Tuesday, October 18, 2011

20111018 0947 Global Market Related News.

China reported 3rd quarter 9.1% GDP growth below expectation. Slowest pace in 2 years.

Asian Stocks Drop Most in 2 Weeks as Europe Debt Optimism Fades (Source: Bloomberg)
Asian stocks fell, driving the region’s benchmark index toward its biggest drop in two weeks, as Germany damped expectations for a fast resolution to Europe’s debt crisis, souring the outlook for Asian exporters and banks. BHP Billiton Ltd. (BHP), the world’s No. 1 mining company, slipped 2.8 percent in Sydney after commodity prices slumped. Sony Corp., which gets about 70 percent of its revenue overseas, dropped 3.3 percent in Tokyo. Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender, lost 1.8 percent after U.S. banks Citigroup Inc. and Wells Fargo & Co. said quarterly revenue dropped.
“The implied lack of urgency by European policy makers will create additional uncertainty regarding a robust, all- encompassing solution to Europe’s growing list of problems,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “Increased uncertainty will feed through to investor nervousness and is likely to see risk reduced by investors as they move to lock in gains from the past couple of weeks.”

Central Banks Selling Most Treasuries Since 2007 Prove No Barrier to Rally (Source: Bloomberg)
International central banks are selling the most Treasuries since the credit crisis began just as institutional investors load up on U.S. government bonds. The Federal Reserve said its holdings of U.S. government debt on behalf of central bankers and institutional investors outside America has plunged $76.5 billion in the last seven weeks, the most since August 2007. At the same time, bond mutual funds are adding Treasuries, banks have increased their holdings 45 percent in the past five years and the Fed has added $656 billion to its balance sheet this year.
Rather than a referendum on the U.S.’s $1.3 trillion budget deficit and rising debt burden, sales by foreign policy makers may have more to do with supporting their currencies after the Brazilian real weakened 11 percent and Taiwan’s dollar lost 4.4 percent against the U.S. dollar since June. With economists forecasting inflation slowing to 2.1 percent in 2012 from 3.1 percent this year and the Fed’s commitment to keeping interest rates near zero, investors say the demand that pushed government bond yields to record lows last month will be sustained.

U.S. Stocks Drop as Germany Damps Optimism Over Crisis, Wells Fargo Slumps (Source: Bloomberg)
U.S. stocks declined, after the biggest weekly gain in the Standard & Poor’s 500 Index since 2009, as financial shares slumped and the German government damped optimism of a quick fix to Europe’s debt crisis. Banks in the S&P 500 tumbled 6.3 percent as a group. Citigroup Inc. (C) and Wells Fargo & Co. (WFC) slipped at least 1.6 percent as revenue dropped amid economic weakness and market turmoil linked to Europe. Alcoa Inc. (AA) and Caterpillar Inc. (CAT) retreated more than 3 percent to pace losses among companies most-tied to the economy. Gannett Co. sank 8.7 percent after profit fell as newspaper advertising declined. The S&P 500 decreased 1.9 percent to 1,200.86 at 4 p.m. New York time. The benchmark gauge for American equities rallied 6 percent last week. The Dow Jones Industrial Average retreated 247.49 points, or 2.1 percent, to 11,397 today.

Fed’s Evans Says U.S. Faces ‘Massive’ Job Shortfalls, Calls for New Steps (Source: Bloomberg)
Federal Reserve Bank of Chicago President Charles Evans said the U.S. faces “massive shortfalls in output and employment” and called for new policy steps to ensure the Fed meets its congressional mandate. The 53-year-old regional bank chief reiterated his proposal, initially unveiled in a speech last month, to keep the target for the benchmark U.S. interest rate near zero until either unemployment falls below 7 percent or the medium-term inflation outlook rises above 3 percent. He said he would support more asset purchases if those objectives aren’t reached. “Some may find such a policy proposal to be hard to understand, or even risky,” he said today of his plan in the text of a speech in Detroit. “But these are not ordinary times.”

Manufacturing in New York Fed Region Shrinks More Than Economists Forecast (Source: Bloomberg)
Manufacturing in the New York region contracted in October at a faster pace than forecast, reflecting a lack of confidence in the U.S. recovery that failed to be confirmed by measures of orders and sales. The Federal Reserve Bank of New York’s general economic index rose to minus 8.5 from minus 8.8 in September. Economists projected an improvement to minus 4, based on the median of 53 forecasts in a Bloomberg News survey. Readings less than zero signal companies in the so-called Empire State Index, which covers New York, northern New Jersey, and southern Connecticut, are cutting back. The central bank’s measures of bookings and shipments climbed to the highest levels in five months, indicating the industry at the heart of the economic recovery may be regaining momentum. Growth in China and other emerging economies may continue to lift demand for U.S.-made cars and machinery, complementing a pickup in consumer spending.

Industrial Production in U.S. Increases 0.2% on Demand for Cars, Computers (Source: Bloomberg)
Industrial production in the U.S. advanced in September on growing demand for automobiles and computers after stalling the prior month, a sign manufacturers are contributing to growth. Output at factories, mines and utilities increased 0.2 percent, in line with the median estimate in a Bloomberg News survey, after being little changed in August, figures from the Federal Reserve showed today. Factory production, which makes up 75 percent of the total, climbed for a third month. Companies like General Motors Co. (GM) and Alcoa Inc. (AA) are getting a lift as Japan recovers from the earthquake and tsunami, and as demand from emerging markets and business investment boosts orders. At the same time, shipments to Europe may cool as the region’s debt crisis lingers, indicating factory assembly lines will probably not be running at full tilt.

Lacker Says Fed’s Attempts to Boost GDP Growth May Risk Stoking Inflation (Source: Bloomberg)
Federal Reserve Bank of Richmond President Jeffrey Lacker said the central bank risks stoking inflation by trying to boost growth because the recovery is hampered by conditions that are unaffected by monetary policy. “The factors likely to be restraining growth -- from empty houses to prospective tax rates -- are nonmonetary and largely beyond the power of the central bank to offset through easier monetary conditions,” Lacker said today in the text of a speech to be delivered in Salisbury, Maryland. “History has repeatedly demonstrated that if a central bank attempts to add monetary stimulus to offset nonmonetary disturbances to growth, the result is higher inflation.” Lacker said he opposed the Fed’s decision last month to push down long-term interest rates by selling $400 billion of short-term Treasury securities and replacing them with the same amount of longer-term bonds, a move known as Operation Twist.

Wells Fargo Slumps as Lower Revenue Mars Record Profit (Source: Bloomberg)
Wells Fargo & Co. (WFC), the largest U.S. home lender, led decliners among bank stocks after reporting that third-quarter revenue declined and margins narrowed. Investors focused on a 6 percent decline in revenue from a year earlier to $19.6 billion. That missed the $20.2 billion estimate of analysts as low interest rates cut into profit on loans, according to a statement by the San Francisco-based bank. “Given this low-rate environment, I think investors are very focused on direction of bank margins, and Wells was a little bit weaker than expected on the net interest margin,” David George, a bank analyst at Robert W. Baird & Co. in St. Louis, said in an interview with Betty Liu on Bloomberg Television’s “In the Loop.”

Japan Stocks Fall as Germany Damps Optimism on Crisis Solution (Source: Bloomberg)
Japanese stocks dropped, with the benchmark Nikkei 225 (NKY) Stock Average headed for its biggest decline in two weeks, as Germany damped expectations for a fast resolution to Europe’s sovereign-debt crisis. Sony Corp., Japan’s biggest exporter of consumer electronics, lost 3.5 percent. Mitsubishi UFJ Financial Group Inc., Japan’s largest lender by market value, lost 1.8 percent after U.S. banks Citigroup Inc. and Wells Fargo & Co. said quarterly revenue dropped amid economic weakness linked to Europe. Yaskawa Electric Corp. slid as much as 11 percent after the maker of motion controllers slashed its profit forecast. The Nikkei 225 dropped 1.4 percent to 8,759.03 as of 9:28 a.m. in Tokyo, set for its steepest decline since Oct. 3. The broader Topix index fell 1.1 percent to 753.19 after Steffen Seibert, spokesman for German Chancellor Angela Merkel, said Europe’s leaders won’t provide a quick fix to the debt crisis that global policy makers are pushing for at an Oct. 23 summit.

Euro Leaders’ Crisis Campaign Bogs Down (Source: Bloomberg)
Europe’s options for overcoming the debt crisis narrowed as Germany doused expectations of a breakthrough at this weekend’s summit and central bankers balked at extended bond purchases. European stocks and the euro reversed initial gains yesterday, slumping after German Chancellor Angela Merkel’s office knocked down what it called “dreams” that the Oct. 23 summit will be the last word in taming the crisis. Christian Noyer, head of France’s central bank, ruled out a ramping up of the European Central Bank’s bond-buying program as part of a multi-pronged strategy to shield countries like Italy. While Group of 20 finance ministers and central bankers pressed European Union leaders to set out a strategy by the end of the week, divisions flared over an emerging plan to avoid a Greek default, bolster banks and curb contagion.

France Risks AAA on Bulked Up ESFS Bailout Fund: Euro Credit (Source: Bloomberg)
Proposals to beef up Europe’s bailout fund by offering to guarantee portions of the debt owed by the region’s weaker governments threaten to trash France’s top credit rating. The nation’s 10-year notes are the third-worst performers this quarter -- behind only Greece and Belgium -- as traders speculate the European Financial Stability Facility will be used to insure the first portion of losses in the event of a sovereign default. France’s rating is under pressure, Moody’s Investors Service said yesterday, and investors now demand to be paid a record 93.2 basis points more to hold its bonds rather than German notes, up from 29 basis points in April. “France is the key factor here,” said Bob McKee, chief economist at Independent Strategy Ltd. in London. “Offering insurance increases France’s contingent liability and that puts pressure on its rating. If France loses its AAA status, that in turn increases the pressure on Germany.”

East Europe’s Economic Growth Hurt by ‘Protracted’ Euro Crisis, EBRD Says (Source: Bloomberg)
Economic growth in eastern Europe is slowing “substantially” as a “protracted” euro-area debt crisis infects the region, the European Bank for Reconstruction and Development said. The EBRD cut its 2012 growth forecast for the 29 east European and central Asian nations in which it invests to 3.2 percent from 4.4 percent in July, according to a report released today. Growth will slow from this year’s 4.5 percent, the EBRD said, revising its previous estimate of 4.8 percent. While three months ago the EBRD assumed “a relatively benign external environment” with contained spillover risks from the euro area, it now says the escalating crisis has infected eastern Europe through intertwined trade and banking links. The development bank expects drawn-out repercussions from the euro region’s troubles, which will ultimately be contained, under its main scenario.

European Stocks Decline; Greek Banks, G4S Retreat as BP Climbs (Source: Bloomberg)
European stocks fell, paring three weeks of gains for the Stoxx Europe 600 Index, as a German government spokesman said that euro-area leaders will not provide a complete fix to the debt crisis at their next meeting. National Bank of Greece SA (ETE), the country’s biggest lender, led bank shares lower. G4S Plc (GFS) slumped 22 percent after agreeing to acquire ISS A/S. BP Plc gained 2.2 percent after saying that Anadarko Petroleum Corp. will pay $4 billion to settle all claims for last year’s Gulf of Mexico oil spill. The Stoxx 600 retreated 1 percent to 236.22 at the close in London, erasing an earlier gain of as much as 1.5 percent, after Germany’s government said the Oct. 23 European Union summit will fail to end the sovereign debt crisis. The benchmark measure had rallied for the past three weeks, its longest stretch of weekly gains since April.

Swiss Stocks Fall, Snapping Three Weeks of Gains; Novartis Drops (Source: Bloomberg)
Swiss stocks declined, snapping three weeks of gains, as Germany said European Union leaders won’t find a swift solution to the euro-area debt crisis. Novartis AG (NOVN), Europe’s second-biggest drugmaker by sales, dropped 1.1 percent after Vontobel Holding AG (VONN) downgraded the company’s shares. UBS AG (UBSN), Switzerland’s largest lender, fell 1.3 percent. The Swiss Market Index (SMI), a measure of the biggest and most actively traded companies, fell 0.6 percent to 5,724.77 at 3:22 p.m. in Zurich. The gauge has tumbled 11 percent this year as disappointing European and U.S. economic reports fueled concern that the global recovery is faltering. The broader Swiss Performance Index declined 0.5 percent.

Policy Aides With Canada Data Hurt Confidence (Source: Bloomberg)
Statistics Canada sends at least 69 government workers and political aides economic reports a day before publication, a practice that investors say undermines market confidence. Finance Department officials and ministerial staff can see up to nine different reports, including employment and inflation, according to government documents requested by Bloomberg News under freedom of information law, as well as responses to e-mails and interviews. Staff at the Privy Council Office, the international trade and human resources departments, and central bank also see data early, officials said, bringing the tally to at least 69. “It’s very dangerous from an ‘integrity of the numbers’ standpoint if there’s a sense that this stuff is floating all around and there’s some people who can make money off it beforehand,” said David Dodge, a former Bank of Canada governor and deputy minister of finance. “More restrictive is better than less restrictive.”

Thai Floods May Bring Yingluck Rate Pause (Source: Bloomberg)
Thailand may pause tomorrow after seven interest-rate increases as the worst floods in five decades and weakening global growth threaten to curb output and weaken demand for exports. The Bank of Thailand will keep its benchmark one-day bond repurchase rate at 3.5 percent, according to 16 of 17 economists surveyed by Bloomberg News ahead of a decision due at 2:30 p.m. in Bangkok tomorrow. One predicted a 25-basis point cut. The country has raised borrowing costs more than any other major Asian economy after India, where there have been 10 rate increases since the beginning of July 2010. Floods that have killed more than 300 people, shutting factories and wiping out crops, may convince the nation’s central bank to heed calls from Prime Minister Yingluck Shinawatra’s government to put growth ahead of efforts to cool inflation. The Philippines, hurt by typhoons in recent weeks, may also hold rates this week as the International Monetary Fund warns of “severe” risks to Asia from Europe’s debt crisis.

Dollar, Yen Weaken Against Most Peers Before China Reports Economic Growth (Source: Bloomberg)
The yen and dollar declined versus most major counterparts before reports in China and the U.S. forecast to show expansions in the world’s largest economies are being sustained, damping demand for safer assets. Japan’s currency fell against the euro before a U.S. Commerce Department release tomorrow that’s projected to show housing starts rose in September. Australia’s currency gained versus the dollar before China releases data which economists predict will indicate its gross domestic product expanded more than 9 percent for a ninth straight quarter. New Zealand’s currency advanced after the nation’s central bank signaled interest rates will probably need to increase. “People are still looking to buy the dips in currencies like the euro and Aussie as we’re seeing a slighter better growth profile coming from the U.S.” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “The Chinese numbers will give us some confirmation that China’s in a reasonably strong place.”
The yen declined 0.2 percent to 105.78 per euro as of 9:57 a.m. in Tokyo after gaining 1.5 percent to 105.55 yesterday in New York. The dollar fell 0.2 percent to $1.3767 per euro from $1.3738 yesterday. Australia’s currency advanced 0.4 percent to $1.0199 and 78.36 yen. New Zealand’s currency advanced 0.2 percent to 79.30 U.S. cents and 60.94 yen. China is forecast to report that third-quarter gross domestic product increased 9.3 percent from a year earlier, according to the median estimate of economists in a Bloomberg News survey before today’s data. Housing starts in the U.S. rose to 590,000 last month from 571,000 in August, the first increase in three months, another survey of economists shows before the Commerce Department report tomorrow.

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