supporters want May to just walk out of talks. Both negotiators repeated that they were ready for any eventuality including a collapse. But, Barnier warned, "no deal would be a very bad deal".
May herself said there had been "good progress" and welcomed Barnier's talk of further progress "over the coming weeks".
Davis announced a "streamlined" new system for the 3 million EU citizens in Britain to claim residence rights, answering EU concerns, and said he expected good further progress on other issues. Barnier repeated that Brussels stills wants them to have recourse to EU judges to safeguard their rights and said there were still differences on rights for future family members.
A British demand for its million or so citizens on the continent to have lifetime rights to move to any of the bloc's 27 countries after Brexit is held up by doubts among the member states. Barnier said those are rights to do with post-Brexit decisions and should be dealt with in the next phase of talks.
"I make no secret of the fact that to provide certainty we must talk about the future," Davis said, stressing his demand for trade talks. "I hope the leaders of the 27 will provide Michel with the means to explore ways forward with us on that."
"As we look to the October Council next week, I hope the member states will recognise the progress we've made and take a step forward in the spirit of the prime minister's Florence speech."
Barnier was pressed to say in public whether he would ask EU leaders' permission to make some preliminary exploration of what a transition after March 2019 would look like. EU officials and diplomats say he has raised that issue with governments.
He told the news conference that he would follow a mandate ruling out any discussion of the future before issues arising from Britain's past membership are settled and said it was important to respect the "sequencing".
Diplomats have said that German and French envoys quashed a suggestion by Barnier last week that he start looking transition issues. On Thursday, German Chancellor Angela Merkel, whose scope to change policy is limited by ongoing coalition talks, stressed Berlin would negotiate to minimise damage to Germany.
With the talks poised at a delicate stage, EU officials say it is unclear what leaders will tell May next week. They all rule out a clear move to trade talks but many expect "positive language" to try to defuse British accusations of Brussels intransigence and to help May stand up to her own party critics.
Officials see the early part of next year as a virtual deadline for agreeing to move on to discuss the future relationship. Failure to do so would raise the risk of there being no smooth transition and even of no deal at all.