Thursday, October 20, 2011

20111020 0957 Global Market Related News.

Global Recession Likely If Euro Crisis Stays, Nobel Winner Mortensen Says (Source: Bloomberg)
A global recession is likely if the European debt crisis isn’t resolved within a year, the Nobel Prize-winning economist Dale Mortensen said. “If the Europeans can’t solve the problem within a year, we are likely to have another worldwide recession,” Mortensen said at a press briefing in Taipei today. “So it’s very important for all of us to resolve that problem in the short term.” Spain’s credit rating was yesterday cut for the third time in 13 months by Moody’s Investors Service as Europe’s sovereign debt crisis threatens to engulf the nation. German Chancellor Angela Merkel said yesterday that an Oct. 23 European Union summit will mark an “important step,” though not the final one in solving the debt crisis.

Asian Stocks Fall Amid Europe Divisions; Commodity Shares Drop (Source: Bloomberg)
Asian stocks slid, with the benchmark regional index set to erase its weekly gain, as a split emerged between France and Germany over European bailout fund talks, spurring concerns about a slowdown in the global economic recovery. Sony Corp. (6758), Japan’s No. 1 exporter of consumer electronics that gets 21 percent of its sales in Europe, fell 0.9 percent. BHP Billion Ltd., the world’s largest mining company, dropped 1.6 percent as commodity prices dropped. Newcrest Mining Ltd. (NCM), Australia’s largest gold mining company, sank 4.6 percent after saying gold output fell 13 percent from a year earlier in the three months to Sept. 30. The MSCI Asia Pacific Index sank 0.6 percent to 116.67 as of 9:24 a.m. in Tokyo, with more than two stocks falling for each that gained. The measure dropped 15 percent this year through yesterday.

US Concerned About China Internet Restrictions, Food Safety Rules (Source: CME)
The U.S. continued to put pressure on China to address concerns about unfair trade practices, lodging new complaints about Internet restrictions and food-safety rules that hurt access to the Asian giant's market. Trade officials used the World Trade Organization to try to leverage action from Beijing, though the latest efforts don't necessarily represent a move toward a more formal dispute case with the world trade body. U.S. Trade Representative Ron Kirk warned that China's Internet restrictions could be hurting U.S. businesses seeking access. Citing concerns among U.S. companies about periodic disruptions to their sites in China, Kirk said the administration is seeking detailed information through WTO rules on the trade impact of Chinese policies that may block U.S. websites.
"Some companies based outside China have faced challenges offering their services to Chinese customers when their websites are blocked by China's national firewall," Michael Punke, U.S. ambassador to the WTO, wrote in a letter to his Chinese counterpart in Geneva. The U.S. is using WTO transparency requirements to get details on how China's Internet policies affect trade in services. "We hope to follow up bilaterally with China to clear up any questions that remain after we receive their response," Carol Guthrie, spokeswoman for the U.S. Trade Representative's office, told Dow Jones Newswires.
Meanwhile, the U.S. issued a statement in Geneva calling for China to live up to commitments it made when joining the WTO a decade ago to ensure that any sanitary or phytosanitary measures are based on science and don't discriminate against other countries' agriculture and food products. Such rules--ostensibly imposed to ensure the safety of food for consumers and to protect plants and animals from disease--have acted as non-tariff barriers, the U.S. Trade Representative's office said. "While trade in agricultural goods has expanded significantly since China's accession to the WTO, a variety of non-tariff barriers, particularly in the area of SPS measures, have impeded access to China's market over the past 10 years," it said. In addition to ongoing bans on U.S. beef and poultry from several states, the U.S. said "serious concerns continue to arise," like China's new food registration requirements that apply only to imports.
Earlier this month, Kirk requested through the WTO that China disclose details on nearly 200 government subsidies to ensure they comply with global trade rules, and in September took the first step toward filing a case over chicken duties Beijing imposed in retaliation for U.S. tariffs on Chinese tires. The moves come as the Obama administration is under increasing pressure from Congress to take a more aggressive posture against its No. 2 trading partner. The Senate recently passed a bill that would require the Treasury and Commerce departments to take action against an undervalued currency. Despite expressing misgivings about the bill, which faces an uncertain future in the House, President Barack Obama took the rare step of accusing China of manipulating the yuan.

Consumer Prices Rise at Slow Pace (Source: Bloomberg)
The cost of living in the U.S. rose in September at the slowest pace in three months, signaling inflation may moderate as Federal Reserve officials have predicted. The consumer-price index climbed 0.3 percent from the prior month, in line with the median projection of economists surveyed by Bloomberg News, a report from the Labor Department showed today in Washington. Excluding volatile food and fuel costs, the so-called core rose 0.1 percent, less than forecast and the smallest gain since March. Companies like clothing retailer Gap Inc. (GPS) and supermarket chain Safeway Inc. (SWY) have said they are limited in how much they can raise prices to recoup raw materials costs as weak job and income gains squeeze consumers. With inflation less of a concern, Fed policy makers would have the flexibility to take additional steps should the world’s largest economy stumble.

Sept. Housing Starts Up More Than Forecast (Source: Bloomberg)
Builders began work on more U.S. homes than forecast in September and consumer prices climbed at the slowest pace in three months, supporting Federal Reserve forecasts for a pickup in growth and a moderation in inflation. Housing starts jumped 15 percent to a 658,000 annual rate, the most since April 2010, the Commerce Department reported today in Washington. Data from the Labor Department showed the cost of living climbed 0.3 percent from August, in line with the median projection of economists surveyed by Bloomberg News. The increase in building was led by a surge in construction of apartments and other multifamily dwellings that may continue to support the industry as the housing slump turns more Americans into renters. Less inflation gives the central bank the flexibility to take additional steps should the world’s largest economy stumble.

Fed Reports Modest Growth as Firms Doubt (Source: Bloomberg)
The Federal Reserve said consumer spending rose slightly last month and the economy maintained its expansion, even as companies reported more doubt about the strength of the recovery. “Overall economic activity continued to expand in September, although many districts described the pace of growth as ‘modest’ or ‘slight,’” the Fed said in its Beige Book survey released today in Washington. “Contacts generally noted weaker or less certain outlooks for business conditions.” Chairman Ben S. Bernanke early this month told a congressional committee that the two-year-old recovery is “close to faltering,” while repeating his forecast for a pickup in growth. Last month, the Fed announced a plan to spur the economy with lower borrowing costs by replacing $400 billion of short-term Treasury securities in its portfolio with longer- term bonds.

GAO Says Fed Boards Need to Improve Diversity, Conflicts Policy (Source: Bloomberg)
A Government Accountability Office report on Federal Reserve governance released today said that the nine-member boards of reserve banks lacked racial and ethnic diversity in 2006 to 2010, and noted that further work is needed to avoid potential conflicts of interest. The Fed revised its rules for reserve bank directors in 2009 after potential conflicts emerged during the 2008-2009 financial crisis. Even so, the GAO said, the Fed needs to take “additional steps to strengthen controls designed to manage conflicts of interest” and to increase public disclosure of directors’ roles and responsibilities. “More can be done to enhance the transparency of the reserve banks’ governance practices,” the GAO report said. It recommended that all reserve banks “clearly document the roles and responsibilities of the directors, including restrictions on their involvement in supervision and regulation activities, in their bylaws.”

California Raises 10-Year Yields to 3.70% in Sale of Tax-Exempt Securities (Source: Bloomberg)
California sold $1.8 billion in general-obligation bonds, including 10-year securities yielding 3.70 percent, up from 3.51 percent during marketing to individual investors, according to data compiled by Bloomberg. The yield on $118 million in 10-year tax-exempt bonds is 128 basis points above an index of top-rated debt of the same maturity, a Bloomberg Valuation Index shows. That’s up from a gap of 109 basis points when California sold $2.4 billion of general-obligation debt last month. A basis point is 0.01 percentage point. The spread aligns with a forecast last week from Gary Pollack at Deutsche Bank Private Wealth Management. “Given the market we confronted, we’re satisfied with the results,” Tom Dresslar, a spokesman for Treasurer Bill Lockyer, said in a statement. “We’re confident we got the best deal possible for taxpayers.”

Treasuries Fall on Prospect U.S. Economic Expansion Continuing (Source: Bloomberg)
Treasuries declined after the Federal Reserve said in its Beige Book survey that the U.S. economy maintained its expansion last month, adding to signs that the recovery remains on track. Ten-year yields climbed as Federal Reserve Bank of Atlanta President Dennis Lockhart said recent reports suggest the U.S. economy may be accelerating to a modest pace of growth. The central bank will announce today the amount of 2-year, 5-year and 7-year notes it will put up for auction next week. It’s also scheduled to buy $8 billion to $9 billion of Treasuries maturing from August 2012 to March 2013 as part of its plan to keep borrowing costs down.
“We’re optimistic that the period of very poor U.S. economic data is not going to continue all the way to the end of the year,” said Andy Cossor, the Hong Kong-based chief market strategist at DZ Bank AG, Germany’s fifth-largest lender. “We’re looking for some slightly more positive news on that front. That would erode some of the safe-haven bid that’s supported the Treasury market.”

U.S. Stocks Decline on Europe Crisis Concern (Source: Bloomberg)
U.S. stocks fell, following yesterday’s rally for benchmark gauges, amid concern about the strength of the economy and an impasse over European bailout talks, while Apple Inc. (AAPL) tumbled on disappointing results. Apple slumped 5.6 percent, the biggest decline since December 2008, after profit missed estimates for the first time in at least six years. Alcoa Inc. (AA) and DuPont Co. slid more than 2.6 percent, pacing losses in companies most-dependent on economic growth. Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) dropped at least 2.6 percent, reversing earlier gains. The S&P 500 decreased 1.3 percent to 1,209.88 at 4 p.m. New York time. The benchmark gauge yesterday rose to the highest level since August. The Dow Jones Industrial Average dropped 72.43 points, or 0.6 percent, to 11,504.62 today.

Japanese Stocks Head for Lowest Close in Two Weeks on European Debt Split (Source: Bloomberg)
Japanese stocks fell, with the Nikkei 225 (NKY) Stock Average heading for its lowest close in two weeks, as an impasse over European bailout talks sparked concerns about the global economic recovery. Nippon Sheet Glass Co., the glass maker that counts Europe as its biggest market, slid 1.2 percent. Advantest Corp., a maker of memory chip testers, sank 1.1 percent after a report showed industry orders declined. Showa Denko KK, a chemical manufacturer, led declines among Japanese companies affected by Thailand’s worst floods in 50 years. The Nikkei 225 declined 0.6 percent to 8,716.86 as of 10:09 a.m. in Tokyo, heading for its lowest close since Oct. 7. The broader Topix index fell 0.6 percent to 746.84, with almost three stocks falling for each that rose. The gauge tumbled 16 percent this year through yesterday amid concern the U.S. may fall into another recession and that Europe’s debt crisis will spread to the banking system.

European Stocks Gain on Rescue-Fund Reports; Commerzbank Climbs (Source: Bloomberg)
European stocks advanced for the first time in three days amid conflicting reports that France and Germany have reached a deal on expanding the euro area’s rescue fund. Natixis and Commerzbank AG (CBK) jumped more than 2.5 percent as a gauge of banks rebounded from four days of declines. Software AG (SOW), Tele2 AB (TEL2B) and British Sky Broadcasting Group Plc (BSY) rallied after reporting results. Hochtief AG (HOT) gained 3.7 percent as Goldman Sachs Group Inc. upgraded the construction company. The benchmark Stoxx Europe 600 Index climbed 0.6 percent to 236.71 at the close in London after falling 1.3 percent in the previous two days. The measure has rallied 10 percent from this year’s low on Sept. 22 amid speculation policy makers will find a solution to Europe’s debt crisis.

France, Germany Split on Crisis Solution (Source: Bloomberg)
A French-German split over Europe’s rescue strategy emerged as finance ministers prepare to meet in Brussels tomorrow under pressure to craft a solution to the region’s debt crisis. With a summit scheduled two days later, a disagreement over the European Central Bank’s role threatens to stymie progress on the banking and economic questions needed to deliver the comprehensive strategy demanded by global policy makers. Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro-area finance ministers, indicated an impromptu meeting of European leaders in Frankfurt last night failed to resolve differences. “We are still meeting,” he said as he departed.
French President Nicolas Sarkozy, whose wife was reportedly giving birth to his first daughter, jetted into Frankfurt to meet with officials as they attended an event to honor outgoing ECB President Jean-Claude Trichet. Sarkozy, German Chancellor Angela Merkel and International Monetary Fund Managing Director Christine Lagarde left the event at the Frankfurt Opera House without commenting.

Papandreou Faces Austerity Vote Amid Unrest (Source: Bloomberg)
Greek Prime Minister George Papandreou is set to risk further social unrest over a new round of austerity measures that he needs to convince euro-area leaders that Greece will hold to its bailout program. Papandreou secured the support of all 154 of his lawmakers in the 300-seat parliament in a preliminary vote in Athens late yesterday, setting up a final vote on the bill today that tests his party’s unity for a second time in 24 hours. The package comprises tax rises, cuts to pensions and wages and plans to dismiss 30,000 state workers, plus provisions to break the collective pay-bargaining power of Greek unions. “The issue is how to avoid default and in my view it is absolutely doable,” Stefanos Manos, a former Greek finance minister, said in an interview with Bloomberg Television. “But it requires some very tough decisions right away.”

Papandreou Wins First Vote on Austerity Bill, Speaker Says (Source: Bloomberg)
Greek Prime Minister George Papandreou won a preliminary vote in parliament on a new austerity bill in Athens today, bolstering his chances of securing further international aid for the country. A total of 154 lawmakers in the 300-seat chamber supported the motion and 141 voted against, Parliament Speaker Grigoris Niotis said in remarks carried live on state-run Vouli TV. A total of 295 deputies voted. The in-principle vote will be followed by a final vote on all articles and in total tomorrow.

70,000 Greeks Protest Cuts, Clash With Police (Source: Bloomberg)
Greek protesters clashed with police in central Athens after Prime Minister George Papandreou vowed to push through a further round of austerity and appealed to Europe to cut Greece’s debt load at an Oct. 23 summit. Riot police in white helmets used tear gas to hold back demonstrators from the parliament building in the Greek capital today as lawmakers debated the extra austerity measures demanded by Greece’s international creditors to keep aid flowing. Police said about 70,000 people gathered in Athens at the start of a 48-hour strike in one of the biggest protests yet against Papandreou’s latest program of cost-cutting and tax rises. “Without the measures, the 2011 budget won’t be met, neither will the budget in 2012,” Finance Minister Evangelos Venizelos told lawmakers in comments broadcast live, as groups of hooded protesters in gas masks lobbed Molotov cocktails at the riot police outside. “We are giving the battle of battles up to Sunday evening.”

BOE Voted Unanimously to Expand Stimulus to $380 Billion on Slow Economy (Source: Bloomberg)
Bank of England officials voted unanimously to expand the size of their asset-purchase program as strains related to Europe’s debt crisis created a “compelling” case to add to stimulus. The nine-member Monetary Policy Committee led by Governor Mervyn King raised the ceiling for so-called quantitative easing to 275 billion pounds ($434 billion) from 200 billion pounds on Oct. 6. All nine also voted to keep the key interest rate at a record low of 0.5 percent, according to the minutes of the decision published in London today. Policy makers debated expanding QE by between 50 billion pounds and 100 billion pounds and said they expect the new round of stimulus to have a similar impact to asset purchases in 2009. They said the program could be “adjusted” if its impact differed from the committee’s expectations.

Brazil Cuts Interest Rate to 11.5% on Slowing Growth, European Debt Crisis (Source: Bloomberg)
Brazil’s central bank cut borrowing costs by half a point for a second straight meeting, as growth in Latin America’s biggest economy slows amid Europe’s sovereign-debt crisis. The bank’s board, led by President Alexandre Tombini, voted unanimously to reduce the benchmark Selic rate to 11.5 percent from 12 percent, as forecast by 61 of 68 analysts surveyed by Bloomberg. Five analysts forecast a 0.75-point reduction, and two expected a full-point cut. The central bank “understands that to mitigate in a timely way effects coming from a more restrictive global environment, a moderate adjustment in the level of the basic rate of interest is consistent with the scenario of the convergence of inflation to the target in 2012,” policy makers said in their statement accompanying their decision.

Thailand Pauses Inflation Fight, Pledges Spending as Floods Hurt Economy (Source: Bloomberg)
The Bank of Thailand put its fight against rising prices on hold and the government pledged to boost spending as the worst floods in 50 years threaten to keep factories closed for months, exacerbating risks from weakening global demand. The central bank kept interest rates unchanged yesterday for the first time this year, ending its longest series of increases since 2006 even as it signaled vigilance against a resurgence in inflation. Finance Minister Thirachai Phuvanatnaranubala said the move failed to “help” the government and said it would use fiscal policy to boost growth. “Pausing is already a very big contribution,” Jun Trinidad, an economist at Citigroup Inc. in Manila, said by phone. “If the government can execute its plans for relief and rehabilitation quickly, a speedy recovery in the first half of next year is certainly a strong possibility.”

Euro Holds Drop Versus Pound as Leaders Disagree on Debt Crisis Solution (Source: Bloomberg)
The euro maintained a drop from yesterday against the pound as divisions emerged over how to tackle Europe’s debt crisis before finance ministers meet in Brussels tomorrow. Demand for the 17-nation currency was limited as a split between France and Germany over Europe’s rescue strategy surfaced and the head of Finland’s parliament finance committee said plans to boost the region’s rescue fund through leverage disguise potential costs. “Positive bounces during this period of expectation that something big will be unveiled will be disappointed quite soon and we want to trade that disappointment,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp., Australia’s second-largest lender. “We’re using bounces in various risk markets to go short on currencies like the euro.”

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