BLBG: Euro Near 2-Week Low Against Yen on Dubai Concern, Stock Losses
By Yasuhiko Seki
Dec. 10 (Bloomberg) -- The euro traded near a two-week low against the yen as concerns over credit losses in Dubai pushed Asian stocks lower and curbed demand for higher-yielding assets.
The 16-nation currency approached a one-month low versus the greenback after the Financial Times reported Dubai World’s private equity arm Istithmar is under pressure from its creditors, with an unnamed “senior banker” stating the group was in trouble and hugely leveraged. Australia’s currency gained after a government report showed employment rose for a third month and the jobless rate unexpectedly declined.
“Uncertainties over the situation in Dubai are still strong, triggering unwinding of investments on riskier assets ranging from stocks to higher-yielding currencies,” said Tsuyoshi Segawa, a strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s second-largest banking group. “Carry trades, funded by the dollar and the yen, are now at risk.”
The euro traded at 129.27 yen as of 6:44 a.m. in London from 129.39 yesterday in New York, when it weakened to 128.80, the lowest since Nov. 27. The currency traded at $1.4719 from $1.4726. The euro declined to $1.4668 yesterday, the lowest level since Nov. 3. The dollar bought 87.83 yen from 87.87 yen.
The MSCI Asia Pacific Index of regional shares fell 0.6 percent and the Nikkei 225 Stock Average slipped 1.4 percent.
Dubai World
Dubai World last week began talks with banks to restructure $26 billion of debt, including a $3.52 billion Islamic bond of property unit Nakheel PJSC maturing on Dec. 14.
Nakheel had a first-half loss of 13.4 billion dirhams ($3.65 billion) as revenue fell and it wrote down the value of land and property, according to a document obtained by Bloomberg. Dubai’s DFM General Index plunged 6.4 percent yesterday, erasing all of this year’s gains.
“While there is a belief that the credit problem in Dubai is not contagious, people have turned slightly cautious in extending investments in emerging markets,” said Toshiya Yamauchi, manager of foreign-exchange margin trading at Ueda Harlow Ltd. in Tokyo.
Australia’s currency advanced after the Statistics Bureau said the number of people employed rose 31,200 in November from the previous month. The median estimate of economists surveyed by Bloomberg was for a rise of 5,000. The jobless rate fell to 5.7 percent from 5.8 percent.
“Australia has lived up to its reputation as the ‘wonder from Down Under,’” Craig James, chief economist at CommSec, wrote in a note to clients after the jobs report.
New Zealand’s dollar strengthened versus all 16 of its most traded counterparts after central bank Governor Alan Bollard said he expects to begin raising interest rates around the middle of 2010.
N.Z. Growth
New Zealand’s economy will expand 1.9 percent in the first quarter of 2010 from a year earlier, the bank said in new forecasts published today. That’s better than the 1.3 percent pace predicted in September.
The Australian dollar climbed 0.5 percent to 91.31 U.S. cents. New Zealand’s dollar rose 0.7 percent to 72.38 U.S. cents from 71.89 cents yesterday, when it jumped 1.7 percent.
Benchmark interest rates are 3.75 percent in Australia and 2.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets.
Pacific Investment Management Co., which runs the world’s biggest bond fund, is buying the debt of Abu Dhabi, Qatar and Ras Laffan Liquefied Natural Gas Co., said Michael Gomez, co- head of emerging markets at the fund manager.
Pimco added to its holdings of securities sold by governments and companies in the region as the Dubai debt crisis slashed prices of bonds sold by its state-controlled companies to record lows. Emerging-market debt fell from the highest since records began in 1993 after Dubai World on Nov. 25 asked lenders for a debt standstill.
‘They’re Cheap’
“We’re coming in and buying,” said Gomez, who is based at Pimco’s main office in Newport Beach, California, in an interview with Bloomberg Television. “In any selloff, we’ll be accumulating even more. We think they’re cheap.”
The euro also reversed earlier gains on concern sovereign ratings in more European nations may come under pressure.
“Global uneasiness about credit is increasing,” said Mitsushige Akino, who oversees the equivalent of $450 million in assets in Tokyo at Ichiyoshi Investment Management Co. “People are becoming more sensitive to risks and they are reconsidering investments.”
Spain’s outlook was lowered to “negative” from “stable,” reflecting “the risk of a downgrade within the next two years,” Standard & Poor’s said yesterday. Fitch Ratings cut Greece’s credit rating on Dec. 8 one step to BBB+, the third- lowest investment grade. A day earlier, S&P put Greece’s A- rating on watch for a possible cut.
To contact the reporter on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net.
