Asian Stocks Gain on Easing Europe Concern (Source: Bloomberg)
Most Asian stocks rose as banks advanced after French lenders dismissed concerns over their access to funds, easing concern that Europe’s debt crisis may lead to a freezing of credit markets. Westpac Banking Corp. (WBC), Australia’s No. 2 lender by market value, increased 0.7 percent. BHP Billiton Ltd. (BHP), Australia’s No. 1 oil producer, jumped 0.8 percent after crude prices advanced. Tokyo Electric Power Co. slumped 5.3 percent on speculation Japan’s new trade minister may take a tough stance on power monopolies. Korean Air Lines Co. fell 3.6 percent after Goldman Sachs Group Inc. cut its rating on the stock.
About five stocks rose for every three that dropped on the MSCI Asia Pacific Index, which was little changed at 118.30 at 10:25 a.m. in Tokyo. The gauge swung between gains and losses of as much as 0.3 percent earlier. The measure slumped 8.6 percent last month, the most since May 2010, amid concern global economic growth is slowing as Europe’s sovereign-debt crisis spreads and after Standard & Poor’s cut the U.S. government’s credit rating.
Budget Deficit in U.S. Grew to $134.2 Billion in August on Calendar Effect (Source: Bloomberg)
The U.S. government’s budget deficit widened in August, primarily reflecting a calendar- related jump in spending compared with the same month last year. The gap climbed to $134.2 billion last month, exceeding the August 2010 shortfall of $90.5 billion, according to the Treasury Department’s monthly budget statement issued in Washington. For the fiscal year to date, the deficit increased to $1.23 trillion, less than at the same point in 2010. Improved income-tax collections and efforts to cut spending signal the deficit will stop climbing, according to government and Wall Street analysts. The drive to limit debt prompted President Obama to send a $447 billion job-growth package to Congress this week that he stressed would be paid for with offsetting reductions in outlays and increases in tax revenue over the next decade.
Falling Import Prices Provide Household Relief (Source: Bloomberg)
Prices of goods imported into the U.S. fell in August for the second time in three months as the cost of oil and food dropped while autos stabilized. The 0.4 percent decline in the import-price index followed a 0.3 percent increase in July, Labor Department figures showed today in Washington. Economists projected a 0.8 percent decrease, according to the median of 52 estimates in a Bloomberg News survey. Prices excluding fuel rose 0.2 percent. Slower growth in Europe and emerging economies like China, together with less U.S. demand, may restrain the cost of goods from abroad. Federal Reserve Chairman Ben S. Bernanke last week said “transitory” influences that had pushed up some prices will wane, and that the central bank had tools to spur growth if necessary
Small-Business Confidence in U.S. Falls to 13-Month Low as Demand Slows (Source: Bloomberg)
Confidence among U.S. small businesses dropped to a 13-month low in August as fewer companies projected better economic conditions and improving sales, a private survey found. The National Federation of Independent Business’s optimism index decreased to 88.1, the weakest reading since July 2010 and the sixth-consecutive decline, from 89.9 in July. The number of small-business owners saying they expected the economy will improve six months from now fell to the lowest level since 1980. “Hope for improvement in the economy faded even further through the month,” William Dunkelberg, the group’s chief economist, said in a statement accompanying the index report. “With such a dim outlook, owners are not going to do a lot of hiring or expanding.”
Treasuries Snap Two-Day Slide Before Retail Sales, Producer Price Reports (Source: Bloomberg)
Treasury snapped a two-day drop before government reports today economists said will show retail sales slowed and producer prices failed to increase in August. The U.S. is scheduled to sell $13 billion of 30-year bonds today, the best-performing Treasuries in 2011. The longest maturities have benefitted most as slowing U.S. economic growth and a debt crisis in Europe increased demand for the relative safety of American debt, while shorter maturities were anchored by the Federal Reserve’s benchmark interest rate. “The bullish momentum can continue,” said Tomohisa Fujiki, an interest-rate strategist at BNP Paribas Securities Japan Ltd. in Tokyo. “Our economist is forecasting that the U.S. is going to shrink in the fourth quarter and that will help Treasuries.” BNP’s U.S. unit is one of the 20 primary dealers that trade directly with the Fed.
For Deficit Talks, the $705 Billion Bipartisan Solution: View (Source: Bloomberg)
Much has been made of the idea of President Barack Obama reaching a grand bargain with Republicans on a deficit-cutting package. Just this week, 60 business leaders and former officials urged the congressional supercommittee to “go big” by adding trillions more to its deficit-reduction target of $1.2 trillion. It’s a laudable goal, one we have endorsed in the past, yet with elections only 14 months off increasingly unrealistic. Instead of aiming for the sun, the White House and lawmakers should settle for a planet, even a moon. They should find the areas of agreement -- yes, there are quite a few -- and incorporate them into a package. Such a mini-deal would go a long way toward restoring faith, at home and abroad, in the U.S.’s ability to govern itself.
Many good ideas live on common ground. The Committee for a Responsible Federal Budget, part of the New America Foundation, an independent, nonpartisan policy institute, recently outlined 40-plus proposals from House Republicans and various bipartisan panels, including the deficit commission led by Alan Simpson and Erskine Bowles. They also listed ideas very nearly agreed on (until a last-minute blowup) during this summer’s debt-limit negotiations between the White House and Republicans.
U.S. Stocks Advance, Erasing Earlier Loss, Following European Bank Rally (Source: Bloomberg)
U.S. stocks rose, sending the Standard & Poor’s 500 Index higher for a second day, as French banks eased concerns over their access to funding and investors watched for signs of progress in taming Europe’s debt crisis. All 10 main industries in the S&P 500 advanced as gains were led by industrial, raw material and technology companies. The Dow Jones Transportation Average, a proxy for the U.S. economy, jumped 3.4 percent as airlines rose. Wells Fargo & Co. (WFC) and Fifth Third Bancorp (FITB) added more than 1 percent, following a rally in European lenders. Aetna Inc. (AET) jumped 5.4 percent as the health insurer said profit will probably beat its forecast. The S&P 500 increased 0.9 percent to 1,172.87 at 4 p.m. in New York, after falling as much as 0.4 percent. The gauge has risen 1.6 percent in two days. The Dow Jones Industrial Average advanced 44.73 points, or 0.4 percent, to 11,105.85 today.
Japanese Stocks Advance for Second Day as Concerns Over Europe Crisis Ease (Source: Bloomberg)
Japanese stocks gained for a second day as French banks dismissed concerns over their access to funds, easing concern Europe’s debt crisis will worsen. Sony Corp. (6758), a consumer electronics exporter that depends on Europe for more than 20 percent of its revenue, gained 2.8 percent. Inpex Corp. (1605), the nation’s largest oil explorer by market value, climbed 2.3 percent after crude prices yesterday rose to a six-week high. Tokyo Electric Power Co. led utilities lower after analysts said Japan’s new trade minister may take a tougher stance toward power monopolies. The Nikkei 225 (NKY) Stock Average gained 0.5 percent to 8,656.39 as of 9:27 a.m. in Tokyo. The broader Topix advanced 0.3 percent to 751.73, with more than twice as many shares advancing as declining.
Maersk Lured by $1.5 Trillion in 2020 Asia-Africa Trade: Freight Markets (Source: Bloomberg)
A record surge in trade between Asia and Africa to as much as $1.5 trillion by 2020 is prompting companies including AP Moeller-Maersk A/S and Deutsche Post AG (DPW) to expand shipping links between the continents. Chinese and Indian demand for commodities from coal to copper and African purchases of such items as automobiles and rice are set to fuel the fivefold rise in trade from $304 billion in 2010, said Anil K. Gupta, who holds the Michael Dingman Chair in Global Strategy & Entrepreneurship at the University of Maryland in College Park. “Africa has the resources that Asia needs,” said Gupta, who is a visiting professor for the Fontainebleau, France-based business school INSEAD, co-wrote the book “Getting China and India Right” and studied in India. “Africa now has an historic opportunity to transform its development, and Asia has begun to look at Africa as a market of high growth potential.”
Russia Sees Stalling Economy, Plunging Ruble With $60 a Barrel Oil Price (Source: Bloomberg)
Oil at $60 a barrel may halt Russia’s two-year economic expansion next year, triggering a “substantial” devaluation of the ruble, the Economy Ministry said, according to a document obtained by Bloomberg. Gross domestic product may shrink as much as 1.4 percent next year under a negative scenario that projects a “world recession” cutting the average price of Urals crude by almost a half from the current level, according to the report, submitted to the government for approval last week. The price of Urals, the nation’s chief export oil blend, has averaged $109.35 this year and was at $114.23 yesterday.
A reliance on raw materials, which President Dmitry Medvedev called “humiliating” and “primitive,” has left the economy vulnerable to dropping global demand for its commodity exports. Russia’s sovereign rating, which was last raised by Moody’s Investors Service in 2008, is exposed to sudden changes in the price of oil, Fitch Ratings and Standard & Poor’s said as they kept the credit grade unchanged in the past two weeks.
Euro Holds Four-Day Loss Versus Yen as Greece Concerns Haunt Bond Auctions (Source: Bloomberg)
The euro maintained a four-day decline against the yen on concern Greece’s debt woes will raise borrowing costs for other countries in the region including Spain, which is due to sell bonds tomorrow. The euro was little changed against the greenback before Greek Prime Minister George Papandreou holds a conference call with German Chancellor Angela Merkel and French President Nicolas Sarkozy today. The dollar held a two-day slide against the yen before reports that may show U.S. retail sales and wholesale costs moderated in August, adding to signs of a slowing recovery in the world’s largest economy. “Over the next week or two, the bias would be to the downside because you keep seeing a deterioration in sentiment and that’s pressuring the euro lower,” said Mike Burrowes, a currency strategist at Bank of New Zealand Ltd. in Wellington.
European Stocks Rebound From Two-Year Low as Financial Shares Lead Advance (Source: Bloomberg)
European stocks rose for the first time in three days, with the benchmark Stoxx Europe 600 Index rebounding from a two-year low, as banking shares and carmakers advanced. A gauge of European lenders climbed 3.6 percent as Societe Generale SA and Deutsche Bank AG jumped more than 8 percent. Bayerische Motoren Werke AG (BMW) and Daimler AG (DAI) led gains in European carmakers, both increasing more than 2 percent. Cairn Energy Plc fell 8.2 percent, for the largest drop on the Stoxx 600, after abandoning its second oil well in less than two months.
The Stoxx 600 jumped 0.9 percent to 220.87 at the 4:30 p.m. close in London, having swung between gains and losses more than 10 times today. The gauge has still fallen 24 percent from this year’s peak on Feb. 17 as European and U.S. economic reports trailed forecasts, adding to concern that the global economic recovery is at risk. The retreat has left the gauge trading at 9.2 times the estimated earnings of its companies, near the lowest valuation since March 2009, according to data compiled by Bloomberg.
U.K. Inflation Accelerates to 4.5%, Meets Estimates as Clothes Prices Jump (Source: Bloomberg)
U.K. inflation accelerated in August as the end of seasonal discounts boosted prices for items such as clothes and furniture. Consumer prices rose 4.5 percent from a year earlier, the fastest in three months, compared with 4.4 percent in July, the Office for National Statistics said today in London. That matched the median estimate of 34 economists in a Bloomberg News survey. A separate report showed exports and imports rose to record levels in July. The Bank of England left its key interest rate at a record low last week as policy makers attempted to steer a path between a faltering recovery and inflation that’s more than double their goal. While the central bank forecasts price growth may accelerate to 5 percent in the coming months, Goldman Sachs Group Inc. and Citigroup Inc. have said the central bank may resume emergency asset purchases by November to boost growth.
Greece Should ‘Default Big’: Blejer (Source: Bloomberg)
Mario Blejer, who managed Argentina’s central bank in the aftermath of the world’s biggest sovereign default, said Greece should halt payments on its debt to stop a deterioration of the economy that threatens the European Union. “This debt is unpayable,” Blejer, who was also an adviser to Bank of England Governor Mervyn King from 2003 to 2008, said in an interview in Buenos Aires. “Greece should default, and default big. A small default is worse than a big default and also worse than no default.” World Bank and International Monetary officials will meet in Washington Sept. 23-25 as European Union officials work to keep the currency union from unraveling and the Greek crisis worsens. Europe is facing “a full-blown banking crisis” said Mohamed El-Erian, chief executive officer of Pacific Investment Management Co., in an interview yesterday.
Italian Borrowing Cost Rises at Auction as Investors Shun Indebted Nations (Source: Bloomberg)
Italian borrowing costs jumped at a 6.5 billion-euro ($8.8 billion) bond auction as contagion from Europe’s debt crisis leaves investors shunning the region’s most-indebted nations. The Rome-based Treasury sold 3.9 billion euros of a new benchmark five-year bond to yield 5.6 percent, up from 4.93 percent when similar-maturity securities were sold on July 14. Demand was 1.28 times the amount offered, down from 1.93 times at the last sale. The Treasury, which fell short of its maximum target of 7 billion euros, also sold 2.6 billion euros of bonds maturing in 2018 and 2020.
Investors have dumped Italian debt as divisions among European governments over how best to fight the region’s debt crisis sparked concern the contagion would spread to the bloc’s third-biggest economy. Bonds have dropped even after the government passed a 54 billion-euro austerity plan that failed to ease concerns that weak growth would lead to a credit rating downgrade and hurt efforts to cut Europe’s second-biggest debt.
Spain Faces Rating Risks on ‘Downside’ as Regions Lag Targets, Fitch Says (Source: Bloomberg)
Spain faces risks “on the downside” to its credit rating as growth slows and regional governments fall behind schedule on deficit targets, Fitch Ratings Director Douglas Renwick said. “Risks for the credit rating are clearly on the downside,” London-based Renwick said in a telephone interview yesterday. “The regional deficit performance adds to pressure on the central government to make the needed cuts.” Fitch rates Spain AA+ with a “negative” outlook, and Renwick said weaker growth, failure to meet deficit targets, or larger-than-forecast use of public funds to rescue banks could be “clear triggers for the rating.” Moody’s Investors Service has an Aa2 rating on Spain and Standard & Poor’s rates it AA.
Greece Has 98% Chance of Default on Euro-Region Sovereign Woes (Source: Bloomberg)
Greece has a 98 percent chance of defaulting on its debt in the next five years as Prime Minister George Papandreou fails to reassure investors his country can survive the euro-region crisis. “Everyone’s pricing in a pretty near-term default and I think it’ll be a hard event,” said Peter Tchir, founder of hedge fund TF Market Advisors in New York. “Clearly this austerity plan is not working.” It costs a record $5.8 million upfront and $100,000 annually to insure $10 million of Greece’s debt for five years using credit-default swaps, up from $5.5 million in advance on Sept. 9, according to CMA. Greek bonds plunged, sending the 10- year yield to 25 percent for the first time.
New Zealand Economy to Surge as Aussie Falters (Source: Bloomberg)
The economic outlooks for Australia and New Zealand are diverging the most in at least five years in the bond market. Investors expect the central bank to boost New Zealand’s key interest rate 45 basis points within a year, the biggest forecast rise in the developed world, as the country rebounds from its deadliest earthquake in eight decades, Credit Suisse Group AG indexes show. Australia will make the biggest cuts by lowering borrowing costs 140 basis points, the data show. The gap between the gauges was 195 basis points Aug. 22, the most since the indexes began in 2006.
New Zealand’s “growth is generally better balanced than in Australia and policy setting is more stimulatory,” said Jonathan Cunliffe, London-based head of global macro strategy at Aberdeen Asset Management Plc, which manages $298 billion worldwide. “We would have a preference for owning long-dated Australian government bonds versus their New Zealand counterparts.”
Brazilian Retail Sales Jumped the Most This Year as Demand Peaks in July (Source: Bloomberg)
Retail sales in Brazil jumped the most this year in July as a strong currency and near-full employment buoyed consumer demand. July sales increased 1.4 percent, beating 24 of 32 forecasts in a Bloomberg survey of analysts whose median estimate was 1 percent. Sales rose 7.1 percent from a year ago, the national statistics agency said. Today’s number shows that Brazil’s tight labor market continues to boost consumer confidence, said Flavio Serrano, senior economist at Espirito Santo Investment Bank in Sao Paulo. This makes it unlikely that policy makers will be able to cut borrowing costs much beyond January, he said.
Thai, Indonesian Stocks Farthest From 2008-2009 Lows, Credit Suisse Says (Source: Bloomberg)
Thai and Indonesian stock markets are the farthest from 2008/9 lows, based on current price-to- book, Credit Suisse Group AG said. Thailand traded at 2.24 times price-to-book and Indonesia at 3.43 times as of Sept. 12, more than double their 2008/9 lows, Sakthi Siva and Kin Nang Chik, analysts at Credit Suisse, wrote in a report dated yesterday. The stock markets closest to their 2008/9 lows are Israel, Brazil, Egypt and MSCI China, with the latter being just 1 percent above its low in that period, they wrote. “Significantly, Europe’s price-to-book of 1.27 times is still 14 percent above the 2008/09 lows of 1.11 times,” they wrote.
Nomura Preparing 5% Job Reductions in Europe (Source: Bloomberg)
Nomura Holdings Inc. (8604), Japan’s largest brokerage, is preparing to trim about 5 percent of jobs in Europe to reduce costs, according to two people with knowledge of the matter. The cuts may be announced as early as today, the people said, declining to be identified because the information is confidential. Fewer than 400 positions will be eliminated globally, with the majority in Europe, one of the people said. Nomura joins Bank of America Corp. (BAC), HSBC Holdings Plc (HSBA) and global rivals in trimming jobs as faltering economic growth and Europe’s debt crisis threaten to curb trading income and investment-banking revenue. The Tokyo-based company, which bought Lehman Brothers Holdings Inc.’s Asian and European units in 2008, said on July 29 that it plans to reduce expenses at its wholesale unit by about $400 million annually.
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