Tuesday, June 12, 2012

20120612 1011 Global Market Related News.

Asian Stocks Decline on Doubt Over Spain’s Bailout Plan (Source: Bloomberg)
Asian stocks fell as surging Spanish bond yields stoked concern that a bailout for the nation’s banks won’t tame the European debt crisis. Canon Inc. (7751), a camera maker that gets about 31 percent of sales from Europe, slipped 2 percent in Tokyo. Mitsubishi Chemical Holdings Corp. fell 2.9 percent after saying it will halt production at its ethylene and benzene plant as part of structural reforms. BHP Billiton Ltd., the world’s biggest mining company and Australia’s largest oil producer, lost 1.1 percent in Sydney as crude and copper futures declined. The MSCI Asia Pacific Index (MXAP) fell 0.8 percent to 112.61 as of 9:40 a.m. in Tokyo, with more that six shares sliding for each that rose. The gauge dropped 12 percent from its peak this year on Feb. 29 through yesterday amid concern economic growth is slowing in China and the U.S. and as Europe’s debt crisis intensified.
“There appears to be plenty of cynicism,” said George Boubouras, Melbourne-based head of investment strategy at UBS AG’s Australian wealth-management unit. The Swiss bank has about $1.5 trillion in assets under management. “Spain will remain the focus for a few days as markets review all possible outcomes and implications for other troubled euro-zone members. More firewalls will be required for other euro-zone countries.”

U.S. Stocks Retreat, Treasuries Gain on Spain Skepticism (Source: Bloomberg)
Asian stocks fell, after yesterday rising the most in four months, and oil dropped to its lowest since October on skepticism Spain’s 100 billion euro ($125 billion) bailout will halt the debt crisis. The yen rose. The MSCI Asia Pacific Index fell 0.8 percent as of 9:28 a.m. in Tokyo, where the Nikkei 225 Stock Average (NKY) lost 1.7 percent. Futures on the Standard and Poor’s 500 Index were little changed. Oil futures slumped as much as 2 percent, while copper slid 1.1 percent. The yen climbed against all of its major counterparts. Spanish and Italian bond yields surged yesterday as investors turned their attention to debt auctions in Italy this week and elections on June 17 that may determine whether Greece stays in the euro. In China, new loans exceeded economist estimates in May, signaling support for investment projects that will help counter a slowdown in Asia’s biggest economy.
“It used to be after one of these bailouts you’d get a month’s worth of good reaction, now $100 billion buys you 24 hours,” said Andrew Pease, Sydney-based chief investment strategist at Russell Investment Group, which manages about $150 billion. “The bond market is now demanding more integration and the focus is coming back to growth. Nobody is looking to go back into risk-on positions until they see how Greece plays out.”

U.S. Stocks Drop as Optimism About Spain Bailout Fades (Source: Bloomberg)
U.S. stocks fell, following the biggest weekly rally in the Standard & Poor’s 500 Index this year, as optimism over Spain’s bailout plan gave way to skepticism it will succeed in halting the debt crisis. Equities extended losses as Apple Inc. (AAPL), the world’s most valuable company, slumped 1.6 percent after updating its MacBook line of laptops and announcing new iPhone features. Bank of America Corp. (BAC) and Morgan Stanley slid at least 2.4 percent. AK Steel Holding Corp. lost 14 percent as Goldman Sachs Group Inc. said there is “no relief in sight” for a drop in the metal.
The S&P 500 fell 1.3 percent to 1,308.93 at 4 p.m. New York time, after futures on the index surged as much as 1.5 percent following Spain’s request. It climbed 3.7 percent last week. The Dow Jones Industrial Average lost 142.97 points, or 1.1 percent, to 12,411.23. The Russell 2000 Index of small companies slid 2.4 percent. The Nasdaq Composite Index lost 1.7 percent. Trading volume for exchange-listed stocks in the U.S. was about 6.1 billion shares, 9.5 percent below the three-month average.

Japan Stocks Fall as Optimism Fades on Spain Bank Bailout (Source: Bloomberg)
June 12 (Bloomberg) -- Japan stocks fell, paring gains from yesterday’s rally, as surging Spanish bond yields stoked concern a bailout for the nation’s banks won’t ease Europe’s debt crisis. Nippon Sheet Glass Co. (5202), which gets 39 percent of its sales in Europe, lost 6 percent. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest lender, dropped 2 percent. Nissei Build Kogyo Co., a builder of houses and parking lots, surged 9.8 percent on a share buyback plan. The Nikkei 225 Stock Average (NKY) dropped 1.9 percent to 8,465.41 as of 9:16 a.m. in Tokyo, retreating from its 2 percent advance yesterday, the biggest gain since April 18. The broader Topix Index lost 1.7 percent to 718.03 with 32 of 33 of its industry groups declining. Stocks also fell ahead of a Greek election on June 17 which may determine whether the nation exits the euro.
“It used to be after one of these bailouts you’d get a month worth of good reaction, now $100 billion buys you 24 hours,” said Andrew Pease, Sydney-based chief investment strategist at Russell Investment Group, which manages about $150 billion. “The bond market is now demanding more integration and the focus is coming back to growth. Nobody is looking to go back into risk-on positions until they see how Greece plays out.”

European Stocks Erase Gain in Final Hour; Banks Retreat (Source: Bloomberg)
European stocks erased gains in the final hour of trading, led by a selloff in Spanish and Italian lenders, as optimism faded that Spain’s 100 billion euro ($125 billion) bank bailout will contain the sovereign debt crisis. Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA) erased gains after Fitch Ratings Services downgraded Spain’s two biggest lenders. UniCredit SpA and Intesa Sanpaolo SpA (MB) both tumbled more than 5 percent as bond yields rose. Volkswagen AG (VOW) paced advancing shares. The Stoxx 600 was little changed at 241.92 at the close of trading after rallying as much as 1.9 percent earlier. The gauge climbed 2.9 percent last week after China cut interest rates and the European Central Bank said it’s ready to add more stimulus if the economy worsens.
“We are not prepared to add risk at this stage,” said Bill O’Neill, chief investment officer for Europe, the Middle East and Africa at Merrill Lynch Wealth Management, on Bloomberg Television. “Getting the deal right in Spain is the key litmus test of success with turning the euro crisis around.”

Wien Unbowed by U.S. Shares Slump Joins Birinyi Seeing Rally (Source: Bloomberg)
The $1 trillion erased from U.S. equities in May has left bulls from Byron Wien to Laszlo Birinyi and Jonathan Golub unbowed in their predictions that the rally in shares will continue. Blackstone Group LP’s Wien, who foresaw the bear market’s end in 2009, said the Standard & Poor’s 500 Index’s biggest monthly retreat since September lowered investment sentiment so much that it’s safe to buy. Birinyi, president of Birinyi Associates Inc., and Golub, the chief U.S. market strategist at UBS AG, say the largest first-quarter rally in 14 years left shares due for a decline and that gains will resume. For a third straight year, losses in May have heightened concern that the slowest U.S. recovery from any recession in seven decades is fizzling out. While the 6.3 percent decrease in the S&P 500 was enough for Birinyi to say he’s “tempering” his enthusiasm, Wien said declining forecasts for economic growth have aligned investor expectations with reality and more disappointments are unlikely.
“The best time to buy stocks is when people hate them and they sure hate them now,” said Wien, the New York-based vice chairman of the advisory services unit at Blackstone whose forecast that the S&P 500 would exceed 1,400 in 2012 came true on March 15. Blackstone has $190 billion under management. “Who would’ve thought that 2 percent growth would be impressive? But that’s what we have. Everybody’s bearish.”

Yen Gains Versus Peers Before Italy Debt Sale, Greek Vote (Source: Bloomberg)
The yen climbed against all of its major counterparts amid concern the bailout of Spain’s banks will move Italy to the forefront of the debt crisis, spurring demand for the Japanese currency as a haven. The 17-nation euro remained lower versus the dollar following a three-day slide before Italy auctions debt this week and Greeks vote in a general election on June 17. The euro climbed early yesterday after Spain asked European governments for as much as 100 billion euros ($125 billion) to save its banking system, making it the fourth member of the currency bloc to seek a rescue. “There is no conviction and there is no belief that things are going to get better” in the euro region, said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “This is the reason we’re seeing the U.S. dollar and yen so well bid.”
The yen climbed 0.3 percent to 98.86 per euro as of 10 a.m. in Tokyo from the close in New York yesterday. It gained 0.3 percent to 79.20 against the dollar. The euro traded at $1.2483 after falling 0.3 percent to $1.2482 yesterday. Italy’s 10-year debt dropped yesterday as the yields climbed 26 basis points, the most since Dec. 8, to 6.03 percent. The nation is scheduled to auction securities on June 14 maturing in 2015, 2019 and 2020.

Aussie, Kiwi Dollars Fall Versus Yen on Euro Debt-Crisis Concern (Source: Bloomberg)
The Australian and New Zealand dollars fell against the yen for a second day as share gains evaporated following a bailout of Spain’s banks amid concern Italy will be come the next focus of Europe’s debt crisis. Australia’s bonds rose as Asian stocks extended a global rout before Italy sells debt this week and Greeks vote in a general election on June 17. National Australia Bank Ltd. (NAB) releases its business confidence survey for May today. Losses in New Zealand’s currency were limited after a private index showed home prices climbed last month. “Markets in New Zealand and Australia are priced for very ugly economic conditions in Europe,” said Gavin Stacey, the Sydney-based chief interest-rate strategist at Barclays Capital. “The tendency is for the Australian dollar to remain on the weak side.”
The so-called Aussie bought 78.27 yen as of 11:15 a.m. in Sydney from the close in New York yesterday, when it weakened 0.6 percent. The Aussie rose 0.2 percent to 98.78 U.S. cents from yesterday, when it declined 0.5 percent. New Zealand’s dollar slid 0.2 percent to 60.98 yen. It bought 76.96 U.S. cents from 76.91 yesterday.

Euro Drops as Spain’s Bailout Fuels Debt-Crisis Concern (Source: Bloomberg)
The euro fell against most of its major peers as Spain’s bailout spurred concern that the sovereign-debt crisis is deepening as it spreads among indebted nations before Greek elections June 17. The 17-nation currency earlier rose, touching a two-week high, after Spain asked for as much as 100 billion euros ($126 billion) to save its banking system, making it the fourth member of the currency bloc to seek a rescue. The bailout helped move Italy to the front lines of the crisis, as bets increased Europe’s third largest economy may be the next one to succumb. Norway’s krone strengthened as consumer prices rose more than economists forecast last month. “Given that we’ve decisively rejected any sustained price action above $1.26 and have a lot of unanswered questions around the Spanish bank package and the Greek elections this weekend, the near-term prognosis for the euro is not good,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. (WBC) in New York.
The euro fell 0.3 percent to $1.2482 at 5 p.m. New York time. It earlier climbed as much as 1.2 percent to $1.2671, the highest since May 23 and the biggest intraday advance since Nov. 30. The euro fell 0.3 to 99.16 yen after rising as much as 1.5 percent. The dollar declined 0.1 percent to 79.44 yen.

FOREX-Euro gains on relief at Spain aid deal
LONDON, June 11 (Reuters) - The euro rose  after Spain secured aid for its banks, allaying some of the concerns about the country's debt problems, but the currency's gains were seen limited as investors were cautious ahead of elections in Greece at the weekend.
"It is positive that politicians have reacted so quickly and ahead of the Greek elections, and this will hopefully contain the risks within the Spanish banking sector," said Niels Christensen, currency strategist at Nordea in Copenhagen.

Fed Says U.S. Wealth Fell 38.8% in 2007-2010 on Housing (Source: Bloomberg)
The median net worth of U.S. families plunged 38.8 percent from 2007 to 2010, with the biggest losses concentrated among households with the most assets tied to their homes, a Federal Reserve study shows. Median household net worth declined to $77,300 in 2010, an 18-year low, from $126,400 in 2007, the central bank said in its Survey of Consumer Finances. Mean net worth fell 14.7 percent to a nine-year low of $498,800 from $584,600, the central bank said today in Washington. “The impact has been a massive destruction of wealth all across the board,” said Lance Roberts, who oversees $500 million as chief executive officer of Streettalk Advisors LLC in Houston. “What you see is an economy that’s really very, very stressed for the bottom 60 to 70 percent of the population that’s struggling just to make ends meet.”
The declines in household wealth in the course of the longest and deepest recession since the Great Depression have held back the consumer spending that makes up about 70 percent of the economy. Fed policy makers led by Chairman Ben S. Bernanke meet next week to consider whether the central bank needs to add to its record stimulus after employment grew at the slowest pace in a year in May. The Fed has already taken unprecedented steps to boost the economy as it battled the 18-month recession that ended in June 2009, slashing its key interest rate almost to zero and purchasing $2.3 trillion in debt to lower long-term borrowing costs. Even so, the jobless rate has stayed above 8 percent since February 2009, compared with the central bank’s long-range goal of 4.9 percent to 6 percent.

Lockhart Says Lower Yields Bolster Case for No New Action (Source: Bloomberg)
Federal Reserve Bank of Atlanta President Dennis Lockhart said falling Treasury yields take pressure off the central bank for further action as policy makers prepare for a meeting next week. Lockhart, in a speech in Chicago, said recent U.S. economic data indicate the recovery may be losing steam, and that policy makers will need to take more steps to stimulate the economy if it becomes clear growth is slowing. “I don’t think any of the options should be taken off the table under the current circumstances,” Lockhart told reporters after the speech. “But I am not convinced at this moment that the circumstances quite yet call for additional action.” The Federal Open Market Committee meets June 19-20 to decide on policy with May’s unemployment rising to 8.2 percent and last month’s jobs creation the least in a year. Fed Vice Chairman Janet Yellen said last week that “stalled” improvement in the labor market and weak financial conditions could call for more accommodation.
Lockhart, who votes on the FOMC this year, said he would go into next week’s sessions with an “open mind” to review the Fed’s “very thorough” staff analysis and other participants’ views, though he was not ready to back additional action today.

Home Refinancing Boosts Florida, Nevada: Economy (Source: Bloomberg)
Harold Fuller said he’s planning a cruise with his wife to Bermuda, their first vacation in two years, after cutting his mortgage payments by $400 a month after refinancing their $212,000 home in Apopka, Florida. “The key is to have cash flow to do some additional things,” said Fuller, 65, who’s also planning more weekend trips around the state. Fuller took advantage of the government’s Home Affordable Refinance Program, which allows the refinancing of homes worth less than their mortgage. The combination of easier lending standards and record-low mortgage rates is beginning to shore up real estate markets in states where home values plunged. It has breathed new life into some regional economies as Americans spend the savings at malls and auto dealers, spurring a pickup in sales-tax receipts that is also helping replenish state coffers.
“HARP and refinancing more broadly is providing a meaningful boost to homeowners’ cash flow, particularly in the stressed housing states like Florida,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who testified last month on the program before the Senate Banking Committee. “This is going to be a big plus for stressed homeowners in very stressed markets with negative equity.”

China’s Loans Exceed Estimates in Sign Slowdown May Be Reversed (Source: Bloomberg)
China’s new lending in May exceeded analysts’ estimates and money-supply growth accelerated, aiding Premier Wen Jiabao’s efforts to reverse a slowdown in the world’s second-biggest economy. Local-currency loans were 793.2 billion yuan ($125 billion), the People’s Bank of China said on its website today. That compared with the 700 billion yuan median forecast in a Bloomberg News survey of 29 economists and 681.8 billion yuan in April. M2 money supply grew 13.2 percent last month from a year earlier, compared with an estimate of 12.9 percent. Government efforts to bolster growth span cuts in interest rates and bank reserve requirements and delays in tightening lenders’ capital requirements. Citigroup Inc. said today that the central bank has signaled “aggressive” monetary easing that may include two more interest-rate reductions this year.
“China’s economy is still on a downward trend,” Citigroup economist Ding Shuang, who formerly worked for the PBOC, told Bloomberg Television in Hong Kong today ahead of the release. “We do not see a clear turning point yet, and policy support is very much needed in order to stabilize growth.”

Jump in China Loans Helps Wen’s Efforts to End Slowdown (Source: Bloomberg)
China’s new loans exceeded estimates in May and more money went into longer-term lending, signaling support for investment projects that may help to prevent a deeper economic slowdown. Local-currency lending was 793.2 billion yuan ($125 billion), the People’s Bank of China said on its website yesterday. That was the most on record for the month of May and more than analysts’ 700 billion yuan median forecast. Loans extended for a year or more accounted for 34 percent of the total, up from 28 percent in April. Premier Wen Jiabao’s efforts to engineer a resurgence in the world’s second-biggest economy may be aided by the jump in lending and signs of resilience in exports. At the same time, industrial-output growth was close to the lowest since 2009 in May, indicating additional measures will still be needed after last week’s interest-rate cut.
“Over the past several months, investors have been concerned that a large share of loans was for short-term financing, and hence would not help boost growth as much as large investment projects,” said Zhang Zhiwei, the Hong Kong- based chief China economist at Nomura, who previously worked for the International Monetary Fund. “The rising share of medium and long-term loans in May helps address this concern.”

Malaysia Beating Hong Kong With Felda’s IPO: Southeast Asia (Source: Bloomberg)
Southeast Asia is weathering a slump in initial share sales better than markets including Hong Kong, as optimism about the region’s economic outlook draws investors to offerings in Malaysia, Thailand and the Philippines. Felda Global (FGVH) Ventures Holdings Bhd., Malaysia’s biggest plantation owner, will tomorrow set the price of an initial public offering that may raise as much as $3.2 billion. The IPO, the biggest this year after Facebook Inc.’s (FB) sale, may bring proceeds in the region to $5 billion this year, compared with $1.4 billion in Hong Kong, data compiled by Bloomberg show. With IPO markets worldwide roiled by Facebook’s plunging value and Europe’s sovereign debt crisis, Felda Global and IHH Healthcare Bhd. are pushing ahead with deals. Companies that went public in Southeast Asia since the start of last year have outperformed IPO stocks globally, helping bolster confidence in the region’s equity capital markets as China’s and India’s economies cool.
“Southeast Asia is becoming more visible and interesting to investors,” said Vineet Mishra, JPMorgan Chase & Co.’s head of equity capital markets for the region. “The strength of the local economies is driving investor interest.”

Japan Picks Stimulus Advocates for BOJ as Lawmakers Urge Action (Source: Bloomberg)
Japan’s government nominated two economists to the central bank’s board who previously signaled support for stimulus, underscoring forecasts for policy makers to expand asset purchases in coming months. Prime Minister Yoshihiko Noda’s administration yesterday tapped Takahide Kiuchi of Nomura Securities Co. and Takehiro Sato of Morgan Stanley MUFG Securities Co., pending confirmation by the Diet. The picks broke with a practice of choosing candidates from similar backgrounds to the board members they replace; the retired members had business backgrounds. The nominees would join a central bank that’s boosted its asset fund by 20 trillion yen ($252 billion) this year yet been faulted by lawmakers for failing to do enough to end deflation and stoke growth. Sato said in an interview last month the BOJ’s inflation forecast for next year was “wishful thinking,” and Kiuchi said the bank may need to cut growth and price forecasts.
“Both nominees have indicated that the BOJ has to take more actions,” said Chotaro Morita, chief strategist for fixed income at Barclays Capital Japan Ltd. “Whether they join or not, the BOJ may have to do more soon as uncertainties remain high in the global economy especially in Europe.”

S&P Says India May Be First in BRIC to Lose Investment Grade (Source: Bloomberg)
India may become the first BRIC nation to lose its investment-grade credit rating, Standard & Poor’s said, citing slowing growth and political roadblocks to economic policy making. The rupee weakened and stocks fell. “Setbacks or reversals in India’s path toward a more liberal economy could hurt its long-term growth prospects and, therefore, its credit quality,” Joydeep Mukherji, an analyst at Standard & Poor’s in New York, said in a statement today. India is rated BBB- by S&P, one level above junk and the lowest in the BRIC group, which also includes Brazil, Russia and China. Indian gross domestic product rose 5.3 percent last quarter from a year earlier, the least in nine years, stoking concern the nation’s economic prospects have deteriorated as policy gridlock deters investment and Europe’s debt crisis crimps exports. S&P lowered India’s credit outlook to negative from stable in April, contrasting with ratings upgrades in Asian nations from Indonesia to the Philippines in recent months.
“It’s another warning signal reflecting weakening growth fundamentals, and if it happens it may have a negative impact on inflows,” said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai. “The government urgently needs to take steps to reverse this negative spiral.”

Italy Moves Into Debt-Crisis Crosshairs After Spain (Source: Bloomberg)
The 100 billion-euro ($126 billion) rescue for Spain’s banks moved Italy to the front line of Europe’s debt crisis, as the country’s bonds and equities slumped on concern it may be the next to succumb. Italy’s 10-year bonds reversed early gains today in the first trading after the Spanish bailout. Their yield rose by the most in a day since Dec. 8, adding 27 basis points to 6.04 percent. Shares of UniCredit SpA (UCG), the country’s largest bank, had their steepest decline in five months. “The scrutiny of Italy is high and certainly will not dissipate after the deal with Spain,” Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London, said in an interview. “This bailout does not mean that Italy will be under attack, but it means that investors will pay attention to every bit of information before deciding to buy or to sell Italian bonds.”
Italy has 2 trillion euros of debt, more as a share of its economy than any developed nation other than Greece and Japan. The Treasury has to sell more than 35 billion euros of bonds and bills per month -- more than the annual output of each of the three smallest euro members, Cyprus, Estonia and Malta.

Spain’s Bailout Defeat Weakens Rajoy’s Deficit Goal (Source: Bloomberg)
Prime Minister Mariano Rajoy’s surrender to European officials on taking a bailout for Spain’s banks may weaken his political authority and his credibility in financial markets. Rajoy’s June 9 request for as much as 100 billion euros ($125 billion) after stating two weeks ago that Spain wouldn’t need a rescue marks a swift reversal for the premier who won the biggest majority in 30 years in November. It may fuel skepticism he can meet his deficit-cutting promises. “The emperor’s clothes are tattered,” Simon Maughan, financial strategist at Olivetree Securities Ltd., said in a telephone interview yesterday. “Unless he uses this money to attack the regions and control the failed cajas, what threads he has left will be stripped off him.”
Rajoy is trying to persuade regional leaders and voters to accept austerity, and convince bond investors the cuts will deliver the deficit goals he has pledged. Should he fail, he may have to return for a larger rescue for the Spanish sovereign, potentially draining the euro area’s financial ammunition.

Spain’s Bailout Gives Rajoy Best Chance to Fix Banks (Source: Bloomberg)
Spain’s request for as much as 100 billion euros ($125 billion) of European bailout funds may provide the country with enough money to shore up its banking system after three failed attempts in as many years. “Now that they have this money, it will hopefully finally be possible to recognize all the hidden losses and clean up the system,” Luis Garicano, a professor at the London School of Economics, said in a phone interview. The amount sought is about 2.7 times the funds deemed necessary for Spanish banks by the International Monetary Fund in a report released June 8 and five times the total requested by the Bankia group, the country’s third-biggest lender, to cleanse its balance sheet. Spain sought aid for its banks on June 9, becoming the fourth euro member to seek a bailout since the debt crisis began almost three years ago.
The rescue request followed weeks of escalating concern that bad loans at Spain’s banks might overwhelm public finances. The Spanish crisis, coinciding with the prospect of Greece exiting the euro after elections on June 17, roiled financial markets around the world, sending the euro to an almost two-year low on June 1 and raising Spanish borrowing costs to near euro- era records.

Euro Strength Seen by Stiglitz Removing Greek Debt (Source: Bloomberg)
Rather than a euro failure, an orderly Greek exit from the currency has Nobel laureate Joseph Stiglitz and Nomura Holdings Inc. chief strategist Jens Nordvig predicting a stronger and more stable monetary union. While Societe Generale SA suggests that the euro might break up because of the cost of Greece’s departure, the nation accounts for just 2.3 percent of the 17-nation trading bloc’s gross domestic product. It also has 356 billion euros ($449 billion), or 4.3 percent of the region’s total debt, according to data compiled by Bloomberg. The area’s trade deficit last year would have been a surplus without its weakest member, according to European Union data. “If you can weather the storm and haven’t put your bets too short term, probably the euro is going to go up,” Stiglitz, a professor at Columbia University and winner of the 2001 Nobel Prize in economics, said in a June 4 interview at Bloomberg’s New York headquarters. Stiglitz, 69, said losing Greece would strengthen the bloc.
“It’s likely there will survive some rump version,” centered on Germany, he said. If it includes countries such as France, the “euro would likely appreciate.” Foreign-exchange markets display little evidence of the euro being dismembered. The currency traded at $1.2603 at 9:01 a.m. in London, 53 percent above its record low of 82.30 U.S. cents in October 2000. Bond yields of Austria, Belgium, Finland, France, Germany and the Netherlands have fallen to record lows, as investor demand for their debt increases. Removing Greece from the euro would reduce the bloc’s debt-to-GDP ratio to 85.5 percent from 87.3 percent.

French Factory Output, Italian GDP Drop During Crisis (Source: Bloomberg)
French factory output dropped and Italy’s economy contracted as consumers, businesses and governments across Europe retrenched during the debt crisis. French manufacturing production fell 0.7 percent in April from March, Paris-based statistics office Insee said today, adding to concerns Europe’s second-largest economy may struggle to revive growth as the crisis deepens. Italy’s economy, the region’s third largest, shrank 0.8 percent in the first quarter as household spending and exports declined, Rome-based statistics institute Istat said in its final report on gross domestic product. The data underline the euro area’s faltering growth prospects more than two years into a sovereign debt crisis that over the weekend forced the region’s finance ministers to agree to provide as much as 100 billion euros ($126 billion) to prop up Spanish banks.
While the European Central Bank kept its benchmark rate at 1 percent on June 6, President Mario Draghi said policy makers discussed cutting the rate to a new record low af ter downside economic risks increased. “All the signs received so far point to a rapid deterioration in the economic outlook at the start of the second quarter,” said Tobias Blattner, an economist at Daiwa Capital Markets in Europe. “We expect the ECB to cut interest rates in July. Draghi has left the door wide open.”

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