Monday December 1, 2008 - 12:25:17 GMT
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Reuters - www.reuters.com
FOREX NEWS-Yen gains; shrinking output raises investor caution
* Yen extends broad rise as weak PMIs knock share markets
* High-yielders sink on expectations of global rate cuts
* BoE, ECB, RBA, RBNZ all seen slashing borrowing costs
* U.S. jobs data later this week also in focus
(writes through with quotes, comment, updates prices,
By Veronica Brown
LONDON, Dec 1 (Reuters) - The Japanese yen strengthened
broadly on Monday as slumping Chinese and European manufacturing
activity kept investors on edge and dragged world share prices
Yen strength also weighed heavily on currencies of countries
where central banks are expected to slash interest rates later
this week including the euro, sterling and Australian dollar.
The Bank of Japan, meanwhile, whose key interest rates are a
mere 0.3 percent, said it will hold an emergency meeting on
Tuesday to discuss changes in the use of corporate debt for
collateral banks put up to access central bank funds.
With economies already slowing sharply around the world
sensitivity to output figures was high.
Manufacturing activity in the euro area, which has already
entered recession, hit a record low in November. [ID:nLR485231].
Economic powerhouse China also saw its manufacturing industry
slump in November as new orders, especially from abroad, tumbled
Resulting risk aversion took global share prices, as
measured by MSCI's all country index, down 1 percent on the day
[.MIWD00000PUS], while yen gains against major rival currencies
"The data is just so terribly poor that it's going to be
difficult for any kind of period of sustained uptrend in
confidence," said Derek Halpenny, European Head of Global
Currency Research at BTM UFJ in London.
"Until we're through the deterioration in the data then the
likelihood is that risk aversion will remain elevated and we'll
see renewed interest in lower yielding currencies," he added.
By 1150 GMT, the dollar was down 1.7 percent against the yen
at 93.88 yen <JPY=> and the euro was down 1.9 percent versus the
Japanese unit at 118.93 yen <EURJPY=>.
The euro fell 0.2 percent against the dollar to $1.2667
<EUR=>, while sterling was off 2.2 percent against the greenback
at $1.5045 <GBP=>.
Sterling's losses were exacerbated after British figures
showing manufacturing activity had shrunk at a record pace.
The Bank of England, the European Central Bank, the Reserve
Bank of Australia and the Reserve Bank of New Zealand are all
expected to cut rates by at least half a percentage point,
diminishing the yield advantage of their currencies over the
ultra-low yielding yen.
Analysts expect those four major central banks to cut rates
aggressively to counter the threat of deflation and prevent the
global financial market crisis from spilling over into further
Yen crosses reflected those expectations, with sterling/yen
<GBPJPY=>, Australian dollar/yen <AUDJPY=> and New Zealand
dollar/yen all down more than 3 percent on the day.
Analysts expect the RBA to cut its benchmark cash rate by 75
basis points to 4.50 percent on Tuesday. But data on Monday
showing Australian inflation slowing much faster than earlier
thought and manufacturing activity at record lows in November
bolstered the case for a steeper cut in rates. [ID:nSYD363959]
The RBNZ is expected to lop a full 1.5 percentage points off
its key rate to 5 percent, which would match the magnitude of
the Bank of England's surprise cut last month.
Economists polled by Reuters expect the BoE to follow that
up with a more modest 50 basis point cut to 2.5 percent on
Thursday, but futures traders are pricing in a more aggressive
100 basis point reduction.
The ECB is expected to cut by half a percentage point on
Thursday to 2.75 percent but the weakness of recent economic and
inflation indicators is building the pressure for a deeper cut.
The euro zone manufacturing sector, for example, contracted
sharply in November, data showed on Monday. [ECON]
"Polls show economists are expecting the ECB to cut by 50
basis points but marketwise, there would be disappointment if
the ECB did 50 basis points," said Steve Barrow, head of
currency strategy at Standard Bank in London.
Financial markets in the United States should return to
normal liquidity and trading conditions on Monday following last
week's Thanksgiving holiday.
Investors will be keeping an eye on the November jobs report
on Friday. Later on Monday the Institute for Supply Management
releases its November manufacturing index. [ECONUS]
(Reporting by Veronica Brown and Swaha Pattanaik; editing by
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