Asian markets fall on Wall Street lead

HONG KONG: Asian markets fell in morning trade Wednesday, following a decline on Wall Street and amid renewed scepticism over eurozone efforts to stem the debt crisis.

Tokyo was down 0.37 per cent, Hong Kong slipped 0.25 per cent and Seoul was off 0.36 per cent. Sydney was flat, slipping 0.05 per cent, as was Shanghai which edged down 0.03 per cent.

US stocks closed sharply lower on Tuesday on concerns over American corporate earnings and a slump in confidence registered by a US small-business survey.

The Dow Jones Industrial Average dropped 0.65 per cent, while The S&P 500 fell 0.81 per cent and the tech-rich Nasdaq slipped 1.00 per cent.

Meanwhile, concerns over the eurozone overshadowed the bloc's deal Tuesday to help Spain with 30 billion euros ($37 billion) this month for its distressed banks and an extension to a deadline to cut its public deficit.

"There is a broad framework to deal with the crisis, but uncertainty remains over whether it will work," said Kenichi Hirano, operating officer at Tachibana Securities.

"Participants will likely maintain their wait-and-see approach over the European situation."

Rates of return on Spain's benchmark 10-year bonds eased Tuesday after the deal at a meeting of eurozone finance ministers, slipping to 6.778 per cent, sharply lower than the danger level of 7.023 per cent at close the previous day.

But analysts remained sceptical, warning that European leaders may have once again done too little too late to convince the markets.

"There is really little here that will get Spanish yields to fall to any great degree and there remain questions over how quickly anything can be done in order to bring yields lower," said Derek Halpenny at Bank of Tokyo-Mitsubishi.

Analysts are also concerned Germany's top court could delay ratification of a permanent eurozone rescue fund, the European Stability Mechanism, which is to be used to recapitalise Spanish banks, easing pressure on public bonds.

The constitutional court was expected to rule by the end of the month whether the president should be permitted under constitutional law to sign the legislation into law, but has hinted at a possible further delay.

On currency markets, the euro edged up to $1.2261 in Asian trade compared with $1.2251 in New York late Tuesday. It had dived to a new two-year dollar low in Tuesday European trade of $1.2235.

The common currency was at 97.27 yen, in line with 97.26 yen in New York. The dollar slipped to 79.31 yen against 79.41 yen.

Trade was slow Wednesday, with concerns about China also weighing on markets as investors awaited more key data later in the week, including second-quarter GDP, to gauge how fast the world's second-largest economy is slowing.

Oil prices rose on bargain-hunting. New York's main contract, light sweet crude for August delivery, gained 28 cents to $84.19 a barrel and Brent North Sea crude for delivery in August rose 28 cents to $98.25.

Gold was worth 1574.60 an ounce at 0310 GMT, compared with $1,593.10 late Tuesday.

Heat on ECB to act as eurozone crisis deepens

FRANKFURT: The European Central Bank is coming under increasing pressure to come to the rescue once again as the eurozone debt crisis deepens, with analysts suggesting it could cut interest rates soon.

The ECB's governing council usually convenes on the first Thursday of every month for its regular policy-setting session but it is meeting in the bank's Eurotower headquarters on Wednesday owing to a public holiday.

While the majority of ECB watchers believe the bank could cut borrowing costs very soon from their current historic low of 1.0 percent, most analysts believe it will not act this month, preferring to keep its options open.

"With the euro area crisis deteriorating, there is a lot of pressure on the ECB to act but in our view it is unlikely to announce any specific new measure this Wednesday, while obviously keeping the door open to intervene should the crisis worsen," said Silvio Peruzzo of RBS European Economics.

At the meeting, the ECB will also publish its latest quarterly staff projections on inflation and growth which could highlight the downside economic risks for the 17 countries that share the euro.

The figures could bolster the case for a rate cut.

Italian Mario Draghi -- who took over as ECB president last November -- has certainly not shied away from surprise moves in his short career at the helm so far.

Nevertheless, "while flagging the materialisation of further downside risk and the increased uncertainty about the growth outlook, the ECB might want to wait for further corroborating data to conclude that its second half of the year recovery expectations are challenged and hence cut rates," said Peruzzo.

He predicted a rate cut in July, "but we do not exclude the possibility that the ECB might pre-announce it this week, recognising the increasing downside risk to the economy."

ING Belgium economist Carsten Brzeski said the ECB "is caught between a rock and a hard place: opening the fire hose again could lead to political complacency, while doing nothing could accelerate the latest market turmoil."

It will be a "close call," Brzeski said, but he thought it "rather unlikely that the ECB will use the new room for manoeuvre ... this week."

The ECB "looks tired from being the eurozone's fire brigade and seems to have a preference for staying on hold. Despite latest developments in Greece and Spain, it looks likely that the ECB will want to keep pressure as high as possible to tackle political complacency," the analyst predicted.

The ECB has never hesitated to act from the very beginning of the crisis.

It quickly reversed last year's rate hikes to bring eurozone borrowing costs back down to an all-time low of 1.0 percent and embarked on a hotly contested programme of indirectly buying up the bonds of debt-mired countries.

Most recently, in two so-called long-term refinancing operations (LTROs) in December and February, it pumped more than 1.0 trillion euros ($1.25 trillion) into the banking system to avert a dangerous credit squeeze in the euro area.

Nevertheless, ECB officials have all along insisted that such measures cannot cure the root cause of the crisis -- profligate spending by governments.

Natixis economist Cedric Thellier believed the ECB would probably wait until its next meeting in July -- by which time the outcome of Greek elections on June 17 will be known -- before taking any further action.

Greece is heading to the polls for a second time in six weeks after an inconclusive vote on May 6. With the radical leftist Syriza party, chief opponent of a massive EU-IMF bailout accord, tipped to win this time, the election could lead to Greece quitting the single currency.

"We guess (Draghi) will try to save time and ammunition in case of an unfavourable outcome from Greek elections on June 17 and European summit on June 28," Thellier said.

"Then, further support from the ECB might be necessary" in the form of a rate cut or a third LTRO, he added.

Singapore economy to slow to 3% in 2012: MAS survey

SINGAPORE - Singapore's economy will grow by 3.0 per cent in 2012, slowing from an expected 5.2 per cent in 2011 as the global economy and financial services sector cool, according to central bank's survey of private economists released on Wednesday.

The median forecast is at the upper end of the government's growth forecast range of 1-3 per cent for 2012.

The survey also expects the Singapore dollar to strengthen to $1.23 against the US dollar by the end of 2012 from an estimate of S$1.28 by the end of the year. It traded around $1.31 at 0300 GMT.

Asian economies have slowed in recent months, hurt by the euro zone debt crisis that has resulted in weaker demand for the region's exports.


The survey showed that growth in financial services sector in Singapore, which is one of Asia's biggest wealth management centre, is expected to slow to 4.2 per cent in 2012 from a forecast of 9.4 per cent in 2011.

According to the Monetary Authority of Singapore's (MAS) latest Survey of Professional Forecasters, economists now expect inflation in the city state to ease to 3.1 per cent next year from 5.1 per cent in 2011.

Singapore, like many Asian countries, is grappling with high inflation even as growth slows because of troubles in Western countries.

Economists in the survey have cut their forecast for this year's growth slightly to 5.2 per cent from 5.3 per cent in the previous survey in September.

Gross domestic product (GDP) growth in the October-December quarter of this year is now expected to be 4.4 per cent year-on-year, compared with 5.9 per cent in the previous survey.

For 2012, growth in financial services is expected to slow to 4.2 per cent from a forecast of 9.4 per cent in 2011.

Last month the Singapore government warned that the city-state's economy could contract in fourth-quarter growth, while 2012 GDP growth is likely to slow due to the weakness in the western economies.

Eurozone agrees to unlock 8b euro loan for Greece

BRUSSELS: Eurozone finance ministers on Friday agreed to unlock an eight-billion-euro slice of aid to help debt-laden Greece, EU diplomats said.

Ministers of the 17-nation eurozone "have given their agreement for the sixth tranche of aid to Greece," the diplomat said, referring to debt funding provided in a 110-billion-euro rescue package for Greece agreed in May 2010.

A second diplomat confirmed the breakthrough.

The tranche of aid is crucial for debt-stricken Greece which faced running out of money to pay civil servants and pensions in mid-November.

It had been blocked since mid-September as a team of EU, European Central Bank and International Monetary Auditors scrutinised the Greek government's reform efforts.

On Thursday, the Greek parliament approved a controversial government list of even tougher austerity measures demanded by the auditors and which have sparked violent street protests.

Some 35,000 people gathered in Athens on the second day of a general strike on Thursday that crippled the public sector and much of the country.

The protests turned violent and police said a man in his fifties died in hospital. Authorities declined to speculate on the cause of death, but Greek media said he was hurt on the sidelines of the protests.

Another key sticking point is how much of Greece's debt mountain can safely be written off without spreading the debt crisis to other under-pressure economies such as Italy and Spain.

This pivotal point, however, is unlikely to be resolved before a meeting of EU leaders on Wednesday, amid differences between France and Germany over the "haircut" to be applied to Greece's 350 billion euros of debt.

Singapore Inflation Unexpectedly Accelerates, Complicating Policy Decision

Singapore’s inflation unexpectedly accelerated to the fastest pace since 2008 as housing and food costs climbed, complicating the central bank’s decision ahead of a policy review next month as risks to growth rise.

The consumer price index rose 5.7 percent in August from a year earlier, the Department of Statistics said in a statement today. That compares with the 5.2 percent median estimate of 18 economists surveyed by Bloomberg News. Inflation was 5.4 percent in July, according to previously reported data.

The Singapore dollar has declined this quarter along with most regional currencies outside Japan, as a struggling U.S. economy and Europe’s debt crisis dimmed the outlook for exports and prompted officials from China to the Philippines to avoid further rate increases.

The island, which uses the exchange rate to manage inflation, will release its twice-yearly monetary policy decision in October.

“Higher than expected domestic inflationary pressure has kept inflation elevated in the near term even when global energy and commodity prices have eased,” Irvin Seah, an economist at DBS Group Holdings Ltd. in Singapore, said in a note before the report. “This will change in the months ahead.”

The Singapore government has lowered its forecast for the economy’s expansion in 2011 even after the central bank raised its inflation estimate. The island’s currency has appreciated to unprecedented levels since the central bank said in April it would allow further gains to tame price pressures, the third monetary tightening in a year. 

Policy Stance

While Singapore’s central bank will most likely maintain its current policy stance of a gradual appreciation in the Singapore dollar’s nominal effective exchange rate, “downside risks to growth and easing inflation could tilt the policy decision towards a more neutral policy stance,” Seah said.

Singapore’s consumer prices may climb 4 percent to 5 percent this year, more than a previous forecast of 3 percent to 4 percent, the central bank estimates.

The monetary policy stance remains appropriate, Ong Chong Tee, deputy managing director at the central bank, said Aug. 10. Policy makers are giving equal priority to containing inflation and spurring growth, Kwek Mean Luck, a deputy secretary at the Ministry of Trade and Industry, said the same day.