Yen Rises as U.S. Stock Futures Fall on Global Economic Outlook

By Stanley White

Dec. 9 (Bloomberg) -- The yen rose for the first time in three days against the euro as U.S. stock futures declined, stoking demand for Japan’s currency as protection against losses from higher-yielding assets.

The yen also advanced against the dollar before U.S. data that may show sales of previously owned homes fell as credit markets seized up. The euro declined versus the dollar before a report today that may show German investor confidence dropped to near a record low, spurring the European Central Bank to cut interest rates again to combat a global recession.

“Stock futures are dictating the course of the yen,” said Katsunori Kitakura, chief treasury dealer in Tokyo at Chuo Mitsui Trust & Banking Co., Japan’s seventh-largest publicly listed lender. “A lot of policy measures have been announced. That doesn’t mean one can get overly optimistic.”

The yen strengthened to 119.08 per euro at 7:32 a.m. in London from 120.26 yesterday in New York. Against the dollar, the yen traded at 92.63, from 92.82. The euro fell to $1.2855 from $1.2963. The yen may trade at 92 per dollar today, Kitakura said.

Australia’s dollar fell 1.4 percent to 65.54 U.S. cents from late yesterday in New York. It also slid 1.6 percent to 60.71 yen. National Australia Bank Ltd. said its sentiment index for November fell one point to minus 30, the lowest level since the series began in 1989.

In carry trades investors obtain funds in a country with low borrowing costs and buy assets where returns are higher. Japan’s benchmark rate of 0.3 percent compares with 5 percent in New Zealand and 12 percent in South Africa.

Stock Futures

Futures for the Standard & Poor’s 500 Index fell 0.5 percent after a 3.7 percent gain yesterday as optimism about policy makers’ efforts to stem a global recession faded.

In an NBC television interview on Dec. 7, President-elect Barack Obama reiterated his commitment to the biggest investments in U.S. infrastructure since the 1950s. Obama takes office Jan. 20. The European Union proposed a 200 billion euro ($257 billion) stimulus package last month.

Governments are trying to boost their economies as a credit market seizure and $980 billion in losses on mortgage-related securities worldwide force companies to eliminate jobs, curbing consumer spending and demand for imports.

The dollar declined against the yen on speculation a housing slump will extend into a fourth year.

The index of U.S. pending home resales fell 3 percent after dropping 4.6 percent in September, according to the median forecast in a Bloomberg News survey of 34 economists. The index was down in five of the first nine months of the year. The National Association of Realtors will release the data at 10 a.m. in Washington today.

ZEW

The euro fell against the dollar on speculation a report today will show German investor confidence dropped to near a record low, spurring the European Central Bank to cut interest rates again to combat a global recession.

Investor confidence in Germany, Europe’s largest economy, worsened in December, the ZEW Center for European Economic Research’s index of investor and analyst expectations will show, according to a Bloomberg News survey. The index fell to minus 57 from minus 53.5 the prior month, the survey showed. The report is due at 11 a.m. in Mannheim.

“The euro is being pulled off its highs,” said Akio Shimizu, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Trust & Banking Corp., a unit of Japan’s largest publicly listed lender. “No one is expecting the ZEW survey to show anything flattering about the European economy.”

Price Stability

ECB members Ewald Nowotny, Erkki Liikanen and Lorenzo Bini- Smaghi speak today. Risks to price stability in the 15 countries sharing the euro have fallen “significantly,” central bank President Jean-Claude Trichet said yesterday in an interview with the British Broadcasting Corp.

ECB forecasts published last week show the euro-region economy will shrink about 0.5 percent next year, which would be its first full-year contraction since 1993.

The pound fell to $1.4801 from $1.4915 yesterday and declined to 137.04 yen from 138.41 yen. U.K. home sales declined to the lowest level since at least 1978 as the nation plunged deeper into a recession, the Royal Institution of Chartered Surveyors said today.

Real-estate agents and surveyors sold an average of 10.6 homes in the quarter through November, the least since the series began three decades ago, the Institute said.

‘Horrible’ Economy

The Bank of England last week cut its benchmark interest rate to 2 percent, the lowest in a half-century, as policy makers sought to prevent deflation from taking hold in the economy. The economy contracted 0.5 percent in the third quarter, after zero growth in the second.

“Sterling can lose more ground against the dollar,” said Thomas Harr, a senior currency strategist in Singapore at Standard Chartered Plc, the U.K. bank that gets most of its profit from Asia. “The outlook for the British economy looks pretty horrible. We think the BOE will cut rates quite dramatically.”

The pound may fall as low as $1.35 in the first quarter as the U.K. central bank lowers its benchmark rate to 0.5 percent, Harr forecast.

To contact the reporters on this story: Stanley White in Tokyo at swhite28@bloomberg.net