Asian Stocks Drop on China Slowdown Concern (Source: Bloomberg)
Asian stocks declined for a second day as miners and makers of building equipment retreated on concern China’s economy is slowing and as housing starts in the U.S. fell from a three-year high. BHP Billiton Ltd. (BHP), the world’s biggest mining company, slipped 2 percent in Sydney as copper futures slid the most in two weeks. Komatsu Ltd. (6301), a manufacturer of construction equipment that depends on the mainland for 23 percent of its sales, slid 2.7 percent in Tokyo. David Jones Ltd. (DJS) slumped 9.5 percent after Australia’s No. 2 department store chain said profit may fall to the lowest in six years. “A view that the Chinese economy is slowing down is emerging,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc. “It looks like shares may be sold, led by energy-related companies after a pause in gains in commodities markets.”
The MSCI Asia Pacific Index (MXAP) fell 0.4 percent to 126.61 as of 9:33 a.m. in Tokyo. The gauge climbed 12 percent this year through yesterday as positive economic reports from the U.S. boosted confidence in the outlook for the region’s exporters.
Japan Stocks Snap Five-Day Gain on China Slowdown Concern (Source: Bloomberg)
Japanese shares fell, with the Nikkei 225 (NKY) Stock Average heading for its first drop in six days, as commodities slipped on concern China’s economy is slowing. Komatsu Ltd. (6301), a construction machinery maker that counts China as its biggest market, lost 2.6 percent. Mitsubishi Corp., Japan’s top commodities trader by market value, slid 1.6 percent and Inpex Corp., the nation’s largest oil explorer, sank 1.7 percent after metals and crude prices dropped. Advantest Corp., a manufacturer of memory-chip testers, jumped 3.8 percent after BNP Paribas SA raised its rating on the semiconductor industry. “A view that the Chinese economy is slowing down is emerging,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc. “It looks like shares may be sold, led by energy-related companies after a pause in gains in commodities markets.”
The Nikkei 225 fell 0.4 percent to 10,103.84 as of 9:28 a.m. in Tokyo. The broader Topix Index lost 0.4 percent to 864.49. The gauge has advanced 19 percent this year, rebounding from last year’s 19 percent drop, amid signs the U.S. economy is recovering.
U.S. Stocks Fall as Commodities Decline on China Concern (Source: Bloomberg)
U.S. stocks declined, snapping a three-day advance for the Standard & Poor’s 500 Index, as commodities fell on concern about a Chinese economic slowdown. Industrial and commodity shares slumped as China raised fuel prices by the most in two years and BHP Billiton Ltd. said the nation’s steel production is slowing. Caterpillar Inc. and Alcoa Inc. (AA) dropped more than 1.5 percent. Adobe Systems Inc. (ADBE) sank 3.9 percent as its profit forecast missed some estimates. Bank of America Corp. jumped 2.9 percent. Tiffany & Co. (TIF) surged 6.7 percent after forecasting profit that beat projections.
The S&P 500 retreated 0.3 percent to 1,405.52 at 4 p.m. New York time, after the benchmark measure yesterday advanced to the highest level since May 2008. (SPX) The Dow Jones Industrial Average declined 68.94 points, or 0.5 percent, to 13,170.19 today. The Russell 2000 Index of small companies slumped 1 percent to 829.24. About 6.2 billion shares changed hands on U.S. exchanges, or 6.5 percent below the three-month average. “A Chinese slowdown is inevitable,” said Peter Jankovskis, who helps manage about $2.9 billion at Oakbrook Investments in Lisle, Illinois. “It’s possible that will take some of the heat out of commodities. Yet China is not the only growth story out there. China will continue to be an important player, but the U.S. economy seems to have found its legs.”
Stocks Tumble as Slowdown Cuts Company Earnings: China Overnight (Source: Bloomberg)
Chinese equities traded in the U.S. dropped to a two-week low, led by E-House (EJ) China Holdings Ltd., on concern slower growth in the world’s second-largest economy is hurting corporate earnings. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese stocks in the U.S. dropped 1.1 percent to 103.47 yesterday in New York, the weakest level since March 8. China Telecom Corp. (CHA) plunged to a five-week low as profit missed the average analyst estimate. Suntech Power Holdings Co. (STP) led solar companies higher after U.S. imposed lower-than-expected duties on solar-equipment imports from China. Property developer China Real Estate Information Corp. (CRIC), video sharing website Youku Inc. and insurance agency CNinsure (CISG) Inc. all reported net losses for the last quarter of 2011 as the economy recorded the slowest growth since mid-2009.
Europe’s debt crisis, a sluggish U.S. recovery and climbing oil prices are crimping the outlook for China, the world’s biggest exporter and second-largest consumer of crude. “Everybody starts to talk about a soft landing when a really strong economy starts to slow down, and it may end up being somewhat worse than that,” Michael Shaoul, chairman of New York-based Marketfield Asset Management, which manages $1.5 billion of assets and holds short positions in Chinese shares betting on their decline, said by phone yesterday. “Europe’s problem allowed people to ignore the deterioration in the emerging markets story.”
European Stocks Decline as BMW, Daimler Retreat on China (Source: Bloomberg)
European (SXXP) stocks dropped the most in two weeks as an official at China’s association of carmakers said auto sales will miss its forecast in 2012. Bayerische Motoren Werke AG (BMW) and Daimler AG fell more than 4 percent. BHP Billiton Ltd. (BHP) slumped 4.1 percent, leading a gauge of mining companies lower. Metro AG (MEO) advanced after Germany’s largest retailer posted fourth-quarter earnings that matched analysts’ estimates. The Stoxx Europe 600 Index retreated 1.1 percent to 268.96 at the close for the benchmark measure’s biggest drop since March 6. The gauge has still gained 10 percent this year as the European (SXXP) Central Bank disbursed 1 trillion euros ($1.3 trillion) to the region’s lenders.
“Last week was a major move and there’s no surprise that we’ve seen a bit of a rest this week,” David Miller, a partner at Cheviot Asset Management in London said in a Bloomberg Television interview with Caroline Hyde. “There’s been a growing realization that in fact the economic numbers particularly out of the States have been better than expected and consistently good and in Europe we’ve had the absence of bad news.” The benchmark Stoxx 600 slipped 0.1 percent yesterday, paring the previous week’s 2.6 percent rally, its biggest weekly gain since early February.
GLOBAL MARKETS-Chinese shares lead a slip in Asia; euro steady
SINGAPORE, March 20 (Reuters) - Shares slipped on Tuesday, led by losses in Hong Kong and Shanghai on underwhelming corporate earnings, while the euro held near its highest level in a week on easing fears about wider damage to the financial system from Greece's debt crisis.
"Momentum is clearly stalling right now and in need of distinct signals, whether it be U.S. housing data pointing to a stable recovery or stronger indications of policy easing in China," said Kim Se-joong, an analyst at Shinyoung Securities in Seoul.
FOREX-Dollar stuck near one-week low; Aussie falters
SINGAPORE, March 20 (Reuters) - The dollar hovered near a one-week low against a basket of currencies but recent signs of improvement in the U.S. economy and rising Treasury yields were likely to lend it some support.
"I don't expect to see the dollar pull back significantly," said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.
Euro Gains After Greece Bailout Vote, Before German PMI (Source: Bloomberg)
The euro advanced against the dollar and reached a four-month high versus the yen after Greece won parliamentary approval for a new international bailout, boosting demand for the region’s assets. The 17-nation currency rose against 14 of 16 major counterparts before reports tomorrow forecast to show an expansion of services and factory output in Germany, Europe’s largest economy. The dollar weakened before Federal Reserve Chairman Ben S. Bernanke tells Congress that financial strains in Europe have eased, according to testimony prepared for delivery today. The yen fell before a report tomorrow projected to show Japanese exports declined for a fifth month. “Some of the reports coming out of Europe and the Greek vote going through is supportive of the euro in the near term,” said Derek Mumford, a director in Sydney at Rochford Capital, a currency-risk management company.
The euro rose 0.3 percent to $1.3267 as of 10:15 a.m. in Tokyo. The 17-nation currency climbed 0.2 percent to 110.97 yen and earlier touched 110.99, the most since Oct. 31. The yen rose 0.1 percent to 83.64 per dollar.
U.S. Housing Heals as Starts Near Three-Year High: Economy (Source: Bloomberg)
Housing starts in the U.S. hovered in February near a three-year high and building permits rose, adding to signs that the industry at the heart of the last financial crisis is stabilizing. Builders broke ground on 698,000 homes at an annual rate, in line with the median forecast of economists surveyed by Bloomberg News and down 1.1 percent from a January pace that was stronger than previously reported, Commerce Department figures showed today in Washington. Building permits, a proxy for future construction, climbed to the highest level since October 2008. Gains in homebuilding are benefitting construction-material suppliers like Owens Corning Inc. (OC) as the industry heals following the worst slump on record. The jump in applications is a reflection of growing confidence that indicates housing will no longer hold back the economic expansion.
“The housing market continues to recover at a very gradual rate,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, who forecast a 697,000 pace for housing starts. “The increase in permits likely flags further strength in the months ahead.”
Fed Board Nominees Back Exit Strategy Ensuring Price Stability (Source: Bloomberg)
President Barack Obama’s nominees to the Federal Reserve Board told a Senate panel they would help the Fed withdraw stimulus when necessary in a way that keeps prices stable and doesn’t jar financial markets. Jerome Powell, a former private equity manager and Treasury undersecretary under President George H.W. Bush, told the Senate Banking Committee today he sees “tremendous risk in the exit,” including inflation and asset price bubbles. Jeremy Stein, a Harvard University economist and former adviser to Treasury Secretary Timothy F. Geithner, told the panel the central bank must avoid a “disruptive impact on markets.”
Powell and Stein, both with financial market expertise, said they would pursue in a balanced way the Fed’s dual mandate to ensure full employment and price stability. They were nominated by Obama in January to fill vacant Fed board seats. If confirmed, they would fill a void left by Kevin Warsh, a former Morgan Stanley banker and confidante of Chairman Ben S. Bernanke during the financial crisis, said Antulio Bomfim, a former Fed economist. Warsh resigned from the board in April. “I don’t think there’s been anybody with either strong experience or academic credentials in financial markets” since Warsh left, said Bomfim, now a senior managing director with Macroeconomic Advisers LLC in Washington. “Together they bring both.”
Free Lunches Pushing U.S. to Insolvency, Columbia’s Mundell Says (Source: Bloomberg)
Political competition for votes and lack of fiscal discipline are pushing the world’s largest economy toward solvency issues, according to the Nobel Prize- winning economist Robert Mundell. “The public is looking for free lunches, and the political competition for votes makes the politicians offer them free lunches,” Mundell, a professor of economics at Columbia University, said on Bloomberg Radio interview with Tom Keene and Ken Prewitt. “That’s what gets us in to the difficulties of insolvency.” The U.S. plans to finance a budget deficit forecast to exceed $1 trillion for a fourth year, and outstanding U.S. marketable debt expanded to $10 trillion in February. Even as the jobless rate has fallen from a high of 10 percent in October 2009 to 8.3 percent in February, it remains almost 2 percent above the average of the past decade and the central bank has called unemployment “persistent.”
“You could have fiscal stimulus back in the day of Keynes, when the government was a small proportion of gross domestic product and there was no insolvency problem,” he said, referring to British economist John Maynard Keynes. “You can’t just issue more bonds to pay for deficits and expect it to solve the employment problem.”
Fed Bond Portfolio Generates $75.4 Billion for U.S. Treasury (Source: Bloomberg)
The Federal Reserve paid $75.4 billion to the U.S. Treasury as an expanded bond portfolio generated $83.6 billion in interest income from its open-market operations last year. The Fed’s total assets stood at $2.92 trillion at the end of 2011, up from $2.43 trillion at the end of the previous year and about $894 billion in 2007, according to financial statements released by the central bank today. The central bank’s balance sheet expanded as it purchased $2.3 billion of securities in a bid to bring down long-term borrowing costs and spur the economy after cutting short-term rates almost to zero in December 2008. Remittances to the Treasury generated by income from securities holdings are likely to decline as the economy revives.
“Certainly, the numbers are going to go down,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “From a fiscal standpoint, I think it is OK because if interest rates are going up, that means the economy is improving and tax revenue is going up.” Treasury 10-year notes fell for a 10th consecutive trading day, the longest stretch of declines since at least 1985, as investors bet a strengthening economy will diminish the refuge appeal of U.S. government securities.
Bernanke Returns to Academic Roots to Defend Fed’s Existence (Source: Bloomberg)
Federal Reserve Chairman Ben S. Bernanke returned to his roots as a university professor today, seeking to explain and justify the existence of the central bank ahead of the 100th anniversary of its founding next year. Bernanke told 30 students at George Washington University that central banks play a key role in the modern monetary system as guardians of economic and financial stability. His hour-long lecture, followed by questions from the students, is the first of four planned talks on the history of the Fed and is part of what public relations specialist Richard Dukas called a “P.R. offensive” to buff the central bank’s tarnished image. The Fed is being attacked from both the left and the right, with liberals criticizing it for not doing enough to bring down unemployment, and conservatives blaming it for doing too much and risking faster inflation.
Bernanke’s return to the milieu where he spent more than two decades will give the Fed’s top policy maker an opportunity to “set the narrative” on the central bank’s role during and after the financial meltdown, said Princeton University professor and former Fed Vice Chairman Alan Blinder. “The question of who gets to write the history is an important one.”
Departing PBOC Adviser Xia Bin Urges More Central Bank Autonomy (Source: Bloomberg)
Xia Bin, a former Chinese central bank adviser, urged more autonomy for the monetary authority, a week after ending two years on a policy board controlled by the State Council. The People’s Bank of China “should be given more power in the areas of some short-term and specific monetary policy adjustment and operations,” Xia, 60, said in an interview in Hong Kong yesterday. There is “large room for improvement in how decisions are made,” he told Bloomberg Television. The state researcher joins organizations including the World Bank and economists at Deutsche Bank AG and UBS AG who have urged China to increase central bank independence and transparency. While U.S. and European counterparts operate separately from other parts of the government, major moves in China such as interest-rate adjustments are decided by the State Council, or Cabinet.
A World Bank report last month said that “further moves to improve the independence of the central bank and to increase the transparency of monetary policy decision making would be essential to support greater international acceptance” of the yuan as a reserve currency.
Hong Kong Beats Netherlands and U.S. as Best Place for Business (Source: Bloomberg)
Hong Kong (HSI), a bastion of free-market policies and low corporate taxes as well as the gateway to the world’s most populous nation, is the best place to do business, according to data compiled by Bloomberg. The city of about 7 million people secured top position in a new index based on six criteria including the degree of economic integration and labor costs. The Netherlands, the U.S., the U.K. and Australia occupied the next four leading slots. The ranking marks a victory for Hong Kong 15 years after the city’s return to Chinese sovereignty stoked concern that its role as an international financial hub would slide. General Electric Co. has established operations there, Gap Inc. is among the retailers drawn by the 28 million Chinese tourists who pass through it and HSBC Holdings Plc is one of the financial titans listed on its stock exchange.
“Hong Kong is a gateway to China, it has competitive tax rates and that makes it one of the natural choices for companies to set up their Asian headquarters,” said Tomo Kinoshita, deputy head of Asia economics research at Nomura Holdings Inc. who has worked in the city for five years. “It makes sense for companies that want to be close to China as well as the rest of Asia to use Hong Kong as their base.”
Pimco’s Kashkari Says Greece, Portugal to Need More Bailouts (Source: Bloomberg)
Pacific Investment Management Co.’s Neel Kashkari, who heads global equities at the Newport Beach, California-based investment firm, said Greece and Portugal will need additional bailouts. “We don’t think that Greece will actually be able to deliver on the austerity measures they’re promising,” Kashkari said today in an interview on Bloomberg Television’s “InBusiness with Margaret Brennan.” “Risks in Europe remain, so we’re being very selective.” Europe’s approval of a 130 billion-euro ($172 billion) rescue package for Greece, the second such bailout since 2010, doesn’t solve the region’s sovereign-debt crisis, Kashkari said. While U.S. economic indicators have been improving, risks of further “shocks” coming out of Europe and slowing growth in the emerging markets are leading Pimco to buy stocks only selectively, he said.
Kashkari said he likes Ensco Plc (ESV), a London-based offshore drilling company, and farm-equipment maker Deere & Co. (DE), based in Moline, Illinois, because it sells to emerging-market consumers.
ECB’s Nowotny Says Portugal in Much Better Shape Than Greece (Source: Bloomberg)
European Central Bank council member Ewald Nowotny said Portugal is “in much better shape” than Greece and predictions by Pacific Investment Management Co. it may need more money are “extremely problematic.” “I consider this announcement by an asset manager, who is also following his own interests, to be extremely problematic,” Nowotny wrote in a live online chat with Austria’s Der Standard newspaper today. “Portugal’s debt ratio and the development of its foreign trade are in much better shape than in Greece, even though risks do remain, of course.”
Portugal last year became the third euro-area country to request external aid, following Greece and Ireland, and Prime Minister Pedro Passos Coelho is cutting spending and raising taxes to meet the terms of the 78 billion-euro ($103 billion) plan. Still, Mohamed El-Erian, chief executive officer at Pimco, told Germany’s Der Spiegel magazine in an interview published on March 18 that the first aid package will prove insufficient, forcing the nation to ask for more money. Portugal’s government has managed to cut the country’s 2011 deficit to 4 percent of gross domestic product from 9.8 percent a year earlier and the International Monetary Fund said last month that Portugal’s financial aid program was on track.
U.K. Inflation Stays Above BOE Limit on Alcohol, Food: Economy (Source: Bloomberg)
U.K. inflation slowed less than economists forecast in February as higher alcohol and food costs helped keep consumer-price gains above the Bank of England’s upper limit. Consumer prices rose 3.4 percent from a year earlier, the least since November 2010, compared with 3.6 percent in January, the Office for National Statistics said today in London. The median estimate of 36 economists was for a reading of 3.3 percent last month, according to a Bloomberg News survey. The pace of the slowdown in inflation may be curbed by rising oil costs, which have surged in the past six months. While the Bank of England has forecast that price growth will ease to its 2 percent goal this year, policy maker Martin Weale said last month there is a “risk that there may be more persistence to inflation.”
One can “expect further declines in inflation to be more modest going forward,” George Buckley, chief U.K. economist at Deutsche Bank AG (DBK), said in an e-mailed note. “The key question remains where consumer price inflation settles. We think it will be higher than Bank of England forecasts at year-end.”
Greece’s Third Bailout Seen in Debt With Junk Grade: Euro Credit (Source: Bloomberg)
Greece’s bonds and credit ratings are factoring in a third bailout for the nation that analysts and investors say will require greater concessions from its international creditors. Within a week of euro-area member states giving their formal approval to a second bailout package for Greece, the International Monetary Fund said the country may require additional funding or a further debt restructuring. Pacific Investment Management Co., which runs the world’s biggest bond fund, said it remains “cautious” on euro-area government debt even after the largest-ever sovereign refinancing because the risk remains that Greece will leave the single-currency area. “It’s still a very steep mountain to climb,” said Harvinder Sian, a senior fixed-income strategist at Royal Bank of Scotland Group Plc in London. The restructuring deal “doesn’t do anything to put Greece on a sustainable path,” he said. “A third bailout will become necessary.”
The price of Greek government bonds maturing in February 2042 that were provided as part of its debt exchange was at 21.48 cents on the euro at 8:04 a.m. London time, with yields at 15.02 percent. Standard & Poor’s said on March 15 it rated the securities CCC, its fourth rank above default, citing questionable growth prospects, a weakening political consensus to implement budget cuts, and a “still large” debt burden.
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