Barefoot Investor: December 2011

Asian stocks fell as a a sign for China and Japan grow is slowing down due to concern that Europe’s debt crisis is worsening.

The MSCI Asia Pacific Index fell 2.3 percent to 112.45 this week after Moody’s Investors Service and Fitch Ratings warned that Europe faces lower credit ratings as it struggles to contain its debt crisis. Italy sold 3 billion euros of five-year notes on Dec. 14 with a yield of 6.47, the most since May 1997.

The Shanghai Composite Index (SHCOMP) sank 3.9 percent, extending losses for a sixth week.

Japan’s Nikkei 225 Stock Average (NKY) decreased 1.6 percent this week after the Bank of Japan’s Tankan survey showed sentiment among the nation’s largest manufacturers deteriorated more than economists expected. South Korea’s Kospi Index dropped 1.9 percent. Australia’s S&P/ASX 200 slid 1 percent. (Bloomberg)


Asian currencies strengthened,after a jobless claim report in US fell to the lowest level.

The rupee jumped 1.7 percent to 52.7450 per dollar in Mumbai, the biggest gain since May 2010. As for the Philippine peso rose 0.7 percent to 43.830,China’s yuan also climbed by 0.4 percent to 6.3484 which mean it was up 0.3 percent for the week. The South Korean won strengthened 0.4 percent to 1,158.73, trimming its weekly drop to 1 percent.

Meanwhile, indonesia rupiah gained 0.6 percent to 9,035 and was up 0.5 percent for the week. As for the China yuan, it has strengthened the most in two months as signs credit curbs are easing bolstered optimism policy makers will avoid a sharp slowdown in the world’s second-largest economy.

Malaysia’s ringgit advanced 0.4 percent yesterday to 3.1778 per dollar and was down 0.8 percent for the week, and Taiwan’s dollar was little changed at NT$30.369 and dropped 0.4 percent this week whereas, Thailand’s baht was up 0.1 percent at 31.34 which mean a declined of 1.3 percent for the week. (Bloomberg)


The 17-nation euro yesterday erased losses versus the dollar after the Financial Times reported that Europe may combine temporary and planned permanent rescue facilities to bolster its bailout resources. The European Central Bank is forecast to cut interest rates tomorrow. Australia’s dollar rose against most major counterparts after a report showed faster- than predicted economic growth.

The euro advanced 0.2 percent to 104.33 yen as of 1:30 p.m. The common currency appreciated 0.2 percent to $1.3422. The dollar was unchanged at 77.73 yen. U.S. Treasury Secretary Timothy F. Geithner yesterday backed a German-French push for closer European cooperation, urging policy makers to work with central banks to erect a “stronger firewall” to end the crisis.

Rescue Funds

Operating the European Stability Mechanism in combination with the 440 billion-euro ($590 billion) temporary fund next year would potentially boost Europe’s anti-crisis resources to 940 billion euros. There were negotiations over pairing the two.

The ECB will reduce its benchmark rate to 1 percent from 1.25 percent on Dec. 8, according to the median estimate of 58 economists surveyed by Bloomberg.

ECB Governing Council member Ewald Nowotny said this week that the central bank is observing liquidity shortages in the banking sector and can do more to supply funds.

The euro will rise to $1.37 by September 2012, according to a Bloomberg News survey of analysts. It has fallen 1 percent in the past month, according to Bloomberg Correlation-Weighted Indexes tracking the currencies of 10 developed markets. The yen has advanced 2.4 percent, the best performer, and the dollar has gained 1.9 percent over that period, the data show.

High-Yield Currencies

Jobless claims in the U.S. probably fell to 395,000 last week from 402,000 the prior week, economists in a Bloomberg News survey forecast before the Labor Department tomorrow.

Consumer sentiment will likely pick up this month, according to another Bloomberg survey before the preliminary Thomson Reuters/University of Michigan survey due on Dec. 9. Confidence rose to 65.8 from 64.1 at the end of November, the data is forecast to show. (Bloomberg)


The Australian and New Zealand dollars rose after Italy’s Cabinet approved austerity and growth measures before a summit on Europe’s debt crisis, supporting demand for riskier assets.

New Zealand’s currency was 0.6 percent from a three-week high against the yen before a report today forecast to show services industries in the U.S. expanded in November. Gains in the so-called Aussie may be limited on speculation the Reserve Bank of Australia will cut interest rates when it meets tomorrow.

Australia’s dollar advanced 0.1 percent to $1.0228 as of 2:11 p.m. in Sydney from last week in New York. The currency fetched 79.74 yen from 79.67 yen on Dec. 2. New Zealand’s currency strengthened 0.1 percent to 77.81 U.S. cents. The so- called kiwi dollar traded at 60.67 yen from 60.61 yen on Dec. 2, when it touched 61.12 yen, the highest since Nov. 14.

Australia’s Inflation

Consumer prices in Australia rose 2.1 percent last month from a year earlier, compared with a 2.6 percent annual gain in October, according to an index compiled by TD Securities Inc. and the Melbourne Institute released in Sydney today.

Australia’s central bank aims to hold annual inflation in a 2 percent to 3 percent range.

“Odds have shortened for” a 25 basis points cut by the RBA tomorrow, Besa Deda, chief economist at St. George Bank Ltd. in Sydney, wrote in a research note today. “Soft patches in the domestic economy are yet to make a marked recovery.”

Australia’s benchmark rates will drop to 4 percent next year, Deda forecast.

A Credit Suisse Group AG index based on swaps shows an 87 percent chance Reserve Bank’s cash rate will be cut from 4.5 percent to 4.25 percent.

Higher rates in Australia and New Zealand, compared with as low as zero in the U.S. and Japan, attract investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.

New Zealand’s official cash rate is 2.5 percent. The Reserve Bank of New Zealand holds a policy meeting on Dec. 8.

The nation’s two-year swap rate, a fixed payment made to receive floating rates which is sensitive to interest-rate expectations, was unchanged at 2.88 percent.

Australia’s government bonds advanced, with yields on the 10-year debt falling two basis points to 3.98 percent. (Bloomberg)


Asian stocks (MXAP) rose as the euro and oil advanced after Italian Prime Minister Mario Monti introduced a proposal to cut his nation’s debt. The MSCI Asia Pacific Index increased 0.2 percent as of 1:11 p.m. in Tokyo, adding to the 8 percent surge last week. Standard & Poor’s 500 Index futures gained 0.8 percent. The euro added 0.2 percent to $1.3416, while the yen fell against most of its 16 major counterparts. Oil climbed for a second day to $101.48 a barrel. The Shanghai Stock Exchange Composite Index retreated 0.6 percent.

S&P 500 futures expiring in December climbed to 1,252.90. Treasuries fell, pushing the yield on the 10-year note up three basis points to 2.07 percent. Service industries in the U.S. probably expanded in November at the fastest pace in six months, a sign the economy is accelerating in the final months of 2011.

Uranium Exports

The Shanghai Composite (SHCOMP) has fallen for the past four weeks and tumbled 16 percent this year. A purchasing managers’ index of non-manufacturing industries for November fell to 49.7 from 57.7 the previous month, the China Federation of Logistics and Purchasing said on Dec. 3. A reading above 50 indicates expansion.

About the same number of stocks rose and fell in the MSCI Asia Pacific Index. Japan’s Nikkei 225 Stock Average climbed 0.6 percent and Australia’s S&P/ASX 200 jumped 1.1 percent.

Energy Resources of Australia Ltd., a uranium producer controlled by Rio Tinto Group, rallied 11 percent for the biggest advance in the S&P/ASX 200. (AS51) Deep Yellow Ltd. (DYL), which explores for uranium, jumped 6.9 percent. Australia, holder of the world’s biggest uranium reserves, cleared a political hurdle to supplying India with the nuclear fuel after the governing Labor Party voted yesterday to end an export ban.

Asian Growth

The euro extended its first weekly climb against the dollar in more than a month. A proposal to channel European Central Bank loans through the International Monetary Fund may deliver as much as 200 billion euros ($268 billion) to fight the crisis.

Oil for January delivery rose as much as 0.8 percent to $101.73 a barrel. Iran said oil will breach $250 a barrel if nations threaten to ban its purchases. Iran pumped 5 percent of the world’s oil last year.

The cost of insuring Asia-Pacific corporate and sovereign bonds against non-payment declined. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 7 basis points to 195 basis points, Credit Agricole SA prices show. The benchmark is set for its lowest close since Nov. 8. (Bloomberg)


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