Friday, October 14, 2011

20111014 1003 Global Market Related News.

G-20 Weighing Boosting IMF Lending Power (Source: Bloomberg)
Nations from China to Brazil are considering increasing the International Monetary Fund’s lending resources to help stem the European debt crisis, Group of 20 and IMF officials said. Policy makers are discussing an expansion of the IMF’s firepower as part of a global G-20 agreement next month in Cannes, France, according to three officials, who declined to be named because the discussions are not public. Talks are in preliminary stages as potential contributors wait to see what measures Europeans take to end the debt turmoil at an Oct. 23 summit, they said. IMF Managing Director Christine Lagarde told member countries last month that her current $390 billion war chest may not suffice to meet all loan requests should the global economy worsen. Additional funds could be used to help shelter Italy and Spain with precautionary lending, the people said.

Asian Stocks Decline as Spain Downgrade Deepens Global Recovery Doubts (Source: Bloomberg)
Asian stocks fell, ending a six-day winning streak for the region’s benchmark index, after credit- rating downgrades of Spain and European banks fueled concern the region’s debt crisis will hurt Asian economies and earnings. Nissan Motor Co., a carmaker that gets about 80 percent of its sales overseas, slid 1.9 percent in Tokyo. Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, fell 0.6 percent after JPMorgan Chase & Co., the second-largest U.S. bank by assets, said profit declined. BHP Billiton Ltd. (BHP), the world’s biggest mining company, lost 2.3 percent in Sydney after commodity prices slumped yesterday. The MSCI Asia Pacific Index dropped 0.6 percent to 117.02 as of 9:44 a.m. in Tokyo. The gauge climbed 9.7 percent in the previous six days, with stocks advancing this week after German Chancellor Angela Merkel and French President Nicolas Sarkozy pledged to deliver a plan to recapitalize Europe’s banks and address Greece’s debt crisis.

U.S. Economy: Four-Month Low Trade Gap May Help Growth (Source: Bloomberg)
The U.S. trade deficit was little changed at a four-month low of $45.6 billion in August as near- record exports helped keep the economy expanding. The shortfall compared with a median projection of $45.8 billion in a Bloomberg News survey of economists. Shipments abroad valued at $177.6 billion were the second-highest ever, the Commerce Department said in Washington. Two other reports today signaled Americans remain pessimistic as the labor market shows few signs of improving. Growing sales overseas, particularly to economies in Asia and Latin America, are underpinning manufacturers like Alcoa Inc. (AA) Those gains may assist in sustaining the expansion by counterbalancing the slowdown in U.S. demand that was reflected in a third consecutive drop in imports.

Consumer Comfort Hovered Near Low Last Week (Source: Bloomberg)
Consumer confidence hovered last week near a record low as Americans turned more pessimistic about the state of the U.S. economy. The Bloomberg Consumer Comfort Index fell to minus 50.8 in the week ended Oct. 9 from 50.2 the prior period. It was the fourth consecutive reading lower than minus 50, something that has happened just three previous times in its 26-year history. The outlook for spending may dim as the economic recovery fails to generate enough jobs to reduce unemployment and wage gains trail inflation. Policy makers face growing discontent as political independents, homeowners, full-time workers and even the highest earners are among groups whose views are souring.

Obama: Trade Deal Shows Parties Can Cooperate (Source: Bloomberg)
President Barack Obama said congressional passage of a free-trade agreement with South Korea will help create 70,000 U.S. jobs and shows Republicans and Democrats can cooperate on measures to improve the economy. The trade deal “shows that we are happy to work with Republicans where they are willing to put politics behind the interests of the American people and come up with proposals that are actually going to create jobs,” Obama said in a joint news conference with South Korean President Lee Myung-bak. Obama challenged Republicans, who control the U.S. House, to back his $447 billion jobs plan, which he said will be brought to Congress piecemeal after the Senate blocked consideration of the full plan on Oct. 11.

Growing Income Gap May Leave U.S. Vulnerable (Source: Bloomberg)
A widening gap between rich and poor is reshaping the U.S. economy, leaving it more vulnerable to recurring financial crises and less likely to generate enduring expansions. Left unchecked, the decades-long trend toward increasing inequality may condemn Wall Street to a generation of unimpressive returns and even shake social stability, economists and financial-industry executives say. “Income inequality in this country is just getting worse and worse and worse,” James Chanos, president and founder of New York-based Kynikos Associates Ltd., told Bloomberg Radio this week. “And that is not a recipe for stable economic growth when the rich are getting richer and everybody else is being left behind.”

Initial Jobless Claims Decrease to 404,000 (Source: Bloomberg)
The number of Americans filing claims for jobless benefits was little changed last week, showing the labor market is making scant progress. Applications for unemployment insurance payments decreased 1,000 in the week ended Oct. 8 to 404,000, Labor Department figures showed today. Economists forecast 405,000 claims, according to the median estimate in a Bloomberg News survey. The number of people on unemployment benefit rolls dropped to the lowest level in six months. While U.S. employers hired more workers than anticipated in September, elevated firings signal companies may be slower to expand payrolls in the next few months. Political gridlock in Washington, with the Senate this week blocking the advance of President Barack Obama’s jobs plan, is another sign that any improvement on the job front will be slow to develop.

Congress Approves Biggest U.S. Trade Agreement Since 1994 (Source: Bloomberg)
The U.S. Congress cleared free-trade agreements with South Korea, Colombia and Panama, bringing an end to years of stalemate and offering what supporters said was the biggest opportunity for exporters in decades. The bills go to President Barack Obama, who spent two years seeking to broaden Democratic support for pacts revised from initial agreements reached by his predecessor. The South Korea deal, the biggest for the U.S. since the North American Free Trade Agreement in 1994, removes duties on almost two-thirds of American farm exports, and phases out tariffs on more than 95 percent of industrial and consumer exports within five years. Yesterday’s step may diminish concern that the U.S. will turn to protectionism amid unemployment that exceeds 9 percent and an Oct. 11 Senate vote designed to punish China for an undervalued yuan. The approval may also give impetus to Obama’s trans-Pacific trade initiative, which Japan, the world’s third- largest economy, is considering joining.

U.S. Stocks Drop as JPMorgan Leads Banks Lower; Chipmakers, Yahoo Advance (Source: Bloomberg)
U.S. stocks fell, paring gains from the best Standard & Poor’s 500 Index rally over seven days since 2009, amid lower earnings from JPMorgan Chase & Co. (JPM) and concern equities rose too much on optimism about Europe’s debt crisis. Stocks trimmed losses as chipmakers in the S&P 500 added 1.9 percent and Yahoo! Inc. rose as much as 3.8 percent after people with knowledge of the matter said KKR & Co. and Blackstone Group LP are among firms considering bids for the company. JPMorgan dropped 4.8 percent after reporting a 33 percent profit decline, excluding a $1.9 billion accounting benefit, as investment banking and trading income slumped. The S&P 500 retreated 0.3 percent to 1,203.66 at 4 p.m. New York time, paring its loss from 1.4 percent. It had rebounded 9.8 percent from a 13-month low on Oct. 3 through yesterday. The Dow Jones Industrial Average decreased 40.72 points, or 0.4 percent, to 11,478.13 today. The Nasdaq Composite Index climbed 0.6 percent, rallying a fourth straight day.

Chinese Banks’ Bad Debt May Hit 60% of Equity Capital, Credit Suisse Says (Source: Bloomberg)
Loan losses at Chinese banks may climb to levels equivalent to 60 percent of their equity capital as real-estate companies and local governments fail to repay debts, according to Credit Suisse Group AG. Nonperforming loans will probably increase to 8 percent to 12 percent of total debt in the “next few years,” causing losses amounting to 40 percent to 60 percent of Chinese banks’ equity, Hong Kong-based analysts led by Sanjay Jain at Credit Suisse wrote in a research report dated Oct. 12. Jain cut 2012 and 2013 profit estimates by as much as 25 percent and maintained an “underweight” rating on the industry.
Chinese bank stocks have tumbled this year, sending the MSCI China Financials Index down as much as 43 percent, amid growing concern that slower economic growth will spur bad debts after a three-year credit boom. The retreat sent price-to- earnings ratios on bank stocks to record lows and prompted the government to begin buying shares in the four biggest lenders this week. The MSCI gauge gained 9 percent in the past two days.

China Stocks’ 20% Surge Leads Asia as Government Acts on Crisis (Source: Bloomberg)
The Hang Seng China Enterprises Index became the first of Asia’s major equity benchmark gauges to exit a bear market as the Chinese government bought bank shares and pledged support for small business, spurring the biggest rally in three years. Zijin Mining Group Co., Anhui Conch Cement Co. and Agricultural Bank of China Ltd. (601288) have rallied more than 39 percent since Oct. 4, sending the gauge of Chinese companies in Hong Kong to a 21 percent advance. The surge trimmed the 2011 loss for the H-share index to 23 percent. “People are now realizing stocks were oversold,” said Yoji Takeda, who manages about $1.1 billion at RBC Investment Management (Asia) Ltd. in Hong Kong. “China’s H shares fell more than other markets recently with fears, especially among Western investors, about China’s hard landing and off-balance sheet lending.”

Japan Stocks Drop as Spain’s Rating Downgrade Stokes Concern Over Europe (Source: Bloomberg)
Japanese stocks fell after Standard & Poor’s cut Spain’s credit rating, fueling concern that a deterioration of Europe’s debt crisis will weigh on Asian economies and corporate earnings. Nissan Motor Co., a carmaker that gets about 80 percent of its revenue overseas, dropped 1.8 percent. Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, fell 0.9 percent after JPMorgan Chase & Co., the second-largest U.S. bank by assets, said profit declined. Canon Inc. slipped 2.1 percent after the camera maker said it’s preparing to shift production at two factories affected by flooding in Thailand. “Investors are hoping Europe will find a solution to the sovereign-debt crisis, but if that doesn’t happen the market could come back down again,” said Lee King Fuei, a Singapore- based fund manager at Schroders Plc, which oversaw $323 billion as of June 30. “Politically, it’s going to be difficult to find a solution. Governments in the U.S. and Europe are left with limited stimulus options.”

European Stocks Decline From Two-Month High as Roche, Bank Shares Retreat (Source: Bloomberg)
European stocks fell from a two- month high as Chinese exports slowed and the European Central Bank warned imposing further losses on holders of Greek debt posed a risk to the euro area’s financial stability. Carrefour SA (CA) retreated 5.9 percent after saying its profit may drop as much as 20 percent this year. Roche Holding AG (ROG) slid 4.5 percent after posting third-quarter revenue that missed analysts’ estimates. Alcatel-Lucent surged 5.3 percent on a report France’s biggest telecommunications equipment maker will sell its corporate call-center business. The benchmark Stoxx Europe 600 Index dropped 1.1 percent to 236.53 at the close in London. The gauge rose 1.7 percent yesterday for its biggest six-day rally since January 2009. The Stoxx 600 has still tumbled 19 percent from its high on Feb. 17 amid concern that the sovereign debt crisis in Europe will spread from Greece to the larger economies of Italy and Spain.

Spain Credit Rating Cut by S&P on Weak Outlook (Source: Bloomberg)
Spain had its credit rating cut one level by Standard & Poor’s as rising defaults threaten efforts to stem Europe's sovereign-debt crisis and limit risks for the region's banks. The ranking slid to AA-, with a negative outlook, in the third reduction by S&P in three years. The ratings company announced the change in a statement. “Despite signs of resilience in economic performance during 2011, we see heightened risks to Spain’s growth prospects,” S&P said in the statement. “The financial profile of the Spanish banking system will, in our opinion, weaken further, with the stock of problematic assets rising further.”

Trichet Says It’s Up to Leaders to Solve Crisis With Appropriate Decisions (Source: Bloomberg)
European Central Bank President Jean-Claude Trichet said it’s now up to governments to solve Europe’s debt crisis as leaders get ready for a summit in Brussels in 10 days. “It’s our duty to tell governments and other institutions what we see, but up to them to take the appropriate decisions,” Trichet, 68, said in an interview with Bloomberg Television in London today. “I’m certainly not underestimating the difficulty of their task.” Policy makers earlier this month pushed back a debt-crisis summit to Oct. 23, as leaders are trying to solve a crisis that started in Greece two years ago and is now threatening to tip the global economy into recession. The ECB has shouldered the main burden of keeping Europe’s banking system from collapsing throughout that period, while pushing governments to take on more responsibility as leaders struggled to contain the turmoil.

GLOBAL MARKETS-Italian debt sale to test euro zone mood
LONDON, Oct 13 (Reuters) - Italy was set to test fragile investor confidence in the euro zone's ability to heal its debt problems, with a sale of bonds, while weaker Chinese trade data acted as a reminder of broader economic problems.
"Maybe the political decisions are finally coming through," said Justin Urquhart Stewart, director at Seven Investment Management.

Greece’s Bondholders Brace for Bigger Losses to Solve Crisis: Euro Credit (Source: Bloomberg)
Greek bondholders are preparing to lose as much as 60 percent of their investments as European leaders try to impose a solution that reduces the nation’s debt burden by enough to end the debt crisis. “Everyone is coming to the conclusion that a much deeper restructuring is needed to make Greece in any way sustainable,” said Emiel van den Heiligenberg, chief investment officer of global balanced solutions at BNP Investment Partners in London, which oversees about $742 billion. “If the stock of debt doesn’t diminish then the problems are going to be bigger and bigger and Greece will require rescue package after rescue package.” Greek 10-year bonds yielded 23.97 percent at 5 p.m. yesterday, with the price on the securities at 37.41 percent of face amount. The rate was 2,186 basis points, or 21.86 percentage points, more than benchmark German bunds and compares with a yield of 11.59 percent for similar-maturity Portuguese debt and 5.82 percent for Italian bonds.

U.K. Home Prices Post First Drop Since June, Acadametrics Says (Source: Bloomberg)
U.K. house prices fell for the first time in three months in September as turmoil in financial markets spurred by Europe’s debt crisis undermined confidence, Acadametrics Ltd. and LSL Property Services Plc said. The average price of a home in England and Wales fell 0.3 percent from August to 218,650 pounds ($343,000), the lowest since June, the groups estimated in an e-mailed report in London today. Prices dropped 2.3 percent from a year earlier. The housing market is struggling to gain momentum as banks restrict lending and inflation outpaces wage growth. While Bank of England policy makers expanded stimulus last month to aid the economic recovery, the escalation of the debt crisis threatens demand, Acadametrics Chairman Peter Williams said.

Lehman Catastrophic Moment Invoked as EU Seeks Crisis Solution (Source: Bloomberg)
“Cascading default, bank runs and catastrophic risk” lie ahead for the world economy unless Europe resolves its festering debt crisis, Timothy F. Geithner told global finance chiefs on the morning of Sept. 24. The U.S. Treasury secretary spoke from experience and lessons learned. Three years ago, he was president of the Federal Reserve Bank of New York and working to shore up a financial system in the chaos following the collapse of Lehman Brothers Holdings Inc. (LEHMQ) His warning last month at a meeting of the International Monetary Fund in Washington was the third in three weekends after he jetted to conferences in France and Poland to appeal directly to Europe’s policy makers for action.
After Lehman filed for bankruptcy on Sept. 15, 2008, financial institutions lost or wrote off almost $1 trillion; the Standard & Poor’s 500 Index fell 40 percent in six months; and the world slumped into the deepest recession since World War II. The global economy still hasn’t recovered and has been close to stalling anew for the past several months.

Euro Weakens for Second Day After S&P Cuts Spain’s Credit Rating One Level (Source: Bloomberg)
The euro declined for a second day against the dollar and yen after Spain’s credit rating was cut by Standard and Poor’s, increasing concern that leaders are struggling to stop Europe’s debt crisis spreading. The 17-nation currency pared its first weekly advance in a month against the dollar as S&P lowered Spain’s grade on long- term sovereign debt to AA- from AA with a negative outlook. The dollar and yen gained against most major peers as investors sought the safest assets amid concern Europe’s turmoil will infect the global economy. The downgrade will “keep the pressure on the negative aspects of the European story,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “It’s clearly a negative for risk sentiment. The euro had a decent drop. A month out and longer, I see it below $1.3150.”

Treasuries Advance as Spain Rating Cut Spurs Demand for Safer Securities (Source: Bloomberg)
Treasuries rose for a second day after Spain had its long-term sovereign debt rating cut by Standard & Poor’s, increasing investor appetite for the relative safety of U.S. government securities. Treasuries have returned 4 percent in the past three months, according to Bank of America Merrill Lynch indexes, as European officials struggled to contain the region’s debt crisis. S&P lowered Spain’s rating to AA- from AA and the outlook is negative, the company said in a statement. “The flight to quality will continue,” said Hiromasa Nakamura, an investor in Tokyo for Mizuho Asset Management Co., which has the equivalent of $43 billion and is a unit of Japan’s second-largest bank. “European turmoil is still going on.”

Singapore Cuts Economic Growth Forecast (Source: Bloomberg)
Singapore cut its economic growth forecast for this year and predicted a further slowdown in expansion in 2012 as the global outlook weakens, prompting the central bank to ease its monetary policy stance. Gross domestic product may increase 5 percent this year, compared with an earlier forecast range of 5 percent to 6 percent, the trade ministry said in a statement today. The Monetary Authority of Singapore, which uses the island’s dollar as its main tool to manage inflation, said it will reduce the slope of the policy band of its currency and continue with a modest and gradual appreciation.
The risk of another global recession erased $10 trillion of equities worldwide last quarter and prompted officials from China to Indonesia to boost fiscal measures or cut interest rates. With a potential Greek default threatening to disrupt world financial markets, Singapore is trying to stimulate growth just six months after its last monetary tightening, and the government said this week it will increase spending in the next five years.

Singapore Reduces Dollar-Band Slope (Source: Bloomberg)
Singapore will slow gains in the local currency because the deteriorating global economic outlook is expected to lead to a moderation in inflation, the central bank said today in its semi-annual exchange-rate review. “Given the stresses and fragility in the advanced economies, the prospects for growth in Singapore’s major trading partners have deteriorated,” the Monetary Authority of Singapore said in a statement. The nation’s dollar climbed against all its most-traded peers and advanced 0.2 percent to S$1.2748 against its U.S. counterpart as of 9:01 a.m. Singapore time. It reached S$1.3199 on Oct. 4, the lowest level this year, and has gained 0.7 percent since Dec. 31. Fourteen of 22 analysts in a Bloomberg News survey predicted the move. Seven forecast an easing of monetary conditions. One said the central bank will maintain the currency’s appreciation after re-centering the band upward at its last review in April to cool inflation.

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