Asia Stocks, Won Jump on Central Banks Move

By Shiyin Chen - Dec 1, 2011 2:10 PM GMT+0700

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Dec. 1 (Bloomberg) -- Kelvin Tay, the Singapore-based chief investment strategist at UBS Wealth Management, talks about central banks' monetary policies, China's decision to cut banks' reserve requirements, and the potential impact of the moves on the global economy and financial markets. Six central banks led by the Federal Reserve made it cheaper for banks to borrow dollars in emergencies in a global effort to ease Europe’s sovereign-debt crisis. Tay speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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Dec. 1 (Bloomberg) -- David Joy, the Boston-based chief market strategist at Ameriprise Financial Inc., talks about his investment strategy and Europe's sovereign debt crisis. U.S. stocks advanced, driving the Dow Jones Industrial Average up the most since March 2009, after six central banks took action on Europe’s crisis by making it cheaper for lenders to borrow in dollars. Joy speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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Dec. 1 (Bloomberg) -- Stephen Green, Hong Kong-based head of Greater China research at Standard Chartered Plc, talks about China's economy and central bank monetary policy. The People’s Bank of China announced yesterday it will cut the reserve requirement for the nation’s lenders by 0.5 percentage points from Dec. 5. Separately, China’s manufacturing contracted for the first time since February 2009 as the property market cooled and Europe’s crisis cut export demand, a survey showed. Green speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Asian stocks (MXAP) rallied, South Korea’s won jumped the most in four weeks and the dollar held at a one- week low after central banks took steps to ease Europe’s debt crisis and support economic growth. Copper snapped the biggest gain in a month as China’s manufacturing contracted.

The MSCI Asia Pacific Index rose 3.1 percent at 4:08 p.m. in Tokyo, set for its largest increase since Oct. 27. Standard & Poor’s 500 Index futures slid 0.2 percent, following the stock gauge’s 4.3 percent surge yesterday, while Euro Stoxx 50 Index contracts added 0.4 percent. China’s interest-rate swaps sank to the lowest level in a year. The won strengthened 1.4 percent and the Dollar Index fell as much as 0.2 percent. Copper slid 0.5 percent and oil traded above $100 a barrel in New York.

Six central banks led by the Federal Reserve agreed to cut the cost of providing dollar funding via swap agreements and to make other currencies available as needed. The People’s Bank of China cut banks’ reserve requirements yesterday for the first time since 2008, while a purchasing managers’ index signaled the first Chinese manufacturing contraction since February 2009.

“The global monetary policy backdrop is turning more favorable,” David Joy, the Boston-based chief market strategist at Ameriprise Financial Inc., said in the Bloomberg Television interview. “This is all in the context of undervalued markets, so there are some good things happening but the key ingredient remains Europe and what happens there.”

About six shares gained for each one that declined on MSCI’s Asia Pacific Index, helping the gauge extend a three-day, 4.3 percent advance. Japan’s Nikkei 225 Stock Average added 1.9 percent, South Korea’s Kospi Index rallied 3.7 percent and Hong Kong’s Hang Seng Index surged 5.5 percent. China’s Shanghai Composite Index rose 2.3 percent.

Banks, Developers

Commonwealth Bank of Australia (CBA) advanced 2.5 percent in Sydney, pacing gains among lenders. Evergrande Real Estate Group Ltd. (3333), China’s second-biggest developer by sales, jumped 15 percent in Hong Kong.

The S&P 500 rounded off its steepest three-day rally since March 2009, while the VIX (VIX), as the Chicago Board Options Exchange Volatility Index is known, dropped 9.3 percent yesterday to a three-week low. The premium banks pay to borrow dollars overnight from central banks will fall by half a percentage point to 50 basis points, the Fed said yesterday in a statement. The so-called dollar swap lines will be extended by six months to Feb. 1, 2013.

Treasury 10-year yields increased eight basis points to 2.07 percent yesterday. The rate was little changed today. The Fed said in its Beige Book survey yesterday the economy expanded at a “moderate” pace in 11 of 12 districts, led by gains in manufacturing and consumer spending.

U.S. Economy

The Beige Book reinforced the Fed’s view that the U.S. economy, while strong enough to skirt a recession, remains too weak to bring down an unemployment rate stuck near 9 percent or higher for more than two years. The government is scheduled to release payroll figures for November tomorrow.

The Dollar Index (DXY), which tracks the U.S. currency against those of six trading partners, was little changed after a three- day decline. The gauge has dropped 1.7 percent this week. The dollar was little changed against the euro at $1.3452 and fetched 77.66 yen, compared with 77.62 yesterday in New York.

Spain and France are scheduled to sell bonds today. The European Central Bank holds its next policy meeting on Dec. 8, and regional heads of government will meet the following day in Brussels.

Currency Gains

The won rose to 1,126.10 per dollar, strengthening for a fourth day. The Taiwan dollar rose 0.8 percent to NT$30.103 and Thailand’s baht advanced 0.6 percent to 30.96. The yuan appreciated 0.3 percent to 6.3600 and China’s one-year swap contract, the fixed rate that can be exchanged for the floating seven-day repurchase rate, fell 19 basis points to 2.84 percent.

The People’s Bank of China yesterday said reserve ratios will decline by 50 basis points effective Dec. 5. The move may add 350 billion yuan ($55 billion) to the financial system, according to UBS AG. The Purchasing Managers’ Index fell to 49.0 in November from the previous month’s 50.4, the China Federation of Logistics and Purchasing said today. The median estimate in a Bloomberg News economist survey was 49.8. A level above 50 indicates expansion.

“The cut in the reserve ratio requirement is significant and signals Beijing is pivoting towards supporting growth,” Stephen Green, Hong Kong-based head of Greater China research at Standard Chartered Plc, said on Bloomberg Television. “As soon as the banks can lend a bit more, that should feed into the small and medium enterprises. That’s where the economy is beginning to seize up.”

Copper, Oil

Brazil yesterday cut borrowing costs for a third-straight meeting, joining Israel and Thailand in lowering interest rates this week.

Three-month copper decreased as much as 1.3 percent to $7,781.50 a metric ton on the London Metal Exchange, after prices surged 5.3 percent yesterday, the most since Oct. 27. Zinc slumped 2.1 percent, the first retreat in five days, while aluminum declined 1.2 percent.

Oil for January delivery rose 0.4 percent to $100.72 a barrel in New York. Rubber jumped as much as 6.8 percent to 285.7 yen a kilogram ($3,684 a metric ton) in Tokyo, the biggest gain since Nov. 14.

The cost of insuring Japanese corporate bonds against non- payment declined, with the Markit iTraxx Japan index dropping 10 basis points to 195 basis points, Deutsche Bank AG prices show. That would be the biggest decline since Oct. 28, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.

To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net