Asian Stocks Poised to Erase 2012 Gains on U.S., Greece (Source: Bloomberg)
Asian stocks fell, with the regional benchmark index poised to erase this year’s gains, after U.S. economic data missed estimates and ratings agencies downgraded Spanish banks and Greece as Europe’s debt crisis deepens. Samsung Electronics Co. (005930), a consumer-electronics maker that gets about a fifth of its revenue in America, dropped 3.3 percent in Seoul. Japanese machinery makers plunged in Tokyo after sales growth slowed at Caterpillar Inc., the largest maker of construction and mining equipment. GCL-Poly Energy Holdings Ltd. (3800), a maker of polysilicon used in solar panels, may be active today in Hong Kong after saying its production volume more than doubled in the first-quarter. “If policy makers don’t step in, the costs will be even higher to find a real solution in Europe,” said Diane Lin, a fund manager who helps manage $1 billion in equities at Pengana Capital Ltd. in Sydney. “We remain very cautious. The politicians have still not got the message.”
The MSCI Asia Pacific Index (MXAP) slid 1.5 percent to 113.71 as of 9:54 a.m. in Tokyo, with only 20 stocks rising on the 1005- member gauge. The index is headed for a 4.1 percent drop for the week, its third-straight week of declines and the longest streak since November. The gauge fell before markets in Hong Kong and China open.
Japan Stocks Poised for Longest Loss Streak Since 2001 (Source: Bloomberg)
Japanese stocks fell, with the Topix Index headed for the longest streak of weekly losses since 2001, after U.S. economic data missed estimates and a rating cut of Spanish banks fueled concern Europe’s debt crisis is deepening, clouding the outlook for exporters. Sony Corp. (6758), Japan’s No. 1 exporter of consumer electronics that depends on Europe and the U.S. for 38 percent of its revenue, fell 3.9 percent. Hitachi Construction Machinery Co. (6305) led machinery makers lower after industry bellwether Caterpillar Inc. said its sales growth slowed. Mizuho Financial Group Inc. (8411), Japan’s third-largest bank by market value, paced losses among banks, dropping 2.5 percent. The Topix index dropped 2.4 percent to 729.32 as of 9:32 a.m. in Tokyo, having fallen 3.8 percent this week, its seventh week of decline. The measure has dropped for seven consecutive weeks only twice since November 1977, in 2001 and 1995.
The Nikkei 225 Stock Average (NKY) lost 2.2 percent to 8,681.27. The measure is down 3 percent on the week, also heading for a seven-week loss.
S&P 500 Tumbles to Four-Month Low Amid Economic Reports (Source: Bloomberg)
The Standard & Poor’s 500 Index (SPX) tumbled to a four-month low on disappointing economic data and concern that credit ratings for Spanish banks would be cut. Nine out of 10 S&P 500 groups fell amid weaker-than- forecast data on manufacturing in the Philadelphia region and U.S. leading indicators. Caterpillar Inc. (CAT) and JPMorgan Chase & Co. slid at least 4.3 percent to pace losses in the largest companies. Apple Inc. (AAPL) sank 2.9 percent, sending its market value below $500 billion. Facebook Inc. (FB) raised $16 billion in the biggest initial public offering by a technology company in history, pricing shares at the top end of an increased range.
The S&P 500 fell 1.5 percent to 1,304.86 at 4 p.m. New York time. The Dow Jones Industrial Average slid 156.06 points, or 1.2 percent, to 12,442.49. The Nasdaq-100 Index sank 2.1 percent to 2,509.05, falling for an eighth day in the longest slump since 2010. The Russell 2000 Index (RTY) of small companies slipped 2.3 percent to 754.33. About 8.3 billion shares changed hands on U.S. exchanges, or 24 percent above the three-month average. “Investors are de-risking,” said Tim Hoyle, the director of research at Radnor, Pennsylvania-based Haverford Trust Co., which manages about $6.5 billion. “They look at a global situation that appears to be degrading, not improving.”
Bovespa Enters Bear Market as Global Economy Concern Deepens (Source: Bloomberg)
The Bovespa index plunged into a bear market on concern a worsening global economy will curb demand for Brazilian exports after a quarter in which most companies reported earnings that trailed estimates. The benchmark slid 3.3 percent to 54,038.20 at the close of trading in Sao Paulo, extending its drop to 21 percent from a bull-market high on March 13. The measure had jumped 41 percent from an Aug. 8 low through that day. The real fell 0.4 percent today to 2.0087 per U.S. dollar, the weakest level since July 2009. Concern that Europe’s sovereign debt crisis is deepening while economic growth slows in China is pushing stocks lower across emerging markets. MSCI Inc.’s index of the so-called BRIC countries fell 1.4 percent today, extending its drop from this year’s high to more than 20 percent as well. Russia’s Micex Index entered a bear market on May 17.
“What’s been really impacting the market in the past few weeks is Europe more than anything else,” Greg Lesko, who manages $700 million at Deltec Asset Management in New York, said in a phone interview. “There were some disappointments in first-quarter earnings, but most of what’s going on right now is related to global risk aversion.”
European Stocks Drop as ECB Pauses Greek Bank Lending (Source: Bloomberg)
European stocks declined for a fourth day as the region’s central bank paused lending to some Greek banks and speculation mounted that Spanish banks may have their credit ratings cut at Moody’s Investors Service. Bankia SA (BKIA) sank 14 percent after a report that depositors withdrew 1 billion euros ($1.27 billion) in the past week. Cookson Group Plc (CKSN) rose the most in six weeks after saying it’s considering a separation of its main divisions. The Stoxx Europe 600 Index (SXXP) dropped 1.1 percent to 241.63 at the close of trading, for the longest losing streak since March 22, even as the Federal Reserve signaled further monetary easing remains an option if the U.S. economy worsens. The gauge has retreated to the lowest level since Dec. 28 on mounting concern that Greece will leave the euro area.
“If Greece falls, we’ve got big trouble in Europe and nobody knows what will happen then with Spain, with Italy, with Portugal,” said Andreas Lipkow, an equity trader at MWB Fairtrade Wertpapierhandelsbank AG in Frankfurt. “Then it doesn’t really matter if the Fed pumps more money into the market and tries to push up the U.S. economy because the trouble in Europe will overshadow everything.”
Stocks Drop on Europe, Manufacturing Data as Gold Rallies (Source: Bloomberg)
Stocks sank, dragging the Standard & Poor’s 500 Index to a four-month low, as concern grew about the health of Spanish banks and an U.S. gauge of manufacturing trailed projections. Gold rebounded from its lowest level of the year while 10-year Treasury yields approached a record low. The S&P 500 tumbled 1.5 percent to close at 1,304.86 at 4 p.m. New York time and the Dow Jones Industrial Average slid 156 points. The Stoxx Europe 600 Index (SXXP) lost 1.1 percent, while Russian and Brazilian stocks entered bear markets. U.S. notes gained as a $13 billion auction of 10-year Treasury Inflation Protected Securities drew a record low negative yield. The Dollar Index (DXY) climbed for a record 14th straight day. Oil fell to a six-month low, while gold surged the most since October.
Concern about Europe’s debt crisis deepened as two people familiar with the situation said Moody’s Investors Service was set to downgrade the credit ratings of Spanish banks, with the ratings firm confirming the cuts after U.S. markets closed. The Federal Reserve Bank of Philadelphia’s general economic index decreased to minus 5.8 in May, indicating an unexpected contraction in manufacturing. The index of leading economic indicators dropped in April for the first time in seven months. “It’s a double whammy,” James Paulsen, the chief investment strategist at Minneapolis-based Wells Capital Management, said in a telephone interview. His firm oversees about $333 billion of assets. “Not only do we have continued scary European news, we’ve got weak economic data in the U.S. today. We’re going to bounce around for a while.”
GLOBAL MARKETS-Greek fears pressure shares, Spanish debt sale eyed
LONDON, May 17 (Reuters) - The euro hovered near four-month lows while European shares dipped, with investors expected to avoid riskier assets due to the deepening turmoil in Greece and fears of contagion to other stressed euro zone economies.
"There is a severe reluctance to take on additional risk in the European region, people are more likely to look at U.S. and some parts of Asia," said Neil Marsh, strategist at Newedge.
Treasury Yield Is 3 Basis Points From Low on Euro Crisis (Source: Bloomberg)
Treasury 10-year yields, the benchmark for everything from corporate bonds to mortgages, were three basis points from the record low as Europe’s fiscal crisis drove demand for the relative safety of U.S. debt. Yields indicate investors are cutting bets on inflation. The difference between two- and 10-year rates narrowed to 1.39 percentage points yesterday. It was the least since the end of 2008. The spread between rates on 10-year notes and same- maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, narrowed to 2.04 percentage points yesterday from this year’s high of 2.45 percentage points in March. “The U.S. is the favorite safe haven,” said Hiromasa Nakamura, who helps oversee the equivalent of $41.4 billion as an investor for Mizuho Asset Management Co. in Tokyo. “There’s a flight to quality. The world economy is declining. Recently the rally has gained strength.”
FOREX-Euro pauses descent, but vulnerable to fresh falls
LONDON, May 17 (Reuters) - The euro held above a four-month low, taking a breather from a sharp sell-off, although gains are likely to be checked by worries about the solvency of some Greek banks that are adding to fears the country may exit the euro zone.
"The market is pricing in a lot of bad news and weaker euro zone structural issues, so there is a chance that the euro will be taking a breather," said Geoffrey Yu, currency strategist at UBS. "Also, the Fed is split and further QE is still being considered, so that should offer some support to the euro."
Euro Touches 4-Month Low After Fitch Downgrades Greece (Source: Bloomberg)
The euro touched a four-month low, extending declines to a third-straight week, amid concern Europe’s sovereign-debt crisis is worsening. The 17-nation currency was 0.2 percent from a three-month low versus the yen after Fitch Ratings downgraded Greece’s long- term credit rating to CCC from B-, citing heightened risk that the nation may not be able to sustain membership in the monetary union. The euro also fell as rising borrowing costs in Spain spurred speculation the crisis is spreading from Greece. Japan’s currency rose against all of its most-traded peers this week as Asian stocks extended a global equity rout. “The market’s very concerned about contagion and Spain probably being the biggest focus of attention after Greece,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “If the euro breaks $1.26, there’s probably not a lot of stops going to the lows that we saw in 2010.”
Junk-Debt ETFs Set Markets ’Abuzz’ After Record Trades (Source: Bloomberg)
The largest trades on record in shares of two exchange-traded funds that invest in junk debt are attracting attention to the four-year-old market that allows anyone from banks to retirees fast and discreet access to speculative-grade bonds and loans. The transactions were completed hours before JPMorgan Chase & Co. disclosed $2 billion of trading losses tied to credit derivatives, an announcement that has heightened awareness of big trades in debt markets. Shares of an Invesco Ltd. ETF that invests in leveraged loans had a record one-day inflow on May 10 that boosted its shares outstanding by 25 percent, according to data compiled by Bloomberg. The same day, an investor used State Street Corp. (STT)’s ETF of junk bonds to anonymously obtain as much as $780 million of the debt by swapping shares of the fund.
“Markets are abuzz” over the State Street ETF trade that allowed an unidentified investor to avoid moving prices in the privately negotiated debt market, New York-based CreditSights Inc. analysts Chris Taggert and Nathan Wenger wrote in a report yesterday.
Facebook Raises $16 Billion in Record Technology Offering (Source: Bloomberg)
Facebook Inc. (FB) raised $16 billion in the biggest initial public offering by a technology company in history, pricing the shares at the top end of an increased range. The social network sold 421.2 million shares at $38 each, a statement today shows. That values Facebook at $104.2 billion, making it the largest company to go public in the U.S. by market capitalization, according to data compiled by Bloomberg and Dealogic. Facebook, led by 28-year-old Mark Zuckerberg, this week expanded the IPO to meet demand, allowing investors Goldman Sachs Group Inc. and Accel Partners to reap more gains. “My feeling is they could have gone higher, but they wanted to leave some room for upside tomorrow,” said Arvind Bhatia, an analyst with Sterne, Agee & Leach Inc. in Dallas. “The demand was obviously quite strong so I think it’s the right move.”
The offering marks the culmination of Facebook’s evolution in less than a decade from a Harvard University dorm-room project into a social network with more than 900 million users. While Zuckerberg persuaded investors to buy the shares at a higher price-to-earnings multiple than almost every company in the Standard & Poor’s 500 Index, he now faces stemming slowing sales growth after profit fell 12 percent last quarter.
Confidence Sinks as U.S. Job Market Progress Stalls: Economy (Source: Bloomberg)
Consumer confidence fell last week to the lowest level in almost four months and more people than forecast filed claims for unemployment benefits, showing a lack of progress in the job market is rattling Americans. The Bloomberg Consumer Comfort Index dropped in the week ended May 13 to minus 43.6, a level associated with recessions or their aftermaths, from minus 40.4 in the previous period. Jobless applications were unchanged at 370,000 in the week ended May 12, Labor Department figures showed today in Washington. Diminishing employment gains, falling stock prices and the prospect of government gridlock over the budget heading into the November presidential election may continue to hurt household sentiment. The lack of a sustained rebound in hiring damps the outlook for consumer spending, which accounts for about 70 percent of the world’s largest economy.
“A mix of policy questions and some ongoing softness in employment growth” is weighing on confidence, said Sam Coffin, an economist at UBS Securities LLC in Stamford, Connecticut. “We’re hearing more and more about fiscal negotiations. Last year that talk seemed to derail confidence, and that’s coming up as a topic again.” Coffin and the UBS team, led by Maury Harris, were the most accurate in forecasting the unemployment rate for the two years through April, according to data compiled by Bloomberg.
U.S. Solar Tariffs on Chinese Cells May Boost Prices (Source: Bloomberg)
The U.S. yesterday imposed tariffs of as much as 250 percent on Chinese-made solar cells to aid domestic manufacturers beset by foreign competition, though critics said the decision may end up raising prices and hurting the U.S. renewable energy industry. The U.S. Commerce Department ruled that Chinese manufacturers sold cells in the U.S. at prices below the cost of production and announced preliminary antidumping duties ranging from 31 percent to 250 percent, depending on the manufacturer. The decision is meant to provide a boost to the U.S. solar manufacturing industry, where four companies filed for bankruptcy in the past year. The tariffs will probably inflame trade tensions and drive up prices for solar projects in the U.S., according to Shyam Mehta, an analyst with GTM Research in Boston. The duties may prompt Chinese companies to shift production to other countries to evade the duties.
“China-based manufacturers would certainly have to raise U.S. prices to turn a profit,” Mehta said in a statement. “This is likely to lead to module price increases in the U.S., which would serve to dampen demand and installation growth.” The Commerce Department sided with companies including the U.S. unit of SolarWorld AG (SWV), which had argued that Chinese companies benefit from government subsidies, allowing them to sell solar products below cost.
Fed Board Nominees Powell, Stein Win Senate Confirmation (Source: Bloomberg)
The U.S. Senate today confirmed President Barack Obama’s two nominees to the Federal Reserve Board with both receiving the support of at least 70 senators. The Senate voted 70-24 to confirm the nomination of Jeremy Stein, a Harvard University professor and 74-21 to confirm Jerome Powell, an attorney and private equity investor who was a Treasury undersecretary for President George H.W. Bush. Senate Majority Leader Harry Reid, a Democrat from Nevada, said the $2 billion trading loss announced last week at JPMorgan Chase & Co. (JPM) prompted his decision to push the nominations through and bolster the Fed’s regulatory expertise with the nominees, experts in financial markets.
Powell and Stein won approval in March from the Senate Banking Committee over the opposition of Republican Senators James DeMint of South Carolina and David Vitter of Louisiana. Vitter demanded a vote on the nominees in the full chamber, saying today on the Senate floor that Powell and Stein would probably back the “very dangerous” Fed policy of keeping interest rates near zero.
Mortgage Rates in U.S. Fall to Record Lows With 30-Year at 3.79% (Source: Bloomberg)
Mortgage rates in the U.S. fell to a record for a third straight week, reducing borrowing costs as the housing market improves and home-loan defaults decline. The average rate for a 30-year fixed loan dropped to 3.79 percent in the week ended today from 3.83 percent, Freddie Mac said in a statement. It was the lowest in the McLean, Virginia- based mortgage-finance company’s data dating to 1971. The average 15-year rate decreased to 3.04 percent, also a record, from 3.05 percent. Record-low mortgage rates, combined with job gains and lower-priced homes, are helping to lift housing demand and stabilize the real estate market. Housing affordability reached a new high in the first quarter and sales of previously owned homes rose 5.3 percent from a year earlier, data from the National Association of Realtors show. The share of home loans at least 30 days late dropped to 7.4 percent, the lowest since 2008, the Mortgage Bankers Association said yesterday.
Low borrowing costs are encouraging homeowners to reduce their monthly bills. The mortgage bankers’ measure of refinancing applications jumped 13 percent in the week ended May 11, the mortgage-banking group said yesterday. The gauge of purchases declined 2.4 percent.
Consumer Comfort in U.S. Drops to Nearly a Four-Month Low (Source: Bloomberg)
Consumer confidence dropped last week to the lowest level since the end of January as slower U.S. job growth contributed to pessimism about personal finances and spending. The Bloomberg Consumer Comfort Index fell in the week ended May 13 to minus 43.6, a level associated with recessions or their aftermaths, from minus 40.4 in the previous period. The monthly expectations measure was little changed as Americans see scant improvement in the world’s largest economy. The fourth straight decline in weekly confidence comes even as gasoline prices have retreated from an 11-month high reached in early April. The figures underscore the need for stronger job and wage gains that would help propel household spending, which accounts for about 70 percent of the economy.
“The lagged impact of rising food and fuel prices early in 2012 and a slower pace of hiring amid a decelerating economy are the likely culprits behind the near reversal of gains in consumer comfort observed through the first quarter,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “The ability of the household to reassert its place as the primary driver of growth during the current business cycle remains limited due to modest job growth and incomes.”
Japan Housing Finance Sells 45 Billion Yen 10, 15-, 20-Year Debt (Source: Bloomberg)
Japan Housing Finance Agency sold 45 billion yen of bonds, according to an e-mailed statement from Nomura Holdings Inc. The offering includes 10 billion yen of 0.887 percent 10- year notes, 15 billion yen of 1.441 percent 15-year debt and 20 billion yen of 1.747 percent 20-year bonds, it said.
H.K. Should End Bourse Monopoly If LME Won, Rival Says (Source: Bloomberg)
Hong Kong Exchanges & Clearing Ltd., one of three remaining bidders for the London Metal Exchange, should lose government protections against competition if it begins commodities trading, Hong Kong Mercantile Exchange Chief Operating Officer William Barkshire said. Hong Kong Exchanges, Intercontinental Exchange Inc. and CME Group Inc. are the remaining contenders for the LME, which handles more than 80 percent of global metals futures, after NYSE Euronext, the biggest U.S. exchange owner, was removed from the bidding. The Chinese bourse was overtaken as the world’s largest market company by CME Group this year and is seeking to broaden its business as the pipeline of large initial public offerings from the mainland slows.
“In the event that HKEx competes with others in commodities and other asset classes either via the potential acquisition of the LME or organic growth, it is only right that as a condition the authorities should remove its favored nation status,” said Barkshire, who was previously director of strategy at the London Stock Exchange. No other bourses or alternative venues may compete with Hong Kong’s main public exchange without government approval, according to the city’s Securities and Futures Ordinance. The only approved equity platforms have been so-called dark pools, trading venues that don’t display prices and in Hong Kong exclude retail investors.
Thai GDP Contraction Eased on Post-Flood Recovery, Survey Shows (Source: Bloomberg)
Thailand’s economic contraction probably eased in the first quarter as factories resumed production and tourists returned after the worst floods in almost 70 years, adding scope for interest-rate increases. Gross domestic product shrank 0.9 percent in the three months through March from a year earlier, according to the median of 15 estimates in a Bloomberg News survey. That compares with a 9 percent contraction in the previous quarter. The report is due May 21 in Bangkok. The Bank of Thailand last week raised its economic growth forecast for 2012 to 6 percent, and Governor Prasarn Trairatvorakul said earlier the monetary authority will refrain from further rate cuts because the pace of recovery is exceeding its expectations. Honda Motor Co. on March 31 said its plant in Ayutthaya province, which was shuttered after last year’s floods, will now run at full capacity to meet market demand.
“Thailand’s V-shaped economy is proceeding nicely,” said Frederic Neumann, Hong Kong-based co-head of Asian economic research at HSBC Holdings Plc. “Growth will be powered by rebounding investment and industrial activities, as well as consumption. All this comes at a cost. Inflation pressures are inevitably rising and we expect the central bank to hike the rate in the fourth quarter.”
Euro Falls to Four-Month Low as Spain’s Debt Costs Rise (Source: Bloomberg)
The euro fell to a four-month low as Spain’s borrowing costs rose at an auction, stoking concern that the region’s financial contagion is spreading from Greece. Europe’s shared currency remained lower against most of its major counterparts after Fitch Ratings downgraded Greece’s long- term credit rating to CCC from B-, citing heightened risk that the nation may not be able to sustain membership in the monetary union. The yen extended its gain against the dollar after data showed U.S. jobless claims for unemployment benefits were unchanged last week and another report showed Philadelphia-area manufacturing decreased in May. “There’s a lot of uncertainty about where Europe is headed on the political front, and markets are trading the uncertainty, which means that risky asset prices will fall,” said Aroop Chatterjee, a currency strategist at Barclays Plc’s Barclays Capital unit in New York. “There are some headwinds for dollar- yen, given that the U.S. economy has been giving mixed signals.”
The euro fell 0.1 percent to $1.2698 at 5 p.m. New York time after touching $1.2667, the weakest level since Jan. 17. The shared currency declined 1.4 percent to 100.68 yen. It earlier fell to 100.56 yen, the lowest since Feb. 7. The yen strengthened 1.3 percent to 79.28 per dollar after reaching 79.14, the strongest since Feb. 17.
Greece Heads to Elections With Euro, Bailout at Stake (Source: Bloomberg)
The leaders of Greece’s two biggest parties clashed over how the country could stay in the euro, underscoring the political deadlock that triggered the decision to hold a second national vote in six weeks. The conflict between Syriza leader Alexis Tsipras, who opposes the austerity demanded by the European Union bailout, and Antonis Samaras, leader of New Democracy, points to the June 17 vote as a referendum on Greece staying in the 17-nation currency bloc. Nobody knows exactly what will be unleashed when Greece does default and exit,” Megan Greene, an economist at Roubini Global Economics LLC said on Bloomberg TV today. “We’re already seeing deposits flee from Greece. When Greece does exit, we’ll see bank runs in Portugal and Spain, and I think that the ECB is poised to step in and try to plug that gap.”
The new vote follows inconclusive elections on May 6 that propelled Syriza into second place. Opinion polls say Syriza may come in first next time, complicating Greece’s efforts to avoid running out of cash by early July.
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