Asian Stocks Fall Fourth Day on Europe Political Concern (Source: Bloomberg)
Asian stocks dropped, with the regional benchmark index heading for its fourth day of decline, as political uncertainty in France and the Netherlands deepened concern Europe will struggle to contain its debt crisis. Canon Inc. (7751), a camera maker that depends on Europe for almost a third of its sales, slid 1.5 percent in Tokyo. Nippon Steel Corp. slipped 1 percent after its credit rating was cut by Moody’s Investors Service. Paladin Energy Ltd. sank 6.7 percent after the Australian uranium miner announced plans to sell at least $225 million of convertible notes. The MSCI Asia Pacific Index declined 0.3 percent to 123.18 as of 10:15 a.m. in Tokyo, with more than two stocks falling for each that rose. The resignation of Dutch Prime Minister Mark Rutte and French President Nicolas Sarkozy’s defeat in the first round of his re-election bid sparked concern governments in Europe will struggle to cut budgets.
“It’s a time of a greatly unsettled atmosphere in Europe,” Quintin Price, the global investment chief for fundamental equities at BlackRock Inc. said in a Bloomberg Television interview from Hong Kong. Blackrock has about $3.68 trillion in assets. “You see this resistance to austerity. Europe continues to be central.”
Japan, Australian Stock Futures Fall on Europe Concern (Source: Bloomberg)
Japanese stocks dropped for a fourth day after data showed Europe’s industries shrank and the Dutch prime minister resigned over austerity measures, signaling the severity of the debt crisis. Canon Inc., a camera maker that depends on Europe for almost a third of its sales, slid 1.1 percent. Sumitomo Electric Industries Ltd. paced declines among companies based in the Osaka after a report the region may face Japan’s worst power shortages this summer. Mitsubishi Corp. (8058), the nation’s biggest commodities trader by revenue, fell 1.3 percent after metals prices dropped. Prime Minister Mark Rutte’s resignation is “creating an aura of uncertainty and that’s the last thing that investors need,” said Angus Gluskie, managing director at White Funds Management in Sydney who manages more than $350 million. “This is destabilizing for the markets as a whole. Europe is still really the focus.”
The Nikkei 225 (NKY) fell 0.6 percent to 9,481.83 as of 9:52 a.m. in Tokyo, with volume a third lower than the 30-day average. The broader Topix Index lost 0.6 percent to 804.47, with more than three times as many shares declining as advancing.
European Stocks Drop as Manufacturing Shrinks; ING Falls (Source: Bloomberg)
European stocks fell to a three- month low as manufacturing contracted in the euro area and China and as Dutch Prime Minister Mark Rutte offered to resign after struggling to clinch an austerity deal. Renault SA (RNO) and ArcelorMittal (MT) led a selloff in automakers and commodity companies. ING Groep NV (INGA) and Aegon NV (AGN) tumbled more than 6 percent amid concern the Netherlands may lose its AAA rating. Royal Philips Electronics NV rallied 3.3 percent after earnings beat analysts’ estimates. The benchmark Stoxx Europe 600 Index dropped 2.3 percent to 251.75 in London, the lowest since Jan. 16. The gauge last week snapped a four-week losing streak after the International Monetary Fund raised its global growth forecast and U.S. company earnings beat estimates.
“There is every reason for this market to correct today,” said Patrick Moonen, a senior strategist at ING Investment Management in The Hague, which manages $163 billion. “The political environment in Europe has not improved over the weekend and we’ve had some weaker-than-expected macro data that is clearly disappointing. The overall market sentiment has turned bearish, but I am not at all concerned that this is more than a correction.”
U.S. Stocks Join Global Slump on Europe’s Political Woes (Source: Bloomberg)
U.S. stocks joined a global selloff as political uncertainty in France and the Netherlands intensified concern about Europe’s sovereign debt crisis. Bank of America Corp. fell 2.2 percent, following a drop in European lenders, as Dutch Prime Minister Mark Rutte offered to quit after lawmakers split over austerity and French President Nicolas Sarkozy lost the first round of his re-election bid. Monsanto (MON) Co. and U.S. Steel Corp. (X) slid at least 1.8 percent as European and Chinese manufacturing shrank. Wal-Mart Stores Inc. (WMT) retreated 4.7 percent amid a bribery probe in Mexico. The Standard & Poor’s 500 Index fell 0.8 percent to 1,366.94 at 4 p.m. New York time, near its highest level of the day. The Dow Jones Industrial Average slid 102.09 points, or 0.8 percent, to 12,927.17. The Russell 2000 Index retreated 1.5 percent to 791.85. About 6.6 billion shares changed hands on U.S. exchanges, or 2.5 percent below the three-month average.
“Markets are realizing that messy European national politics could aggravate already complex economic and financial conditions,” Mohamed El-Erian, the chief executive officer of Pacific Investment Management Co., said in an e-mail today. His company is manager of the world’s largest bond fund.
Stocks, Euro Drop Amid European Political Concern (Source: Bloomberg)
Stocks plunged worldwide and the euro weakened as Europe’s backlash against budget cuts gained momentum, while commodities retreated as manufacturing shrank. The Standard & Poor’s 500 Index fell 0.8 percent at 4 p.m. New York time, trimming its drop from 1.4 percent. The Stoxx Europe 600 Index sank 2.3 percent to a three-month low as gauges for eight nations, including Sweden, Germany, France and the Netherlands decreased 2.5 percent or more. The euro lost 0.5 percent versus the dollar and 1 percent against the yen. The cost of insuring against a European sovereign default climbed to the highest level in four weeks. The S&P GSCI Index of 24 raw materials slumped 0.3 percent. Treasuries rose a fourth day.
Dutch Prime Minister Mark Rutte offered his cabinet’s resignation amid a revolt against spending cuts. French President Nicolas Sarkozy lost the first round of his re- election bid as the anti-euro National Front won a record share of the vote. Euro-area services and manufacturing contracted more than estimated, while data indicated China’s production will shrink for a sixth month. “There’s enough out there that can justify taking the market down,” Mark Bronzo, who helps manage about $125 billion at Guggenheim Investments in Irvington, New York, said in a telephone interview. “There’s more work to be done in Europe, yet there’s political and social pressure not to do more. The economic news was disappointing. In addition, we’re digesting a big advance in the market.”
Emerging Stocks Close At Lowest Level Since January (Source: Bloomberg)
Emerging-market stocks fell to the lowest level in almost three months as shrinking Chinese and European manufacturing output boosted concern a global slowdown will curb demand for exports. The MSCI Emerging Markets Index (MXEF) slid 1.3 percent to 1,007.96 in New York with energy and consumer staple companies leading declines. The Bovespa index dropped 1.5 percent as JBS SA, the world’s largest beef producer, fell 6.3 percent, its sharpest drop in a month. Wal-Mart de Mexico SAB fell 12 percent, the most since 1998, as the company investigates possible bribery payments to Mexican officials. Equity gauges across Europe slumped, with Poland’s WIG20 tumbling the most in five months.
HSBC Holdings Plc and Markit Economics reported a preliminary reading of 49.1 for their China purchasing managers’ index, compared with a final 48.3 in March, a sixth consecutive month below 50. A euro-area composite index based on a survey of purchasing managers in services and manufacturing fell to 47.4, a five-month low, from 49.1 in March, London-based Markit Economics said in an initial estimate today. Commodities fell for the first time in three days as cocoa, silver and lead declined. “Commodity price declines are a reflection of global growth weakness,” Simon Quijano-Evans, emerging markets head of research at ING Bank, said in by phone from London. Those declines are “going to hit commodity exports of emerging markets the hardest,” he said.
Apple Rally Stalls on Concern Mobile Growth to Slow (Source: Bloomberg)
The biggest rally in Apple Inc. (AAPL) shares since 2004 lost steam as some investors speculated that the maker of the iPhone may not be able to keep growing at the pace that made it the world’s most valuable company. Apple has dropped 10 percent since reaching a record on April 9, the biggest 10-day slide since August. Fueling the descent were reports indicating a possible shortage in key components for mobile devices and a decline in sales of the iPhone at Verizon Wireless, the top U.S. mobile phone company. Some traders also took cues from trends showing there’s little precedent for surges like Apple’s. “They are so huge that you can’t get these huge percentage gains forever because at some point sales growth has to slow down,” said Giri Cherukuri, a portfolio manager at Lisle, Illinois-based Oakbrook Investments LLC, which manages $3 billion, including Apple shares. “The question is where are we on that curve -- near the bottom or are we near the top?”
Investors will find out whether the concerns are warranted from a fiscal second-quarter report tomorrow that’s predicted to show profit rose 55 percent while sales increased 48 percent from a year earlier, according to data compiled by Bloomberg. Apple is benefiting from the release of the iPhone 4S in China and 21 other countries, and the debut of a new iPad. If results fall short, the stock decline may resume.
FOREX-Euro retreats as IMF provides little boost
TOKYO, April 23 (Reuters) - The euro retreated from two-week highs against the dollar on Monday, pausing after its best weekly performance since February and drawing limited support from the weekend decision to double the International Monetary Fund's war chest.
"The increase in the IMF is just a safety net. That alone is not enough to boost risk assets," said Koji Fukaya, chief currency strategist at Credit Suisse in Tokyo.
Euro Holds Drop Versus Dollar, Yen Amid Political Turmoil (Source: Bloomberg)
The euro remained lower after its biggest one-day loss in a week amid concern presidential elections in France and political uncertainty in the Netherlands will hinder efforts to resolve Europe’s debt crisis. The 17-nation currency maintained its first decline versus the yen in five days before Dutch Prime Minister Mark Rutte is set to speak in parliament today, less than 24 hours after tendering his Cabinet’s resignation. French President Nicolas Sarkozy and Socialist challenger Francois Hollande face off in a second ballot May 6. The Australian dollar fell this week against most of its peers before a consumer-price report today that may show the Reserve Bank has scope to cut borrowing costs. “The market’s got nervous because of political uncertainty in Europe,” said Morio Okayasu, chief analyst in Tokyo at FOREX.com Japan Co., a unit of the online currency trading firm Gain Capital Holdings Inc. (GCAP) in Bedminster, New Jersey. “That’s negative for the euro.”
The euro was little changed at $1.3151 at 9:55 a.m. in Tokyo after falling 0.5 percent yesterday, the most since April 13. The shared currency bought 106.72 yen, after declining 0.9 percent to 106.81 yesterday. The yen traded at 81.14 per dollar from 81.18. The so-called Aussie fetched $1.0321 from $1.0319 after sliding to as low as $1.0272 yesterday, the weakest level since April 11.
Korean Won Climbs, Bonds Fall on IMF Forecast, Spain (Source: Bloomberg)
South Korea’s won fell to its lowest level in almost two weeks as political shifts in Europe fanned concern the region’s debt crisis will worsen. Government bonds advanced. Dutch Prime Minister Mark Rutte offered to resign yesterday after struggling to clinch an austerity deal. French President Nicolas Sarkozy lost the first round of his re-election bid as the anti-euro National Front won a record share of the vote. Foreign investors sold $761 million more Korean shares than they bought this month through yesterday, exchange data show. “There is a cycle as to how sensitive investors are to Europe’s problems, and it seems the market is more reactive of late,” said Ryu Kyungwon, a Seoul-based currency trader for the Bank of New York Mellon. “With overseas investors net sellers of Korean stocks, we see more demand for dollars as they repatriate funds.”
The won declined 0.1 percent to 1,140.95 per dollar as of 9:31 a.m. in Seoul, according to data compiled by Bloomberg. The currency touched 1,143.00 earlier, the weakest since April 12. Exporters may sell dollars as the end of the month nears and investors will be on alert for possible intervention to support the won at levels weaker than 1,140 per dollar,Hong Seok Chan, a Seoul-based currency analyst at Daeshin Economy Research Institute wrote in today’s report.
Treasuries Hold Advance on European Crisis, U.S. Slowdown (Source: Bloomberg)
Treasuries held a four-day gain as Europe’s fiscal crisis and forecasts for slowing economic growth spurred demand for the relative safety of U.S. debt. Benchmark 10-year yields were about a quarter percentage point from the record low as the Federal Reserve begins a two- day meeting today, with Chairman Ben S. Bernanke scheduled to hold a press conference tomorrow. Bernanke said March 26 that continued accommodative monetary policy is needed to bring down unemployment. The U.S. plans to sell $35 billion of two-year notes today, the same amount of five-year debt tomorrow and $29 billion of seven-year securities on April 26. “I think yields are headed lower,” said Ali Jalai, who trades Treasuries in Singapore at Scotiabank, a unit of Bank of Nova Scotia (BNS), one of the 21 primary dealers that underwrite the U.S. debt. “The economy is just chugging along. It’s not accelerating. Problems in Europe are going to be around for a long time.”
Benchmark 10-year yields were unchanged at 1.94 percent at 10:19 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security due in February 2022 changed hands at 100 18/32. The record low rate was 1.67 percent set Sept. 23.
Bullish, Bearish Forecasters Agree on Strong Dollar (Source: Bloomberg)
There’s at least one thing that bulls and bears on the U.S. economy agree on: the dollar, the most undervalued major currency in the world, is due to rise as Europe’s sovereign debt crisis threatens the global recovery. Strategists who as recently as November were predicting the dollar would depreciate against currencies of the Group of 10 nations, now say it will climb by year-end. After weakening against all but the Mexican peso among its 16 most actively traded peers over the past decade, it has gained against 13 of them since February. Bulls say the dollar will benefit from increased U.S. hiring and an economy that’s projected to grow 2.3 percent this year, almost double the 1.26 percent for the Group of 10, according to Bloomberg surveys of economists. The currency will also gain if global and U.S. growth slows as Europe’s debt crisis worsens, boosting demand for dollar assets such as Treasuries as traditional havens from market turmoil diminish.
“We’ve become more bullish on the dollar because the economic prospects in the U.S. are improving,” Ken Dickson, an investment director of currencies at Standard Life Investments in Edinburgh, which manages about $235 billion, said on April 18 by telephone. “There are additional reasons including problems in the periphery, and a weaker euro is required to help the transition to a better economic situation in Europe.”
Durable U.S. Recovery at Hand as Growth Shifts (Source: Bloomberg)
Almost three years after it began, the U.S. recovery may strengthen as autos and housing begin to reemerge as mainstays of growth. “The traditional engines that tend to give you a recovery are kicking in now,” Joseph Carson, director of global economic research at AllianceBernstein LP in New York, said in an interview. “We’re seeing confirmation of sustainability from all sides. That’s a real business cycle.” Over the past two quarters, measures normally associated with early stages of lasting rebounds, including hours worked, employment, consumer and business sentiment, household spending on durable goods and residential investment, have picked up in tandem, said Carson. Ian Shepherdson at High Frequency Economics Ltd. is betting the comeback from the worst financial crisis since the Great Depression will be rooted in a thawing of lending, an area that usually lags behind.
Household spending led by durable goods like automobiles, as well as gains in homebuilding, may account for more than half of the first-quarter advance in gross domestic product, according to Carson. Those two areas contributed 1.7 percentage points to the 3 percent gain in gross domestic product at an annual rate in the fourth quarter and probably made a similar contribution in the past three months, he said.
China May Ease Lending-Rate Controls First, Zhou Says (Source: Bloomberg)
China may first relax controls on borrowing costs and widen the “range” for deposit rates as part of changes to financial-industry rules, central bank chief Zhou Xiaochuan said in an interview with Caijing Magazine. The government is waiting for a consensus to emerge among officials and for a “suitable” time to act, as adjustments have been complicated by inflation and capital inflows, the People’s Bank of China governor said, according to a transcript of the interview on the magazine’s website today. The interview took place “recently,” Caijing said, without giving a date. Zhou’s comments highlight the central bank’s concerns that overhauling China’s interest-rate system when growth is slowing and inflationary pressure persists would create difficulties for banks to implement changes. The International Monetary Fund said in November China needs to move to a more market-based way of setting rates to help contain financial risks.
“There’s a question of finding the right time for reforms,” Zhou said. “Based on our current view, the global financial crisis has yet to calm down and the external environment still warrants observation. Domestically an economic downturn and inflation pressures co-exist.”
China’s Stock Futures Drop on Economic, European Debt Concerns (Source: Bloomberg)
China’s stock-index futures fell, signaling declines for the benchmark index, on concern the slowing Chinese economy and Europe’s debt crisis will reduce earnings and exports. Futures on the CSI 300 Index (SHSZ300) expiring in May, the most active contract, lost 0.3 percent to 2,610.40 as of 9:17 a.m. local time. Yanzhou Coal Mining Co. (600188), China’s fourth-biggest coal miner, may decline after net income fell 11 percent in the first three months of the year. China Vanke Co., the biggest property developer, may rise after profit rose 16 percent. The Shanghai Composite Index (SHCOMP) dropped 18.28 points, or 0.8 percent, to 2,388.59 yesterday. About 12.3 billion shares changed hands in the Shanghai Composite yesterday, or 40 percent higher than the daily average this year. Thirty-day volatility in the gauge was at 18.8, near its highest since March 2.
The CSI 300 Index declined 0.8 percent to 2,606.04 yesterday. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 2.3 percent in New York. The Shanghai index has climbed 8.6 percent this year amid speculation the government will take measures to boost the economy. Stocks in the Shanghai gauge are valued at 10.1 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.
Manufacturing Contraction Spurs Chalco Decline: China Overnight (Source: Bloomberg)
Aluminum Corp. of China led declines in Chinese commodity stocks traded in New York as data signaled manufacturing in the world’s second-largest economy may shrink for a sixth month in April. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. sank 2.3 percent to 100.98 yesterday in New York, the lowest close since April 10. Aluminum Corp. plunged the most in seven weeks on concern a drop in Chinese and European output will curb demand for commodities. Petroleum and Chemical Corp. fell to a four-month low, trading at a discount to its Hong Kong stock, while PetroChina Co. also fell.
China’s purchasing managers’ index shrank to a preliminary reading of 49.1 in April, compared with a final 48.3 in March, HSBC Holdings Plc and Markit Economics said yesterday. A number below 50 points to a contraction. In the euro zone, China’s biggest trading partner, a composite index based on a survey of purchasing managers in services and manufacturing fell to a five-month low, Markit Economics said yesterday. “Any weakness in China feeds directly into the commodity complex that extends to Chinese commodity producers,” Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees more than $1.6 billion -- including bets that Chinese stocks will decline -- said by phone yesterday. “The market has started to become nervous about the general status of China’s economy.”
Mitsubishi UFJ to Add 50 Traders in Derivatives Push (Source: Bloomberg)
Mitsubishi UFJ Financial Group Inc. (8306) will hire 50 currency and interest-rate derivatives traders globally in the next three years to help more than double annual profit in the business to 500 billion yen ($6.1 billion). Lending unit Bank of Tokyo-Mitsubishi UFJ Ltd. will also add 150 sales and research staff in Asia, Europe and the U.S., taking headcount for the derivatives business to 1,700 by March 2015, global markets head Hitoshi Suzuki said in an April 20 interview. The bank plans to meet the profit goal by March 2017. Japan’s biggest bank is betting that the market for over- the-counter currency and interest-rate derivatives, valued at $15.5 trillion as of last June, will help to spur earnings as the economy fails to grow enough to fuel lending and lessen its dependence on government bond trading. The hiring plans contrast with the global banking industry’s more than 130,000 job cuts announced last year.
“The key would be whether or not Mitsubishi UFJ will be able to spend decent money to hire talented traders, marketers and product developers worldwide,” Shinichiro Nakamura, a Tokyo-based banking analyst at SMBC Nikko Securities Inc., said. “This risk hedging-type of business may be the one that can help them gradually reduce their dependence on profit from the Japanese government bond trading.”
Singapore Inflation Accelerates More Than Estimated to 5.2% (Source: Bloomberg)
Singapore’s inflation accelerated more than economists estimated in March, justifying the central bank’s decision to tighten monetary policy this month. The consumer price index rose 5.2 percent from a year earlier, after climbing 4.6 percent in February, the Department of Statistics said in a statement today. That exceeded the predictions of 17 of 18 economists in a Bloomberg News survey, where the median estimate was for a 4.7 percent increase. The core inflation rate was 2.9 percent in March. The Monetary Authority of Singapore raised its 2012 inflation forecast this month as it diverged from most other Asian central banks that have left borrowing costs unchanged or eased monetary policy in recent weeks. The Singapore dollar is the region’s best performer this year as investors bet the island will tolerate a stronger currency to curb price gains that have been fuelled by more expensive home rentals and surging car permit costs.
“What’s been messing things up are the COE prices,” said Edward Teather, a Singapore-based economist at UBS AG, referring to the car permits known as certificates of entitlements. “If COE prices keep going up at their current pace, it’s going to make it difficult for the headline inflation numbers to fall.”
Singapore to License More Foreign Law Firms as Fees Fall (Source: Bloomberg)
Singapore, where the number of foreign lawyers has doubled in the last four years after opening its legal market to foreign firms, will award a second round of licenses by next year, Law Minister K. Shanmugam said. Firms can apply in the second half of 2012, with the process to be completed by early next year, he said in an interview yesterday. The first round of liberalization has done “better than we could have expected,” he said. International law firms have expanded in Asia, the world’s fastest growing region, boosting competition as more lawyers fight to advise companies amid slowing deal activity. Mergers and acquisitions involving Singapore-based companies fell by 53 percent to $41.5 billion in 2011 from 2007 levels, according to data compiled by Bloomberg.
Euro-Region Debt Rises to Highest in Currency’s History (Source: Bloomberg)
The debt of the euro region rose last year to the highest since the start of the single currency as governments increased borrowing to plug budget deficits and fund bailouts of fellow nations crippled by the fiscal crisis. The debt of the 17 euro nations climbed to 87.2 percent of gross domestic product in 2011 from 85.3 percent the previous year, official European Union figures showed today. That’s the highest since the euro was introduced in 1999. Greece topped the list with debt at 165.3 percent of GDP, while Estonia had the least at 6 percent of GDP. Euro-region nations are on the hook for the bulk of the 386 billion euros ($508 billion) in bailouts for Greece, Ireland and Portugal after those nations were forced to seek rescues when their borrowing costs become unsustainable. Concern that Spain and Italy may follow has led their bonds to decline for six weeks, pushing yields toward the 7 percent level that triggered the other aid programs.
“The different debt trajectories of the euro-area countries crystallize the process of great divergence between the periphery and the core of the euro area and even more markedly between Germany and the rest of the region,” Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London, said by phone.
Weidmann Says Bundesbank Is Preserving Euro Stability (Source: Bloomberg)
Bundesbank President Jens Weidmann said the German central bank’s actions are aimed at maintaining the stable foundation of the euro and preventing an erosion of the single currency’s acceptance. “What we are doing is preserving the stability foundation of the single currency,” Weidmann said today in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “If the stability foundation of the euro is eroded, then we will also see the acceptance of the single currency eroded.” The Bundesbank has faced criticism, including from billionaire George Soros, for speaking out against some European Central Bank crisis-fighting measures such as government bond purchases. Weidmann said Soros’s charge that the Bundesbank is preparing for the end of the euro is “ridiculous.” “We shouldn’t get so excited about bond yields rising for a limited period of time,” Weidmann said. “They also constitute an incentive to reform, to embark on consolidation.”
Weidmann Says ECB Firepower Is Limited, Governments Must Act (Source: Bloomberg)
European Central Bank council member Jens Weidmann said calls for the central bank to do more to fight the sovereign debt crisis overestimate its capacity. “Monetary policy is not a panacea and central bank firepower is not unlimited, especially not in a monetary union,” Weidmann said in a speech in New York today. “We can only win back confidence if we bring down excessive deficits and boost competitiveness. And it is precisely because these things are unpopular that makes it so tempting for politicians to rely instead on monetary accommodation.” ECB policy makers have brushed off demands from the International Monetary Fund and the U.S. for more action to stem the debt crisis, as markets push Spain’s borrowing costs toward levels that prompted Greece, Ireland and Portugal to seek international bailouts. The Frankfurt-based ECB has already cut interest rates to a record low and pumped more than 1 trillion euros ($1.3 trillion) into the euro area’s banking system in a bid to avert a credit crunch.
Spain’s 10-year bond yields rose to almost 6 percent today as the government struggles to convince investors it can shore up banks without overburdening public finances. Weidmann said delays in implementing announced deficit cuts and reforms risk damaging “confidence in policy makers’ ability to get to the root of the crisis.”
Draghi’s ECB Rejects Geithner-IMF Push for Measures (Source: Bloomberg)
European Central Bank officials led by President Mario Draghi resisted calls from the International Monetary Fund and U.S. Treasury to do more to stem the debt crisis roiling the euro-area economy. As talks of global finance chiefs ended yesterday in Washington, euro-area central bankers from Draghi to Bundesbank President Jens Weidmann argued they have done enough by cutting interest rates and issuing more long-term bank loans. “None of the advice that the IMF is offering has been discussed by the Governing Council, in recent times at least,” Draghi said on April 20 while attending IMF meetings in Washington. Weidmann said in an interview that “the problems in Europe can’t be solved by monetary policy measures.”
Officials in Europe and around the world are bickering about additional crisis-calming steps, as turmoil returns to the continent’s bond market amid concern that Spain may need a bailout. While Draghi says Spain and Italy need to agree further action, Prime Minister Mariano Rajoy’s government wants the ECB to reactivate its bond-buying program.
Italy Consumer Confidence Plunges to Record Low in April (Source: Bloomberg)
Italian consumer confidence plunged to the lowest in more than 15 years in April as Prime Minister Mario Monti’s austerity drive deepens the recession in Europe’s fourth-biggest economy. The confidence index declined to 89, the lowest since the series began in 1996, from a revised 96.3 in March, national statistics office Istat said in Rome today. Economists forecast a reading of 96.2, according to the median of 12 estimates in a Bloomberg News survey. “The drop is due to a technical correction after the rise seen in the previous months and to the fact that consumers are starting to become more aware of the negative effects of the austerity measures in the short term”, Annalisa Piazza, a strategist at Newedge Group in London, said by phone. “None of the sub-indexes give encouraging signals,” she added.
Monti is implementing 20 billion euros ($26.5 billion) of spending cuts and tax hikes to fight the debt crisis. The measures, which will also lower pensions, have brought record gasoline prices and helped push the economy into its fourth recession since 2001. Italy will shrink 1.2 percent this year and joblessness at an 11-year high of 9.3 percent won’t start falling until 2013, the government forecast last week.
European Services, Manufacturing Shrink for Third Month: Economy (Source: Bloomberg)
Euro-area services and manufacturing output declined for a third month in April as the economy struggled to rebound from a fourth-quarter contraction. A euro-area composite index based on a survey of purchasing managers in both industries fell to 47.4, a five-month low, from 49.1 in March, London-based Markit Economics said in an initial estimate today. Economists had forecast an increase to 49.3, according to the median of 17 estimates in a Bloomberg News survey. A reading below 50 indicates contraction. Budget cuts by governments and surging unemployment are curbing the pace of Europe’s economic recovery as officials across the region battle the sovereign-debt crisis. Manufacturers from Europe to China have been buffeted as the fiscal squeeze has crimped demand.
“Not only does it look highly likely that the euro zone suffered further economic contraction in the first quarter of 2012 after gross domestic product fell 0.3 percent quarter-on- quarter in the fourth quarter of 2011, but the April purchasing managers’ surveys suggest that a third quarter of GDP contraction is firmly on the cards for the second quarter of 2012,” said Howard Archer, an economist at IHS Global Insight in London.
Aussie’s Rise, Rates Won’t Derail Growth, Deloitte Says (Source: Bloomberg)
Australia’s “deadly duo” of sustained strength in the currency and the highest interest rates among major developed economies won’t derail the nation’s mining fueled economic growth, Deloitte Access Economics said. “The two-speed split in Australia’s economy, which was already large, is getting larger still,” Chris Richardson, a partner at Deloitte Access Economics, said in a statement. “Yet that doesn’t stop the overall outlook for growth still looking rather better than most people realize.” He said more optimism about Europe increases the likelihood the Reserve Bank of Australia will disappoint businesses and families on the scale of rate cuts. “Chances are it will nudge rates down a notch, given that the big banks have done some nudging of their own in the other direction, and as the inflation outlook looks less of a worry,” Richardson said.
RBA Governor Glenn Stevens signaled this month that the next rate reduction hinges on a report today on first-quarter inflation, as recent data indicates the economy is growing slower than the central bank predicted. Australia’s consumer price index is scheduled for release at 11:30 a.m. in Sydney. The RBA decided against lowering borrowing costs at its three meetings this year as the global recovery stabilizes and a mining boom sustains growth.
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