Asia Stocks Rise on French Debt Sale (Source: Bloomberg)
Asian stocks rose after France sold debt at a lower borrowing cost and on speculation a report today will show China’s economy is slowing enough to prompt the government to take extra measures to spur growth. Canon Inc. (7751), a Japanese camera maker that gets 32 percent of its revenue out of Europe, rose 0.5 percent. Komatsu Ltd. (6301), Japan’s largest construction machinery maker that counts China as its largest market, added 0.9 percent. Rio Tinto Group (RIO), an Australian mining company, rose 0.9 percent after metal prices gained. The MSCI Asia Pacific Index gained 0.5 percent to 116.20 as of 9:24 a.m. in Tokyo. Yesterday, the measure lost 1.1 percent, the most since Dec. 19.
“It does seem like markets are taking a glass-half-full view of Europe and they seemed to be very impressed by the liquidity that’s coming out of” the European Central Bank, said Andrew Pease, Sydney-based chief investment strategist for the Asia-Pacific region at Russell Investment Group, which manages $150 billion. “Anecdotally, we are hearing China’s senior leadership is very very concerned about the outlook in Europe, which tells you the bias is to ease policy more than they have already.”
Japan Stocks Rise as French Borrowing Costs Ease, Investors Shrug Off S&P (Source: Bloomberg)
Japanese stocks gained, with the Nikkei 225 (NKY) Stock Average rebounding from its biggest drop in a month yesterday, as France’s borrowing costs eased and ahead of a report today expected to show China’s economy is slowing enough to prompt the government to take measures to spur growth. Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second- largest publicly traded bank, rose 1 percent after it won a bid to buy Royal Bank of Scotland Group Plc’s aircraft-leasing division. Inpex Corp. (1605), the nation’s largest oil explorer by market value, climbed 1.2 percent after crude prices increased. Taiyo Yuden Co. jumped 3.3 percent after UBS AG boosted the equity rating on the electronic parts maker to “neutral.” The Nikkei 225 rose 0.5 percent to 8,423.86 as of 9:24 a.m. in Tokyo. The broader Topix advanced 0.4 percent to 727.87, with about eight shares rising for every five that fell. Both gauges dropped yesterday the most since Dec. 15.
China Economic Growth May Slow to 10-Quarter Low as Worse to Come: Economy (Source: Bloomberg)
China’s economy probably grew the least in 10 quarters in the last three months of 2011 and may cool further as export demand slumps and officials prolong a campaign against property bubbles. Gross domestic product, the value of all goods and services produced, rose 8.7 percent from a year earlier, the slowest pace since the second quarter of 2009, according to the median forecast of 26 economists surveyed by Bloomberg News. The data, and indicators for investment, retail sales and industrial production, are scheduled for release tomorrow in Beijing. The fourth straight quarterly slowdown in the world’s second-largest economy adds to concerns that global expansion is faltering, with the International Monetary Fund warning of near- zero growth in Europe and a “substantial” cut to its global forecast. China’s exports rose the least in two years in December and inflation eased to a 15-month low, bolstering the case for Premier Wen Jiabao to loosen policies.
Japan’s Machinery Orders Jump 14.8% in Sign of Corporate Spending Rebound (Source: Bloomberg)
Japan’s machinery orders rebounded in November, signaling that companies are willing to invest even as the yen remains strong and the global economy slows. Bookings, an indicator of future capital spending, rose 15 percent in November from a month earlier, the Cabinet Office said in Tokyo today. The median estimate of 29 economists surveyed by Bloomberg News was for a 5.1 percent increase. Weak overseas demand and gains in the yen have cut profits at Japanese exporters from Nippon Steel Corp. (5401) to Panasonic Corp. The rebound in orders signals that the world’s third-largest economy is showing some resilience to the stronger currency and a slowing global economy.
Euro Leaders Race to Salvage Rescue Plans (Source: Bloomberg)
European leaders will this week try to rescue under-fire efforts to deliver new fiscal rules and cut Greece’s debt burden as investors ignore Standard & Poor’s euro- region downgrades. Greek officials will reconvene with creditors on Jan. 18 after discussions stalled last week and governments elsewhere are preparing for a Jan. 30 summit as the European Central Bank warns against “watering down” a revamp of budget laws. French borrowing costs fell today as the government in Paris sold 8.59 billion euros ($10.9 billion) in debt. The talks on Greece and budgets may serve as tougher tests of the tentative recovery in investor sentiment than S&P’s decision to cut the ratings of nine euro-region nations, including France. History suggests fallout from the downgrades may be limited. JPMorgan Chase & Co research shows that 10-year yields for the nine sovereigns that lost their AAA status between 1998 and last year’s U.S. downgrade rose an average of two basis points the next week.
Europe Bailout Fund Loses Top Rating at S&P (Source: Bloomberg)
The European Financial Stability Facility, the euro area’s bailout fund, lost its top credit rating at Standard & Poor’s after earlier downgrades of France and Austria. The rating was cut to AA+ from AAA, S&P said yesterday in a statement and removed the facility from CreditWatch with negative implications. S&P had said on Dec. 6 that the loss of an AAA rating by any of EFSF’s guarantors may lead to a downgrade. “The EFSF’s obligations are no longer fully supported either by guarantees from EFSF members rated AAA by S&P, or by AAA rated securities,” the rating company said. “Credit enhancements sufficient to offset what we view as the reduced creditworthiness of guarantors are currently not in place.” The EFSF, designed to fund rescue packages for Greece, Ireland and Portugal partially with bond sales, owed its AAA rating to guarantees from its sponsoring nations. Two of those sovereigns, France and Austria, were cut on Jan. 13 to AA+ from AAA by S&P, which also downgraded seven other euro countries.
ECB’s Draghi Questions Role of Ratings Companies After S&P Downgrades (Source: Bloomberg)
European Central Bank President Mario Draghi said investors largely priced in the euro-area sovereign downgrades from Standard & Poor’s and questioned the importance of ratings companies. “I will never comment on ratings as such, but certainly one needs to ask how important are these ratings for the marketplace overall, for investors?” Draghi said late yesterday at the European Parliament in Strasbourg. “It seems to a great extent markets have anticipated these ratings changes and priced them in. We should learn to do without ratings, or at least we should learn to assess creditworthiness” with less reliance on the ratings companies, he said.
S&P stripped France and Austria of their top ratings on Jan. 13 and cut seven other euro countries in a move that left Germany with the bloc’s only stable AAA grade. Efforts to combat the region’s debt crisis are falling short, S&P said. The company last night also removed the AAA grade of the European Financial Stability Facility, which is designed to fund rescue packages for Greece, Ireland and Portugal.
Greek Debt Swap Faces ‘Critical’ Phase as Discussions to Resume This Week (Source: Bloomberg)
The Greek government and its creditors return to the negotiating table this week to revive stalled talks on a debt swap as German Chancellor Angela Merkel places pressure on both sides to forge a deal. Greek Finance Minister Evangelos Venizelos said two days ago that talks with the Institute of International Finance will resume on Jan. 18. The Washington-based IIF, which represents banks holding the bonds, said on Jan. 14 there is a “tentative plan” to return to Athens mid-week, “but this depends on developments over the next few days.”
European officials and the nation’s creditors agreed in October to implement a 50 percent cut in the face value of Greek debt by voluntarily exchanging outstanding bonds for new securities, with a goal of reducing Greece’s borrowings to 120 percent of gross domestic product by 2020. The two sides, which broke off negotiations on Jan. 13, have struggled to reach an accord on the coupon and maturity of the new bonds to determine losses for investors, raising the danger of a sovereign default.
European Retailers Rise on Glimmers of Economic Stabilization (Source: Bloomberg)
European consumer-discretionary companies such as Marks & Spencer Group Plc are outperforming consumer-staple businesses including Nestle (NESN) SA, indicating investors’ forecasts for the region’s economy were too pessimistic. Investors have pushed shares of the discretionary group higher in recent weeks as concerns about another prolonged recession have moderated, according to Robert Griffiths, a London-based pan-European equity strategist at Royal Bank of Scotland Group Plc. These stocks historically are “early movers” -- meaning they start to outperform as shareholders improve their economic assessments, he said. “When investors spot signs of stabilization, this is an area of the market that’s early to rally,” Griffiths said, adding that these shares are benefiting from company sales reports and surveys that are beating forecasts.
Inflation Slows to Two-Year Low, Reducing Pressure on India Interest Rates (Source: Bloomberg)
India (INGDPY)’s inflation slowed to the lowest level in two years, giving the central bank scope to keep interest rates on hold for a second straight meeting next week. The benchmark wholesale-price index rose 7.47 percent in December from a year earlier, the commerce ministry said in a statement in New Delhi today, compared with a 9.11 percent gain in November. The median of 25 estimates in a Bloomberg News survey was for a 7.40 percent gain. Easing prices may strengthen the ruling Congress party’s bid in state elections starting this month after corruption allegations undermined Prime Minister Manmohan Singh’s coalition in the past year. Inflation in India is still the fastest among BRIC nations including Brazil, Russia and China, crimping the Reserve Bank of India’s room to lower borrowing costs and shield the economy from Europe’s debt crisis.
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