Currency

(Reuters) – The yen rose against the dollar and the euro on Tuesday, rebounding from losses as falling stock markets worldwide prompted safe-haven demand for the Japanese currency.

The dollar slipped against the euro and a basket of currencies but the decline could be short-lived on a view that the Federal Reserve may begin to reduce its huge bond-buying economic stimulus earlier than some had anticipated.

After a strong U.S. ISM factory report on Monday, investors are now looking to U.S. economic growth data on Thursday and, in particular, U.S. nonfarm payrolls numbers on Friday for further signs of when the Fed may act.

The dollar fell 0.5 percent to 102.49 yen after reaching 103.37 yen in Asian trading, according to Reuters data. That was close to its 2013 high of 103.73 yen, a level dollar bulls have been targeting.

“The yen caught a reprieve from extreme selling as a solid coat of red across global bourses spurred a round of safe-haven interest,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

“Sentiment, though, remained decidedly bearish on the view that the Bank of Japan will press ahead, and maybe extend, its current pace of support to the world’s No. 3 economy.”

Trading volumes of dollar/yen were almost double the average over the past month, according to data from the Reuters dealing platform. The dollar is up 18 percent against the yen this year and rose strongly over the past month, on expectations the U.S. would soon scale back its bond-buying program while Japanese monetary policy remained loose.

The BoJ’s commitment to easy policy makes the yen the best funding currency for investing in higher-yielding assets in so-called carry trades. When riskier assets such as stocks fall, investors would buy back the yen, giving it a perceived safe- haven status.

Net yen short positions were at their highest since July 2007, according to data from the Commodity Futures Trading Commission.

“There are certainly signs that short positioning is becoming more stretched at current levels, while our short-term valuation model is signaling the yen is becoming more undervalued,” said Lee Hardman, currency economist at BTMU.

“The key is the payrolls report on Friday,” BTMU’s Hardman said. “If it’s another strong report, then it could push dollar/yen higher.”

The euro retreated from a five-year high of 140.03 yen to 139.19 yen, down 0.2 percent on the day.

Against the dollar, the euro rose 0.2 percent to $1.3573 on expectations the European Central Bank would leave interest rates unchanged this week after above-forecast inflation data last Friday.

“Status quo on ECB monetary policy should persist until the end of the year, with no negative rates in sight,” said Francesco Scotto, portfolio manager at RTFX Fund Management. “Euro/dollar is still on a bullish trend and should maintain this tone until the end of the month.”

The Australian dollar was up 0.2 percent against the U.S. dollar at $0.9124 after data showed solid net exports in July-September as well as firm retail sales in October.

Earlier, the Reserve Bank of Australia reiterated after a policy meeting that the Aussie was still uncomfortably high.

(Additional reporting by Laurence Fletcher in London; Editing by James Dalgleish)

U.S. stocks declined, giving the Standard & Poor’s 500 Index a third day of losses following its latest record, as investors await economic reports this week for clues on when the Federal Reserve will reduce stimulus.

Krispy Kreme Doughnuts Inc. (KKD) plunged 17 percent after quarterly revenue missed analysts’ estimates. Yum! Brands Inc., the owner of KFC and Pizza Hut, fell 2.2 percent after releasing a financial update that showed volatile Chinese sales. Apple Inc. (AAPL) rose 1.5 percent after buying data-analytics firm Topsy Labs Inc.

The S&P 500 declined 0.2 percent to 1,797.39 at 10:30 a.m. in New York. The Dow Jones Industrial Average dropped 60.48 points, or 0.4 percent, to 15,948.29. Trading in S&P 500 stocks was 3 percent above the 30-day average at this time of day.

“It’s really a mixed picture right now,” Dan Veru, the chief investment officer who helps oversee $4.5 billion at Palisade Capital Management LLC, said in a phone interview from Fort Lee, New Jersey. “In the absence of any bigger data, investors are grasping for these little bits of micro data in trying to develop a conclusion. Any market that’s appreciated as much as the stock market has this year is going to be vulnerable to sell-offs.”

U.S. stocks fell yesterday as data showing manufacturing unexpectedly rose last month bolstered the case for the Fed to start curbing stimulus. A separate report indicated spending on a Black Friday weekend fell for the first time since 2009.

Data Watch

Data today indicated online sales on Cyber Monday rose 21 percent from a year ago for a single-day record. Reports on car sales indicated that Ford Motor Co. and Chrysler Group LLC registered November U.S. sales gains that exceeded analysts’ estimates as dealers boosted year-end promotions to trim rising vehicle inventory.

The Commerce Department will release data tomorrow on new home sales and the central bank will publish its Beige Book, which provides policy makers anecdotal accounts of business activity from the Fed districts. Reports on third-quarter gross domestic product and November non-farm payrolls are also due this week.

Central-bank policy makers are considering scaling back their monetary support “in coming months” if the economy improves as anticipated, according to minutes from their last meeting. They next meet on Dec. 17-18.

The S&P 500 has added 26 percent this year, challenging 2003 for the best annual gain in 15 years, after the Fed refrained from trimming its monthly bond purchases and corporate earnings have surpassed estimates.

 

Pacific Investment Management Co.’s Bill Gross, manager of the world’s biggest bond fund, said the unprecedented cash added to the financial system by central banks is raising the risk of a slide in global asset prices.

“Investors are all playing the same dangerous game that depends on a near perpetual policy of cheap financing and artificially low interest rates in a desperate gamble to promote growth,” Gross wrote in his monthly investment outlook posted on Newport Beach, California-based Pimco’s website today. The Federal Reserve, Bank of Japan, European Central Bank and Bank of England “are setting the example for global markets, basically telling investors that they have no alternative than to invest in riskier assets or to lever high-quality assets.”

Gross reiterated that Pimco is focused on shorter-maturity Treasuries, mortgage and corporate debt that will benefit by the Fed keeping its target rate for overnight loans near zero for several years. Fed policy makers cut rates to a record low as the financial crisis mounted in 2008 and vowed to keep them there until the economy and employment show sustained signs of recovery.

“This now near five-year migration across the global asset plains in search of taller grass and deeper water has had limits, both in price and real growth space,” Pimco’s co-chief investment officer wrote. “If monetary and fiscal policies cannot produce the real growth that markets are priced for, and they have not, then investors at the margin” will begin “to prefer the comforts of a less risk-oriented migration.”

‘Be Afraid’

Global stocks beat all assets for a third month in November, the longest winning streak since 2009. Commodities extended declines as gold fell the most since June.

The MSCI All-Country World Index of equities in 45 markets rose 1.5 percent including dividends and the Standard & Poor’s 500 Index reached a record as China pledged to expand economic freedoms, the European Central Bank cut interest rates and speculation increased the Fed will delay reducing stimulus. The U.S. Dollar Index advanced 0.6 percent and the S&P GSCI Total Return Index of 24 commodities fell 0.8 percent. Bonds of all types lost 0.16 percent on average, according to Bank of America Merrill Lynch’s Global Broad Market Index.

“Look for constant policy rates until at least 2016,” in the U.S., Gross said. “Front-end load portfolios. Don’t fight central banks, but be afraid. Global economies and their artificially priced markets are increasingly at risk, but the unwinding may occur gradually.”

The Fed, which has kept its benchmark overnight bank lending rate in a range of zero to 0.25 percent since December 2008, has said it will maintain that rate while unemployment held above 6.5 percent and inflation stayed below 2.5 percent.

The performance of the Total Return Fund over the past three years puts it ahead of 74 percent of similarly managed funds, gaining 4.34 percent over the period, according to data compiled by Bloomberg.

Pimco, a unit of the Munich-based insurer Allianz SE, managed over $2 trillion in assets.

To contact the reporter on this story: Liz Capo McCormick in New York atemccormick7@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Three Major Market Events That WILL Happen

Posted by Bill Bonner - Diary of a Rogue Economist

on Tuesday, 3 December 2013 15:56

Screen Shot 2013-12-03 at 7.37.06 AMThanksgiving is now out of the way. We can move on to Christmas. And New Year’s Eve. And then 2014. And 2015. And onward into the future! 

But what’s in the future? If only we knew… 

Making predictions is tough… especially when we have no idea what to expect. 

But wait… Some of the most important things we will see in the future have already happened many times. 

Yes, dear reader… your editor is going way, way out on a very solid limb. He has identified three things that WILL happen. No doubt about it. He guarantees it. 

I. Interest Rates Will Go Up

Interest rates are not fixed. And the Fed can’t suppress them forever. Nobody has repealed the interest rate cycle. 

So, expect rates to go up. 

When? 

Hey, you want an awful lot from a free publication, don’t you? Isn’t it enough to give you a guaranteed future event? 

We can also tell you that when it happens, there will be hell to pay. Here’s Michael Snyder at Global Research: 

At this point, we have painted ourselves into a corner by accumulating so much debt. We simply cannot afford to have rates rise significantly. 

For example, if the average rate of interest on US government debt rose to just 6% (and it has been much higher than that at various times in the past), we would be paying more than a trillion dollars a year just in interest on the national debt. 

But it wouldn’t be just the federal government that would suffer. Just consider what higher rates would do to the real estate market. 

About a year ago, the rate on 30-year mortgages was sitting at 3.31%. The monthly payment on a 30-year, $300,000 mortgage at that rate is $1,315.52. 

If the 30-year rate rises to 8%, the monthly payment on a 30-year, $300,000 mortgage would be $2,201.29. 

Does 8% sound crazy to you? 

It shouldn’t. 8% was considered to be normal back in the year 2000.

 
II. Our Monetary System Will Collapse

No paper money standard has ever survived a complete credit cycle. Certainly not with a central bank on the job! 

Higher interest rates, bitcoin, a credit crisis, a central bank miscalculation – something will bring it down. Something always does. 

Bitcoin? Maybe. Bitcoin hit the $1,000-per-unit mark on Wednesday, the day before Thanksgiving. My sons followed it over the weekend. 

“Hey, I made $1,000 last night,” said one. “Bitcoin went up $100.” 

“Yeah, and I’m thinking of cashing out and buying an old car,” said another. 

Bitcoin hit $1,230 on Sunday. A bitcoin hedge fund is up 5,000% – which could be the best performance of any hedge fund in history. 

Bitcoin will probably bite the dust sometime soon. That’s the trouble with new technology. There’s always newer technology – and maybe a better bitcoin. 

Meanwhile, the dollar has been in a gentle decline since July. Someday, the decline won’t be so gentle. It will be brutal. Then investors will suffer huge losses as dollar-denominated assets sink. 

Here’s more from Global Research: 

The death of the dollar is coming, and it will probably be China that pulls the trigger. […] 

As the global economy trembled before the prospect of a US default last month… China’s official Xinhua news agency called for a “de-Americanized” world. 

It also urged the creation of a “new international reserve currency… to replace the dominant US dollar”. 

So why should the rest of the planet listen to China? 

Well, China now accounts for more global trade than anyone else does, including the US. 

China is also now the number one importer of oil in the world.

At this point, China is even importing more oil from Saudi Arabia than the US is. 

China now has an enormous amount of economic power globally, and the Chinese want the rest of the planet to start using less US dollars and to start using more of their own currency. The following is from a recent article in the Vancouver Sun: 

Three years after China allowed the yuan to start trading in Hong Kong’s offshore market, banks and investors around the world are positioning themselves to get involved in what Nomura Holdings Inc. calls the biggest revolution in the $5.3 trillion currency market since the creation of the euro in 1999. 

And over the past few years we have seen the global use of the yuan rise dramatically. […] 

International use of the yuan is increasing as the world’s second-largest economy opens up its capital markets. In the first nine months of this year, about 17% of China’s global trade was settled in the currency, compared with less than one percent in 2009, according to Deutsche Bank AG.

 
III. US Empire Will Go the Way of All Empires

The US can still send its ships and bombers to stir up hornets’ nests wherever it pleases. But someday the hornets will develop a deadly sting. 

Or maybe the empire will just go broke. 

Who knows? Every empire has to find a way to exterminate itself. The US will be no exception. 

This last event could be the most exciting. Falling interest rates and collapsing currencies can be fun to watch, provided you’re not standing directly beneath them. But a falling empire? The imperial warriors typically bring down a lot of innocent bystanders along with them. 

But don’t worry. Be happy. Hold onto your gold. 

Regards,

Bill

DETROIT (Reuters) – Pickup trucks continued to drive a resurgence in U.S. vehicle sales in November as the Big Three Detroit automakers all exceeded analysts’ expectations.

Chrysler Group LLC, a unit of Fiat SpA (MIL:F), said Tuesday its U.S. vehicle sales in November jumped 16 percent to 142,275. General Motors Co (GM) said November sales climbed 14 percent to 212,060. Ford Motor Co (NYS:F) said its November sales rose 7 percent to 190,449.

The industry’s torrid sales pace in November reached an annual rate of 16 million vehicles, according to GM, the second highest for the year and well above last month’s annual rate of 15.2 million. Analysts polled by Thomson Reuters had estimated the seasonally adjusted annual sales rate in November was 15.75 million.

Big trucks were the best-selling vehicles at each of the Detroit automakers.

Ford’s industry-leading F-series pickup outsold all of the company’s passenger cars combined, rising 16 percent to 65,501. Combined sales of GM’s Chevrolet Silverado and GMC Sierra were up 15 percent at 48,748. Chrysler’s Ram pickup gained 22 percent to 29,635.

Volkswagen of America said its VW brand sales in November fell 16 percent to 30,727. VW does not sell pickup trucks in North America.

Industry researchers said manufacturers continued to provide ample incentives averaging $2,500 per vehicle and more in November.

“It’s pretty clear that the industry was super aggressive as we approached the holiday season (and) through the Thanksgiving weekend,” said Jonathan Browning, chief executive of VW of America.

(Reporting by Ben Klayman and Paul Lienert in Detroit; Editing by Gerald E. McCormick and Maureen Bavdek)