ElCount
10-06-2009, 05:36 PM
OCTOBER 7, 2009
Australia Rate Jump Opens Door to Others
By ALEX FRANGOS in Hong Kong and JAMES GLYNN in Sydney
Let the rate increases begin.
Australia on Tuesday became the first Group of 20 country to raise interest rates since the start of the financial crisis, breaking the ice for other relatively healthy economies to follow suit.
.The surprise move -- which came earlier than markets expected -- is a signal that the great global monetary loosening is beginning to reverse.
Australia's rate increase "is a game changer," says Sanjay Mathur, economist at RBS in Singapore. "No central bank wanted to be seen as the ugly duckling and be the first. Now that they've done it, theoretically it paves the way for tightening by other central banks."
The Reserve Bank of Australia raised its main interest-rate target one-quarter of a point to 3.25%. Reserve Bank Governor Glenn Stevens indicated in a statement accompanying the policy decision that the rate rise may be the first of a series.
Analysts had figured Australia would be first to raise rates. It avoided recession thanks to a relatively strong banking system, a quick fiscal stimulus and strong Chinese demand for its commodities. But they expected it to happen later in the year.
Investors Prepare for Inflation1:20Central banks have welcomed the boom in asset prices during the past six months. They hope wealth effects lift growth. But they might not welcome the real message investors are sending: expect inflation, and a lot of it.
.
The Reserve Bank thought this was the time, as positive economic news in Australia flowed in. "The risk of serious economic contraction in Australia now having passed, the board's view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy," Mr. Stevens said.
The next country on many lists for a rate increase is South Korea. It has enjoyed one of the fastest rebounding economies in the world and has already seen a sharp upturn in property prices and the value of its currency, the won. The Bank of Korea's interest-rate board meets Friday. It is expected to hold rates steady at that meeting, citing still fragile economic conditions. But a debate has developed among policy makers in Korea over when to move higher, and the Australian announcement could give those supporting a rate increase political cover.
Mr. Mathur of RBS and other economists Tuesday used Australia's signal to move up their forecasts for Korea to raise its target interest rate later this year rather than sometime in the first quarter of 2010. Other countries expected to tighten monetary policy beginning early next year include Indonesia, Taiwan, India and China. Analysts are also watching New Zealand and Norway. Though Israel became the first country to raise rates in August, its relatively small economy limited the move's significance.
.Investors pushed the Australian dollar higher Tuesday, attracted by the higher interest rate. By midafternoon in Asia, the Australian dollar traded as high as 88.64 U.S. cents, up 1.02%. The Australian currency is already up 25% so far this year against the dollar.
The rising currency creates a dilemma for Australian economic planners. A stronger Australian dollar makes exports more expensive for customers abroad and could slow growth too quickly.
That same concern about currency appreciation is a priority for other central bankers, where they have started to see their economies recover, especially in Asia. Asian currencies generally rallied against the U.S. dollar on the Australian news. The dollar fell 1.28% against the Indonesian rupiah, which hit 9,420 per dollar, the rupiah's strongest level for the year.
Several countries have intervened in foreign-exchange markets recently to prevent currencies from appreciating too much against the dollar, and accumulated more dollar reserves in the process. South Korea reported Tuesday that its currency reserves increased $8.8 billion in September to $254 billion, its largest in 15 months. Taiwan also reported Tuesday that its reserves rose last month.
Asian central banks have a delicate balance to achieve in the coming months. Most have traditionally waited for the U.S. Federal Reserve to raise rates before taking action. But this time the Asia-Pacific region is leading the world economic recovery. Waiting for the Fed -- which isn't expected to raise its target until the third quarter of 2010 -- risks stoking inflation and bigger rate increases.
View Full Image
Reuters People walk past the Reserve Bank of Australia building in central Sydney October 6, 2009.
.
But raising rates before the Fed will cause capital to flow to those economies with higher rates. Central banks will either buy dollars to keep their currencies from strengthening too much or let their currencies appreciate, hurting exporters. The capital flows can also stoke dangerous bubbles in asset prices such as stocks and real estate -- already a concern in parts of Asia.
To be sure, rate increases are likely to be slow at first. There are early signs of inflation returning in some countries such as India, Indonesia and Korea. But prices are far from out of hand.
"Countries in Asia aren't chomping at the bit to move rates," says Tim Condon, chief economist for Asia at ING Financial Markets in Singapore. Inflation pressure is low and most of the economies haven't recovered from the global collapse of finance and trade. "The balance of risks is not there yet," he says.
Write to Alex Frangos at alex.frangos@wsj.com and James Glynn at james.glynn@dowjones.com
http://online.wsj.com/article/SB125480012867566719.html
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TODAY'S MARKETS
OCTOBER 6, 2009, 5:28 P.M. ET.
Gold, Stocks Leap as Dollar Tumbles
By PETER A. MCKAY and DONNA KARDOS YESALAVICH
A surprise interest-rate increase by the Reserve Bank of Australia spurred broad-based stock gains, a pullback in the U.S. dollar, and a surge in gold and other commodities Tuesday.
The move marked the first tightening by a major central bank since the start of the recent global downturn, with Australia's key rate rising a quarter percentage point to 3.25%.
The dollar drops and gold hits an all-time high. Dow Jones Newswires' Michael Casey and MarketWatch's David Weidner tells The News Hub the greenback is headed lower, but that's not necessarily bad news. Plus, MarketWatch's Kristen Gerencher discusses health care's trillion-dollar question.
.
The rate increase spurred optimism that the global economy is on the mend and caused the U.S. dollar to fall, in turn boosting commodities prices. Commodity-producing companies, from gold miners to oil drillers, led the market's gains.
The Dow Jones Industrial Average climbed 131.50 points, or 1.4%, to 9731.25, led by a 3.5% gain in Alcoa, which reports earnings on Wednesday. Pfizer, Intel, J.P. Morgan Chase and Hewlett-Packard each rose more than 2%.
Some of the market's gains were pared in the early afternoon as bank stocks briefly reversed course, but the sector's and the market's climb soon resumed. Goldman Sachs Group rose 0.3% to $186.98, after falling as low as $184.60.
The Nasdaq Composite Index advanced 35.42 points, or 1.7%, to 2103.57. The S&P 500 gained 14.26 points, or 1.4%, to 1054.72, led by a 2.4% gain for its energy sector as crude oil futures rose. Its materials category rose 2.1%.
"Today it's really all about the U.S. dollar, as the move higher is really being driven by these commodities," said Christopher Foxall, head of global portfolio trading with Lighthouse Financial. "People are moving into more risky asset classes, and it's not so much a hedge against inflation but more a hedge against the weakening U.S. dollar."
Market Data Center > .Most Actives | Gainers | Losers New Highs and Lows | Money Flows Intraday Futures | Currencies .The dollar declined against every major denomination except the British pound. The dollar declined 0.45% against the euro to its lowest 4 p.m. value since Sept. 23 and 0.8% against the yen to its lowest 4 p.m. mark since Jan. 22.
"This is a major event," currency strategist Bob Lynch, of HSBC Bank USA, said of the Australia rate move. "Very few economists had a rate hike penciled in for this year. I think most had the first half or first quarter of 2010."
However, Mr. Lynch and other analysts are skeptical that the move signals higher rates around the world. The policy statement accompanying Australia's move included several cautionary notes citing the likelihood of weak expansion in major countries' economies for months to come.
The Federal Reserve has indicated it is unlikely to increase rates in the near future. William Dudley, the New York Fed's president, said late Monday that interest rates will remain low for a long time.
Gold futures hit a record high Tuesday for any most-active contract traded on the Comex division of the New York Mercantile Exchange, peaking at $1045 an ounce. Comex gold for October delivery gained $21.90 a troy ounce, or 2.15%, to settle at $1038.60.
Crude-oil futures gained 47 cents a barrel, or 0.67%, to $70.88. The head of Saudi Arabia's central bank and other Gulf states denied a report that big oil-producing nations will price oil in a basket of currencies rather than the dollar.
Treasurys ticked lower after a record $39 billion three-year auction received below-average demand. The two-year note slid 2/32 to yield 0.904%. The 10-year note declined 12/32 to yield 3.261%.
—Geoffrey Rogow contributed to this article
Write to Peter A. McKay at peter.mckay@wsj.com and Donna Kardos Yesalavich at donna.yesalavich@dowjones.com
http://online.wsj.com/article/SB125482726538767271.html?mod=WSJ_hps_LEADNewsColl ection
Australia Rate Jump Opens Door to Others
By ALEX FRANGOS in Hong Kong and JAMES GLYNN in Sydney
Let the rate increases begin.
Australia on Tuesday became the first Group of 20 country to raise interest rates since the start of the financial crisis, breaking the ice for other relatively healthy economies to follow suit.
.The surprise move -- which came earlier than markets expected -- is a signal that the great global monetary loosening is beginning to reverse.
Australia's rate increase "is a game changer," says Sanjay Mathur, economist at RBS in Singapore. "No central bank wanted to be seen as the ugly duckling and be the first. Now that they've done it, theoretically it paves the way for tightening by other central banks."
The Reserve Bank of Australia raised its main interest-rate target one-quarter of a point to 3.25%. Reserve Bank Governor Glenn Stevens indicated in a statement accompanying the policy decision that the rate rise may be the first of a series.
Analysts had figured Australia would be first to raise rates. It avoided recession thanks to a relatively strong banking system, a quick fiscal stimulus and strong Chinese demand for its commodities. But they expected it to happen later in the year.
Investors Prepare for Inflation1:20Central banks have welcomed the boom in asset prices during the past six months. They hope wealth effects lift growth. But they might not welcome the real message investors are sending: expect inflation, and a lot of it.
.
The Reserve Bank thought this was the time, as positive economic news in Australia flowed in. "The risk of serious economic contraction in Australia now having passed, the board's view is that it is now prudent to begin gradually lessening the stimulus provided by monetary policy," Mr. Stevens said.
The next country on many lists for a rate increase is South Korea. It has enjoyed one of the fastest rebounding economies in the world and has already seen a sharp upturn in property prices and the value of its currency, the won. The Bank of Korea's interest-rate board meets Friday. It is expected to hold rates steady at that meeting, citing still fragile economic conditions. But a debate has developed among policy makers in Korea over when to move higher, and the Australian announcement could give those supporting a rate increase political cover.
Mr. Mathur of RBS and other economists Tuesday used Australia's signal to move up their forecasts for Korea to raise its target interest rate later this year rather than sometime in the first quarter of 2010. Other countries expected to tighten monetary policy beginning early next year include Indonesia, Taiwan, India and China. Analysts are also watching New Zealand and Norway. Though Israel became the first country to raise rates in August, its relatively small economy limited the move's significance.
.Investors pushed the Australian dollar higher Tuesday, attracted by the higher interest rate. By midafternoon in Asia, the Australian dollar traded as high as 88.64 U.S. cents, up 1.02%. The Australian currency is already up 25% so far this year against the dollar.
The rising currency creates a dilemma for Australian economic planners. A stronger Australian dollar makes exports more expensive for customers abroad and could slow growth too quickly.
That same concern about currency appreciation is a priority for other central bankers, where they have started to see their economies recover, especially in Asia. Asian currencies generally rallied against the U.S. dollar on the Australian news. The dollar fell 1.28% against the Indonesian rupiah, which hit 9,420 per dollar, the rupiah's strongest level for the year.
Several countries have intervened in foreign-exchange markets recently to prevent currencies from appreciating too much against the dollar, and accumulated more dollar reserves in the process. South Korea reported Tuesday that its currency reserves increased $8.8 billion in September to $254 billion, its largest in 15 months. Taiwan also reported Tuesday that its reserves rose last month.
Asian central banks have a delicate balance to achieve in the coming months. Most have traditionally waited for the U.S. Federal Reserve to raise rates before taking action. But this time the Asia-Pacific region is leading the world economic recovery. Waiting for the Fed -- which isn't expected to raise its target until the third quarter of 2010 -- risks stoking inflation and bigger rate increases.
View Full Image
Reuters People walk past the Reserve Bank of Australia building in central Sydney October 6, 2009.
.
But raising rates before the Fed will cause capital to flow to those economies with higher rates. Central banks will either buy dollars to keep their currencies from strengthening too much or let their currencies appreciate, hurting exporters. The capital flows can also stoke dangerous bubbles in asset prices such as stocks and real estate -- already a concern in parts of Asia.
To be sure, rate increases are likely to be slow at first. There are early signs of inflation returning in some countries such as India, Indonesia and Korea. But prices are far from out of hand.
"Countries in Asia aren't chomping at the bit to move rates," says Tim Condon, chief economist for Asia at ING Financial Markets in Singapore. Inflation pressure is low and most of the economies haven't recovered from the global collapse of finance and trade. "The balance of risks is not there yet," he says.
Write to Alex Frangos at alex.frangos@wsj.com and James Glynn at james.glynn@dowjones.com
http://online.wsj.com/article/SB125480012867566719.html
-----------------------------------------------------------------------------------------
TODAY'S MARKETS
OCTOBER 6, 2009, 5:28 P.M. ET.
Gold, Stocks Leap as Dollar Tumbles
By PETER A. MCKAY and DONNA KARDOS YESALAVICH
A surprise interest-rate increase by the Reserve Bank of Australia spurred broad-based stock gains, a pullback in the U.S. dollar, and a surge in gold and other commodities Tuesday.
The move marked the first tightening by a major central bank since the start of the recent global downturn, with Australia's key rate rising a quarter percentage point to 3.25%.
The dollar drops and gold hits an all-time high. Dow Jones Newswires' Michael Casey and MarketWatch's David Weidner tells The News Hub the greenback is headed lower, but that's not necessarily bad news. Plus, MarketWatch's Kristen Gerencher discusses health care's trillion-dollar question.
.
The rate increase spurred optimism that the global economy is on the mend and caused the U.S. dollar to fall, in turn boosting commodities prices. Commodity-producing companies, from gold miners to oil drillers, led the market's gains.
The Dow Jones Industrial Average climbed 131.50 points, or 1.4%, to 9731.25, led by a 3.5% gain in Alcoa, which reports earnings on Wednesday. Pfizer, Intel, J.P. Morgan Chase and Hewlett-Packard each rose more than 2%.
Some of the market's gains were pared in the early afternoon as bank stocks briefly reversed course, but the sector's and the market's climb soon resumed. Goldman Sachs Group rose 0.3% to $186.98, after falling as low as $184.60.
The Nasdaq Composite Index advanced 35.42 points, or 1.7%, to 2103.57. The S&P 500 gained 14.26 points, or 1.4%, to 1054.72, led by a 2.4% gain for its energy sector as crude oil futures rose. Its materials category rose 2.1%.
"Today it's really all about the U.S. dollar, as the move higher is really being driven by these commodities," said Christopher Foxall, head of global portfolio trading with Lighthouse Financial. "People are moving into more risky asset classes, and it's not so much a hedge against inflation but more a hedge against the weakening U.S. dollar."
Market Data Center > .Most Actives | Gainers | Losers New Highs and Lows | Money Flows Intraday Futures | Currencies .The dollar declined against every major denomination except the British pound. The dollar declined 0.45% against the euro to its lowest 4 p.m. value since Sept. 23 and 0.8% against the yen to its lowest 4 p.m. mark since Jan. 22.
"This is a major event," currency strategist Bob Lynch, of HSBC Bank USA, said of the Australia rate move. "Very few economists had a rate hike penciled in for this year. I think most had the first half or first quarter of 2010."
However, Mr. Lynch and other analysts are skeptical that the move signals higher rates around the world. The policy statement accompanying Australia's move included several cautionary notes citing the likelihood of weak expansion in major countries' economies for months to come.
The Federal Reserve has indicated it is unlikely to increase rates in the near future. William Dudley, the New York Fed's president, said late Monday that interest rates will remain low for a long time.
Gold futures hit a record high Tuesday for any most-active contract traded on the Comex division of the New York Mercantile Exchange, peaking at $1045 an ounce. Comex gold for October delivery gained $21.90 a troy ounce, or 2.15%, to settle at $1038.60.
Crude-oil futures gained 47 cents a barrel, or 0.67%, to $70.88. The head of Saudi Arabia's central bank and other Gulf states denied a report that big oil-producing nations will price oil in a basket of currencies rather than the dollar.
Treasurys ticked lower after a record $39 billion three-year auction received below-average demand. The two-year note slid 2/32 to yield 0.904%. The 10-year note declined 12/32 to yield 3.261%.
—Geoffrey Rogow contributed to this article
Write to Peter A. McKay at peter.mckay@wsj.com and Donna Kardos Yesalavich at donna.yesalavich@dowjones.com
http://online.wsj.com/article/SB125482726538767271.html?mod=WSJ_hps_LEADNewsColl ection