Asia Stocks Plunge, Joining Global Equities Rout, on U.S. Economic Concern (Source: Bloomberg)
Asian stocks declined for a fourth day, with the benchmark regional index set for its lowest close in four months, as concern the global economy is faltering sparked a global equities rout that drove the Standard & Poor’s 500 Index to its worst slump since February 2009. Sony Corp. (6758), a Japanese exporter of consumer electronics that earns half of its revenue in the U.S. and Europe, slumped 4.7 percent in Tokyo. Toyota Motor Corp. (7203), the world’s largest carmaker, retreated 3.5 percent. BHP Billiton Ltd. (BHP), the biggest global mining company and Australia’s No. 1 oil producer, sank 4.1 percent as commodity prices dropped. “It’s a panic attack from fear that growth is dropping off a cliff,” said Prasad Patkar, who helps manage the equivalent of $1.7 billion at Sydney-based Platypus Asset Management Ltd. “There was an expectation that resolution of the U.S. debt-ceiling issue would trigger a relief rally. It looks like everyone forgot about the weakness in the underlying economy.”
U.S. Consumer Confidence Drops to Minus 47.6 in Bloomberg Index on Economy (Source: Bloomberg)
Consumer confidence in the U.S. dropped last week to the lowest level in more than two months, paced by growing dissatisfaction among women and high earners. The Bloomberg Consumer Comfort Index was minus 47.6 in the period to July 31, the lowest since May, compared with minus 46.8 the prior week. Confidence among women fell to the lowest level since October 2009, while Americans making more than $100,000 a year were the most pessimistic since November 2009. The biggest one-week drop in the Standard & Poor’s 500 Index in a year, political wrangling over raising the debt ceiling and a stagnant job market probably weighed on consumers’ moods. The loss of confidence heightens the risk that consumer spending, which accounts for 70 percent of the economy, will be slow to rebound in the second half of the year.
U.S. Jobless Claims Fall to Level Showing Limited Labor-Market Improvement (Source: Bloomberg)
Initial claims for unemployment insurance payments in the U.S. fell last week to a level that shows limited improvement in the labor market. Applications for jobless benefits decreased 1,000 in the week ended July 30 to 400,000, the fewest in almost four months, the Labor Department said today in Washington. Economists forecast 405,000 claims, according to the median estimate in a Bloomberg News survey. The four-week average also declined to the lowest level since April. A further reduction in the pace of dismissals may be needed before companies gain the confidence to step up hiring, which has slowed in the past three months. Employers added 85,000 workers in July, economists project a Labor Department report to show tomorrow, failing to reduce a jobless rate that’s holding above 9 percent.
U.S. Stocks Sink as Economic Fear Drives S&P 500 to Biggest Drop Since ’09 (Source: Bloomberg)
U.S. stocks plunged, driving the Standard & Poor’s 500 Index to the biggest decline since February 2009, as concern the global economy is weakening prompted a global rout. Only three out of 500 stocks in the benchmark measure of American equities rose. Losses exceeded 10 percent for 13 of the companies including Alpha Natural Resources Inc. (ANR) and Gap Inc. (GPS), which fell after the retailer’s sales missed estimates. All 10 S&P 500 groups slumped, led by losses topping 5.3 percent for energy, material and industrial shares. Chevron Corp. (CVX) and Alcoa Inc. (AA) fell more than 5.7 percent as Japan sold its currency, driving down commodities priced in the dollar.
The S&P 500 decreased 4.8 percent to an eight-month low of 1,200.07 at 4 p.m. in New York. It has retreated 11 percent since July 22, the biggest loss over the same amount of time since March 9, 2009, when the equity bull market began. The Dow Jones Industrial Average declined 512.76 points, or 4.3 percent, to 11,383.68 today, erasing its 2011 gain. Almost 14 billion shares changed hands on U.S. exchanges at 4:27 p.m., 90 percent higher than the three-month average.
U.S. downgrade could accelerate dollar decline
NEW YORK, Aug 3 (Reuters) - A downgrade to the U.S. sovereign credit rating could open up a new world of pain for the dollar.
Already reeling from low interest rates, slow economic growth, and foreign investors eager to diversify away from U.S. assets, the loss of AAA status could cement the view the dollar is no longer the safest harbor in a troubled world.
Treasuries Poised for Biggest Weekly Advance Since Fed Rate Cut in 2008 (Source: Bloomberg)
Treasuries headed for their steepest weekly gain since the last time the Federal Reserve cut interest rates in 2008 as stocks tumbled around the world on concern economic growth is slowing. Yields slid from Australia to Japan to Germany this week as investors sought the relative safety of government debt. The TED spread, the difference between what lenders and the U.S. government pay to borrow for three months, widened to 26.9 percentage points, the most in a year. U.S. employers probably failed to create enough jobs in July to reduce the jobless rate in the biggest economy, analysts said before a report today. “Hot money is flowing into U.S. Treasuries in a flight to quality,” said Hiromasa Nakamura, a senior investor in Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $37.9 billion and is a unit of Japan’s second-largest bank. “There’s a flight from riskier assets into bonds. All bonds are benefitting.”
China Will Escape a ‘Hard Landing’: Li Ka-shing (Source: Bloomberg)
Li Ka-shing, the Hong Kong billionaire who predicted China’s 2008 stock market decline, said the nation’s economy will avoid a hard landing even as global growth slows. “Every task that’s carried out in China these days has gone through careful consideration,” Li, 83, told reporters in Hong Kong yesterday. “I don’t think there’ll be a hard landing and I’m not concerned.” Premier Wen Jiabao’s policies to rein in consumer and property prices have raised concerns they will trigger a slowdown in the economy that’s been the main contributor to global growth. Li, chairman of Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd. (13), said yesterday his companies will be “active” in investments, after earlier this week agreeing to buy the U.K.’s Northumbrian Water Group Plc for 2.4 billion pounds ($3.9 billion).
ICBC Agrees to Buy Stake in Standard Bank Argentina Units for $600 Million (Source: Bloomberg)
Industrial & Commercial Bank of China (1398) Ltd., the world’s most profitable lender, agreed to pay $600 million for some assets controlled by Standard Bank Group Ltd. in Argentina in its biggest takeover in almost four years. The Chinese bank will pay cash for an 80 percent stake in Standard Bank Argentina, Standard Investments and Inversora Diagonal, according to a statement to the Hong Kong stock exchange today. The Beijing-based lender and Standard Bank London Holdings Plc also plan to jointly invest $100 million in Standard Bank Argentina after the transaction is completed. The proposed acquisition, six months after ICBC announced plans to buy a U.S. bank, signals the Chinese lender’s growing overseas ambitions. Purchasing the assets in Argentina, South America’s second-largest economy, will add to ICBC’s branch network in the region and allow it to tap demand for financial services between China and the region’s emerging markets.
Japan Looks to Warn Investors Away From Yen (Source: Bloomberg)
Japan escalated its campaign to convince investors that the nation’s post-earthquake challenges mean they shouldn’t pile into the yen as a haven from the turmoil over U.S. and European debt. On his third day in the job, Takehiko Nakao, vice finance minister for international affairs, oversaw currency sales that sent the yen down the most against the dollar since September; it recouped some of the loss today. With Nakao’s boss Yoshihiko Noda this week referring to mid-1990s style intervention as a useful reference, investors may need to brace for further action, according to Gareth Berry, a strategist at UBS AG in Singapore. The risk is policy makers take their eye off the broader measures more likely to bolster prospects for a rebound from an estimated three straight quarters of economic contraction. Prime Minister Naoto Kan and opposition lawmakers have yet to forge a path toward passage of a reconstruction bill that would redress the 16.9 trillion yen ($212 billion) of damage from March 11.
Japanese Exporters Seek More Action on Yen After ‘Too Late’ Intervention (Source: Bloomberg)
Japanese exporters called for more action to weaken a near-record high yen even after government intervention prompted the currency’s biggest drop since March. “The exchange rate is at a level that has an extremely damaging effect on the Japanese economy,” Osamu Masuko, president of Tokyo-based Mitsubishi Motors Corp. (7211), said yesterday by e-mail. He said he welcomed the intervention, ’’but the resulting exchange rate still isn’t acceptable.’’ The yen yesterday touched 80 to the dollar for the first time since July 12 after the government sold the currency and the Bank of Japan (8301) added to monetary stimulus measures. That still may not be enough for exporters including Mitsubishi, Toyota Motor Corp. (7203) and Sony Corp. (6758), whose overseas earnings have been crimped by the currency’s jump of about 8.6 percent in a year.
Japanese Stocks Plunge Most Since March 11 Quake Amid Global Equities Rout (Source: Bloomberg)
Japanese stocks plunged, headed for the steepest drop most in more than four months, as concern the global economy is faltering sparked an equities rout that drove the Standard & Poor’s 500 Index to its worst slump since 2009. Sony Corp., which makes half of its sales in the U.S. and Europe, tumbled 4.8 percent. Toyota Motor Corp., the world’s largest carmaker, retreated 3.8 percent. Mitsubishi Corp., Japan’s No. 1 trading company, sank 3.7 percent as commodity prices dropped. The Nikkei 225 Stock Average fell 3.5 percent to 9,321.47 as of 9:43 a.m. in Tokyo, sliding the most since March 15. All 225 stocks in the Nikkei declined. The broader Topix index plunged 3.3 percent to 799.06. For the week, the Nikkei has lost 5.2 percent while the Topix index is down 5 percent.
Intervention ‘Buys Time’ as Yield Gap Portends a Yen Rally: Japan Credit (Source: Bloomberg)
Japan’s third intervention in a year may fail to halt the yen’s appreciation as the slowing U.S. economy reduces the appeal of dollar-denominated assets. The extra yield two-year Treasuries offer instead of similar-maturity Japanese notes fell to 16 basis points this week, the least since December 2008. Japan’s 10-year bond rates slid below 1 percent for the first time in almost nine months as the Bank of Japan said it will buy more government debt through its asset-purchase fund. Japan’s move came before U.S. data projected to show that the world’s largest economy failed to create enough jobs to reduce unemployment, fanning speculation the Federal Reserve will join the BOJ and Swiss National Bank in adding to monetary stimulus. While Finance Minister Yoshihiko Noda has said Japan would aim for “maximum effect” in any intervention, its impact may be short-lived, according to Ayako Sera, a market strategist at Sumitomo Trust & Banking Co.
SKorea Should Raise Rate, Strengthen Won: IMF (Source: Bloomberg)
South Korea should raise its benchmark interest rate to at least 4 percent over time and allow its currency to appreciate further to better fight inflation, the International Monetary Fund’s staff said. “The policy rate hikes thus far, although gradual, are welcome, and should continue in a more decisive manner, given the strong underlying economic momentum and lags in monetary policy,” IMF economists wrote in an annual assessment of the country’s economy released today. “Further two-way exchange rate flexibility would also help in the policy response to inflation.” Higher energy and food costs pushed South Korea’s inflation to a four-month high of 4.7 percent in July, breaching the central bank’s target limit for a seventh straight month. The Bank of Korea’s board will meet on Aug. 11 to discuss whether to raise borrowing costs for the fourth time this year after reports last month showed that economic growth slowed in the second quarter.
Subbarao Says India’s Current Inflation Is ‘Far Above the Threshold Level’ (Source: Bloomberg)
India’s inflation rate is “far above the threshold level” and policy makers need to slow economic growth to curb price gains, central bank Governor Duvvuri Subbarao said. “In the short term you may have to sacrifice growth to generate an environment of rapid growth and steady inflation in the medium term,” Subbarao said in Mumbai yesterday. “Some data show that 5 percent inflation is the threshold level, so at 9.4 percent we are far above the threshold level.” India’s stance contrasts with Europe, Japan and Switzerland, which are either adding cash into their economies or seeking to stem appreciating exchange rates to support expansion. Price gains in India are the highest among the BRICS nations that include Brazil, Russia, China and South Africa.
Trichet’s Bond Firepower Faces Test as ECB Purchases Fail to Stem Turmoil (Source: Bloomberg)
European Central Bank President Jean- Claude Trichet may be forced to step up his fight against the sovereign debt crisis after a resumption of bond purchases yesterday failed to halt a rout in Italy and Spain. Over opposition from Germany’s Bundesbank, Trichet yesterday sent the ECB back into bond markets as yields on Italian and Spanish yields soared, threatening the ability of the euro region’s third- and fourth-largest economies to borrow. As the sell-off continued, traders said the ECB purchased only Irish and Portuguese securities, suggesting the central bank is reluctant to put up the funds needed to tame a crisis it says governments are responsible for fixing. “The ECB is being dragged unwillingly back to the table, having tried originally to palm off responsibility for restructuring the euro zone to governments,” said Peter Dixon, an economist at Commerzbank AG in London.
“If the ECB is serious about playing its part in holding the euro zone together, then it’s going to have to spend a considerable sum.”
ECB Resumes Bond Buying as Trichet Offers Banks Cash to Stem Debt Crisis (Source: Bloomberg)
European Central Bank President Jean- Claude Trichet said the ECB has resumed bond purchases and will offer banks more cash to stop the region’s debt crisis from engulfing Italy and Spain and hurting the economy. “I wouldn’t be surprised that before the end of this teleconference you would see something on the market,” Trichet told reporters in Frankfurt today after the ECB kept its benchmark interest rate at 1.5 percent. “We were not unanimous but with overwhelming majority with regards to the bond purchases.” ECB purchases of Irish and Portuguese bonds during the press briefing haven’t stamped out investor concern on the 21- month crisis spreading to Italy and Spain, whose yields soared to euro-era highs this week. European officials are trying to put a firewall around Europe’s third and fourth-largest economies to avoid them being forced into seeking external aid.
Berlusconi Drives Italian Growth Agenda as Bond Yields Stoke Debt Concern (Source: Bloomberg)
Prime Minister Silvio Berlusconi urged Italians not to be “scared” by surging bond yields, saying the country will weather the market storm, after meeting with executives, bankers and unions on the economy. The discussions in Rome today came after the premier, rejecting calls to resign, addressed both houses of Parliament yesterday on the nation's economy. Italy must cut red tape and lower taxes to boost growth and tame the euro region’s second- biggest debt, he said following the session. “I don’t think the crisis will get worse and we mustn’t be scared by the fact that the spreads can remain at their current levels,” Berlusconi told a press briefing in Rome. “The rise in yields would affect only a fraction” of the debt, “which means the costs would be very relative.”
Australian Stocks Set for Biggest Drop in Amost 3 Years Amid Global Rout (Source: Bloomberg)
Australian stocks plunged, with oil and mining companies leading the benchmark index toward its biggest drop in almost three years, as concern that the global economic recovery may stall set off a worldwide equities rout. BHP Billiton Ltd. (BHP), the world’s biggest mining company, slumped 4 percent after commodity prices tumbled. Rio Tinto Group, the second-largest miner by sales, slid 4.9 percent after first-half profit missed analyst estimates. Commonwealth Bank of Australia (CBA), the nation’s No. 1 lender by market value, dropped 3 percent. Qantas Airways Ltd. (QAN), Australia’s biggest airline by market value, sank 5.4 percent. Australia’s S&P/ASX 200 Index fell 4.4 percent to 4,088.20 as of 11:20 a.m. in Sydney, set for the biggest drop since Nov. 13, 2008. Energy, material and consumer companies declined the most among the gauge’s 10 industry groups and all but three of the index’s 200 stocks dropped.
New Zealand’s NZX 50 Index (NZSE50FG) slid 2.4 percent to 3,297.33 in Wellington, set for the steepest decline since March 3, 2009.
Russia Leaves Interest Rates Unchanged for Third Month on Slower Inflation (Source: Bloomberg)
Russia left interest rates unchanged for a third month as July inflation fell faster than economists expected and weakening global growth threatens to damp demand for the country’s oil and gas exports. Bank Rossii held its refinancing rate at 8.25 percent after increases in February and April, the Moscow-based central bank said today in a statement. All 21 economists in a Bloomberg survey predicted the decision. The overnight auction-based repurchase rate was held at 5.5 percent and the overnight deposit rate at 3.5 percent, matching economists’ expectations. “This decision was made based on an evaluation of inflationary risks and risks to the stability of economic growth, including those from continued uncertainty on the economic situation abroad,” the bank said in the statement.
Turkish Bank Cuts Benchmark Rate to 5.75% to Support Growth (Source: Bloomberg)
Turkey’s central bank unexpectedly cut its benchmark interest rate to a record low to shield the economy from the impact of the European debt crisis and slowing growth in the U.S. The bank lowered the one-week repo rate by a half percentage point to 5.75 percent, according to an e-mailed statement today after an emergency meeting of the monetary policy committee in Ankara. It took separate steps to support the lira, which weakened to a two-year low on the news. Governor Erdem Basci is betting that the risks of a global recession spilling into Turkey outweigh the challenges posed by above-target inflation and a record current-account deficit. The bank says critics of its low-rates policy are wrong to worry about the economy overheating because it’s already slowing from the 11 percent annual growth recorded in the first quarter.
Dollar, Franc Set for Weekly Gains (Source: Bloomberg)
The dollar and Swiss franc headed for weekly gains against a majority of their most-traded peers before reports in the U.S. and Germany that analysts estimate will add to signs that the global economy is slowing. The yen is set for its biggest weekly drop in four months against the dollar on speculation Japan will again intervene in markets after yesterday selling its currency to stem gains. The euro sank to a record against the franc before German data that economists said will show industrial output came close to stalling. A U.S. report is forecast to show the jobless rate stayed above 9 percent. New Zealand’s currency slid versus the dollar as investors lowered bets on interest-rate increases. “We’re seeing a slowdown in the U.S. economy and also more broadly,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “The U.S. dollar is still the safe haven so we’ll probably see more dollar buying as commodities and equities fall.”
FOREX-Swiss franc retreats, but move seen short-lived
NEW YORK, Aug 4 (Reuters) - The Swiss franc fell from record highs on Thursday after the Swiss National Bank shocked the market with an interest rate cut, but the retreat should prove fleeting given mounting concerns about global growth.
The SNB said the franc was "massively overvalued," keeping alive the prospect of intervention.
FOREX-Yen dives as Japan intervenes, joins Swiss in FX war
LONDON, Aug 4(Reuters) - The yen fell sharply as Japan intervened to curb the currency's strength to support its export-led economy, a day after Switzerland's central bank unexpectedly cut interest rates to cap a soaring Swiss franc.
"They're trying to fight a futile battle," said Ankita Dudani, currency strategist at RBS. "It won't have a lasting impact so long as the euro zone crisis continues and the global outlook deteriorates."
GLOBAL MARKETS-Yen sinks after intervention; stocks slip again
LONDON, Aug 4 (Reuters) - The yen tumbled from near record highs after Japan intervened to curb the currency's export-damaging strength, while concerns about slowing global economic growth pushed world stocks towards the previous day's 2011 low.
"This is going to be a long and drawn out campaign, since, for Japan, the Fed is more likely to cut than hike interest rates and thus the dollar remains pressured and for the Swiss there seems no resolution to the euro zone debt crisis," said Chris Turner, chief currency strategist at ING.
Intervention hits yen, stocks fall for third day
SYDNEY, Aug 4 (Reuters) - The yen tumbled as Japanese authorities intervened to curb its recent gains, though gold stayed near a record high on uncertainty over whether the European Central Bank would join the fray by resuming bond purchases to fight a crisis of confidence.
"The ECB however has been marching to its own tune of concerns about inflation pressures and we don't expect a huge turnaround in posture from them just yet."
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