* MSCI Asia ex-Japan drops 0.6 pct, Nikkei eases 0.2 pct
* Euro steadies, dollar up 0.1 pct vs yen
* Oil slips but gold gains
TOKYO, Aug 15 (Reuters) - Asian shares fell on Wednesday as
investors booked gains from recent rallies after data showing
strong U.S. retail sales and Germany and France avoiding a
contraction last quarter calmed sentiment, with weak euro zone
growth sustaining stimulus hopes.
MSCI's broadest index of Asia-Pacific shares outside Japan
fell 0.6 percent after Tuesday's 0.7 percent
rise. The index was up about 2.8 percent from this month's low
hit before optimism for more stimulus in coming weeks from the
European Central Bank and the Federal Reserve inspired a
broad-based rally earlier this month.
Japan's Nikkei stock average fell 0.2 percent.
"The broad, underlying trend driving markets right now amid
a lack of clear direction is that investors are not yet fully
convinced about putting risk back on, so when markets rally,
they take profits and they buy back when prices fall," said
Kyoya Okazawa, head of equity and derivatives at BNP Paribas.
"Having said that, the euro zone's data yesterday actually
bolstered the ECB's policy freedom as a slowdown in Germany
reduces inflation pressures there. For markets, whether policy
responses are coming through or not, is the key concern right
now, rather than concerns about growth," Tokyo-based Okazawa
said.
Markets will be watching the Jackson Hole meeting of central
bankers and economists at the end of the month and the U.S.
nonfarm payrolls data due early in September, as well as the
ECB's policy meeting early next month for signs of future policy
actions, analysts said.
U.S retail sales rose 0.8 percent in July for the first time
in four months for the largest gain since February as demand
climbed for consumer goods, suggesting that households could
drive faster economic growth in the third quarter after the
second quarter's slowdown.
The euro zone's economy shrank 0.2 percent in the second
quarter, having flatlined in the first, falling prey to its
prolonged debt woes while core economies Germany and France
withstood contraction.
But Germany's forward-looking ZEW sentiment index slid for a
fourth month running, clouding the outlook for the region's
growth engine.
COMMODITIES MIXED
Strong U.S. retail sales boosted oil, copper and the dollar
but U.S. stocks lost momentum on Tuesday, while European shares
rallied as weak euro zone growth made the case for further
policy moves to support recovery.
Copper steadied at $7,419.50 a tonne while oil
reversed course and fell after rallying on Tuesday.
Brent oil futures fell 0.4 percent to $113.61 a
barrel after ending at a fresh three-month high on Tuesday due
to strong U.S. retail sales, tighter North Sea crude supplies
and speculation about economic stimulus. U.S. crude also
fell 0.4 percent to $93.08 after closing up nearly 1 percent.
Spot gold added 0.2 percent to $1,601.46 an ounce
after falling as much as 1 percent the previous session when
investors scaled back their expectations for the Fed's further
easing following the solid U.S. retail sales data.
The dollar extended gains against the yen, up 0.1 percent at
78.77 yen, near its one-month high of 78.94 yen hit on
Tuesday.
"The USD benefits from better US data (retail sales). For
now, it is mostly USD/JPY trying to break higher as the back end
of the US Treasury curves comes under pressure," said Sebastien
Galy, senior currency strategist at Societe Generale in New
York, in a research note.
He added that the euro is supported against the dollar as
investors look for yield in European bonds. The euro steadied at
$1.2324.
Japanese government bonds slipped on Wednesday, tracking
declines in U.S. Treasuries and German government bond prices on
Tuesday, when uncertainty over whether the U.S. data could still
justify further easing by the Fed and the resilience of the
German economy prompted investors to cut some safe-haven bids.
Okazawa at BNP Paribas said the recent gradual rise in
safe-haven sovereign yields reflected money returning to
equities.
Asian credit markets were subdued, with the spread on the
iTraxx Asia ex-Japan investment-grade index barely
changed.
GLOBAL MARKETS-Shares fall, pausing after US data, stimulus hopes endure
FOREX-Dollar holds near 1-mth high vs yen after upbeat data.
* U.S. retail sales surprise on upside, U.S. yields jump
* Dollar may rise toward 80 yen by month-end -analyst
* U.S. industrial output, CPI coming up later in the day
SINGAPORE, Aug 15 (Reuters) - The dollar held steady near a one-month high against the yen on Wednesday, after surprisingly upbeat U.S. retail sales data the previous day dampened talk of more monetary stimulus from the Federal Reserve.
The broad-based expansion in retail sales bolstered the view that the slowdown in U.S. economic growth during the second quarter will prove temporary, prompting a jump in U.S. Treasury yields.
The dollar held steady at 78.79 yen, after having climbed to 78.939 yen the previous day on trading platform EBS, the dollar's highest level since mid-July.
Analysts said the greenback could eke out more gains in the near term, supported by waning expectations for the Fed to launch a third round of bond-buying, or quantitative easing, as early as September.
"It wouldn't be a surprise to see the dollar rise to 80 yen by the end of the month," said Masafumi Yamamoto, chief FX strategist Japan for Barclays Capital in Tokyo.
The dollar may prove resilient against the yen over the next couple of weeks, despite the potential for fund repatriation by Japanese institutional investors over the course of August, he said.
August typically sees a large number of bond redemptions in U.S. Treasuries as well as coupon payments, and Japanese investors holding Treasuries might sell the dollar against the yen to bring home some of the proceeds, traders and analysts say.
"Even if there is fund repatriation related to such coupon payments, I think that is unlikely to lead to a trend of yen strength," Yamamoto added.
Later in the day, the market will get the latest reading on U.S. consumer inflation and industrial output. Price pressure is expected to remain benign, while industrial production is forecast to accelerate a touch from the previous month.
"The greenback may track higher throughout the remainder of the week as the data...dampens speculation for additional monetary support," said David Song, currency analyst at DailyFX.
The euro held steady at $1.2322.
The single currency has gained something of a reprieve after falling to a two-year low of $1.2042 in late July and hit a one-month high of $1.2444 last week, supported by expectations that the European Central Bank will soon put in place measures to lower crippling borrowing costs for Spain and Italy.
Short-term technical charts look favourable for the euro now, with the currency having mostly traded within a short-term uptrend channel since hitting its two-year low, said Roy Teo, FX strategist Asia for ABN AMRO Private Banking in Singapore.
"So a bit of short-covering will still continue to unfold," Teo said, referring to the unwinding of bearish bets against the euro.
Euro posts weekly loss vs dollar, yen
* Euro posts 1st weekly loss in three versus dollar
* Optimism about ECB action waning
* Chinese data knocks Australian dollar
By Wanfeng Zhou
NEW YORK, Aug 10 (Reuters) - The euro posted its first
weekly drop against the dollar and yen in three weeks on Friday
as investors refocused on the uncertainty surrounding possible
European Central Bank action to contain the debt crisis and
deteriorating growth in the euro zone.
A weaker-than-expected rise in Chinese exports, which
followed disappointing German data earlier this week, stoked
concerns about global economic growth. That boosted the
safe-haven dollar and yen and pressured commodity-linked
currencies such as the Australian and Canadian dollars.
Investors booked profits on a rally sparked by ECB President
Mario Draghi, who said the bank would do whatever it takes to
save the euro, including buying bonds of stressed countries to
bring down borrowing costs.
But after the initial euphoria, markets began to realize
that any intervention would depend on troubled countries
activating the euro zone's rescue funds first. The permanent ESM
fund still needs a green light from the German Constitutional
Court, which rules on Sept. 12.
"The resistance of German lawmakers and central bankers to
wholesale central bank intervention in sovereign debt markets is
likely to result in a watered-down version of any plan by the
ECB and is likely to disappoint market participants," said Omer
Esiner, chief market analyst at Commonwealth Foreign Exchange in
Washington.
The euro fell 0.1 percent to $1.2290, pulling further
away from a one-month high of $1.2443 set on Reuters data on
Monday. It had earlier hit a one-week low of $1.2239 after
breaking support in the $1.2250 level.
It also fell 0.5 percent to 96.21 yen.
On the week, the euro lost 0.8 percent against the dollar
and 1.3 percent versus the yen.
Data from the Commodity Futures Trading Commission released
on Friday showed speculators reduced bets against the euro in
the latest week to 131,711 contracts from 138,994 in the week
earlier.
Comments from Germany's economy ministry that the country
faced "significant risks" linked to the euro zone crisis also
weighed on the region's common currency.
Investors also looked ahead to next week's data on euro zone
second-quarter economic output, which is expected to show a
contraction and is likely to put pressure on the ECB to
cut interest rates, a factor that could weigh on the euro.
Despite the euro's fall, implied volatilities are subdued.
The one-month euro/dollar implied volatility traded
around 9 percent, against 10 percent a week ago. Option traders
said that unless the euro broke below $1.2250, volatility would
drift lower.
Lucy Lillicrap, senior risk consultant at global payments
company AFEX Markets Plc in London, said the euro's downtrend
this year may be coming to an end, and a rise to $1.2750 would
confirm this view.
"Overall, the markets are willing to give the ECB the
benefit of the doubt. The ECB is out there saying it will do
something and that in itself is a positive," she said.
The dollar slid 0.4 percent to 78.25 yen and lost 0.4
percent this week.
Japan's upper house of parliament passed a controversial
sales tax bill, a step analysts said could eventually exert
pressure on the Bank of Japan to ease monetary policy further in
coming months.
The Canadian dollar weakened after data showed
Canada's economy unexpectedly lost 30,400 jobs in July in a
third disappointing month for the labor market.
The U.S. currency rose as high as C$0.9970 and last traded
at C$0.9910, little changed on the day.
The Australian dollar fell to $1.0575, a day after
touching $1.0615, its highest since March 20.
Data showed Chinese exports grew just 1.0 percent in July
year-on-year, below expectations for an 8.6 percent increase,
while imports grew 4.7 percent compared with a forecast for a
7.2 percent rise.
Strong Second Quarter GDP Reading Could Spur Yen Strength
Fundamental Forecast for Japanese Yen: Bullish
- Japanese Yen May Have Topped Against US Dollar
- US Dollar Implications as Volatility Measures Multi-Year Lows
- USD Index Continues to Build Base, JPY at Risk Amid Slower Growth
The Japanese Yen had a strong week, finishing third best among the majors covered by DailyFX Research, while appreciating by a modest +0.24% against the US Dollar. The Japanese Yen was outperformed only by the Canadian Dollar and the British Pound, to which it shed -0.78% and -0.08%, respectively. But most notably, the Japanese Yen was strongest against the Euro; and now the EURJPY has retraced nearly half of its gains during the rally off of the July 24 low. Overall, the Japanese Yen’s outperformance against the Australian Dollar and the Euro pique our interest the greatest, given the implications for a flight to safety predicated around either concerns over China and global growth or the European sovereign debt crisis. Alongside a rise in Spanish sovereign bond yields, we believe a bullish outlook for the Yen is warranted.
Indeed, fundamental event risk this week for the Japanese Yen’s future is important, even though the docket is incredibly thin outside of the preliminary second quarter growth reading due on Monday. But given recent rhetoric out of the Bank of Japan, alongside some disappointing data that necessarily suggests that the Japanese Yen’s strength is hurting exporters’ margins, the GDP print may be the most significant event of the entire month of August, thus making the coming week pivotal for the Yen’s future.
Growth in the second quarter slowed to an annualized pace of +2.3% from +4.7% in the first quarter, according to a Bloomberg News survey. This would thus represent quarterly growth of +0.6% from +1.2%. Growth is likely to slow further in the coming months as the economy moves further away from the devastating natural disasters and ensuing nuclear crisis early last year (the exceptionally strong first quarter reading was in part given the relatively strong March 2012 versus the crisis-impacted March 2011). Nevertheless, Bank of Japan policymakers have indicated, most recently at their meeting this past week that no new stimulus is warranted as the economy improves.
Accordingly, the big picture is that while growth looks lower, policy makers feel otherwise, and a reading at or above the current forecast of +2.3% year-over-year could further deter speculators from betting on new interventionist policies from the Bank of Japan to weaken the Yen. Given the likelihood of this occurring – as a net importer of energy, the year’s lowest oil prices in the second quarter likely cushioned Japanese growth – we think the Yen’s fundamental posture is increasingly bullish.
The paradoxical nature of the Yen’s fundamentals leads us to believe that, by the end of the year, it looks possible for another intervention. A strengthening Japanese economy will lead to increased flows into the Yen, which in turn will hurt exporters’ margins further (Sony Corporation, a major Japanese multinational conglomerate and the country’s biggest exporter of consumer electronics, was forced to slash its full-year profit estimates in early-August due to in part the Yen’s strength). Accordingly, if Japanese businesses are hurting due to Yen strength, the Bank of Japan or the Ministry of Finance could step in ‘fix’ the problem. Should the actual GDP figure beat the estimate, we expect further Yen strength, especially against the US Dollar; whereas a weak reading should result in a stronger USDJPY. –CV
Japanese Yen Leads as Aussie and Kiwi Diverge After Key Data
The majors are mixed this morning after the beginning of the European trading session following an overall mixed and mediocre batch of data in the overnight. The Australian labor market got back on track in July as its Unemployment Rate dropped by one-tenth of one percent, while the very comparable New Zealand economy saw its Unemployment Rate spike by three-tenths of one percent, perhaps a sign of burgeoning weakness in the region. Supporting this notion was the soft round of Chinese data for July. The Chinese Consumer Price Index fell below a yearly pace of +2.0% for the first time since January 2012, while the Producer Price Index is showing its steepest rate of deflation since November 2009. When considering the relationship between inflation and growth in China (inflation is among the best leading indicators), one can’t afford to ignore stumbling Asian titan any longer.
Looking into Southern Europe, data was unsupportive as well, as the Greek Unemployment Rate ticked higher to 23.1%, while the youth rate moved to 54.9% in May. Accordingly, we believe that further social upheaval in Greece will result in new elections over the coming months, which represents a forgotten roadblock on the road to solving the European sovereign debt crisis.
Amid the ‘calm’ that has developed the past week, it appears that market participants have become somewhat complacent. With no new measures or hints of new measures being set forth by any of the major supranational European bodies, yields in the periphery have started to rise once again (the profit taking period is over; selling pressure is building). The Italian 2-year note yield has risen to 3.263% (+10.3-bps) while the Spanish 2-year note yield has moved higher to 3.799% (+6.2-bps). Similarly, the Italian 10-year note yield has climbed to 5.858% (+1.3-bps) while the Spanish 10-year note yield has risen to 6.818% (+41.6-bps); higher yields imply lower prices.
Dollar Advances Against Euro, Yen Amid Economic-Growth Concern
The dollar rose against the euro and the yen amid speculation global central banks won’t be quick to add stimulus and as yields on U.S. Treasuries reached the highest level in more than a month, attracting investors.
The euro slid versus most major peers after economists in an European Central Bank survey cut their 2013 growth forecast to 0.6 percent from 1 percent. While the ECB and the Federal Reserve signaled last week there may be more steps to spur economic growth, they refrained from taking action. The extra yield for investing in U.S. two-year debt versus comparable Japanese securities climbed, and U.S. stocks fluctuated.
“There’s a lot of talk from central banks, but no actions,” Dean Popplewell, head analyst in Toronto at the online currency-trading firm Oanda Corp., said in a telephone interview. “The risk momentum that we’ve been experiencing ever since the Fed and the ECB stepped up their rhetoric is becoming slightly deflated.”
The euro dropped 0.6 percent to $1.2293 at 3:19 p.m. New York time in its third daily loss. The 17-nation currency declined 0.4 percent to 96.60 yen, after rising earlier as much as 0.3 percent. The greenback rose 0.2 percent to 78.59 yen.
Treasury two-year note yields touched 0.28 percent, the highest since July 6. Japanese two-year government debt yielded less than 0.1 percent for a difference of 18 basis points, or 0.18 percentage point, almost the most since July 5. U.S. 10- year yields reached 1.73 percent, the highest since May 30.
The Standard & Poor’s 500 Index (SPX) was up 0.1 percent after falling 0.2 percent. It gained for the past four days.
Deficit Narrows
Japan’s currency erased an earlier gain versus the dollar after data showed the U.S. trade deficit narrowed more than forecast as a drop in crude oil prices helped cut the nation’s import bill. The gap shrank 11 percent in June to $42.9 billion, the smallest since December 2010, from $48 billion in May, Commerce Department figures showed in Washington.
“The narrowing of the trade deficit and the components of it will help add to second-quarter GDP -- more economic growth,” Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York, said in a telephone interview. “It helps risk sentiment a little bit, which usually hurts the yen.”
The currency appreciated earlier after the Bank of Japan (8301) refrained from adding stimulus at a policy meeting. The central bank kept its asset-purchase fund at 45 trillion yen ($574 billion) and lending facility at 25 trillion yen, according to a statement released in Tokyo. All 22 analysts surveyed by Bloomberg News predicted no change.
Biggest Loser
The yen declined 1.6 percent over the past week, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar lost 1.1 percent, while the euro was little changed.
Capital has begun flowing out of the countries sharing the euro, signaling “another storm” may be about to break, according to Thomas Kressin of Pacific Investment Management Co., which manages the world’s biggest bond fund.
The euro lost 5 percent of its value since the beginning of May, on a trade-weighted basis, and about 8 percent against the dollar, according to Kressin, head of European foreign exchange at Pimco in Munich. That contrasts with earlier crisis periods when the euro held steady as capital flowed from peripheral nations into the core, Kressin said in a posting on the company’s website.
The economists surveyed by the ECB forecast the region’s economy will shrink 0.3 percent in 2012, compared with a 0.2 percent contraction predicted last quarter.
‘With Conviction’
If the shared currency can penetrate the $1.23 level “with conviction,” it would indicate the euro’s recent rally is losing momentum, Oanda’s Popplewell said. Such a move would probably lead the euro down to the $1.22 level, he said.
The euro has a long-term target of $1.10, Nick Sargen, chief investment officer at Fort Washington Investment Advisors Inc. in Cincinnati, said in a telephone interview. The firm oversees $40 billion.
“You have a lot of economies in the periphery that aren’t competitive,” Sargen said on Bloomberg Television’s “Lunch Money” in an interview with Stephanie Ruhle. “If they weren’t tied to the euro, they would’ve been depreciating long ago. The long-term process of adjustment points in the direction of eventual further weakness of the euro.”
The shared currency has a 40.9 percent chance of breaking up by year-end and a 56.1 percent chance of dissolving by the end of 2013, according to Dublin-based Intrade.com. The odds were 36.4 percent and 55.1 percent a week ago.
The Norwegian krone fell against all of its major counterparts, weakening as much as 1 percent to 5.9375 against the greenback in its biggest intraday drop since July 6.
Canadian Dollar
The Canadian dollar reached a record high against the euro after Bank of Canada GovernorMark Carney said the strength of the nation’s economy may require interest rates to be increased. The loonie, as the currency is nicknamed, climbed as much as 1 percent to C$1.2173 to the shared currency. It gained 0.2 percent to 99.24 cents per dollar.
Mexico’s peso rose against most major peers after an unexpected decline in claims forunemployment benefits in the U.S boosted the outlook for Latin America’s second-biggest economy. The U.S. is Mexico’s biggest trade partner. Initial jobless claims fell by 6,000 to 361,000 last week, compared with a Bloomberg survey that forecast an increase to 370,000.
The Mexican currency advanced 0.2 percent to 13.12 per dollar, boosting its rally this year to 6.2 percent, the biggest gain among the dollar’s 16 most-traded counterparts.
ECB officials are working on a plan to buy enough government bonds to ease the region’s financial turmoil, bank President Mario Draghi said after a policy meeting Aug. 2. Details will be released in coming weeks, he said. The ECB held its benchmark interest rate at a record low 0.75 percent.
The Fed said Aug. 1 after a meeting it “will provide additional accommodation as needed” to spur growth and employment. It refrained from action this month.
