Most Asian Stocks Fall on Europe Debt Concern (Source: Bloomberg)
Most Asian stocks fell as a downgrade of Italy’s credit rating overshadowed signs that European officials may reach consensus on recapitalizing the region’s banks to protect them from the sovereign-debt crisis. Toyota Motor Corp. (7203), the world’s biggest carmaker, fell 1.4 percent in Tokyo. Sony Corp. (6758), Japan’s No. 1 exporter of consumer electronics, lost 0.8 percent. BHP Billiton Ltd. (BHP), the largest global mining company gained 3,4 percent as commodity prices rallied after the Financial Times reported the plan to recapitalize European banks. The MSCI Asia Pacific Index was little changed at 107.54 as of 10:19 a.m. in Tokyo. About two stocks fell for each that advanced.
“There still remains considerable work to be done to stabilize both the sovereign debt and banking sector in Europe,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. Stocks in Asia “ remain vulnerable to further disappointments.”
Bernanke Says Federal Reserve Ready to Boost ‘Close to Faltering’ Growth (Source: Bloomberg)
Federal Reserve Chairman Ben S. Bernanke said the central bank can take further steps to sustain a recovery that’s “close to faltering” and cautioned lawmakers against making changes in fiscal policy that harm growth. The Fed can give more information about its pledge to keep interest rates low at least through mid-2013, reduce the rate paid on banks’ reserve deposits or buy more securities, Bernanke said today in testimony to Congress’s Joint Economic Committee in Washington, reiterating options he mentioned in July. He signaled that higher inflation this year won’t stop the Fed, saying it hasn’t become “ingrained” in the economy. Bernanke is struggling to find ways to reduce unemployment stuck at 9 percent and avert a second recession in three years after deploying unconventional stimulus tools in August and September. Europe’s sovereign-debt crisis poses risks to growth already weak from housing and joblessness, the Fed chief said.
Orders for U.S. Capital Goods Rise by Most in Three Months (Source: Bloomberg)
Orders for U.S. capital equipment increased in August by the most in three months, a sign business investment and exports held up in the face of mounting concern over the European debt crisis. Bookings for goods like computers and communications gear, excluding military hardware and aircraft, climbed 0.9 percent, the most since May, a Commerce Department report showed today in Washington. Demand for all factory goods declined 0.2 percent. Faster growth in emerging economies helped sustain demand for American-made turbines and equipment even as U.S. households cut back. Federal Reserve Chairman Ben S. Bernanke said today that policy makers stand ready to take further action to propel a recovery that’s shown signs of faltering.
Treasuries Fail to Recoup Losses as Bernanke Says He’s Ready to Do More (Source: Bloomberg)
Treasuries failed to recoup losses from yesterday after Federal Reserve Chairman Ben S. Bernanke said he’s ready to do more to sustain U.S. economic growth. The U.S. central bank plans to buy $1 billion to $1.5 billion of Treasury Inflation Protected Securities due from January 2018 to February 2041 today, according to the New York Fed’s website. The purchases are part of its effort to spur a slowing U.S. economy. “Anything positive from officials gives investors some relief,” said Chungkeun Oh, a fixed-income trader in Seoul at Industrial Bank of Korea, South Korea’s largest lender to small and medium-sized companies. Bernanke’s remarks “gave investors a small amount of confidence and led yields to bounce,” he said.
U.S. Stocks Rally as S&P 500 Jumps in Final Hour After Europe Bank Report (Source: Bloomberg)
U.S. stocks rallied, driving the Standard & Poor’s 500 Index up 4.1 percent in the final 50 minutes of trading, amid speculation European Union officials are examining how to recapitalize the region’s banks. Financial stocks in the Standard & Poor’s 500 Index jumped 4.1 percent as a group, reversing a 2.9 percent drop. Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) added at least 4.1 percent. DuPont Co. and Hewlett-Packard Co. (HPQ) rallied more than 3.6 percent, pacing in companies most-tied to economic growth. AMR Corp. (AMR) surged 21 percent as analysts said the parent of American Airlines is unlikely to file for bankruptcy. The S&P 500 rose 2.3 percent to 1,123.95 at 4 p.m. New York time. The index plunged 2.2 percent earlier, to a level that would mark more than a 20 percent drop from an April peak, the threshold of a bear market. The Dow Jones Industrial Average lost 153.41 points, or 1.4 percent, to 10,808.71 today.
China Currency Bill Runs Into GOP Opposition (Source: Bloomberg)
U.S. Senate legislation that would punish China for an undervalued currency ran into opposition from senators and a roadblock by House Speaker John Boehner, who said the bill was “pretty dangerous.” Boehner’s opposition may derail a bill backed by 225 House members, including 61 Republicans. The bill is aimed at forcing China to address what Federal Reserve Chairman Ben S. Bernanke yesterday called a currency policy that’s “blocking what might be a more normal recovery process in the global economy.” In the Senate, Republicans sought an amendment yesterday to make it harder for unilateral U.S. action, something China’s government said this week would risk triggering a trade war and affecting how it overhauls exchange-rate policy. The Obama administration has said it’s reviewing the bill, citing the need to comply with global trade obligations.
China Says U.S. Risks Trade War as Senate Considers Measure Targeting Yuan (Source: Bloomberg)
China said the U.S. risks triggering a trade war through legislation before the Senate that would punish the Asian nation for what lawmakers say is the undervaluation of its currency, the yuan. The People’s Bank of China said it “regrets” the Senate vote yesterday to consider the bill, and the Foreign Ministry said the measure would violate World Trade Organization rules, in statements today on their websites. The bill is aimed at letting American businesses seek duties on Chinese imports to make up for the weak currency. The 79-19 vote allows the Senate to begin considering the bill introduced by Democrat Sherrod Brown of Ohio and Charles Schumer of New York with co-sponsors including Republicans Lindsey Graham of South Carolina and Jeff Sessions of Alabama. The legislation is opposed by business groups, such as the U.S. Chamber of Commerce, that say it may cause a trade dispute.
Japanese Stocks Fall Fourth Day After Moody’s Cuts Italy’s Credit Rating (Source: Bloomberg)
Japanese stocks fell for a fourth day, sending the Topix index toward its lowest intra-day level since the March earthquake, as a cut of Italy’s debt rating overshadowed signs Europe may reach consensus on recapitalizing its banks. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest lender by market value, led banks lower. Marubeni Corp. (8002), a trading company, dropped 4.1 percent after commodity prices fell. Fast Retailing Co., Asia’s biggest apparel chain, slid 4.6 percent after saying its sales fell last month. The Nikkei 225 (NKY) Stock Average declined 0.8 percent to 8,385.71 at the 11 a.m. trading break in Tokyo. The broader Topix index fell 1.2 percent to 727.19, approaching its lowest intra-day level since the country’s record earthquake and tsunami on March 11. The gauge fell as low as 725.9 on March 15.
European Stocks Drop for Third Day on Debt; Dexia Sinks, Air France Tumble (Source: Bloomberg)
European stocks dropped for a third day, the longest losing streak in four weeks, as policy makers signaled they may renegotiate terms of Greece’s bailout, deepening concern about the impact of the debt crisis. Dexia SA (DEXB) tumbled to a record low as the board asked Belgium’s biggest bank by assets to solve its “structural problems.” Deutsche Bank AG (DBK) slid 4.3 percent after abandoning its 2011 earnings forecast. National Bank of Greece SA (ETE) sank to the lowest since 1996. Air France-KLM (AF) Group retreated to a 20- year low after the head of the IATA industry association said profit projections may be unsustainable. The benchmark Stoxx Europe 600 Index fell 2.8 percent to 217.46 at the 4:30 p.m. close in London, the lowest level in a week. European finance chiefs meeting yesterday considered “technical revisions” to the second Greek bailout, Luxembourg Prime Minister Jean-Claude Juncker said today, fueling concern bondholders may have to take bigger losses on the nation’s debt.
Moody’s Cuts Italy Rating Following S&P (Source: Bloomberg)
Italy’s credit rating was cut by Moody’s Investors Service for the first time in almost two decades on concern that Prime Minister Silvio Berlusconi’s government will struggle to reduce the region’s second-largest debt amid chronically weak growth. Moody’s lowered Italy’s rating three levels to A2 from Aa2, with a negative outlook, the New York-based company said in a statement yesterday. The action comes after Standard & Poor’s downgraded Italy on Sept. 20 for the first time in five years. Italy was last cut by Moody’s in May 1993. Italy gave final approval last month to a 54 billion-euro ($72 billion) austerity plan aimed at balancing the budget in 2013 that convinced the European Central Bank to buy the nation’s bonds. While the purchases initially brought down bond yields by about 100 basis points, Italy’s borrowing costs remain near record highs because of euro-area debt crisis contagion.
Merkel Says Those Demanding Endgame to Europe’s Debt Crisis Have ‘No Clue’ (Source: Bloomberg)
German Chancellor Angela Merkel stiffened her resistance to joint euro-area bond sales, saying that investors yearning for a single gesture that can end Europe’s sovereign debt crisis now will be disappointed. The euro area has to resolve “that the time of living above our means is over once and for all” and pursue debt reduction that will stretch over “many years,” Merkel said in a speech to members of her Christian Democratic Union late yesterday in Magdeburg, eastern Germany. While stepping up her rejection of a Greek default, she said that issuance of shared debt by euro countries isn’t the solution to the problem spilling from Greece, even though some may long for the “big bang” to end the debt crisis. “Whoever believes that has no clue about the economy,” she said.
Greece Has Cash to Meet Needs Until Mid-November, Finance Minister Says (Source: Bloomberg)
Finance Minister Evangelos Venizelos said Greece has enough cash to operate until mid-November, after euro-region finance ministers delayed a decision on the nation’s next emergency-loan payment. With cash needs covered until then, Greece has time to carry out reforms demanded in return for a new bailout plan, Venizelos told reporters in Athens today after returning from the ministers’ meeting in Luxembourg. The new package “will give a more radical and more complete answer to our problems,” Venizelos said. The ministers, who yesterday discussed re-crafting a July deal on private-investor participation in a new Greek rescue, pushed back a decision on the release of the country’s next 8 billion-euro ($10.6 billion) loan installment until after Oct. 13. It was the second postponement of a vote originally slated for yesterday as part of the 110 billion-euro lifeline granted to Greece last year. The decision on the payment may come at an Oct. 17-18 European summit.
EU Signals Investors May Have to Take Bigger Losses in Second Greek Rescue (Source: Bloomberg)
European governments hinted that bondholders may be saddled with bigger losses on Greek debt, intensifying market jitters that a second aid package designed to quell the fiscal crisis might unravel. Finance ministers considered recrafting a July deal that foresaw investors contributing 50 billion euros ($66 billion) to a 159 billion-euro rescue. The debt exchanges and rollovers targeted bondholder losses of 21 percent. “We will have to assess if the conditions are still met,” German Finance Minister Wolfgang Schaeuble told reporters after a two-day euro meeting in Luxembourg. “It is completely clear that this statement includes the possibility that that is no longer the case and adjustments are needed.”
Stevens Rate-Cut Signal Sends Yield Gap to 20-Month Low: Australia Credit (Source: Bloomberg)
Australian bond yields tumbled to the lowest level in 20 months relative to U.S. Treasuries after central bank Governor Glenn Stevens indicated he’s willing to cut the developed world’s highest benchmark interest rate. The extra yield investors demand to hold the nation’s two- year securities instead of Treasuries fell to 3.22 percent, the least since Feb. 3, 2010, from as much as 4.58 percent on Jan. 3. Cash-rate futures showed traders wagering on an 80 percent chance the benchmark will be cut to 4.25 percent from 4.75 percent by November. Stevens, who held rates yesterday for an 11th straight month, signaled slowing inflation may give him scope to lower borrowing costs. Such a move would follow cuts by nations from Brazil to Israel to counter slowdowns in Europe and the U.S. In Australia, business and consumer confidence have weakened in recent months and the nation’s unemployment climbed to a 10- month high in August.
Euro Weakens Versus Dollar, Yen (Source: Bloomberg)
The euro fell against the dollar on speculation that mounting debt concerns and signs of economic slowdown will compel the European Central Bank to increase monetary stimulus at its meeting tomorrow. The 17-nation euro failed to extend its biggest jump in more than five months versus the yen as traders increased bets the ECB will lower borrowing costs and before a report today forecast to show the region’s retail sales declined in August. The dollar gained against most of its major peers after Federal Reserve Chairman Ben S. Bernanke signaled willingness to step up measures to spur growth in the U.S. The European economy “is looking softer on some key measures,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “I think they will cut rates on Thursday. We’ll see the euro more likely to be lower than higher from current levels.”
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