Bloomberg News - Government Bonds Fall Around World as Ruble Slides to Low

Government bonds fell around the world as the Federal Reserve moves closer to increasing interest rates, while Russia’s ruble tumbled to a record amid new sanctions. The Australian dollar led a decline in higher-yielding currencies.

German 10-year yields rose three basis points to 1.07 percent at 10 a.m. in London as the rate on similar-maturity Treasuries (USGG10YR) touched a six-week high of 2.57 percent. The Stoxx Europe 600 Index advanced 0.1 percent, snapping a five-day streak of losses, while U.S. equity index futures were little changed. Emerging-market stocks fell for a seventh day after Chinese lending data trailed estimates. The Australian dollar slid as much as 0.5 percent to 90.52 U.S. cents, its weakest level since March 24. Oil led a rebound in commodities from a five-year low.

U.S. data is forecast by economists to show strengthening retail sales, adding to the case for the Fed to raise borrowing costs. European Central Bank President Mario Draghi is meeting with the region’s finance ministers in Milan as the European Union expands its Russia sanctions list, adding 15 companies, including state-controlled energy firms, and 24 people.

“There has been quite a significant shift in terms of interest-rate expectations in the U.S.,” saidMitul Kotecha, the Singapore-based head of Asia-Pacific foreign-exchange strategy at Barclays Plc. “Higher U.S. yields combined with the relative outperformance of U.S. data is helping to propel the dollar forward. There’s a real contrast now between expectations of U.S. monetary policy and Europe and Japan.”

Fed Futures

There’s a 60 percent chance the U.S. central bank will increase its benchmark by July 2015, federal fund futures show, up from a 54 percent chance a month ago. The yield on Treasuries due in a decade climbed 10 basis points this week and is the highest since Aug. 1.

The Bloomberg Global Developed Sovereign Bond Index fell 2.2 percent in the past two weeks, the worst performance since June 2013. French 10-year bonds dropped for a fifth straight day, pushing the yield two basis points higher to 1.42 percent. The rate on similar-maturity U.K. gilts climbed two basis points to 2.52 percent.

The Bloomberg Dollar Spot Index (BCOM), which tracks the greenback against 10 major counterparts, was little changed, set for a 1.1 percent advance this week, the most since the period ended Nov. 1. It earlier touched the highest since July 2013.

Yen Slide

The yen slid 0.1 percent to 107.21 per dollar after weakening 0.2 percent yesterday in a fourth straight day of declines. Japan’s currency is down 2.1 percent this week, set for its steepest weekly loss since June 2013 and the worst performance among Group of 10 currencies after the Australian dollar. The yen reached 107.39 today, the weakest intraday level since Sept. 22, 2008.

Russia’s ruble weakened as much as 0.6 percent to 37.7265 per dollar before trading 0.3 percent lower. The Micex Index advanced 0.9 percent, trimming this week’s decline to 0.9 percent.

The U.S. will “deepen and broaden” measures against Russia’s financial, energy, and defense industries, President Barack Obama said in a statement yesterday, hours after an announcement by the European Union. The latest round of economic restrictions from both the U.S. and the EU will take effect today.

Banned Goods

Russia’s Economy Ministry drafted a list of goods that may be banned in retaliation, including automobile imports, particularly used cars, as well as textiles and clothing, state-run RIA Novosti reported, citing Kremlin economic aide Andrei Belousov.

Russia’s central bank will probably keep interest rates unchanged at 8 percent today, according to 15 of 26 economists surveyed by Bloomberg. Policy makers have raised borrowing costs by 250 basis points since President Vladimir Putin’s incursion into Ukraine’s Crimea peninsula in March to stem the slide in the ruble.

The Stoxx 600 retreated 1.3 percent in the five days through yesterday. Sixteen of the 19 groups on the gauge advanced today as three stocks rose for every two that fell. The volume of shares changing hands in Stoxx 600-listed companies was 28 percent lower than the 30-day average, according to data compiled by Bloomberg.

Weight Loss

Novo Nordisk A/S advanced 2.9 percent after a Food and Drug Administration advisory panel supported the approval of its weight-loss injection Saxenda. Aveva Group Plc slumped 21 percent, its biggest drop in 16 years, after saying currency moves hurt first-half performance.

The MSCI Asia Pacific Index (MXAP) lost 0.3 percent, set for its longest losing streak in four years. China’s aggregate financing and money-supply growth missed estimates, while 702.5 billionyuan ($114.5 billion) of new loans were extended in August, close to the 700 billion estimate of economists.

The data come after figures yesterday showed consumer-price growth slowed more than economists expected in August and producer prices dropped 1.2 percent, exceeding the 1.1 percent decrease predicted by analysts.

The Hang Seng Index (HSI) slid 0.3 percent and the Hang Seng China Enterprises Index of Chinese companies listed in hong Kong fluctuated. Volume was about 17 percent less than the 30-day average for the time of day on Hong Kong’s benchmark index. (BGSV)

The Bloomberg Commodity Index of 22 raw materials rose 0.2 percent after yesterday falling to the lowest since July 2009. West Texas Intermediate oil climbed 0.6 percent to $93.39 a barrel and zinc jumped 0.9 percent to $2,285.25 a metric ton. Gold fell 0.3 percent to $1,237.23 an ounce and silver dropped 0.5 percent to $18.6137 an ounce after earlier today falling to the lowest since June 2013.

To contact the reporters on this story: Nick Gentle in Hong Kong at ngentle2@bloomberg.net; Michael Shanahan in London at mshanahan3@bloomberg.net

Bloomberg News - Australian Employers Add Record Jobs as Currency Jumps: Economy

Photographer: Mark Graham/Bloomberg

Office workers wait for their orders at a coffee shop in Canberra, Australia. The number of full-time jobs rose by 14,300 in August, and part-time employment jumped by 106,700, today’s report showed.

Australian employers added a record number of jobs in August, underscoring the central bank’s reluctance to cutinterest rates further and sending the local currency higher.

The number of people employed increased by 121,000, led by a surge in part-time jobs, as the statistics bureau said a rotation in its survey group affected today’s figures. The jump in employment compares with the median estimate for a 15,000 increase in a Bloomberg News survey of 28 economists. The jobless rate fell to 6.1 percent from a 12-year high of 6.4 percent.

Domestic demand is being spurred by a pickup in housing after a two-year easing cycle saw the Reserve Bank of Australia cut its benchmark rate to a record-low 2.5 percent. The RBA has this year flagged a period of rates stability as it seeks to avoid a growth gap emerging due to falling mining investment.

The data were “much better than expected, and may reflect the official labor market figures catching up with most other indicators of labor demand, which have been painting a more positive picture,” Savita Singh and Riki Polygenis, economists at Australia & New Zealand Banking Group Ltd., said in a research report after the release. “That said, the magnitude of the employment increase also makes today’s figures somewhat difficult to interpret.”

The Australian dollar traded at 91.86 U.S. cents at 12:53 p.m. in Sydney, from 91.57 cents before the data was released. Traders are pricing in 10 basis points of increase to the central bank’s interest rate over the next 12 months, up from 5 basis points before the data, according to an index of swaps from Credit Suisse Group AG in Sydney today.

Survey Change

The number of full-time jobs rose by 14,300 in August, and part-time employment jumped by a record 106,700, today’s report showed. Australia’s participation rate, a measure of the labor forcein proportion to the population, rose to 65.2 percent in August from a revised 64.9 percent a month earlier, it showed.

The statistics bureau said that the increase in part-time employment was driven by factors including a change in the survey group. “The incoming rotation group reported a higher proportion of part-time employed persons than the rotation group it replaced, and contributed 47,000 to the increase in part-time employment,” the bureau said.

Australia’s employment increase in August is equivalent to a rise of about 1.3 million in U.S. payrolls after taking into account the different sizes of the two labor markets, according to Jarrod Kerr, a Sydney-based strategist at Commonwealth Bank of Australia.

Market ‘Skeptical’

“The market’s skeptical,” said Sean Keane, an Auckland-based analyst at Triple T Consulting and the former head of Asia-Pacific rates trading at Credit Suisse Group AG. “Had today’s headline number been 41,000 rather than 121,000 it’s quite likely that the market would’ve been more believing in its response, and that interest-rate markets would’ve sold off even harder.”

Domino’s Pizza Enterprises Ltd. (DMP), a Brisbane-based franchisee of the U.S. home-delivery chain, expects to make about 7,500 new hires over the next few years in its stores across Australia, Japan and Europe, with about a third of that number in the local market, Don Meij, chief executive officer, said in a Aug. 19 interview.

About 3,600 jobs will be in new stores and another 3,600 will be added to existing outlets to help handle new growth, he said. The chain is selling basic pizzas in Australia for A$4.95 ($4.55) each to entice consumers, he said.

Balanced Growth

“We look at the macro environment and run almost against it,” he said. “Whether it’s good times or downturns, people are going to eat breakfast, lunch and dinner every day.”

In a largely unchanged statement accompanying this month’s rates decision, RBA Governor Glenn Stevens said the local exchange rate “remains above most estimates of its fundamental value, particularly given the declines in key commodity prices. It is offering less assistance than would normally be expected in achieving balanced growth in the economy.”

“The bank’s assessment remains that the labor market has a degree of spare capacity and that it will probably be some time yet before unemployment declines consistently,” Stevens said in the statement.

Job gains were strongest in Australia’s eastern seaboard states, rising by 45,300 in New South Wales, the most populous, 26,500 in the northeastern state of Queensland and 26,100 in the traditional manufacturing hub of Victoria.

Consumer confidence fell this month as households remained concerned about the government’s budget, which includes spending cuts and a new tax on high-income earners.

Loose monetary policy has boosted the property market. House prices in the year through August jumped 16.2 percent in Sydney and 11.7 percent in Melbourne, according to an RP Data-CoreLogic Home Value Index.

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

BBC News - Mark Carney warns Scotland over pound

Bank of England governor Mark Carney has told trade unions that currency union in the event of Scottish independence would be "incompatible with sovereignty".

"Currency union is incompatible with sovereignty," Mr Carney said

Mr Carney told the TUC conference that a currency required a centralised bank and shared banking regulations.

Common taxation and spending were also needed, he said.

The SNP said currency union was "in the best interests of both an independent Scotland and the rest of the UK".

It added that currency union plans had been considered in detail.

For their part, pro-union campaigners said a shared currency would be "bad for Scotland".

The Scottish National Party (SNP), which wants to keep the pound in the event of independence, said that its plans had been "considered in detail" by the Fiscal Commission, a working group of the Scottish government.

An SNP spokesperson for Scottish finance minister John Swinney said: "Successful independent countries such as France, Germany, Finland and Austria all share a currency - and they are in charge of 100% of their tax revenues, as an independent Scotland would be. At present under devolution, Scotland controls only 7% of our revenues."

The Conservatives, Labour, and the Liberal Democrats have all come out against a currency union with an independent Scotland.

The SNP spokesperson said that "the political position of the three Westminster parties... will of course change after a Yes vote."

"And as the momentum builds behind the Yes campaign, their currency bluff has well and truly been called," the spokesperson added.

"Unproven currency"

However, the pro-union "Better Together" campaign said that Mr Carney's comments "blew a hole in Alex Salmond's assertions that a separate Scotland could sign up to a currency union with the rest of the UK and still keep control over tax, spending and borrowing."

Alistair Darling, the leader of the campaign, said: "It would mean what would then be a foreign country having control over our economy. That's why a currency union would be bad for Scotland, as well as the rest of the UK."

Scotland would either have to "rush to adopt the euro" or "set up a separate unproven currency," he said.

Mr Darling added that uncertainty over the economy "puts jobs at risk."

"It means a weaker economy and less money to spend on our NHS," he said.

BBC economics editor Robert Peston said that the coalition parties and Labour feared that an independent Scotland in a currency union could "live dangerously beyond its means and borrow on a scale that degraded sterling".

He added: "There was no way that the Tories, Labour and LibDems could allow full budget-making freedom to Scotland even as part of the UK, because to do so would make their argument against monetary union with an independent Scotland look inconsistent and hypocritical.

"They were therefore thrilled today when the governor of the Bank of England agreed with them that a currency union would be incompatible with Scotland being an independent sovereign state," he said.

Bloomberg News - U.S. Economy Enjoys Draghi Dividend as QE-Talk Lifts Treasuries

Photographer: Bradly Boner/Bloomberg

Janet Yellen, chair of the U.S. Federal Reserve, left, with Mario Draghi, president of the European Central Bank, during the Jackson Hole economic symposium in Moran, Wyoming, on Aug. 22, 2014.

Federal Reserve Chair Janet Yellen’s economy may be enjoying some unintended support from European Central Bank President Mario Draghi.

By nudging the euro area closer toward all-out quantitative easing, Draghi is pushing European investors into U.S. Treasuries, reducing the yields on the securities which help dictate borrowing costs for American mortgages and other loans, according to Pierre Lapointe and Alex Bellefleur of Montreal-based brokerage Pavilion Global Markets.

What they call the “Draghi Dividend” explains part of the 50 basis-point drop in the 10-year Treasury rate since the start of the year, which occurred even amid signs the world’s largest economy is strengthening. That hands Yellen’s Fed another form of stimulus even as it cuts back bond-buying of its own and readies to raise interest rates as soon as next year.

“They’re getting some outside help in keeping interest rates low,” said Lapointe in a telephone interview, adding that the outside support will give policy makers some extra comfort when they do come to raising their benchmark. “It’s all very positive and the Fed will like it.”

As of the end of May, $3.4 trillion long-term U.S. Treasuries were owned by euro-area residents, up from $2.8 trillion a year earlier, according to U.S. Treasury Department data.

ABS Program

“We suspect that European accumulation of Treasuries will only have accelerated since then, as it has become increasingly obvious that QE in the euro zone is about to happen,” said Lapointe and Bellefleur in their Sept. 4 report.

While Draghi has held back from buying sovereign debt as the U.S. Fed has done, he announced last week that the ECB would start purchasing private-sector assets next month. He left the door open to fully-fledged government-bond buying if the euro-area economy keeps deteriorating.

Quantitative easing in Europe would be aimed at underpinning inflation expectations in the region and also leave those investors selling bonds to the ECB looking to reinvest the resulting cash in higher-yielding assets, according to the Pavilion report.

Talk of QE alone is enough to make U.S. Treasuries at 2.4 percent more attractive to those investors than Italian debt paying a similar amount or German 10-year bunds yielding less than 1 percent, Lapointe and Bellefleur said, adding that U.S. dollar assets become even more attractive to Europeans as the euro weakens.

Debt Burden

Another positive for the U.S. is that the lower Treasury yields help its government, companies and households reduce their debt burdens as economic growth tops long-term interest rates. “Higher long-term rates would make this more complicated, as continued deleveraging would require materially higher income growth, or nominal debt reduction or both.”

The upshot is that as Draghi tries to boost his own 18-nation economy, he may be lifting that of Yellen’s too.

“The gradual pricing in of euro-QE contributes to lower long-term yields in the U.S., which is effectively a stimulative spillover from the ECB’s policy,” said Lapointe and Bellefleur. “The U.S. is enjoying long-term yields as low as a few years ago, but with a considerably stronger economy. This is a very positive factor for the U.S. economy.”

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

Reuters News - Record German trade surplus points to strong third quarter

The trading floor is pictured at Frankfurt stock exchange June 5, 2014.

CREDIT: REUTERS/RALPH ORLOWSKI

(Reuters) - Germany posted a record trade surplus of 22.2 billion euros in July, suggesting Europe's largest economy could bounce back strongly in the third quarter after suffering a surprise contraction in the second.

Seasonally-adjusted data from the Federal Statistics Office showed exports surged 4.7 percent to 98.2 billion euros, the most goods and services Germany has ever sent abroad in a single month. It was the sharpest rise in exports since May 2012, easily outstripping expectations for a modest 0.5 percent increase.

Coming on the heels of July data showing industrial output and orders jumping, the trade figures suggest the German economy will be able to skirt a technical recession in the third quarter after shrinking by 0.2 percent in the April to June period.

"It looks like demand from U.S. and U.K. is more than offsetting any weakness from German exports to Russia so these fears that German exports would go down the drain were clearly exaggerated," said Carsten Brzeski, senior economist at ING.

He expects the German economy to grow by around 0.3 percent in the third quarter.

The German economy shrank by 0.2 percent in the second quarter due to slow trade and weak investment, leading some economists to warn of a risk that Germany will fall into a technical recession in the third quarter.

Exports - the traditional backbone of Germany's economy - struggled last year and fell in three of the first seven months this year, weighing on overall growth.

Exports to Russia plunged by 15.5 percent in the first half of 2014 amid a standoff between the West and Moscow over Ukraine.

A breakdown of unadjusted data showed exports to the euro zone climbed by 6.2 percent in July compared to the same period last year, while exports to countries outside of Europe were up 7.2 percent.

Imports fell by 1.8 percent. The consensus forecast had been for them to fall by 0.1 percent.

(Reporting by Michelle Martin; Editing by Noah Barkin)

BBC News - ECB cuts rates and launches stimulus programme

The European Central Bank has cut its benchmark interest rate to 0.05%, and introduced new stimulus measures.

The ECB had earlier cut its rate from 0.25% to 0.15% in June, and also became the first major central bank to introduce negative interest rates.

It will also launch an asset purchase programme, which will buy debt products from banks.

It is hoped this move will add liquidity to the financial system and revive lending.

'Mid-road'

The move falls short of a programme of buying government bonds - a process known as quantitative easing (QE), and one which the US Federal Reserve has undertaken.

ECB boss Mario Draghi said that QE had been discussed by the bank.

"Some of our governing council members were in favour of doing more than I've just presented, and some were in favour of doing less," he said.

"So our proposal strikes the mid-road.... a broad asset purchase programme was discussed, and some governors made clear that they would like to do more."

The ECB has been under pressure to kick-start the eurozone economy, as manufacturing output has slowed and inflation has fallen to just 0.3%.

In his latest blog BBC Business Editor Robert Peston described today's move as "a last roll of the dice".

"The European Central Bank has now almost exhausted its ammunition for preventing the Eurozone sliding into a devastating deflationary, contractionary spiral," he said.

The ECB hopes to increase lending in the eurozone economy

Analysis: Andrew Walker, BBC Economics Correspondent

So the ECB is getting back into the business of buying financial assets. No government debt this time, though it's clear that could yet come.

Instead the focus is on assets that bundle up private sector loans.

Does that sound familiar? Yes, it was that kind of stuff that played a central role in the financial crisis, especially mortgage backed securities in the US.

But that market is much less developed in Europe and it could ultimately help the Eurozone deal with another problem: the continued weakness of the banks.

If the market for this type of asset were to expand it would make European business finance a bit more American, with a bigger share of commercial loans coming through the financial markets and less through struggling banks.

'New credit flows'

Referring to one element of the new stimulus programmes, the purchase of asset-backed securities (ABS), Mr Draghi said: "The Eurosystem will purchase a broad portfolio of simple and transparent asset-backed securities with underlying assets consisting of claims against the euro area non-financial private sector under an ABS purchase programme.

"This reflects the role of the ABS market in facilitating new credit flows to the economy and follows the intensification of preparatory work on this matter."

Mr Draghi also gave an update on the ECB's forecasts for the eurozone economy.

The new predictions warned of slower growth, of 0.9% in 2014, and of 1.6% in 2015.

Meanwhile the forecast for inflation was cut to 0.6% rising to 1.1% in 2015, and well short of the ECB's target of close to, but below, 2.0%.

After the latest news was announced the euro fell to $1.2996, the lowest since July 2013 and the first time it has fallen below $1.30 since then.

'Progress'

As was the case after the ECB's last rate cut in June, Mr Draghi again said that cuts had reached "the lower bound".

The main benchmark refinancing rate determines what banks pay the ECB for credit, and affects what banks charge companies to borrow.

The central bank also cut its deposit rate, what banks pay to keep their money at the central bank, to minus 0.2% from minus 0.1%.

It is hoped that this measure will encourage banks to lend to business, rather than sit on their cash.

"For years the ECB has been very slow to react and often frustrated markets," said Aberdeen Asset Management Investment Manager Luke Bartholomew.

"But in the face of dire and clearly worsening economic indicators Draghi has actually gone beyond markets' expectations today. The frustration is that it has taken so long with inflation having already fallen so low, but it is certainly progress."

Bloomberg News - U.S.-Asia Decoupling Seen in Export Weakness: Chart of the Day

Asian nations aren’t getting the bounce that a U.S. manufacturing recovery used to bring, reflecting a weakening link between demand in the world’s largest economy and regional exporters, said Deutsche Bank AG.

The CHART OF THE DAY tracks the widening gap between U.S. manufacturing performance and export growth in the largest economies of north and Southeast Asia. A purchasing managers’ index for the U.S. by the Institute for Supply Management has risen in all but two months in 2014, climbing in August to the highest in more than three years. By contrast, year-on-year growth in Japan’s overseas sales weakened to 3.9 percent in July from 15.3 percent in December, while South Korean shipments declined in August, according to data compiled from each government.

Although China saw a 14.5 percent jump in July shipments, growth probably decelerated to 9 percent in August, according to a Bloomberg survey. Among Southeast Asia’s biggest economies, exports from Indonesia and Thailand fell in five out of seven months. The chart shows the most-recently available period and also the month at the end of each quarter starting with December 2004.

“The new disconnect between U.S. demand and Asian exports seems to be firm,” said Taimur Baig, director of Asia economics in Singapore at Deutsche Bank. “Global trade growth has been anemic in the aftermath of the global financial crisis. While Asia’s share of global trade has continued to rise, the stagnant trade environment suggests little scope for vigorous exports growth.”

A renaissance in U.S. manufacturing is reducing demand for imports while rising trade restrictions by the Group of 20 countries are threatening Asian exporters, according to Baig. Automotive exports from Japan and South Korea will probably decline in the coming years as more manufacturers use Mexico as their production base to serve the U.S. market, he said.

The divide between Asian exports and U.S. manufacturing underscores the need to diversify markets and boost domestic demand, said Wai Ho Leong, a Singapore-based economist at Barclays Plc. Last year, China was the top export destination for Malaysia, Thailand, Indonesia, the Philippines, South Korea and Japan, data compiled by Bloomberg shows. Indonesia’s central bank has refrained from raising interest rates this year after tightening policy in 2013, while Thailand and South Korea have cut borrowing costs to support their domestic economies.

To contact the reporters on this story: Sharon Chen in Singapore atschen462@bloomberg.net; Karl Lester M. Yap in Manila at kyap5@bloomberg.net