Asia Stocks Slide as Europe Debt Crisis Concern Flares (Source: Bloomberg)
Asian stocks fell, with the regional benchmark index extending losses after plunging the most in four months yesterday, as weak demand at a Spanish bond auction reignited concern Europe won’t contain its debt crisis. Sony Corp. (6758), which depends on Europe for a fifth of its sales, lost 2.1 percent in Tokyo. Newcrest Mining Ltd. (NCM), Australia’s third-largest mining company by market value, dropped 2.1 percent after a gauge of metal prices fell the most in two months. Tokyo Electric Power Co. rose 1.5 percent after a report the operator of the stricken Fukushima Dai-Ichi nuclear power plant will sell a majority stake to the government.
The MSCI Asia Pacific Index dropped 0.5 percent to 124.84 as of 9:45 a.m. in Tokyo before the Hong Kong market opened. The gauge yesterday slid 1.5 percent, the most since Dec. 19, after the U.S. Federal Reserve signaled it may not offer more stimulus. Stocks fell today after demand for Spanish bonds fell and European Central Bank President Mario Draghi said the region’s economic outlook is “subject to downside risks.’” “Investors realize those economies are heading into a significant recession,” said Andrew Pease, Sydney-based chief investment strategist for the Asia-Pacific region at Russell Investment Group, which manages about $150 billion. “Gains from here are going to be hard work.”
Japanese Stock Futures Gain on U.S. Confidence, Spending (Source: Bloomberg)
Japanese stocks fell for a third day, with the Nikkei 225 (NKY) Stock Average heading for a four-week low, after falling demand at a Spanish bond auction refocused attention on Europe’s debt crisis, weakening the euro and damping the outlook for exporters. Sony Corp. (6758), an electronics maker that depends on Europe for more than a fifth of its sales, slid 2.1 percent. Inpex Corp. (1605), the nation’s largest energy explorer by market value, sank 2.4 percent after crude prices declined. Mitsubishi Heavy Industries, Ltd. lost 1.5 percent on a report its jet deliveries will be delayed by at least one year. The Nikkei 225 fell 0.9 percent to 9,732.25 as of 9:40 a.m. in Tokyo, set for the lowest close since March 7. The broader Topix Index lost 1.2 percent to 825.72, with more than six times as many shares declining as advancing.
“The Spanish bond auction wasn’t very successful,” said Mitsushige Akino, a fund manager at Ichiyoshi Investment Management Co. in Tokyo. “If the European debt crisis reignites, investors will look to avoid risk and turn their eyes toward reasons for concern.” Futures on the Standard & Poor’s 500 Index (SPXL1) were little changed today. The gauge sank 1 percent in New York yesterday, this year’s second-biggest decline, as a measure of U.S. service industries dropped.
U.S. Stocks Drop on Spanish Bond Sale, SanDisk Forecast (Source: Bloomberg)
U.S. stocks fell, with the Standard & Poor’s 500 Index posting this year’s second-biggest decline, as demand dropped at a Spanish bond auction and SanDisk (SNDK) Corp.’s lower forecast dragged down technology shares. Computer and software makers fell 1.4 percent as a group and were the biggest drag on the S&P 500 among 10 industries as SanDisk, the biggest maker of flash-memory cards, tumbled 11 percent. Alcoa Inc. lost 2.5 percent, pacing declines among material companies, as investors sold shares of companies most- tied to the economy after a report on U.S. service industries missed estimates. Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) slumped at least 2.2 percent as financial stocks slid. The S&P 500 lost 1 percent to close at 1,398.96 at 4 p.m. in New York today, retreating the most since March 6, when the benchmark index plunged 1.5 percent in its worst drop of the year. The Dow Jones Industrial Average slid 124.8 points, or 1 percent, to 13,074.75.
The Spanish auction “serves as a reminder to the market that Europe is still with us,” Mark Freeman, chief investment officer at Westwood Holdings Group Inc. in Dallas, said in a telephone interview. His firm oversees about $13 billion. “We still have a long way to go before things get worked out,” he said. “The market has now moved significantly higher. But guess what, expectations are now much higher. What ultimately it’s going to take is much stronger corporate profits.”
European Stocks Fall on Spain Bonds, Fed Stimulus Stance (Source: Bloomberg)
European stocks fell the most in four weeks after Spain sold fewer bonds than its maximum target and the Federal Reserve damped expectations of more monetary stimulus for the U.S. Volvo AB (VOLVB) tumbled 4.8 percent after ACT Research said North American preliminary truck orders in March were less than expected. Carmakers declined, with Peugeot SA and Renault SA (RNO) dropping at least 4 percent each, after a report showed U.S. sales of light vehicles rose less than forecast. Royal Bank of Scotland Group Plc lost 2.9 percent after people familiar with the matter said the lender canceled a bond sale. The Stoxx Europe 600 Index retreated 2.1 percent to 258.76 at the close of trading, the biggest decline since March 6. The number of shares changing hands on the benchmark index was 25 percent more than the average over 30 days, data compiled by Bloomberg show.
“Clearly Spain is starting to have some problems of refinancing; we may need some more bailouts in Europe -- possibly one for Spain,” said Jean Borjeix, a strategist at Paris-based Platinium Gestion, which helps oversee about $170 million. “I believe we have reached a top in the market in the short term. Today, markets have included in their thinking that it will be difficult for Europe.”
Emerging Stocks in Deepest Slide in Month on Fed Concern (Source: Bloomberg)
Emerging-market stocks fell the most in a month on concern the Federal Reserve may refrain from more monetary stimulus and as lower demand for Spanish bonds revived worries Europe’s debt crisis will harm global growth. The MSCI Emerging Markets Index (MXEF) fell 1.7 percent to 1,037.33 in New York, the steepest slide since March 6. Materials and energy companies led the drop. Vale SA (VALE5), the world’s largest iron ore producer, had its biggest two-day drop in a month, and Brazil’s Bovespa (IBOV) Index fell to the lowest level since Jan. 31. Coal producer OAO Mechel (MTLR) led declines on Russia’s Micex Index. Gold Fields Ltd. (GFI), South Africa’s second-largest gold producer, fell the most since November.
The Fed won’t impose more accommodative monetary policy unless economic expansion falters or inflation quickens to more than the 2 percent target, according to minutes from the March 13 meeting released yesterday. U.S. services industries, which account for almost 90 percent of the economy, grew at a slower pace in March, Institute for Supply Management data showed today. Demand for Spanish government bonds dropped at an auction and Prime Minister Mariano Rajoy said the country is “facing an economic situation of extreme difficulty.” “The markets were starting to price in both a better economic outlook and policy easing, and you can’t have both,” Neil Shearing, chief emerging-markets economist at Capital Economics Ltd. in London, said by phone. “The fear amongst investors is that Spain could now be the next domino to fall in the euro crisis.”
GLOBAL MARKETS-Shares, euro fall as fresh Fed stimulus hopes fade
LONDON, April 4 (Reuters) - Stocks and the euro fell after the U.S. Federal Reserve dimmed hopes for fresh asset-buying, further underlining its divergence with an embattled Europe tha t fac es recession and rem ains fir mly in c risis-fighting mode.
"Additional QE and/or extension of the current 'operation twist' programme have been a central focus for financial markets in recent months, but the overnight release of the latest (Fed) meeting minutes appeared to douse these expectations," Cameron Peacock, market analyst at IG Index said in a note.
FOREX-Dollar hits 1-wk high post-Fed as Spain auction, ECB eyed
LONDON, April 4 (Reuters) - The dollar hit a one-week high against a basket of currencies, lifted by minutes from the U.S. Federal Reserve's latest policy meeting that reduced expectations for further monetary stimulus and sent Treasury yields higher.
"The market is moving on reduced probability of further QE in the near-term, and that's helping to support the U.S. dollar across the board," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi.
Euro Trades Near 3-Week Low Before German Industrial Production (Source: Bloomberg)
The euro traded 0.4 percent from a three-week low versus the yen as Europe’s debt crisis dimmed the outlook for the region’s economy. The 17-nation currency was also near a three-week low against the greenback on speculation a report today will show German industrial production fell in February, backing the case for the European Central Bank to keep interest rates low. Demand for the dollar was supported before data tomorrow that may show U.S. payrolls rose by more than 200,000 workers in March for a fourth month, spurring speculation the Federal Reserve will refrain from easing monetary policy. “Most of Europe is going through a contraction,” said Andrew Salter, a foreign-exchange strategist in Sydney at Australia & New Zealand Banking Group Ltd. (ANZ) “If the peripheral governments cannot make the necessary reforms, in the long term that’s a negative for the euro.”
The euro traded at 108.32 yen as of 8:39 a.m. in Tokyo from 108.37 in New York yesterday, when it touched 107.91, the lowest since March 13. The common currency was unchanged at $1.3142, after dropping to $1.3107 yesterday, the weakest since March 16. The dollar was at 82.43 yen from 82.46.
Stocks, Commodities Drop on Fed Minutes, Spanish Auction (Source: Bloomberg)
Stocks and commodities slid for a second day as weaker demand at a Spanish debt auction and the U.S. Federal Reserve’s reluctance to add more monetary stimulus fueled concern the global economic recovery will slow. The euro fell and Spanish, Italian and Portuguese bond yields surged. The Standard & Poor’s 500 Index lost 1 percent as of 4 p.m. in New York, its second-worst drop of the year, and the Dow (INDU) Jones Industrial Average slid 124.8 points to 13,074.75. The Stoxx Europe 600 Index tumbled 2.1 percent. The euro depreciated against 12 of 16 major peers, while 10-year Treasury yields fell seven basis points to 2.23 percent. Spanish 10-year yields surged 24 basis points to 5.69 percent. Silver and gold plunged more than 3 percent and oil extended losses after U.S. supplies grew by the most since 2008.
The S&P 500 has tumbled 1.4 percent from an almost four- year high of 1,419.04 on April 2 following a 12 percent rally in the first three months of the year, the best first-quarter gain in 14 years. The Fed will refrain from increasing monetary accommodation unless the economic expansion falters or prices rise at a rate slower than its 2 percent target, minutes of a March 13 policy meeting released yesterday showed. “I can’t remember a time where knowing where you are in the trading cycle is as almost important as the news that’s coming,” Wayne Wilbanks, chief investment officer at Wilbanks, Smith & Thomas Asset Management LLC in Norfolk, Virginia, which oversees about $2 billion, said in a telephone interview. “When you are at the top of a trading range between 1,100 and 1,400, it will take very little bad news -- and maybe some news about quantitative easing, which is not bad news -- for the market to go down.”
Service Industries in U.S. Kept Expanding in March: Economy (Source: Bloomberg)
Service industries in the U.S. grew in March, capping the strongest quarter in a year and indicating the world’s largest economy will keep generating jobs. The Institute for Supply Management’s non-manufacturing index fell to 56 from a one-year high of 57.3 in February, the Tempe, Arizona-based group’s data showed today. Last month’s reading still topped the average for the previous economic expansion. Another report showed companies added an estimated 209,000 workers to payrolls in March. Sales (RSTAMOM) at businesses like restaurants and retailers are climbing as an improving labor market shores up household incomes and confidence in the face of more expensive gasoline. Since mid-2011, the industries that account for almost 90 percent of the economy have outpaced gains in manufacturing, which had been at the forefront of the two-year expansion.
“No longer can we say that only manufacturing is powering the economy forward,” said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto, who correctly forecast the level of the index. “The general trend is very encouraging.” Stocks fell as a drop in demand for Spanish bonds brought concern over the European debt crisis to the fore and after Federal Reserve policy makers signaled yesterday that an improving economy would cause them to refrain from additional monetary stimulus. The Standard & Poor’s 500 Index decreased 1 percent to 1,398.96 at the close in New York.
Fed’s Lacker Says Volcker Rule May Be ‘Impossible’ to Implement (Source: Bloomberg)
Federal Reserve Bank of Richmond President Jeffrey Lacker said a U.S. law restricting proprietary trading at banks and scheduled for enactment in July may be “impossible” to implement. The so-called Volcker rule, named for its original champion, former Fed Chairman Paul Volcker, is aimed at reducing the odds that banks will make risky investments with their own capital and put depositors’ money at risk. Lacker said bank trading books were “kind of tangential” to the financial crisis of 2008-2009, when bank capital was eroded by losses on risky mortgages, many of them bundled into complex securities. The Volcker rule is “fairly difficult if not impossible to implement in a way that is at all reasonable,” Lacker said today in an interview with Bloomberg Television’s Trish Regan.
The proposal is one of the most contentious provisions of the 2010 Dodd-Frank act on financial oversight, and Lacker said it would be “high on the list” of things he would change if he could. Work on the rule is diverting resources from more “essential” requirements in the act that would limit taxpayer- funded bailouts, such as living wills where large banks must describe to regulators how they would dissolve themselves in a crisis, he said.
Fed Exploring Selling Maiden Lane III Assets From AIG Rescue (Source: Bloomberg)
The Federal Reserve Bank of New York is considering selling assets in its Maiden Lane III LLC portfolio, which were assumed in the government bailout of American International Group Inc., the district bank said today. “The change in the investment objective for Maiden Lane III reflects a strategic decision to explore possible sales of some of the assets in the portfolio in light of improving market conditions and the success of the Maiden Lane II sales,” Jack Gutt, a spokesman for the New York Fed, said in an e-mailed statement. The New York Fed is seeking to accelerate the repayment of its loan to the Maiden Lane III vehicle after completing the sale this year of the assets in its Maiden Lane II LLC portfolio, another pool of debt assumed in AIG’s rescue. The central bank was owed about $9 billion under its loan to Maiden Lane III as of March 28, according to the New York Fed website.
AIG and the Fed have benefited from the rebound in mortgage-linked assets, such as those assumed in the bailout. The insurer may use proceeds from sales of Maiden Lane III assets to help buy back more stock from the U.S. Treasury Department, Josh Stirling, an analyst for Sanford C. Bernstein & Co., said in a note to clients today. AIG advanced 5.3 percent to $32.52 at 4:02 p.m. in New York, the most since February.
Company Payrolls in U.S. Grow by Estimated 209,000 Workers (Source: Bloomberg)
Companies in the U.S. expanded payrolls in March, showing the labor market is strengthening, according to data from a private report based on payrolls. Employment increased by 209,000 for the month after a revised 230,000 gain in February, figures from ADP Employer Services showed today. The median estimate in the Bloomberg News survey called for a 206,000 increase. Faster job growth may lead to the wage gains needed to sustain consumer spending, which accounts for about 70 percent of the world’s largest economy. Businesses added 215,000 jobs in March, and the unemployment rate held at 8.3 percent, economists project a Labor Department report will show in two days. “Labor market conditions continue to improve at a moderate pace,” Joel Prakken, chairman of Macroeconomic Advisers LLC in St. Louis, which produces the report with ADP, said in a statement. “Employment grew in all major sectors of the economy tracked.” Estimates in the Bloomberg survey of 38 economists ranged from increases of 170,000 to 250,000.
Fed Sees Improving Economy Reducing Need for Stimulus (Source: Bloomberg)
Federal Reserve policy makers see the improving economy reducing the need for new stimulus even as they stick to a plan to hold the benchmark interest rate near zero at least through late 2014. Fed officials called for additional stimulus only “if the economy lost momentum” or if inflation stays below their 2 percent inflation target, according to minutes of their March 13 meeting released yesterday in Washington. That contrasts with their January meeting minutes, in which some policy makers saw the economy requiring additional action “before long.” “I would have to see some pretty severe circumstances before I endorse for another round of quantitative easing,” Atlanta Fed President Dennis Lockhart said yesterday in an interview. “The outlook is positive enough that I am not sure I see the need for it.” A voting member of the Federal Open Market Committee this year, Lockhart has never dissented from a policy decision since becoming head of the district bank in March 2007.
The central bank sees the U.S. economy improving enough to argue against a new round of quantitative easing while showing signs of weakness that warrant continued record-low interest rates. Stocks extended declines after release of the minutes yesterday while the dollar and Treasury yields rose.
Fed’s Lacker Says Markets Saw Odds of New Easing as Too High (Source: Bloomberg)
Federal Reserve Bank of Richmond President Jeffrey Lacker said financial markets had assigned too high a probability that the Fed would begin a new round of asset purchases to reduce borrowing costs and spur economic growth. “I was surprised a couple months ago at the probability market participants seemed to ascribe to further easing,” Lacker, a voting member of the Federal Open Market Committee (FDTR), told reporters and editors today at the Bloomberg News Washington bureau. “While further easing is obviously something that’s conceivable, I wouldn’t favor it unless conditions deteriorated quite substantially” for growth and inflation.
Stocks and commodities continued their decline for a second day after the minutes of the FOMC’s March 13 meeting called for easing only “if the economy lost momentum” or if inflation fell below its 2 percent target. The Standard & Poor’s 500 Index lost 1.1 percent to 1,397.66 as of 2 p.m. in New York, after a 0.4 percent decline yesterday. The S&P GSCI gauge of commodities retreated 1.7 percent after falling 0.4 percent yesterday. The yield on the ten-year Treasury fell to 2.24 percent from 2.30 percent yesterday.
Draghi Scotches ECB Exit Talk as Spain Keeps Crisis Alive (Source: Bloomberg)
European Central Bank President Mario Draghi quashed talk of an early exit from emergency stimulus measures as Spain struggled to borrow in financial markets, a reminder of the risk that the region’s debt crisis could flare again. Speaking just hours after Spanish Prime Minister Mariano Rajoy warned his country faces “extreme difficulty,” Draghi said yesterday that talk of the ECB starting to withdraw its support for euro-area banks is “premature.” At the same time, in a nod to growing inflation concerns in Germany, he said the ECB won’t hesitate to counter price risks if needed. Policy makers left their benchmark rate at a record low of 1 percent. The ECB has expanded its balance sheet by about 30 percent since Draghi took office in November, pumping more than 1 trillion euros ($1.3 trillion) into the banking system in a bid to stem the debt crisis.
Pressure to unwind the emergency measures is rising in Germany, where workers are winning some of the biggest pay increases in two decades, threatening to stoke inflation. “Premature Bundesbank calls for an ECB exit strategy have now triggered a new round of market wobbles, with a focus on Spain,” said Holger Schmieding, chief economist at Berenberg Bank in London. “The risk of a new irrational market panic remains serious.”
King Readies Completion of Current Stimulus as BOE Debate Looms (Source: Bloomberg)
Bank of England Governor Mervyn King and his committee may vote today to complete their current round of stimulus as they get ready to debate next month whether to bring the program to a halt. With some on the nine-member Monetary Policy Committee toughening their stance about the threat of inflation and King insisting the U.K.’s predicament “still feels like a crisis,” economists predict the panel will back finishing their 325 billion-pound ($516 billion) stimulus today. That sets the stage for a showdown in May, when officials will have new forecasts and data on first-quarter gross domestic product. Policy makers are trying to nurture a recovery under pressure from Europe’s debt crisis and Chancellor of the Exchequer George Osborne’s fiscal squeeze. While surveys this week indicated the economy is gaining momentum, Adam Posen and David Miles still called for another expansion of stimulus last month at a meeting when the majority of their colleagues favored waiting to gauge risks to inflation.
“The data has been turning and there is some evidence inflation is going to be a bit more sticky,” said George Buckley, chief U.K. economist at Deutsche Bank AG in London. “The big question is not what they do at this meeting but whether they continue with quantitative easing. The May decision is going to be a big signal to the market.”
Draghi Says Inflation Risks Prevail as Economy Stabilizes (Source: Bloomberg)
European Central Bank President Mario Draghi said policy makers are prepared to act against inflation threats if needed, while assuring investors that the ECB doesn’t plan to withdraw emergency stimulus any time soon. “All the necessary tools are available to address upside risks to price stability in a firm and timely manner,” Draghi told reporters in Frankfurt after the ECB held its benchmark rate at a record low of 1 percent today. At the same time, it’s premature to talk about the ECB’s exit strategy, Draghi said, adding that the economic outlook is subject to downside risks and inflation will remain contained in the medium term. The ECB is balancing the threat of inflation in Germany, Europe’s largest economy, against the need to fight the sovereign debt crisis. While nations from Greece to Spain are battling recessions and record unemployment, workers in Germany are winning some of the biggest pay increases in 20 years.
“Today’s press conference was a strange brew between reassuring the markets that talk of an exit strategy is premature and trying to alleviate the German fear of an uptick in inflation,” said Peter Vanden Houte, an economist at ING Group in Brussels. “The ECB’s policy has been criticized in Germany as potentially stoking inflation. Draghi clearly wanted to set things straight.”
Spain Not Greece Is the Real Test for the European Union (Source: Bloomberg)
The decisive test of the euro area’s plans for economic recovery was never Greece but Spain, and the European Union shows every sign of failing it. The Spanish government’s new austerity plan hasn’t won investors’ confidence, and this creates a threat not just to Spain but to the whole EU. Europe’s governments need to change course before it’s too late. An auction of Spanish bonds on Wednesday was the first verdict on Spain’s new budget. It didn’t go well. Demand was poor and prices fell. The country’s borrowing costs rose with 10 year bond yields in the secondary market hitting 5.7 percent, the highest since the beginning of the year. The premium over German government bonds increased to nearly four percentage points, the highest since November.
The problem is not that Spain’s new austerity plan is too timid. Just the opposite: Under EU orders, Spain is promising what might be the tightest fiscal squeeze that it or any other European economy has ever faced. The new plan calls for the budget deficit to fall from 8.5 percent of gross domestic product to 5.3 percent this year. Since the economy is already shrinking, this requires a discretionary fiscal tightening of roughly 4 percent of GDP -- with the unemployment rate already standing at about 23 percent.
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