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US: An ambitious new plan, unveiled by a group of senators known as the “Gang of Six” (3 Republican and 3 Democrat senators), offers a ray of hope in an increasingly grim standoff that has threatened the US’ top-notch credit rating. It would cut the deficit by $3.75tn over a decade. {http://bit.ly/pboITt}
Moody’s has placed five US states on review for possible downgrade. In connection with Moody’s July 13 action placing the Aaa government bond rating of the US on review for downgrade, Moody’s announced that it would assess the ratings of Aaa-rated states to gauge their sensitivity to sovereign risk. The review actions affect a combined $24 billion of general obligations and related debt.
Spectacular Apple earnings last night helped risk on after fairly disappointing BoA and Goldman earnings earlier in the day. APPLE 3Q EPS $7.79 (vs estimates of $5.87) {http://reut.rs/p2Dhvn}. Its shares lept 7%.
Germany’s panel of economic advisers wants the government to urge a haircut on Greek debt of around 50% in view of the worsening euro zone debt crisis, a German daily wrote. “A haircut on existing bonds of around 50 percent should be sought, reducing the debt ratio to around 106 percent from 160 percent,” the Frankfurter Allgemeine Zeitung (FAZ) cited the group as saying in a pre-publication of its Wednesday issue.
The PBoC sets the yuan central parity rate at Cny6.4592 against the dollar today, compared with Cny6.4684 set for the previous trading day. Today’s fix marks another fresh post-FX reform high for the Chinese currency. HSBC write up on future RMB appreciation out earlier {http://bit.ly/qACw9L}
EUROPE
German Chancellor Angela Merkel, Europe’s reluctant paymaster, doused expectations of any comprehensive solution to Greece’s debt crisis at an emergency euro zone summit on Thursday. “Further steps will be necessary and not just one spectacular event which solves everything,” Merkel told reporters on Tuesday
French President Sarkozy will meet Merkel today in Berlin to prepare for a summit of euro zone leaders on the bloc’s debt crisis on Thursday, his office said.
Europe needs lower interest rates and longer repayment periods on emergency aid and should introduce a common bond for the euro zone to prevent future crises, Greek Foreign Minister Stavros Lambrinidis said
GREECE: The FT pick up on the reports running in the Greek press Monday and Tuesday, saying a proposal to tax eurozone banks to help pay for a Greek rescue has emerged as the possible central pillar of a new bail-out programme. The plan, which advocates believe could raise E30bn over three years, could help satisfy German and Dutch demands that private holders of Greek bonds contribute to a new E115bn bail-out, the paper says
The IMF warned that Europe’s debt crisis could have a major global impact if not tackled quickly and it urged euro zone leaders to beef up the region’s rescue fund and recapitalise its banks. Adds pursuing market discipline in the midst of the sovereign debt crisis is “poorly timed” {http://bit.ly/pZK0bg}
Over 50% of Irish firms feel the economic downturn will last more than two years, compared to 21% in April, according to KBC Bank Ireland/Chartered Accountants Ireland survey.
Russia offered Germany long-term deals for natural gas and rare earths on Tuesday, putting pressure on China, which currently dominates the rare earths market, to end delays in agreeing to imports of Russian gas {http://reut.rs/nWIcjZ}
US
A backup plan to raise the U.S. debt ceiling and avoid default could still lead to a negative outlook on the country’s ratings, Moody’s said on Tuesday, highlighting the plan’s failure to substantially reduce the deficit {http://reut.rs/pmaYf3}
Fed Hoenig said the U.S. economy should grow at a modest pace for the next several years, but issued a harsh criticism of the U.S. central bank’s just-concluded bond buying program
Republicans who have refused to compromise with President Barack Obama to avoid a U.S. debt default are heeding the anti-tax wishes of their conservative base but are also risking isolation from many independent voters as public opinion shifts in favor of getting a deal done, a new Wall Street Journal/NBC News poll finds
However grim Washington’s debt and deficit negotiations may seem to Americans, the impasse is nearly as disturbing for China. As the United States’ biggest foreign creditor — holding an estimated $1.5 trillion in American government debt — China has been a vocal critic of what it considers Washington’s politicized profligacy. “We hope that the U.S. government adopts responsible policies and measures to guarantee the interests of investors,” Hong Lei, a foreign ministry spokesman, said at a news conference late last week. – NY Times
The Bank of Canada signaled it was closer to raising interest rates as the domestic economy advances despite threatening economic developments in the United States and Europe. The central bank held its key overnight rate at 1.0%, as expected, but said core inflation will reach the bank’s 2% target earlier than anticipated and that economic growth will speed up in the second half of this year after a second-quarter slump.
ASIA
The Bank of Japan will act flexibly and decisively with an eye on how rises in the yen, among other factors, are affecting the economy, a deputy BOJ governor said, signalling a readiness to ease monetary policy further if the country’s recovery comes under threat
BOJ’s Yamaguchi: CPI Revision to Push Down Y/Y to Near Zero. Pace of US Economic Growth to Rise but US Recovery Pace to Remain Slow. EU Sovereign Debt to Remain Global Concern
BOJ senior loan officer survey showed demand for corporate declined (first time in four quarters) in the June quarter. Diffusion index for corporate fund demand fell to -5 in Q2, compared to +8 in Q1, while the index for large enterprise declined to -2.
IMF said in a report that supply conditions in Japan are expected to normalize this summer and reconstruction spending to pick up steadily. Warns downside risks to the Japanese economy are unusually large. Recommends a hike to 7-8% in consumption tax. Suggests the BOJ to expand the size of the asset purchase program if deflation threatens. Expects the Japanese economy to contract 0.7% in 2011, but sees it growing 2.9% in the next year. Hopes JPY is fairly valued.
Protectionism is on the rise as more countries try to give their economies a leg-up by blocking foreign competition — especially Chinese imports, according to a report by independent economists to be published on Wednesday. The report, by Global Trade Alert (GTA), found almost 200 protectionist steps taken since the G20 summit in Seoul last November. Four out of five of those steps were taken by G20 countries, and almost half — 91 out of 194 — would harm Chinese interests. {http://bit.ly/pj3FCg}
China should widen the daily band for yuan trades against the dollar to shield its economy from global financial market volatility, two government researchers said
CHINA YUAN: The People’s Bank of China sets the yuan central parity rate at Cny6.4592 against the dollar today, compared with Cny6.4684 set for the previous trading day. Today’s fix marks a fresh post-FX reform high for the Chinese currency.
Two senior US senators have warned China that recent clashes with its neighbours in the South China Sea could jeopardise US “national interests” in the region, in comments likely to rankle Beijing. – FT
SOUTH KOREA: President Lee Myung-bak will preside over an emergency meeting of economic ministers today to discuss ways to bring rising consumer prices under control, Yonhap News reports
India’s real GDP is expected to grow by 8.6 per cent this fiscal compared to a growth of 8.5 per cent recorded in FY 11, the Centre for Monitoring Indian Economy (CMIE) said in its monthly review here. The industrial sector is expected to grow at a faster rate of 8.9 per cent compared with the 7.9 per cent growth it registered in 2010-11.
A powerful earthquake hit Central Asia’s densely populated Ferghana valley early on Wednesday, shaking homes and sending residents of several Uzbek and Kyrgyz cities onto the streets in panic, residents said. The U.S. Geological Survey said the 6.1 magnitude earthquake occurred 17.8 km (11.1 miles) underground, about 42 km (26 miles) southwest of Ferghana, a city in the east of Uzbekistan in an area close to the border with Kyrgyzstan.
AUSTRALIA: The Westpac-Melbourne Institute Leading Index, which indicates the likely pace of economic activity three to nine months ahead, fell 0.3 point to 279.5 points in May, marking an annualized growth rate of 1.6% and well below trend of 3%.
LATAM
Brazil’s central bank is set to raise interest rates today to fight stubbornly high prices but the policy outlook for later this year is less clear as the bank weighs economic growth against inflation. Analysts in a Reuters poll were unanimous in predicting an increase in the benchmark Selic lending rateto 12.5 percent from 12.25 percent at Wednesday’s monetary policy meeting, the fifth consecutive hike.
OTHER MARKETS
NIKKEI 9991 (+1%), HANGSENG 21900 (flat), S&P/ASX (+1.6%), SHANGHAI SE COMPOSITE 2779 (-0.6%), KOPSI (+1.1%) – As of 07.00GMT
US STOCKS CLOSE: Dow and Nasdaq scored solid gains as early upbeat US economic data provided lift and later hints that the US was edging closer toward agreement in debt talks allowed stocks to add further gains. Dow ended the Tuesday session with gains of 202 points or 1.63% to end at 12,587 while Nasdaq was up 61 points or 2.22% to end at 2,827.
TSYS: The yield on the 2Y was last at 0.37%, with the 5Y at 1.45%, the 10Y at 2.89% and the Bond at 4.20%.
OIL: WTI crude at 98.08 (+0.6%), Brent crude 117.7 (+0.5%)
Gold last at $1588 (flat) and silver at 39.09 (flat)
New hedge funds in Asia raised $2.86 billion in the first half of 2011 with multi-strategy funds attracting two-thirds of the inflow, a survey from industry tracker AsiaHedge showed on Wednesday. Most of the assets were raised by a handful of big funds with the number of launches falling to 24 from 70 in the same period last year when new funds had gathered $2.8 billion {http://reut.rs/resy1d}
NZ’s whole milk powder auction prices fell by 30% since early March, when prices reached a peak. Prices for delivery in September declined by 4.8% compared to the past two weeks.
COMING UP TODAY( times GMT/ET)
0500/0100 Japan: revised May leading indicators
0530/0130 Japan: BOJ’s Yamaguchi news conference
0600/0200 Germany Jul PPI
– Germany E2.0 bln 3.25% July 2042 Bund Re-opening
0800/0400 Italy May industrial orders
0830/0430 UK Jun CML Gross Mortgage Lending
0830/0430 UK Jul BOE MPC Minutes, Trends in Lending
1000/0600 France May industrial orders
1100/0700 US 15-Jul MBA Mortgage Application Index
1200/0800 Brazil Jul-11 IBGE IPCA-15 consumer prices m/m
1230/0830 Canada May-11 Wholesale sales
1300/0900 Mexico May-11 Retail, Wholesale sales
1300/0900 Mexico May-11 Service sector index, employment
1400/1000 US Jun-11 Existing Home Sales (NAR)
1430/1030 US 15-Jul EIA Crude Oil Stocks
2215/1815 New York Federal Reserve Bank manager of the System Open Market Account, Brian Sack, speech to the Money Marketeers in New York
– Brazil Copom policy decision
Eastern Europe
BULGARIA – June jobless data
ROMANIA – IMF reviews Romania’s precautionary 5 billion euro aid deal
CZECH REPUBLIC – Government meeting (0900)
SLOVAKIA – Unemployment rate 06/11 (1000)
CZECH REPUBLIC – Czech 12-yr bond auction VAR/23 (1215)
POLAND – Net inflation (1400)
HSBC Global Research