Emerging-Market Stocks Gain on Optimism Greek Bailout Plan is Advancing (Source: Bloomberg)
Emerging-market stocks gained for the fourth day in five as European leaders announced a plan to give additional aid to Greece and buy stressed sovereign debt across the region. The MSCI Emerging Markets Index gained 0.6 percent to 1,143.29 at 4:45 p.m. in New York, after falling as much as 0.4 percent earlier. Brazil’s Bovespa index gained 1.9 percent, its largest one-day advance in more than seven months. Russia’s Micex added 1.6 percent as crude climbed to a one-month high. Hungary’s benchmark equities gauge surged 2 percent and the Czech PX Index rose 1.4 percent. European leaders empowered their 440-billion euro ($635 billion) rescue fund to buy debt across stressed euro nations after eight hours of talks in Brussels. The fund can also aid troubled banks and offer credit-lines to repel speculators. Leaders pledged a 160 billion euro aid package for Greece, eased the terms of its existing loans and cajoled bondholders into footing part of the bill.
Asian Stocks Rise, Led by Banks (Source: Bloomberg)
Asian stocks rose, with the regional benchmark index erasing its loss for the year, as a new aid plan for Greece eased concern Europe’s debt crisis will spread, reducing uncertainty over earnings at financial companies. Mitsubishi UFJ Financial Group Inc., Japan’s largest bank by market value, jumped 3.6 percent in Tokyo. Commonwealth Bank of Australia, the nation’s No. 1 lender by market value, advanced 1.6 percent in Sydney after appointing Ian Narev as chief executive officer from December. Samsung Electronics Co., the world’s biggest maker of computer memory chips, rose 1.3 percent in Seoul after Microsoft Corp. and Advanced Micro Devices Inc. posted profits that beat estimates. “Confirmation there’s going to be more support for Greece eases concern about the financial system and it gives investors a little more tolerance for risk,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc.
Democrats Balk at Potential U.S. Debt-Limit Deal (Source: Bloomberg)
Democrats reacted angrily to reports that the White House is cutting a deal with House Republicans to boost the U.S. debt ceiling and reduce deficits by about $3 trillion over 10 years without immediate revenue increases. President Barack Obama’s team has told congressional leaders it is pursuing such a deal, according to two officials familiar with the talks, as the White House and House Speaker John Boehner of Ohio denied one was at hand. The officials, who described outlines of the plan on condition of anonymity, said the leaders were told it would cut spending while calling for a future tax overhaul that could raise $1 trillion in additional revenue. Obama met with Democratic leaders from the House and Senate at the White House for about two hours.
U.S. Consumer Confidence Stagnates (Source: Bloomberg)
Consumer confidence stagnated last week as Americans’ optimism over their current finances clashed with growing pessimism about the state of the economy. The Bloomberg Consumer Comfort Index was minus 43.3 in the period to July 17, the highest since April, compared with minus 43.9 the prior week. The monthly gauge of the economic outlook improved from a two-year low. Unemployment at 9.2 percent in June, the smallest payroll gain in nine months, and a foreclosure-ridden housing market are weighing on the outlook for growth. Gasoline prices are rising again after declining in May and June, threatening to further limit consumer purchases, the biggest part of the economy.
U.S. Stocks Advance on Earnings, Europe Hope (Source: Bloomberg)
U.S. stocks rallied, extending a weekly gain for the Standard & Poor’s 500 Index, as European officials announced 160 billion euros ($230 billion) in aid for Greece to stop the region’s debt crisis from spreading. Morgan Stanley jumped 11 percent, the most since April 2009, after the largest brokerage posted the only gain in trading revenue among major U.S. banks. Motorola Mobility Holdings Inc. soared 12 percent after Carl Icahn urged the handset maker to explore alternatives for its patents. Medco Health Solutions Inc. (MHS) rose 14 percent after Express Scripts Inc. (ESRX) agreed to buy the pharmacy-benefits manager for $29.1 billion. The S&P 500 added 1.4 percent to 1,343.80 at 4 p.m. in New York, extending its gain this week to 2.1 percent. The Dow Jones Industrial Average climbed 152.50 points, or 1.2 percent, to 12,724.41.
Leading Economic Indicators in U.S. Probably Rose at a Slower Pace in June (Source: Bloomberg)
The index of U.S. leading indicators probably rose at a slower pace in June, signaling the recovery will be restrained in the second half of the year, economists forecast a report will show today. The Conference Board’s gauge of the outlook for the next three to six months climbed 0.2 percent after a 0.8 percent gain in May, according to the median estimate of 51 forecasts in a Bloomberg News survey. Cheaper fuel costs, an easing of supply bottlenecks after the Japan earthquake and better weather may combine to help give the expansion a boost during the rest of the year. At the same time, a reluctance to ramp up hiring and limited income growth may limit consumer purchases, the biggest part of the economy.
Advance in U.S. Leading Index Signals Recovery to Pick Up in Second Half (Source: Bloomberg)
The index of U.S. leading indicators rose in June, confirming the Federal Reserve’s forecast that the economy will pick up in the second half of the year. The Conference Board’s gauge of the outlook for the next three to six months climbed 0.3 percent after a 0.8 percent gain in May, the New York-based research group said today. Jobless claims rose more than forecast and consumer confidence stagnated last week, while manufacturing in the Philadelphia area rebounded this month, other reports showed. Cheaper fuel costs, an easing of supply bottlenecks after the Japan earthquake and better weather may combine to help give the recovery a boost. At the same time, a reluctance to ramp up hiring and limited income growth may restrain consumer purchases, the biggest part of the economy.
S&P Reiterates Warning of 50% Chance of U.S. Downgrade Within Three Months (Source: Bloomberg)
Standard & Poor’s reiterated that there is a 50 percent chance that it will lower the U.S. credit rating within three months as lawmakers struggle to reach agreement over raising the nation’s debt ceiling and deficit reduction. S&P said on July 14 there was a one-in-two possibility that it would cut the U.S. AAA by one or more levels if the government hasn’t agreed on a “credible solution” on the nation’s debt level. The company reiterated the warning in a report today outlining three hypothetical scenarios.
Manufacturing in Philadelphia Fed Region Expanded in July (Source: Bloomberg)
Manufacturing in the Philadelphia region rebounded in July from its first contraction this year, a sign factories are recovering from earlier supply shortages caused by Japan’s earthquake. The Federal Reserve Bank of Philadelphia’s general economic index rose to 3.2 from minus 7.7 the prior month. Readings greater than zero signal growth in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 57 economists surveyed by Bloomberg News was 2. Estimates ranged from minus 6 to 10. Easing supply shortages after Japan’s March earthquake means carmakers and other producers can make up lost production, even as mounting inventories may restrain the advance. With consumer spending slowing, manufacturers will have to rely more on overseas orders to keep growing.
Treasuries Advance on Speculation Spending Cuts Will Damp Economic Growth (Source: Bloomberg)
Treasuries rose, snapping a two-day drop, on speculation government efforts to trim the U.S. budget deficit will lead to spending cuts and damp economic growth. Benchmark 10-year yields of 3 percent are about 1 percentage point below the average for the past decade as the pace of expansion falls short of what analysts forecast. President Barack Obama’s administration is discussing a plan with House Republicans to boost the U.S. debt ceiling and reduce deficits by about $3 trillion over 10 years without immediate revenue increases.
Strong foreign demand drives U.S. manufacturers
BOSTON/NEW YORK, July 20 (Reuters) - Strong demand from emerging markets is driving profit growth for U.S. manufacturers this year, but executives do not expect that to be much of a lift for the sluggish U.S. economy.
In fact, a top executive at United Technologies Corp attributed the 18.9 percent rise in profit at the world's largest maker of elevators and air conditioners partly to the company's ability to hold the line on hiring.
U.S. Risks an August Rating Downgrade If No Deficit Progress, S&P Says (Source: Bloomberg)
Standard & Poor’s reiterated that the U.S. may lose its AAA credit rating as soon as August as the risk of a default escalates amid political wrangling to lift the debt limit while cutting the budget deficit. The rating may be lowered to the AA+ range with a negative outlook next month even if an agreement to raise the debt ceiling in time to avert a potential default without a “credible” plan to lower deficits, S&P said in a report. The New York-based ratings company reiterated today that the chance of a downgrade is 50 percent in the next three months, as outlined when it placed the rating on “CreditWatch” for a downgrade on July 14.
Fitch to decide on US ratings outlook in Aug
NEW YORK, July 20 (Reuters) - Fitch Ratings said on Wednesday it will decide next month whether the United States deserves to keep a stable outlook on its AAA credit rating as it concludes a review of the country's economic and fiscal outlook.
David Riley, Fitch's main analyst for the United States, said the decision will take into account a final budget agreement in Washington to reduce the country's deficit in the medium to long term.
Balanced-Budget Amendment Makes Politics Easy, Budgets Bad: View (Source: Bloomberg)
An amendment to the U.S. Constitution should have two qualities: It should make sense as a piece of legislation, and it should be, as much as possible, politically neutral. The balanced-budget amendment, which has re-emerged in Congress as part of the political jockeying over the budget impasse, fails on both counts. Justice Oliver Wendell Holmes famously said that a constitution is “made for people of fundamentally differing views.” There are limits to this. You don’t want the Constitution to be neutral between slaveholders and abolitionists. But it shouldn’t be choosing sides in budget disputes. These decisions are up to the elected branches.
A balanced-budget amendment, especially the current model, clearly does take sides. It would require a two-thirds supermajority in both houses to raise taxes, with no such requirement to lower taxes. It would require spending to be cut to 18 percent of gross domestic product, down from its current 24 percent, and even down from the 19 percent to 20 percent of recent years, prior to the recession. If the amendment were in effect today, the budget passed by House Republicans in April would spend too much -- it would be unconstitutional.
China factory sector shrinks, IMF finds world worried
BEIJING, July 21 (Reuters) - China's factory sector shrank for the first time in a year in July, a survey showed on Thursday, feeding worries among the country's main trading partners that its growth is unsustainable and could lead to a slump.
The HSBC flash purchasing managers' index (PMI) fell to 48.9 in July, suggesting the manufacturing sector contracted at its fastest pace since March 2009, as monetary policy tightening and slack global demand weighed on the sector.
Yen Falls as Easing Concern Over Europe’s Crisis Damps Demand for Safety (Source: Bloomberg)
The yen fell against all of its 16 major counterparts as stocks rallied worldwide on optimism European officials will contain the region’s debt crisis, damping demand for Japan’s currency as a refuge. The euro gained for a second day against the yen after European officials eased the terms of loans for cash-strapped nations and expanded aid for Greece. Japan’s currency dropped from a four-month high versus the dollar after Finance Minister Yoshihiko Noda reiterated he’s watching markets closely because the yen’s moves have been “one-sided.” The greenback pared yesterday’s loss against the euro after Treasury yields rose. European leaders “could’ve been a little more aggressive and there are some residual questions to be answered, but they’ve done enough to protect the market at the moment,” said Adam Carr, a senior economist at ICAP Australia Ltd. in Sydney. “We will probably see some further weakening” in the yen.
Japan’s Topix Advances Most in Two Weeks on Greece Rescue Plan (Source: Bloomberg)
Japan’s Topix index rose the most in two weeks as a bailout plan for Greece eased concern Europe’s debt crisis will spread, and after Morgan Stanley and Microsoft Inc. reported better-than-expected earnings, boosting confidence in the profit outlook for financial and technology companies. Toyota Motor Corp. (7203), the world’s biggest carmaker, climbed 0.8 percent. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s largest bank by market value, jumped 3.6 percent. Terumo Corp. (4543), a maker of medical devices, advanced 1.3 percent after the Nikkei newspaper said it had record first-quarter profit. The Nikkei 225 Stock Average rose 0.9 percent to 10,099.59 as of 9:05 a.m. in Tokyo. The broader Topix index gained 0.9 percent to 868.12, the most since July 6, with six stocks rising for each that fell.
Korean Won Climbs to 2008 High, Bonds Drop as Funds Buy Shares on Greece (Source: Bloomberg)
South Korea’s won climbed to its strongest level in almost three years after European leaders agreed on a package to contain the region’s debt crisis, reigniting investor interest in emerging-market assets. European officials announced 159 billion euro ($229 billion) in new aid for Greece late yesterday and empowered their 440 billion euro rescue fund to buy debt across stressed euro nations. Overseas funds bought more Korean shares than they sold for the first time in nine days, purchasing a net 33 billion won ($31 million) worth today, according to data from Korea Exchange. “We got quite encouraging news from embattled Europe,” said Kim Jinju, a Seoul-based currency dealer with Korea Exchange Bank. “There is some caution among traders ahead of the psychologically important 1,050 level but the strong momentum will likely continue.”
EU Leaders Offer $229 Billion in New Greek Aid (Source: Bloomberg)
Euro-area leaders redoubled efforts to end the 21-month sovereign bond crisis as they erected a firewall around Spain and Italy and risked temporary default to lighten Greece’s debt burden. After eight hours of talks in Brussels, leaders announced 159 billion euro ($229 billion) in new aid for Greece late yesterday and cajoled bondholders into footing part of the bill. They also empowered their 440-billion euro rescue fund to buy debt across stressed euro nations after a market rout last week sparked concern the crisis was spreading. The fund can also aid troubled banks and offer credit-lines to repel speculators. The euro strengthened as officials drew concessions from Germany, the European Central Bank and investors for a twin- track strategy to support Greece and ensure its woes don’t spread. The summit is the latest in a running-battle to resolve the crisis amid calls this week for tougher action from U.S. President Barack Obama and the International Monetary Fund.
German Stocks Rally on Reports EU Has Agreed on Bank-Recapitalization Plan (Source: Bloomberg)
German stocks rallied for a third day, led by banks, amid reports that European Union officials have drafted a plan to recapitalize struggling banks and halt a surge in bond yields. Commerzbank, the country’s second-biggest lender, surged 9.6 percent as bank shares in western Europe posted their biggest rally since January. Infineon Technologies AG (IFX) declined 1.2 percent, tracking a slump in European technology stocks. The benchmark DAX Index (DAX) advanced 68.78, or 1 percent, to 7,290.14 at the 5:30 p.m. close in Frankfurt. Even so, the measure has dropped 3.2 percent since this year’s high on May 2 amid concern that Europe’s sovereign-debt crisis will worsen. The broader HDAX rose 0.9 percent today.
Brazil Signals Fifth Rate Increase May Be Last as Global Outlook Worsens (Source: Bloomberg)
Brazil’s central bank signaled that a fifth straight increase in borrowing costs may be enough to contain inflation running at a six-year high. Policy makers, led by central bank President Alexandre Tombini, increased the Selic rate by a quarter point to 12.50 percent yesterday. In a one-sentence statement accompanying the decision, which was expected by all 57 analysts surveyed by Bloomberg, policy makers withdrew a commitment made in April and June to raise rates for a “sufficiently long” period. Whether policy makers raise rates again this year depends on whether the global economy deteriorates further, helping ease price pressures in Latin America’s biggest economy, analysts from Barclays Plc and Goldman Sachs Group Inc. said. Economists doubt Tombini will succeed in bringing price increases to the 4.5 percent target next year even if he raises the benchmark rate again in August, according to the most-recent bank survey.
South African Central Bank Keeps Interest Rate at 5.5% as Recovery Falters (Source: Bloomberg)
South Africa’s central bank left its benchmark interest rate unchanged at a 30-year low for a fourth consecutive meeting as the recovery in Africa’s biggest economy falters. The repurchase rate was kept at 5.5 percent in a unanimous decision, Governor Gill Marcus said today in a televised speech from the capital, Pretoria. All 24 economists surveyed by Bloomberg predicted the decision. Retail sales were unchanged in May from the year-earlier period, while manufacturing rose 0.6 percent, undermining the economy’s recovery and the outlook for job creation. That is overriding the central bank’s concern that rising food and fuel costs will push inflation outside of the 3 percent to 6 percent target by the fourth quarter.
FOREX-Euro falls in nervous market; choppy ahead of summit
LONDON, July 21 (Reuters) - The euro dived on Thursday after Eurogroup President Jean-Claude Juncker was quoted as suggesting a selective default for Greece was possible, prompting investors who had bought the euro in anticipation of progress at a European summit to cut their positions.
A media report quoted Juncker as saying a selective default for Greece could not be excluded, and sent the euro crashing through stops at $1.4235-40, and then through further large stops below $1.4200.
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