Asia Stocks Drop Third Day on ECB Lending (Source: Bloomberg)
Asian stocks (MXAP) dropped for a third day, with the regional benchmark index heading to the first annual drop since 2008, after a surge in the European Central Bank’s balance sheet highlighted risks of the debt crisis and economic slowdown. Sony Corp. (6758), a consumer-electronics maker that relies on Europe for a 21 percent of its sales, slid 1.3 percent after the euro dropped to a 10-year low against the yen, diminishing the earnings outlook for Asian exporters. Lynas Corp., an Australian rare-earth explorer, slid 7.1 percent on reduced earnings prospects from China. OZ Minerals Ltd. (OZL), an Australian mining firm, fell 5.4 percent after metal prices slid and a train carrying copper concentrate derailed. The MSCI Asia Pacific Index fell 0.7 percent to 111.96 as of 10:28 a.m. in Tokyo with all but one of the gauge’s 10 industry groups falling. For the month, the index is heading for a 1.2 percent decline. The measure has dropped 19 percent this year, the most since 2008.
Japan Stocks Fall as Yen Reaches 10-Year High Against Euro on Debt Concern (Source: Bloomberg)
Japanese stocks fell for a third day as the yen rose to a 10-year high against the euro after a surge in the European Central Bank’s balance sheet to a record highlighted the growing risks of the debt crisis, clouding the earnings outlook for exporters. Sony Corp., a consumer-electronics maker that relies on Europe for a 21 percent of its sales, fell 1.4 percent. Sharp Corp. extended its decline as it and other makers of liquid- crystal display panels agreed to pay $538.6 million to settle antitrust claims. Elpida Memory Inc. sank 4.9 percent after the Asahi newspaper reported the chip maker may seek to delay debt payments. The Nikkei 225 Stock Average (NKY) fell 0.9 percent to 8,347.24 as of 9:50 a.m. in Tokyo. The broader Topix lost 0.5 percent to 718.21, with more than twice as many shares declining as advancing.
European Stocks Retreat After Italian Bill Sale; Carmakers, Banks Decline (Source: Bloomberg)
European stocks fell, snapping a three-day rally, as declines in carmakers and mining companies outweighed optimism that an easing in Italy’s borrowing costs indicated the region’s debt crisis won’t deepen. Bayerische Motoren Werke AG (BMW), the world’s biggest maker of luxury cars, lost 3.3 percent. Deutsche Bank AG (DBK) and Commerzbank AG (CBK), Germany’s biggest lenders, slid at least 3 percent. Tesco Plc (TSCO), the U.K.’s largest supermarket chain, jumped 2.3 percent. The Stoxx Europe 600 Index dropped 0.7 percent to 240.20 at the close in London. The gauge rallied 2 percent in the previous three sessions as investors turned attention from the debt crisis to U.S. data that showed the recovery in the world’s largest economy is gathering pace. Stocks erased gains after a report said the European (SXXP) Central Bank’s balance sheet soared to a record after it lent financial institutions more money last week in an attempt to keep credit flowing to the economy during the debt crisis.
Euro, Stocks Retreat as ECB’s Balance Sheet Expands to Record Amid Crisis (Source: Bloomberg)
The euro slid to a 10-year low versus the yen and stocks fell, halting a five-day rally in the Standard & Poor’s 500 Index, as Italian bonds erased earlier gains and a surge in the European Central Bank’s balance sheet to a record highlighted risks from the region’s debt crisis. The euro lost as much as 1.1 percent to 100.73 yen and decreased 1 percent to an 11-month low of $1.2937. The S&P 500 dropped 1.3 percent to 1,249.64 at 4 p.m. in New York and the Dow Jones Industrial Average lost 139.94 points, or 1.1 percent, to 12,151.41. Ten-year Italian bond yields rose less than one basis point to 6.999 percent after losing as much as 25 basis points. Oil snapped a six-day advance and gold capped the longest slump in two years. U.S. Treasuries rallied.
The ECB’s balance sheet soared to a record 2.73 trillion euros ($3.55 trillion) after it lent financial institutions more money last week in an attempt to keep credit flowing to the economy during the debt crisis. Early gains in stocks and U.S. index futures came after Italy’s borrowing costs plunged at an auction of 9 billion euros of six-month bills, while investors turned their attention to the nation’s auction of longer-term bonds tomorrow.
S&P 500 Snaps Five-Day Advance Amid Concern About Europe’s Debt Crisis (Source: Bloomberg)
U.S. stocks declined, halting a five-day advance in the Standard & Poor’s 500 Index, as the European Central Bank’s balance sheet increased to a record after a surge of bank lending to stem the region’s debt crisis. Alcoa Inc. (AA) and Chevron Corp. (CVX) dropped at least 1.8 percent as the euro tumbled to the lowest level since January against the U.S. dollar, curbing demand for commodities. The Morgan Stanley (MS) Cyclical Index sank 1.9 percent as Caterpillar (CAT) Inc. and Ford Motor Co. (F) slid more than 2.3 percent. Bank of America Corp. (BAC) slumped 3.6 percent, extending yesterday’s decline.
The S&P 500 retreated 1.3 percent to 1,249.64 at 4 p.m. New York time. The benchmark gauge erased its 2011 gain and fell below its average price of the past 200 days. (SPX) The Dow Jones Industrial Average slid 139.94 points, or 1.1 percent, to 12,151.41 today. The Russell 2000 Index of small companies dropped 2.1 percent. About 4.4 billion shares changed hands on U.S. exchanges, or 42 percent below the three-month average.
BRIC Decade Ends With Record Stock Outflows as Goldman Says Growth Peaked (Source: Bloomberg)
In the past decade, mutual funds poured almost $70 billion into Brazil, Russia, India and China, stocks more than quadrupled gains in the Standard & Poor’s 500 Index and the economies grew four times faster than America’s. Now Goldman Sachs Group Inc. (GS), which coined the term BRIC, says the best is over for the largest emerging markets. BRIC funds recorded $15 billion of outflows this year as the MSCI BRIC Index sank 24 percent, EPFR Global data show. The gauge, which beat the S&P 500 by 390 percentage points from November 2001 through September 2010, has trailed the measure for five straight quarters, the longest stretch since Goldman Sachs forecast the countries would join the U.S. and Japan as the top economies by 2050.
“In emerging markets, we’re waiting for things to get worse before they get better,” said Michael Shaoul, the chairman of Marketfield Asset Management in New York who predicted in February that developing-nation stocks would fall this year. The $845 million Marketfield Fund (VONEMBI) has topped 97 percent of peers in 2011, data compiled by Bloomberg show.
Bernanke’s Drive for Openness May Include More Briefings by Fed: Economy (Source: Bloomberg)
Federal Reserve Chairman Ben S. Bernanke could double press briefings to improve understanding of policy changes that may include signaling interest rates will stay near zero longer, economists said. Adding briefings “is a viable option because Bernanke has been an effective communicator” of policy aims, said Sam Bullard, senior economist at Wells Fargo Securities. Fed officials may also replace their pledge to keep the benchmark rate close to zero through mid-2013 with a description of circumstances under which rates would rise, said Keith Hembre, chief economist at Nuveen Asset Management in Minneapolis. Boosting the frequency of press conferences would give Bernanke more opportunities to explain shifts in policy and the Fed’s outlook for the economy. The Standard & Poor’s 500 Index fell 6 percent over two days following the Fed’s statement in September that the economy faced “significant downside risks,” an assessment that wasn’t followed by a more detailed explanation.
Minimum Wage in U.S. Fails to Beat Inflation: Chart of the Day (Source: Bloomberg)
Workers in the U.S. earning the minimum wage are worse off now than they were four decades ago. The CHART OF THE DAY shows that after adjusting for inflation, the federal minimum wage dropped 20 percent from 1967 to 2010, even as the nominal figure climbed to $7.25 an hour from $1.40, a 418 percent gain. The decline would have been worse if not for increases that took place from 2008 through 2010 in how much employers were legally obligated to pay. Combined with more stable consumer prices, those adjustments helped trim the reduction in earnings from 41 percent at the end of 2007, following a decade of no change in minimum pay.
Treasuries Hold Gains Before Home Sales Data, as European Concern Grows (Source: Bloomberg)
Treasuries held yesterday’s biggest gain in seven weeks before an industry report that economists forecast will show U.S. pending home sales grew at a slower pace last month. Benchmark 10-year yields were about a quarter percentage point away from the record low as Italy prepared to sell as much as 8.5 billion euros ($11 billion) of notes today. Treasuries have returned 9.6 percent this year, according to Bank of America Merrill Lynch data, as the European debt crisis led investors to seek the relative safety of U.S. securities. It is the biggest gain since 2008. “U.S. Treasuries are a good place to be,” said Hideo Shimomura, who helps oversee the equivalent of $77 billion in Tokyo as chief fund investor at Mitsubishi UFJ Asset Management Co., a unit of Japan’s biggest bank. “We are focused on the most liquid markets.”
China-Japan Currency Deal Points Way to a New World Monetary Order: View (Source: Bloomberg)
The agreement announced between China and Japan to strengthen financial ties and promote yuan-yen trade is a small, but notable, step toward a new global economy. Its immediate practical significance is limited, yet the deal signals that a deeper transformation is under way -- and one that the world should welcome. The plan was a surprise: It marks a warming of relations that had been chilly of late. The accord still lacks a timetable for implementation, but once in force it will let Chinese and Japanese trading companies switch between yuan and yen without converting to dollars first. This will encourage commerce by reducing currency risk and trading costs.
The agreement will let a Japanese-backed institution sell yuan bonds in China, helping to open China’s capital market. In return, Japan will convert some of its foreign- exchange reserves into Chinese bonds. China has signed financial pacts with other nations, mainly in Asia, but the size of China-Japan trade -- $340 billion last year, and growing fast -- makes this deal the most important by far.
China’s EXIM Lend More to Sub-Sahara Africa Than World Bank, Fitch Says (Source: Bloomberg)
Export-Import Bank of China extended $12.5 billion more in loans to sub-Saharan Africa in the past decade than the World Bank, Fitch Ratings said. State-owned EXIM lent about $67.2 billion to the world’s poorest region between 2001 and 2010 compared with the World Bank’s $54.7 billion, the ratings company said in a report e- mailed from London today. “It is estimated that 20 percent of EXIM bank’s total business volume is conducted with Africa,” Fitch said. “Angola, Ethiopia, Nigeria and Sudan have been traditional recipients of EXIM loans since the bank’s founding in 1994. However, more recent projects suggest an even distribution across the African continent.”
Ma Stakes Re-Election on China Rapprochement Strengthening Taiwan Economy (Source: Bloomberg)
Taiwan President Ma Ying-jeou said his rapprochement with China will encourage other nations to strengthen trade with the island and make it less dependent on the mainland, rebutting opposition criticism that he’s left the economy more vulnerable. “Taiwan has transformed its role from a troublemaker to a peacemaker,” Ma, vying for a second four-year term in Jan. 14 elections, said in an interview in his Taipei office. “We’re seeing more windows and doors being opened for Taiwan because of improved cross-strait relations. They have lowered their concerns in developing relations with us, the logic being: If Beijing can develop better relations with Taiwan, why can’t we?”
Ma’s lead with voters has narrowed as slower growth in the export-reliant economy deepens concern over a wealth gap the opposition blames in part on Taiwanese jobs going to the mainland. Victory at the polls may turn on how close Taiwanese want China ties to be, said Alexander Huang, a professor of strategy and war-gaming at Tamkang University’s Graduate Institute of International Affairs.
Kim Jong Un May Open North Korea: Defector (Source: Bloomberg)
Kim Jong Un may relax state controls over North Korea’s economy and ease the isolation entrenched by his late father’s nuclear weapons program, according to a banker who fled the communist state after years working for the regime. Kim’s Swiss education and his reported fondness for basketball -- a sign he’s a team player -- may make him more open to change than his late father, Choi Se Woong, former deputy governor of the North’s Korea Reunification Development Bank, said in an interview in Seoul this week. “It’s better for North Korea to have Kim Jong Un as their leader than anyone else,” said Choi, 50, who defected to the South in 1995 and is the son of a former North Korean finance minister. “Kim Jong Un will seek to start a market economy but it will be uniquely North Korean-style, different from China, South Korea or any other capitalist country.”
ECB Balance Sheet Increases to a Record $3.55 Trillion on Loans to Banks (Source: Bloomberg)
The European Central Bank’s balance sheet soared to a record 2.73 trillion euros ($3.55 trillion) after it lent financial institutions more money last week to keep credit flowing to the economy during the debt crisis. Lending to euro-area banks jumped 214 billion euros to 879 billion euros in the week ended Dec. 23, the Frankfurt-based ECB said in a statement today. The balance sheet increased by 239 billion euros in the week and was 553 billion euros higher than three months ago. The euro weakened and stocks fell, halting a five-day advance in the Standard & Poor’s 500 Index, as the announcement highlighted risks from Europe’s debt crisis. “The market reaction is slightly incomprehensible,” said Jens Kramer, an economist NordLB in Hanover. “After that record liquidity injection it would follow that the balance sheet would swell. Seeing the figure in black and white, and the fear of what would happen to the ECB if a country defaulted, may have spooked the market.”
Swiss Leading Indicator at Two-Year Low Signals Deeper Slowdown: Economy (Source: Bloomberg)
Switzerland’s forward-looking economic indicator fell to the lowest in more than two years in December, adding to signs of a deepening slowdown. The monthly gauge, which aims to predict the economy’s direction about six months ahead, dropped to 0.01 from a revised 0.34 in November, the KOF Swiss Economic Institute in Zurich said in an e-mailed statement today. That’s the lowest reading since August 2009. Economists forecast a decline to 0.23, according to the median of 12 estimates in a Bloomberg News survey. Switzerland’s export-led economy is floundering as Europe’s debt crisis and the franc’s strength hamper foreign sales. The government on Dec. 13 lowered its projections for 2012 growth to 0.5 percent from 0.9 percent, and the Swiss central bank this month said “the substantial appreciation of the Swiss franc over the summer is weighing heavily” on the economy.
Italy to Tap Markets With $11 Billion Sale of Bonds as Monti Eyes Growth (Source: Bloomberg)
Italy will sell as much as 8.5 billion euros ($11 billion) in bonds today, one day after borrowing costs plunged at an auction of shorter-maturity debt. The Treasury in Rome will sell bonds maturing in 2014, 2018, 2021 and 2022. Italy yesterday sold 9 billion euros of 179-day bills to yield 3.251 percent, down from 6.504 percent at the last auction on Nov. 25, after the European Central Bank offered unlimited three-year loans to euro-area banks last week. The ECB’s measures “have clearly helped” and yesterday’s sale augurs well for today’s “more challenging auction of longer-term paper,” Nicholas Spiro, managing director of Spiro Sovereign Strategy in London, said in an e-mail. Today’s auction results are expected shortly after 11 a.m. in Rome.
Italy’s Borrowing Costs Decline at Auction After Government Agrees on Cuts (Source: Bloomberg)
Dec. 28 (Bloomberg) --Italy sold 9 billion euros ($11.8 billion) of six-month Treasury bills, meeting its target, and borrowing costs plunged after the European Central Bank provided euro-region lenders with unlimited three-year loans last week. The Rome-based Treasury sold the 179-day bills at a rate of 3.251 percent, down from a 14-year-high of 6.504 percent at the last auction of similar-maturity securities on Nov. 25. Investors bid for 1.7 times the amount offered, up from 1.5 times last month. Demand “was quite good, a sign that market tensions have considerably eased from a month ago and that ECB liquidity may be working to support demand,” Luca Cazzulani, a senior fixed- income strategist at UniCredit Global Research in Milan, said in a note published today.
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