Study: Tapioca pearls in bubble tea contain carcinogens
Aug 30, 2012
BERLIN, Aug30 — German health authorities and researchers have come out swinging recently against the Taiwanese drink bubble tea, warning that the popular dessertbeverage presents a choking hazard to children and may contain cancer-causingchemicals.
The warnings, released separately, come as Europe — and Germany in particular — begin to catch on to thebubble tea trend which has already swept major urban centres in North America to become a popular dessert beverage.
After analysing the tapioca balls which make up the “bubbles” in the drink,researchers from the University Hospital Aachen, for instance, found that the pearls contained polychlorinated biphenyls (PCBs) — such as styrene,acetophenone, and brominated substances — chemicals that shouldn’t be in food at all, researchers told German paper The Local.
Samples were taken from an unnamed chain in Mönchengladbach, in northwest Germany and the tapioca balls were made in Taiwan.
The study comes on the heels of a public health warning from the country’s German Federal Institute for Risk Assessment earlier this month, which warned that the tapioca balls also present a choking risk to children.
“Especially with children aged up to four years, there is a risk of foreign objects accidentally entering the lungs,” said Dr Andreas Hensel in a statement.
“And that is precisely what can happen when the bubbles are sucked up through a straw.”
Meanwhile, the institute says no bubble tea-related accidents have yet been reported. — AFP-Relax news
Wednesday 29 August 2012
Tuesday 28 August 2012
Market Update - 29 August 2012
· Another choppy session with stock sending flat to lower and treasuries grinding higher in the US.
· USD MYR still trading in its3.1000-3.1500 range after last week’s false break below 3.1000, expecting thin trading volume today with a tight range of 3.1050-3.1250
· US data was mixed with the CB consumer confidence figure falling to 60.6 from 65.4 in July,surprising markets but not reading as poorly as it did in 2011 when it reach eda low of 40.
· The S&P Case Shiller HPI show edits first annual gain since Sep 2010, adding to the growing positives from the US housing market. Finally the Richmond Fed manufacturing index bounced from -17 to -9,rounding off what on balance was seen as a positive for QE as the dollar sold off.
· David Riley, director of sovereign ratings Fitch rating agency also warned that the US fiscal cliff posed “real concerns” and that the AAA rating was at risk of a downgrade in H1 2013.
· Money supply figures out of Europe gave the currency there a shot in the arm and is a good sign for Europe, M3 rising at an annual rate of 3.8%. The measure has been rising steadily since the end of last year (post LTRO1).
· News that Mario Draghi will not beat tending the Jackson Hole event this weekend due to a heavy workload permeated markets. The next ECB meeting is on the 6th Sep and as we know they are furiously working on measures to handle the sovereign bond buying program, more rumours abound overnight.
· Catalonia is to seek €5bnfrom the central government. This was expected and had been flagged before but the headline perhaps just spooking markets somewhat. Meanwhile Spanish GDP was confirmed as falling by 1.3% on an annual basis. Spanish 10yr yields blew out 10bps to 6.48%
· USD MYR still trading in its3.1000-3.1500 range after last week’s false break below 3.1000, expecting thin trading volume today with a tight range of 3.1050-3.1250
· US data was mixed with the CB consumer confidence figure falling to 60.6 from 65.4 in July,surprising markets but not reading as poorly as it did in 2011 when it reach eda low of 40.
· The S&P Case Shiller HPI show edits first annual gain since Sep 2010, adding to the growing positives from the US housing market. Finally the Richmond Fed manufacturing index bounced from -17 to -9,rounding off what on balance was seen as a positive for QE as the dollar sold off.
· David Riley, director of sovereign ratings Fitch rating agency also warned that the US fiscal cliff posed “real concerns” and that the AAA rating was at risk of a downgrade in H1 2013.
· Money supply figures out of Europe gave the currency there a shot in the arm and is a good sign for Europe, M3 rising at an annual rate of 3.8%. The measure has been rising steadily since the end of last year (post LTRO1).
· News that Mario Draghi will not beat tending the Jackson Hole event this weekend due to a heavy workload permeated markets. The next ECB meeting is on the 6th Sep and as we know they are furiously working on measures to handle the sovereign bond buying program, more rumours abound overnight.
· Catalonia is to seek €5bnfrom the central government. This was expected and had been flagged before but the headline perhaps just spooking markets somewhat. Meanwhile Spanish GDP was confirmed as falling by 1.3% on an annual basis. Spanish 10yr yields blew out 10bps to 6.48%
Monday 27 August 2012
Dollar Remains Higher Against Yen Before U.S. Manufacturing Data
By Masaki Kondo and Kristine Aquino
Aug. 28 (Bloomberg) -- The dollar remained higher following a two-day advance against the yen before U.S. reports that economists say will point to improvement in consumer sentiment and regional manufacturing.
The greenback also maintained a gain versus the euro before Federal Reserve Chairman Ben S. Bernanke delivers a speech on Aug. 31 at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming. Demand for the euro was limited ahead of German data forecast to show consumer sentiment will fall for the first time in three months.
"The market may be open for disappointment" at Jackson Hole, said Derek Mumford, a director in Sydney at Rochford Capital, a currency risk-management company. "Assuming there won't be significant quantitative easing, then the U.S. dollar could have quite a strong performance in the
next couple of months."
The dollar traded at 78.77 as of 7:54 a.m. in Tokyo after rising 0.3 percent in the past two sessions to 78.74 yesterday. It was little changed at $1.2504 per euro after a 0.1 percent gain in New York. The common currency traded at 98.47 yen after losing 0.2 percent since Aug. 23 to 98.43.
The Fed Bank of Richmond is forecast to say today that its factory index for the region advanced to minus 10 this month from minus 17 in July, according to the median estimate of economists surveyed by Bloomberg News. A reading of less than zero signals contraction.
Confidence Improving
A gauge of U.S. consumer confidence probably rose to 66 in August, the highest since April, from 65.9 last month, a separate poll of economists shows. The Conference Board is scheduled to release the data today.
Bernanke probably won't use his Aug. 31 speech in Jackson Hole to suggest a third round of bond buying is at hand, according to economists including Michael Feroli at JPMorgan Chase & Co. in New York and James O'Sullivan at Valhalla, New York-based High Frequency Economics. Fed policy makers, who meet next on Sept. 12-13, are closely monitoring unemployment and other data and have been divided about whether to spur expansion.
GfK's index of German consumer sentiment is likely to decline to 5.8 in September from 5.9 this month, according to economist projections taken before the market research company reports the figure today.
Thursday 16 August 2012
Market Update - 17 August 2012
Data in the US seemed to lead risk markets higher overnight. First initial jobless claims printed 366k, which is towards the lower end of the 350-400k range we’ve seen in 2012.
Housing starts softened marginally to 746k from 760k but building permits jumped to 812k from 755k last week, which is the first print over 800 since mid 2008 and the series continues to show a modest but consistent uptrend.
Finally the Philly Fed manufacturing index bounced from -12.9 to -7.1, not as much as expected but at least it’s heading in the right direction.
USDMYR opened at 3.1250 again, it seems the positive sentiment from NY did not seem to carry forward to the Asian markets today, as usual tight range trade, even more so for today as most are away for Raya holidays, range expected to be at 3.1000-3.1500
Angela Merkel was also speaking on a state visit to Canada and the markets latched on to a quote that appeared to support Mario Draghi’s vow to save the Euro at all costs. The Euro rose 65pts to close 1.2355.
Elsewhere in Europe equities posted solid gains, the Stoxx 50 index rose 1.08% led by Spain (+4.05%). Spanish yields fell 11bps on the 10yr while German and French bonds were also slightly stronger.
Stocks had been slipping until midnight here and treasuries were stronger but once the US data was out an afternoon rally ensued. The S&P closed 0.71% higher and the DOW was up 0.65% led by tech stocks after CISCO Systems rose 10% on the back of a 56% jump in profits.
Treasuries slipped with yields up 2bps to 1.835 while oil and gold both posted solid gains, up 0.92% and 0.75% respectively as the US dollar was weaker everywhere except Japan, USDJPY up 35pts to 79.35.
Wednesday 15 August 2012
Market Update - 16 August 2012
I would say markets were pretty uneventful last night despite two headline datas being released in the U.S, but neither came out to be a shocker.
Malaysia’s Q2 GDP data came in well above expectations at 5.4% yoy (OCBC forecast for a 4.0% showing), with Q1 number also revised up from 4.7% to 4.9%. With this latest figure, overall growth for 2012 is likely to be in the upper half of the 4-5% target, above our current forecast for a 4.2% showing.
The key to the Q2 GDP performance was the spike in investment growth, at a record-high 26.1% yoy in the period, and very interestingly, the balance between private and public investment is roughly equal, although it is without doubt that government’s initiative is behind the drive – also evidenced in the jump of public sector consumption during the period.
USDMYR opened where it closed at 3.1250 with the immediate range of 3.1000-3.1500 pretty much in tact, range trade likely to dominate and sell on rallies towards the resistance and buy on dips towards the support will be the trend we expect for next couple of weeks
U.S Industrial production rose by a stronger than expected 0.6% in July after a downward revised 0.1% in June. The main driver for the month was a pop in auto and mining production while warmer-than-typical weather pushed electrical utility output higher. In all, manufacturing production, which makes up 75% of the headline index, rose by 0.5% m/m with production ex-autos rising by a more subdued 0.2% m/m.
US CPI was the main event overnight and it showed a slowing in price rises across the board It’s quite a strong hint to show that there could be further QE if thing worsens as inflation is subdue.
The U.S Empire manufacturing index for August was much weaker than expected falling to -5.85 from 7.39, the first negative reading on the headline index since last October.
U.S. Treasury 10-year rates jumped to the highest in almost three months as signs of improvement in the U.S. economy damped speculation the Federal Reserve will expand monetary stimulus. Yields reached 1.79 percent as government reports showed industrial production rose more than analysts estimated.
German 10-year bond yields rose to the highest in more than six weeks after European Economic and Monetary Affairs Commissioner Olli Rehn signaled Spain is weighing a request for a sovereign bailout.
The Standard & Poor’s 500 Index added 0.1 percent to 1,405.53, while the Stoxx Europe 600 Index slipped less than 0.1 percent after falling as much as 0.6 percent.
Tuesday 14 August 2012
Market Update - 15 August 2012
- Market was up before the US data was released yesterday with the US retails sales figure to start the week.
- The figures showed a 0.8% increase in July, the first rise in four months and a sharp rebound from last month’s fall of 0.5% which was actually revised down to -0.7% last night (the biggest contraction since 2009).
- Treasuries were softer again, yields up 7.4bps to 1.738%. Gold fell $10 to $1600 as the retail figure diminished hopes of QE. Oil Rose 06%.
- USDMYR opened a tad higher than where it closed yesterday but still trading in a tight range of 3.1100-3.1400 for now with the immediate range stuck at 3.1000-3.1500
- Sporting goods rose the most, but the rise was broad based across sectors, not sure if Olympics was the leading inspiring factor here?
- Not so goods from Europe however with German GDP growth slowing to 0.3% QoQ from 0.5% last.
- The figure was better than the survey of 0.2% but when coupled with all the leading indicators, including the ZEW survey last night showing a fall to -25.5 from -19.3 last, then the picture still looks pretty ugly going forward. French GDP was slightly better than forecast, Euro GDP was in line (-0.2%) and industrial production in the bloc contracted 0.6% after rising 0.9% last month.
- According to Olli Rehn, the EU’s Economic and Monetary Affairs Commissioner, “The Spanish Government has an open mind” on the issue of a sovereign bailout.
- The Euro was softer, down to 1.2322 after trading a high of 1.2395 just after German GDP. European stocks rose 0.7% while peripheral yields fell and core yields rose.
- Michael Fuchs, Merkel’s parliamentary deputy, told a German newspaper that unless Greece met its targets then Germany would veto the next round of aid, the Troika report is due mid Sept. Greece tapped the markets last night for €4bn of 3 month debt, paying 4.43%. They need the cash to pay back an ECB held bond due Aug 20 and to pay wages until the next aid package is available.
Monday 13 August 2012
Market Update - 14 August 2012
·
Markets
we stuck in a tight range last night with little driving the markets but
sentiment still a little bearish
·
USDMYR
still pretty much trading in the large range of 3.1000-3.1500 with low volumes
as conviction level is still low and risk sentiment directing the pairs
movement
· Greek
economy shrunk 6.2% for the 2Q versus predictions of -7%, its still bad but
probably disappointed those that are looking for negative numbers
· US
was less positive with concerns over demand out of Asia after Japan’s weak
GDP figure yesterday
· First
to Europe where Angela Merkel is back from holidays and I assume she will be
straight into action talking to world leaders about measures to ease the
crisis, beginning with Canada’s
PM Stephen Harper this week.
· Other
leaders are still holidaying, mind you, England’s PM David Cameron will be
holidaying somewhere in Europe and as such I think a big collaborative effort
on European measures may still be delayed for a few weeks as the holiday season
over there wraps up.
· The
Euro strengthened overnight against the USD on some slightly better news out of
the region; EURUSD trading in the range of 1.2200-1.2400.
· Equity
indices didn’t do a heap with Spain’s
IBEX the only one in slightly positive territory with gains of 0.31%, the Stoxx
600 lost 0.3% and the FTSE lost 0.26%.
Wednesday 8 August 2012
INSIDE MALAYSIA - 9 August 2012
INSIDE MALAYSIA:Ringgit Gains Ahead of June
Factory Output Data 8:24
• Ringgit advances 0.2% to 3.1005 per dollar before are port that may show Malaysia’s industrial output expanded at a slower pace in June.
• Malaysia will probably see June industrial production at +4.8% Yoy when govt releases data at around noon, according to median est. of economists in Bloomberg survey; May was +7.6%
• USD/MYR’s 14-day RSI at 34.4, approaching oversold level of 30; pivot point is at 3.1027; support is at 3.0950; resistance is at 3.1152
• 1-yr NDFs rise 0.2% to 3.1491 per dollar
• 1-mo. implied volatility falls 15bps to 6.30%
• 1-yr interest-rate swaps little changed at 3.085%
• Yield on 3.418% govt bonds due August 2022 little changed at 3.41% yesterday
Factory Output Data 8:24
• Ringgit advances 0.2% to 3.1005 per dollar before are port that may show Malaysia’s industrial output expanded at a slower pace in June.
• Malaysia will probably see June industrial production at +4.8% Yoy when govt releases data at around noon, according to median est. of economists in Bloomberg survey; May was +7.6%
• USD/MYR’s 14-day RSI at 34.4, approaching oversold level of 30; pivot point is at 3.1027; support is at 3.0950; resistance is at 3.1152
• 1-yr NDFs rise 0.2% to 3.1491 per dollar
• 1-mo. implied volatility falls 15bps to 6.30%
• 1-yr interest-rate swaps little changed at 3.085%
• Yield on 3.418% govt bonds due August 2022 little changed at 3.41% yesterday
Market Update - 9 August 2012
Standard Chartered Plc CEO Peter Sands hits back at the New York regulator’s claim that the bank broke US sanctions, and said he saw “no grounds” for revoking the lender’s license.
Fitch affirmed Germany AAA rating, with a stable outlook, meanwhile Greek credit rating outlook downgraded from stable to negative, already at CCC
Bank of England cut GDP forecast but left rates unchanged. GBP/USD is supportive following BOE’s King's assertion that raising rates had limited impact
New Zealand dollar weakened after a surprise increase in jobless rating
Most Asian stocks rose for a fourth day ahead of data expected to show China’s inflation cooling and before a Bank of Japan stimulus decision.
Japan’s machinery orders rebounded less than forecast in June, underscoring concerns that the world’s third-largest economy’s recovery will slow in the second half of this year
The weakest monsoon since 2009 is set to prevent India’s Prime Minister Manmohan Singh from reducing the biggest budget deficit among the largest emerging markets, thus increasing the risk of a downgrade of India’s debt rating
Gold advances for the third time in four sessions on speculation that central bank will take steps to bolster the economy, increasing the appeal of precious metal as a store of value
USD/MYR largely unchanged from yesterday, trading within the range of 3.0900 - 3.1100
Tuesday 7 August 2012
Bursa Malaysia Weekly Trading Participation (30 July to 3 August)
| Bursa Malaysia Weekly Trading Participation (30 July to 3 August) | |||
Local Retail
|
Local Instituion
|
Foreign
| |
(%)
|
(%)
|
(%)
| |
30-Jul-12
|
23.43
|
51.70
|
24.87
|
31-Jul-12
|
18.62
|
46.77
|
34.61
|
1-Aug-12
|
16.93
|
55.20
|
27.87
|
2-Aug-12
|
18.47
|
57.77
|
23.76
|
3-Aug-12
|
22.36
|
54.29
|
23.35
|
5 Days Average
|
19.96
|
53.14
|
26.89
|
Previous 5 Days Avg
|
22.47
|
51.64
|
25.88
|
Buy (Sell) RM
Million
|
-61.9
|
-246.25
|
308.16
|
Data show that foreign fund continue buying Malaysia's share with an amount of RM308.16million in a week time compare to last week buying RM677.38million. A drop of 55% compare to previous week. It is 7th week in the role buying share.
Local Institution continues and it is 7th week in the role selling share. Total selling is RM246.25million compare to last week RM373.02million, decrease of 34% compare to previous week.
Meanwhile, Local Retail continues 10th week dispose share and this time amount is RM61.90million compare to last week RM304.34million, decrease of 80%.
Monday 6 August 2012
Market Update - 7 August 2012
Some market updates:
- The yen stays stronger against the dollar after a rally in stocks worldwide spurred speculation that the Bank of Japan will refrain from additional monetary easing at a policy meeting that starts tomorrow
- Wall Street edged higher with the Dow +0.16%, S&P +0.23% and Nasdaq +0.74% with risk-aversions fading as Germany voiced its backing of the ECB bond buying plan.
- RBA is expected to hold the cash rate target today, leaving its rate unchanged at 3.5% which could provide some interim support to the AUD
- Standard Chartered Plc has violated federal money laundering laws, they conducted USD 250billion worth of transactions with Iranian banks over seven years, a New York regulator said in an order warning that the firm’s US unit may be suspended from doing business in the state.
- Morgan Stanley & Co is being sued by Hong Leong Finance Ltd. of Singapore over claims that the New York based bank deceptively sold investments it had designed to fail
- KLCI gained for the fourth straight trading day by 0.27% to 1,639.43 as Eurozone woes tapered away. Meanwhile, the Malaysia-China Chamber of Commerce expects bilateral trade between MY and CN to exceed USD 100billion this year.
- Asian stocks swung between gains and losses as the Nikkei newspaper reported Japan’s central bank may refrain from additional monetary easing, offsetting optimism for Europe’s debt crisis after Germany backed the ECB’s bond-buying plan.
- USD/MYR unchanged from yesterday’s closing, expected range today: 3.0900 – 3.1050
Thursday 2 August 2012
Market Update - 3 August 2012
Draghi yesterday announced the ECB is working on a plan to re-enter the bond markets and took the unusual step of naming Weidmnn as the only policy maker to object to the proposal.
President Draghi hinted that open market operations may be implemented, but more details will only be revealed in the coming weeks. He also commented that it is "pointless to go short on the Euro (and) the euro is irreversible."
Asian stocks dropped for a third day and the dollar climbed after ECB President Mario Draghi failed to deliver immediate action to support the euro and a surge in Spanish bond yields added to concern about the regions’ debt crisis.
Wall Street edged down as investors were largely disappointed at the ECB's decision last night: the Dow -0.71%, S&P -0.74% and Nasdaq -0.36%. Markets flocked back to safe haven assets with the US 2y and 10y TSY falling 0.8bp and 5.8bp respectively.
KLCI edged 0.06% higher to 1,633.45 at closing yesterday as investors awaited for the ECB decision last night. Disappointed by the ECB's decision, the hype over a potential "bazooka" intervention should fade to pessimism once again.
USD/MYR opened up higher this morning. USD/MYR expected to trade circa 3.1300 – 3.1500
ECB Heads Toward Fed-Style QE Bond-Purchase Plan: Euro Credit
By Mark Gilbert and Emma Charlton
Aug. 3 (Bloomberg) -- The European Central Bank is edging toward a bond-buying program that investors say could end up printing money, echoing efforts by the Federal Reserve and other central banks to fix a credit crisis nearing its sixth year.
ECB President Mario Draghi yesterday left open the question on whether the bank would neutralize future bond purchases, a step it has taken with all of its interventions to date. He also said the size of the new program would be “adequate to reach its objective” of curbing Italian and Spanish borrowing costs, a contrast with the “limited” scope of the previous approach.
“You shouldn’t assume that we will not sterilize or sterilize,” he told reporters in Frankfurt. Spanish and Italian bonds slumped as Draghi steered clear of spelling out all the full details of his plan, which is being resisted by Germany’s Bundesbank. Spain’s 10-year borrowing cost jumped 45 basis points to 7.18 percent.
“Bit by bit over the past two years, the ECB and all of the euro-region governments have been capitulating,” said Neil Williams, chief economist at Hermes Fund Management, which oversees 29.3 billion pounds ($46 billion) of assets, including government bonds. “I sense from Draghi’s comments he is inching toward QE and now trying to get other ECB members to sign that off. It seems to me inevitable.”
The Fed bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing to cap borrowing costs. The ECB has bought about 220 billion euros ($267 billion) of European government debt through the Securities Market Program it announced in May 2010, though it sterilized those purchases by taking the cash back as deposits to avoid stoking inflation, and hasn’t used the SMP since March.
Bundesbank Objections
Draghi said “risk premia” in the bond market “need to be addressed in a fundamental manner,” and details of the plan would be fleshed out in coming weeks in consultation with governments. “It is clear and it is known that Mr. Weidmann and the Bundesbank have their reservations about programs that buy bonds,” Draghi said, referring to Jens Weidmann, head of the German central bank.
The ECB said July 31 that it drained 211.5 billion euros in seven-day term deposits to neutralize the liquidity created by its government bond purchase program. About 72 banks submitted bids totaling 463 billion euros, up from 397.5 billion euros at a previous operation. The marginal rate on the term deposits was0.02 percent.
“It does seem that the ECB is inching closer towards pushing the button on some version of QE, though details are still somewhat hazy,” said Craig Veysey, head of fixed income at Principal Investment Management Ltd. in London, part of Sanlam Group, which oversees $72 billion.
‘Pyrrhic Victory’
Draghi said that any bond purchases would focus on short- dated securities. Spain’s two-year yield is 4.83 percent, down from as high as 7.15 percent on July 25 though up from a one- year average of 3.77 percent. Two-year Italian yields are 3.74 percent, up from a five-year average of 3 percent.
ECB purchases would “encourage heavier issuance at the front of the Spanish and to a lesser extent Italian curves,” said Marc Ostwald, a strategist at Monument Securities in London. That risks “exacerbating already burgeoning refinancing issues in the next couple of years, thus quite possibly a pyrrhic victory,” he wrote in a research note.
Draghi said countries would have to request help from the European Financial Stability Facility, the euro area’s temporary bailout fund, as a “necessary condition, but it’s not a sufficient condition” for help in curbing bond yields. That would produce a memorandum of understanding ensuring governments don’t shirk their economic responsibilities, according to Mohit Kumar, head of European fixed-income strategy at Deutsche Bank AG in London.
Moral Hazard
“You can definitely say the argument for not doing the Fed-style QE has weakened now,” Kumar said. “It’s all about moral hazards. The ECB was reluctant to do a Fed-style bond purchase because it’s concerned the approach will reduce pressure on troubled peripheral countries to reform. Now an MOU is required before the ECB can intervene and it’s likely to keep pressure on these countries.”
The yield premium investors demand to lend to Spain rather than Germany for 10 years rose to as much as 596 basis points yesterday from 536 the previous day and compared with an average this year of 423. Italy’s 10-year yield premium to bunds jumped
54 basis points to 509.
“Whatever the short-term gut reaction of markets, the ECB announcement constitutes serious progress,” Holger Schmieding, the chief economist at Berenberg Bank in London, wrote in research note. “The ECB explicitly vowed to do what it takes to achieve its target and suggested that it may not sterilize the liquidity injection. In a way, this is a cross of outright quantitative easing and the successful announcement of the Swiss National Bank to do everything to defend a cap for the Swiss franc exchange rate.”
Aug. 3 (Bloomberg) -- The European Central Bank is edging toward a bond-buying program that investors say could end up printing money, echoing efforts by the Federal Reserve and other central banks to fix a credit crisis nearing its sixth year.
ECB President Mario Draghi yesterday left open the question on whether the bank would neutralize future bond purchases, a step it has taken with all of its interventions to date. He also said the size of the new program would be “adequate to reach its objective” of curbing Italian and Spanish borrowing costs, a contrast with the “limited” scope of the previous approach.
“You shouldn’t assume that we will not sterilize or sterilize,” he told reporters in Frankfurt. Spanish and Italian bonds slumped as Draghi steered clear of spelling out all the full details of his plan, which is being resisted by Germany’s Bundesbank. Spain’s 10-year borrowing cost jumped 45 basis points to 7.18 percent.
“Bit by bit over the past two years, the ECB and all of the euro-region governments have been capitulating,” said Neil Williams, chief economist at Hermes Fund Management, which oversees 29.3 billion pounds ($46 billion) of assets, including government bonds. “I sense from Draghi’s comments he is inching toward QE and now trying to get other ECB members to sign that off. It seems to me inevitable.”
The Fed bought $2.3 trillion of mortgage and Treasury debt from 2008 to 2011 in two rounds of so-called quantitative easing to cap borrowing costs. The ECB has bought about 220 billion euros ($267 billion) of European government debt through the Securities Market Program it announced in May 2010, though it sterilized those purchases by taking the cash back as deposits to avoid stoking inflation, and hasn’t used the SMP since March.
Bundesbank Objections
Draghi said “risk premia” in the bond market “need to be addressed in a fundamental manner,” and details of the plan would be fleshed out in coming weeks in consultation with governments. “It is clear and it is known that Mr. Weidmann and the Bundesbank have their reservations about programs that buy bonds,” Draghi said, referring to Jens Weidmann, head of the German central bank.
The ECB said July 31 that it drained 211.5 billion euros in seven-day term deposits to neutralize the liquidity created by its government bond purchase program. About 72 banks submitted bids totaling 463 billion euros, up from 397.5 billion euros at a previous operation. The marginal rate on the term deposits was0.02 percent.
“It does seem that the ECB is inching closer towards pushing the button on some version of QE, though details are still somewhat hazy,” said Craig Veysey, head of fixed income at Principal Investment Management Ltd. in London, part of Sanlam Group, which oversees $72 billion.
‘Pyrrhic Victory’
Draghi said that any bond purchases would focus on short- dated securities. Spain’s two-year yield is 4.83 percent, down from as high as 7.15 percent on July 25 though up from a one- year average of 3.77 percent. Two-year Italian yields are 3.74 percent, up from a five-year average of 3 percent.
ECB purchases would “encourage heavier issuance at the front of the Spanish and to a lesser extent Italian curves,” said Marc Ostwald, a strategist at Monument Securities in London. That risks “exacerbating already burgeoning refinancing issues in the next couple of years, thus quite possibly a pyrrhic victory,” he wrote in a research note.
Draghi said countries would have to request help from the European Financial Stability Facility, the euro area’s temporary bailout fund, as a “necessary condition, but it’s not a sufficient condition” for help in curbing bond yields. That would produce a memorandum of understanding ensuring governments don’t shirk their economic responsibilities, according to Mohit Kumar, head of European fixed-income strategy at Deutsche Bank AG in London.
Moral Hazard
“You can definitely say the argument for not doing the Fed-style QE has weakened now,” Kumar said. “It’s all about moral hazards. The ECB was reluctant to do a Fed-style bond purchase because it’s concerned the approach will reduce pressure on troubled peripheral countries to reform. Now an MOU is required before the ECB can intervene and it’s likely to keep pressure on these countries.”
The yield premium investors demand to lend to Spain rather than Germany for 10 years rose to as much as 596 basis points yesterday from 536 the previous day and compared with an average this year of 423. Italy’s 10-year yield premium to bunds jumped
54 basis points to 509.
“Whatever the short-term gut reaction of markets, the ECB announcement constitutes serious progress,” Holger Schmieding, the chief economist at Berenberg Bank in London, wrote in research note. “The ECB explicitly vowed to do what it takes to achieve its target and suggested that it may not sterilize the liquidity injection. In a way, this is a cross of outright quantitative easing and the successful announcement of the Swiss National Bank to do everything to defend a cap for the Swiss franc exchange rate.”
Wednesday 1 August 2012
Euro Remains Lower Before ECB Meets to Discuss Crisis Measures
By Monami Yui and Mariko Ishikawa
Aug. 2 (Bloomberg) -- The euro failed to rally from a decline yesterday before European Central Bank policy makers meet to discuss ways to tackle the region’s debt crisis today.
The 17-nation currency remained lower versus the yen before Spain sells bonds today for the first time since ECB President Mario Draghi pledged to do whatever it takes to defend the euro,
suggesting the central bank may intervene in bond markets. Demand for the dollar was supported after the Federal Reserve yesterday refrained from monetary easing.
“I think a lot of people are expecting the ECB to announce some sort of ‘shock-and-awe policy’ today,” said Peter Dragicevich, a Sydney-based foreign-exchange economist at Commonwealth Bank of Australia. “If the ECB were to disappoint, we expect the euro to fall.”
The euro bought $1.2237 as of 8:20 a.m. in Tokyo after falling 0.6 percent to $1.2225 in New York. The shared currency traded at 95.96 yen from 95.89 yesterday, when it dropped 0.2 percent. The dollar was little changed at 78.40 yen, following a 0.4 percent gain yesterday.
Investors and politicians are clamoring for ECB action to quell Europe’s sovereign debt crisis, which is threatening to cripple Spain and Italy and tear the 17-nation euro area apart. While Draghi’s commitment in London last week to do what’s needed fueled a global market rally, some economists cast doubt on his ability to build the consensus needed to deliver a game changer.
ECB Meeting
ECB officials meeting in Frankfurt will keep the benchmark interest rate at a record low 0.75 percent, according to 51 of 55 economists in a Bloomberg News survey. Four predict a cut to 0.5 percent. The deposit rate will be left at zero, another poll shows. Spain is set to sell debt today maturing in 2014, 2016 and 2022 today.
The euro has dropped 4.5 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, the worst performance among the 10 currencies tracked by the gauge. The yen has gained 0.2 percent and the dollar strengthened 3.4 percent over the same period.
The Federal Open Market Committee “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” it said yesterday in a statement at the end of a two-day meeting in Washington. Investors had speculated it might signal a third round of asset purchases under quantitative easing.
The pace of hiring in the U.S. in July probably failed to reduce the nation’s 8.2 percent unemployment rate, economists said before a Labor Department report due tomorrow. The data probably will show employers added 100,000 jobs last month, according to the median forecast in a separate survey of economists. Employers added an average of 226,000 a month from January through March.
Aug. 2 (Bloomberg) -- The euro failed to rally from a decline yesterday before European Central Bank policy makers meet to discuss ways to tackle the region’s debt crisis today.
The 17-nation currency remained lower versus the yen before Spain sells bonds today for the first time since ECB President Mario Draghi pledged to do whatever it takes to defend the euro,
suggesting the central bank may intervene in bond markets. Demand for the dollar was supported after the Federal Reserve yesterday refrained from monetary easing.
“I think a lot of people are expecting the ECB to announce some sort of ‘shock-and-awe policy’ today,” said Peter Dragicevich, a Sydney-based foreign-exchange economist at Commonwealth Bank of Australia. “If the ECB were to disappoint, we expect the euro to fall.”
The euro bought $1.2237 as of 8:20 a.m. in Tokyo after falling 0.6 percent to $1.2225 in New York. The shared currency traded at 95.96 yen from 95.89 yesterday, when it dropped 0.2 percent. The dollar was little changed at 78.40 yen, following a 0.4 percent gain yesterday.
Investors and politicians are clamoring for ECB action to quell Europe’s sovereign debt crisis, which is threatening to cripple Spain and Italy and tear the 17-nation euro area apart. While Draghi’s commitment in London last week to do what’s needed fueled a global market rally, some economists cast doubt on his ability to build the consensus needed to deliver a game changer.
ECB Meeting
ECB officials meeting in Frankfurt will keep the benchmark interest rate at a record low 0.75 percent, according to 51 of 55 economists in a Bloomberg News survey. Four predict a cut to 0.5 percent. The deposit rate will be left at zero, another poll shows. Spain is set to sell debt today maturing in 2014, 2016 and 2022 today.
The euro has dropped 4.5 percent in the past six months, according to Bloomberg Correlation-Weighted Indexes, the worst performance among the 10 currencies tracked by the gauge. The yen has gained 0.2 percent and the dollar strengthened 3.4 percent over the same period.
The Federal Open Market Committee “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” it said yesterday in a statement at the end of a two-day meeting in Washington. Investors had speculated it might signal a third round of asset purchases under quantitative easing.
The pace of hiring in the U.S. in July probably failed to reduce the nation’s 8.2 percent unemployment rate, economists said before a Labor Department report due tomorrow. The data probably will show employers added 100,000 jobs last month, according to the median forecast in a separate survey of economists. Employers added an average of 226,000 a month from January through March.
Market Update - 2 August 2012
Yesterday, the ringgit lead gains among emerging Asian currencies but the upside was limited by qualms that authorities in the region would intervene to check currency gains amid a slowing global economy.
The Fed refrained from announcing concrete plans for fresh stimulus but signaled that it will pump fresh stimulus if necessary into the weakening economic expansion to boost growth and reduce an unemployment rate that’s been stuck at 8 per cent or higher for more than three years.
The Fed has also retained its goal of retaining low interest rates till late 2014.
The euro failed to rally from a decline yesterday before ECB policy makers meets to discuss ways to tackle the region’s debt crisis today
Whatever Mario Draghi does today, economists say doing nothing is not an option. “If Draghi just comes out with a do-nothing, markets are going to react extremely badly and the ECB will have a full-blown crisis on their hands” said chief European economist at Societe Generale SA in London
Germany’s credit ratings affirmed by S&P citing Germany’s highly diversified and competitive economy with demonstrated ability to absorb large economic and financial shocks
Wall Street sank as markets were disappointed at the Fed’s decision: The Dow -0.25%, S&P -0.29% and Nasdaq -0.66%.
KLCI edged 0.05% higher to 1,632.47 as markets waited for the FOMC results. The lack of further stimulus may further dampen sentiments today, and the KLCI may see further downside pressure.
Fitch affirmed Malaysia’s long-term foreign and local currency issuer default ratings at A- and A respectively with stable outlook.
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