PBOC continues attempts to calm markets. Chinese markets were calmer today as inter-bank market rates dropped further, although shares fell 0.4%, after the People's Bank of China said that it has provided liquidity to banks and that it will inject cash "based on the market's actual situation." The PBOC also said it will maintain its "prudent monetary policy," suggesting continued tightening. The comments reflect a further attempt by the PBOC to ease the credit crunch it engineered last week as a strategy to slow China's lending boom.
Spot gold prices drop to three-year low. Spot gold prices have dropped to their lowest since August 2010, down 4.2% at the time of writing to $1,224.30 an ounce, as better-than-expected economic data in the U.S. yesterday strengthened the likelihood that the Fed will soon start tapering its QE program. Gold has fallen around 25% this year and assets in the SPDR Gold Trust ETF (NYSEARCA:GLD) are 28% lower, hitting 969.5 metric tons yesterday. Silver (NYSEARCA:SLV) has been similarly battered, with spot prices -5.4% at $18.58 an ounce.
Australian PM ousted. Australian Prime Minister Julia Gillard has lost a Labor Party leadership election to Kevin Rudd, who Gillard ousted three years ago in similar circumstances. Labor is heavily behind the opposition Liberals in opinion polls ahead of a national election that has been scheduled for September. The Australian dollar (NYSEARCA:FXA) jumped following Rudd's win and was +0.55% at $0.9306 at the time of writing.
Top Stock News
Rising bond yields hurt bank balance sheets. Falling bond prices and rising yields are threatening the recovery in the balance sheets of global banks, which have built up huge portfolios of liquid securities. For example, 90% of Bank of America's (NYSE:BAC) $315B portfolio comprises mortgage bonds and Treasurys. Some analysts, though, believe that QE tapering should lead to an increase in interest margins and offset the one-time hit to book values because of rising bond yields.
Rio mulls sale of Mozambique coal unit. Having this week given up in its attempt to sell its diamond business, Rio Tinto (NYSE:RIO) is now considering divesting all or part of its coal unit in Mozambique, which could fetch over $700M after being written down by $3B in January. The deliberations represent a change of thinking for Rio, with the company previously saying the project wasn't for sale.
Roche, AstraZeneca to combine drug data to boost research. Roche (OTCPK:RHHBF) and AstraZeneca (NYSE:AZN) are becoming the latest pharmaceuticals companies to pool their resources to improve R&D, with the pair agreeing to share limited data on early-stage drug designs via a third firm called MedChemica. The latter analyzes chemical compounds to identify structures that tend to lead to problems with safety or efficacy.
Top Economic & Other News
Canada plays down Keystone pollution fears. TransCanda's (NYSE:TRP) Keystone XL pipeline shouldn't cause a net rise in carbon emissions, Natural Resources Minister Joe Oliver said yesterday, responding to President Obama's statement that the U.S. should approve the project only if it would not increase carbon pollution. Oliver said at least 20% of Keystone oil would be lighter crude that would not come from tar sands, and thus not carbon intensive to produce.
EU to try again over rules for bank rescues. EU finance ministers are due to make a second attempt this evening to decide on the regulations for coping with bank failures. Talks last weekend were unsuccessful following division over how much leeway governments should have. Germany is pushing for an EU standard in which losses would be imposed on shareholders, bondholders and deposits of over €100,000. France, Britain, Denmark and Sweden want flexibility in whether to take such steps.
Energy industry major target of cyber-attacks. More cyber-attacks hit the oil and gas sector from April to September 2012 than any other industry, a report from the U.S. Council on Foreign Relations ((NYSE:CFR)) says. Assaults take two main forms: one is cyber espionage, with Chinese hackers, for example, stealing gigabytes of material such as bidding information on lease auctions in a campaign that ran from 2008-2011. The other form is disruption to critical businesses and physical operations.
German consumer confidence hits six-year high. The Gfk survey of German consumer confidence has climbed to its highest level in close to six years, rising to 6.8 going into July from 6.5 for June and beating consensus, which was also 6.5. Sentiment has been boosted by a strong labor market and big wage hikes. It's positive news for those looking to domestic demand to support growth in Germany and the wider eurozone.
Italy faces losses from deficit fudging prior to euro entry. Italy may have made substantial losses on derivatives contracts it restructured at the height of the eurozone crisis in H1 2012. Experts who viewed a confidential government report believe the contracts originate from when Italy was preparing to enter the euro in the late 1990s and calculate the losses at €8B. The suspicion is that the Treasury, whose Director-General was Mario Draghi, used the instruments to bring the government's budget deficit to below the 3% eurozone requirement.
Chinese data suffers from conflict of interests. A major problem with the collection of economic statistics in China, says Caixin Online, is that the career prospects of local officials are closely tied to their regions' economic performance, thereby providing a strong motivation to falsify the data. One solution would be to ensure that "statistics bureaus can work independently" and so "minimize the intervention of local officials."
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In Asia, Japan -1% to 12834. Hong Kong +2.4% to 20339. China -0.4% to 1952. India -0.4% to 18552.
In Europe, at midday, London +1.1%. Paris +1.7%. Frankfurt +1.6%.
Futures at 6:10: Dow +0.4%. S&P +0.5%. Nasdaq +0.6%. Crude -0.5% to $94.84. Gold -4% to $1224.20.
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