Thursday, June 14, 2012

20120614 1004 Global Market Related News.

Data (Source: Reuters)
• US May Retail Sales -0.2% vs. -0.2% (revised from +0.1%), as expected
• US May Retail Sales Ex-Autos -0.4% vs. -0.3% (revised from +0.1%), expected 0.0%
• US May PPI -1.0% vs. -0.2%, expected -0.6%; Core +0.2% vs. +0.2%, as expected
• US Apr Business Inventories +0.4% vs. +0.3%, expected +0.3%
• US Apr Business Sales +0.2% vs. +0.2%
• Canada may need to raise rates this year (OECD)* Canada’s Flaherty: If need to do more to cool housing market, “We’ll do more”
• US EIA Weekly Crude Stocks -191k bbls, expected +1.4mln bbls; Gasoline -1.72mln bbls, expected +1.1mln bbls

Asian Stocks Drop on Spain Downgrade, Growth Concern (Source: Bloomberg)
Asian stocks declined as Spain’s credit rating was cut and economic reports in the U.S and Europe added to concern the global economy is slowing. Canon Inc., a camera maker that gets 31 percent of sales from Europe, lost 0.8 percent in Tokyo. Mitsui & Co Ltd., which gets about 44 percent of its revenue from commodities, slipped 1.2 percent as copper futures fell. James Hardie Industries SE (JHX), a building-materials supplier that counts the U.S. as its biggest market, decreased 2.2 percent in Sydney as retail sales in the world’s largest economy dropped. The MSCI Asia Pacific Index (MXAP) lost 0.3 percent to 113.08 as of 9:28 a.m. in Tokyo, with more than two shares falling for each that rose. The gauge dropped 12 percent from this year’s peak on Feb. 29 through yesterday amid concern growth in the U.S. and China is slowing and as Europe’s debt crisis intensified.
“Obviously, the Spanish bank bailout on the weekend didn’t help matters and probably increased the focus on Italy, and also made investors worry about investing in Spanish bonds,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “Europe is sliding further into a recession and the global economy is still slowing in the U.S., and so I think this is a soft patch.”

Japan Stocks Fall on Global Slowdown Signs, Italian Bonds (Source: Bloomberg)
June 14 (Bloomberg) -- Japanese stocks fell as U.S. and European data added to concern the global economy is slowing and after borrowing costs climbed in Italy.  Honda Motor Co. (7267), an auto manufacturer that gets 44 percent of its sales in North America, fell 1.3 percent. Nintendo Co., a maker of gaming consoles that depends on Europe for a third of its sales in the U.S. and Europe, lost 1.4 percent. Otsuka Holdings KK gained 1.5 percent after the pharmaceutical company announced a share buyback plan. The Nikkei 225 Stock Average (NKY) dropped 0.6 percent to 8,534.37 as of 9:18 a.m. in Tokyo. Trading volume was 16 percent below the 30-day average ahead of a Greek election on June 17 that may signal whether the nation exits the euro. The broader Topix Index lost 0.5 percent to 722.99, fluctuating between gains and losses over the past five trading days.
“Europe is sliding further into a recession and the global and U.S. economies are still slowing down, and so I think this is a soft patch,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “It’s still the time for caution on the short-term view. There’s a lot of event risk around.”

U.S. Stocks Drop Amid Lower Retail Sales, Europe Concern (Source: Bloomberg)
U.S. stocks slid, after yesterday’s gain, as retail sales fell and concern about Europe’s debt crisis grew amid higher borrowing costs in Italy and Germany. Nine out of 10 groups in the Standard & Poor’s 500 Index retreated as consumer discretionary, commodity and industrial shares had the biggest losses. Home Depot Inc. (HD), Caterpillar (CAT) Inc. and DuPont (DD) Co. dropped at least 1.5 percent. JPMorgan Chase & Co. (JPM) rose 1.6 percent as Chief Executive Officer Jamie Dimon testified about his bank’s practices to lawmakers. Dell Inc. (DELL) advanced 2.6 percent after saying it will pay a dividend. The S&P 500 fell 0.7 percent to 1,314.88 at 4 p.m. New York time. It rose 1.2 percent yesterday. The Dow Jones Industrial Average declined 77.42 points, or 0.6 percent, to 12,496.38. Trading volume for exchange-listed stocks in the U.S. was about 6.1 billion shares, 10 percent below the three-month average.

Bovespa Rises a Second Day as Homebuilders Rally on Rate Outlook (Source: Bloomberg)
The Bovespa (IBOV) advanced, posting the only gain among major equity indexes in the Americas, as homebuilders and consumer stocks jumped on speculation policy makers will further reduce interest rates to shield Brazil’s economy from the global slowdown. Brookfield Incorporacoes SA, Brazil’s fourth-largest homebuilder by revenue, advanced the most on the benchmark. PDG Realty SA Empreendimentos e Participacoes rose to the highest in almost three weeks. Online retailer B2W Cia. Global do Varejo gained for a fifth day, the longest winning streak in nine months. The Bovespa rose 1.1 percent to 55,650.51 at the close in Sao Paulo. Fifty-four stocks gained on the gauge while 12 fell. The real weakened 0.2 percent to 2.0724 per U.S. dollar at 5:45 p.m. local time.
“The Brazilian government has been very clear in saying that, amid the slowdown in the global economy, its number one priority is to boost growth,” Henrique Kleine, the chief analyst at Magliano SA brokerage, said by phone from Sao Paulo. “That’s why you see stocks linked to domestic consumption performing better than the market’s average.” Brookfield gained 6.4 percent to 3.65 reais. PDG Realty rose 4.2 percent to 3.50 reais. The BM&F Bovespa Real Estate Index (IMOBBV) advanced 1.8 percent.

European Stocks Fall as Borrowing Costs Rise at Debt Sale (Source: Bloomberg)
European stocks declined as borrowing costs increased at debt auctions in Germany and Italy and as Sweden’s SKF (SKFB) AB reported weakening demand for its products in the second quarter. SKF, the world’s largest maker of ball bearings, dropped 7.3 percent. Renault SA (RNO) led a selloff by carmakers, sliding 4.2 percent. Etablissements Maurel & Prom SA surged the most since 2003 amid takeover speculation. The Stoxx Europe 600 Index (SXXP) dropped 0.4 percent to 242.56 in London. The gauge yesterday climbed 0.6 percent as investors shrugged off a surge in Spanish borrowing costs. The Stoxx 600 has still fallen 11 percent from its high this year on March 16. “The most interesting development for me has been the move higher in bund yields,” said Ioan Smith, a director at Knight Capital Europe Ltd. in London. “Investors are clearly becoming concerned about Germany’s growing liabilities associated with the euro zone and suggests there is an element of tail risk being priced in.”
Germany sold 4.04 billion euros ($5.08 billion) of 10-year bunds today at an average yield of 1.52 percent, up from a rate of 1.47 percent at the last auction on May 16. Investors bid for 5.81 billion euros of the bunds, above the 5 billion-euro maximum sales target for the auction, the Bundesbank said.

Melco Discount Grows as Euro Woes Spur ADR Drop: China Overnight (Source: Bloomberg)
Chinese stocks traded in the U.S. slid from a two-week high and Melco Crown Entertainment Ltd. (MPEL) slumped as concern Europe’s debt crisis will spread outweighed prospects of more stimulus for Asia’s biggest economy. The Bloomberg China-US Equity Index (SHCOMP) of the most-traded Chinese companies in the U.S. dropped 0.9 percent to 90.50 yesterday. Melco Crown, a Macau casino operator, traded at the biggest discount to Hong Kong shares since June 1 after the city’s gaming revenue outlook was cut. LDK Solar Co. (LDK) led peers lower as Jefferies Group Inc. said European demand for panels slowed. E-Commerce China Dangdang Inc. jumped after the National Business Daily reported a deal with Tencent Holdings Ltd. China cut its benchmark interest rates last week for the first time since 2008 as May economic data showed inflation slowed more than economists’ forecasts and industrial production grew less than projected.
Borrowing costs increased at debt auctions yesterday in Germany and Italy, and European Union da ta showed Euro-area industrial production declined for a second month in April, adding to signs of a deepening economic slump.

Emerging Stocks Rise to 2-Week High on China Subsidies (Source: Bloomberg)
Emerging-market stocks climbed to a two-week high as signs of a pick-up in technology demand and speculation China will take more steps to bolster economic growth overshadowed concern Europe’s debt crisis will spread. The MSCI Emerging Markets Index (MXEF) rose 0.7 percent to 919.47 at the close in New York, the highest level this month. Cyrela Brazil Realty SA Empreendimentos e Participacoes surged 5.1 percent, while United Spirits Ltd. rose to lead the advance in the index. Russia’s Micex Index (INDEXCF) rallied 0.6 percent on gains for OAO Gazprom Neft. Brazil’s Bovespa advanced, led by Brookfield Incorporacoes SA, a real estate developer. A gauge of technology stocks rose 0.7 percent after Taiwan Semiconductor Manufacturing Co. (2330), the world’s largest maker of custom chips, said demand for leading-edge chip technology is still strong.
China ZhengTong Auto Services Holdings Ltd. (1728) jumped the most since October 2011 in Hong Kong after China said it will give trade-in subsidies of as much as 18,000  yuan ($2,826) for the replacement of some commercial vehicles. “The market is being held up by perceived corporate catalysts and optimism of more subsidies at a time when Europe is still struggling with its debt crisis,” Jonathan Ravelas, chief market strategist at Manila-based BDO Unibank Inc. (BDO), said by phone. “This rally won’t last until Europe takes more concrete steps.”

Emerging Offshore Chinese Renminbi Market : China Pursues Internationalization of their Currency (Source: CME)
The People’s Republic of China (PRC) has aggressively been pursuing the internationalization of the Chinese Yuan or Renminbi (CNY or RMB) since the financial crisis of 2008. The ultimate goal is to achieve full currency convertibility, thereby promoting use of the Renminbi as a reserve currency and international trade currency of choice. Thus, the People’s Bank of China (PBOC) and the Hong Kong Monetary Authority (HKMA) jointly announced on July 19, 2010 that RMB may be deliverable in Hong Kong. This created a new offshore market in RMB, dubbed the “CNH” market. Since its introduction, this market has grown at a rapid pace, attracting widespread interest and activity. This development is changing the character of the RMB markets and of the FX markets in general. Note, of course, that CME Group currently offers RMB futures and options. Thus, we seek to examine this development in greater detail.

FOREX-Euro steady, but vulnerable to Italian and Greek woes
LONDON, June 13 (Reuters) - The euro was steady, w ith bearish investors selling at higher levels as concerns mounted that debt contagion would ensnare Italy and as general unease prevailed about the euro zone before crucial Greek elections.
"There is a risk that the Spanish problems could spread to Italy and investors are mindful of that," said Jeremy Stretch, head of currency strategy at CIBC World Markets.

Dollar Remains Lower Against Euro Before U.S. CPI Data (Source: Bloomberg)
The dollar remained lower against the euro following a two-day slide before U.S. data that may show consumer prices fell, rekindling expectations the Federal Reserve will take more steps to bolster the economic recovery. The euro maintained a rally from an 11-year low versus the yen amid speculation traders are paring their bearish bets on the European currency before Greek elections on June 17. The Fed is scheduled to hold a two-day policy meeting starting June 19. New Zealand’s dollar strengthened against all of its 16 major counterparts after the central bank left the benchmark interest rate unchanged. “The dollar is susceptible to weakening because expectations for additional easing are rising ahead of the policy meeting next week,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency margin company. “A decline in employment and the economy is the biggest concern for the Fed.”
The dollar traded at $1.2564 per euro as of 9:34 a.m. in Tokyo after falling 0.4 percent to $1.2557 in New York yesterday. It lost 0.2 percent to 79.36 yen. The 17-nation euro was at 99.72 yen following a 0.7 percent advance in the previous two days to 99.80. The common currency touched 95.60 on June 1, the lowest since November 2000. The U.S. consumer-price index probably fell 0.2 percent in May from a month earlier, the most since December 2008, the median estimate of economists showed in a Bloomberg News survey. The Labor Department will release the figures today.

Treasuries Drop Before U.S. Sells $13 Billion of 30-Year Notes (Source: Bloomberg)
Treasury 30-year notes declined as the U.S. prepared to auction $13 billion of the securities today following sales of three- and 10-year debt earlier this week. Losses in U.S. government securities were limited before data forecast to show U.S. consumer prices fell, providing the Federal Reserve room to take further steps to spur the economy. The gap in yields between 10-year notes and Treasury Inflation Protected Securities, which represents traders’ expectations for inflation over the life of the debt, was 2.1 percentage points, down from 2012 high of 2.45 percentage points in March. “Investors may be taking a little breather from buying Treasuries,” said Masaru Hamasaki, chief strategist in Tokyo at Toyota Asset Management Co., which oversees the equivalent of $24 billion. “The flight-to-quality amid concern over the European debt crisis and U.S. slowdown has already sent bond prices to an expensive level.”
The 30-year yield rose two basis points, or 0.02 percentage point, to 2.72 percent at 9:50 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 3 percent bond due May 2042 fell 9/32, or $2.81 per $1,000 face amount, to 105 21/32. Benchmark 10-year yields gained one basis point to 1.61 percent after dropping to a record 1.4387 percent on June 1.

Euro Crisis Deeper With Moody’s Downgrading Spain, Cyprus (Source: Bloomberg)
The European debt crisis deepened as the credit ratings of Spain and Cyprus were downgraded by Moody’s Investors Service. Moody’s yesterday cut Spain’s rating three steps to Baa3 from A3, citing the nation’s increased debt burden, weakening economy and limited access to capital markets. Moody’s also lowered Cyprus’s bond rating to Ba3 from Ba1, attributing the downgrade to the material increase in the likelihood of a Greek exit from the euro area, and the resulting increase in the probable amount of support that the government may have to extend to Cypriot banks. Moody’s is following the sentiment of financial markets that weren’t calmed by Europe’s 100 billion-euro ($126 billion) weekend bailout of Spanish banks, said Clay Lowery, a vice president at Washington-based Rock Creek Global Advisors LLC and former assistant Treasury secretary for international affairs.
For Moody’s, “it’s not whether you’re going to make money off your investment, it’s what is the creditworthiness of the borrower,” Lowery said. “Spain’s debt load has gotten larger with much more senior debt, so at least the potential for them to default has now gone up.”

Retail Sales in U.S. Declined for a Second Month in May (Source: Bloomberg)
Retail sales in the U.S. fell in May for a second month, prompting economists to cut forecasts for economic growth as limited job and income gains hold back consumers. The 0.2 percent decrease matched April’s drop that was previously reported as a gain, Commerce Department figures showed today in Washington. Sales excluding car dealerships slumped by the most in two years. The smallest wage gains in a year and unemployment exceeding 8 percent are taking a toll on the consumer spending that accounts for about 70 percent of the economy, leaving it more vulnerable to shocks from the European crisis. Federal Reserve policy makers gather next week to decide whether further stimulus is needed to fuel the three-year-old expansion. “The consumer is pulling back,” said Michael Brown, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who correctly forecast the drop in sales. “There isn’t a lot of job creation. We will continue to see softer numbers.”
Stocks fell after the report and as higher borrowing costs in Italy and Germany fueled concern about the global economy. The Standard & Poor’s 500 Index declined 0.7 percent to 1,314.88 at the close in New York. Last month’s drop in retail sales matched the median forecast of 79 economists surveyed by Bloomberg News. Estimates ranged from a drop of 0.7 percent to a gain of 0.5 percent. April and May marked the first back-to-back declines in two years.

Wholesale Prices in U.S. Fell 1% in May on Cheaper Energy (Source: Bloomberg)
Wholesale prices in the U.S. dropped in May by the most since July 2009 as costs of energy and food decreased, easing pressure on companies to pass expenses to customers. The producer price index fell 1 percent, more than forecast, following a 0.2 percent decrease the prior month, Labor Department figures showed today in Washington. Economists projected a 0.6 percent decline, according to the median estimate in a Bloomberg News survey. The core measure, which excludes volatile food and energy prices, climbed 0.2 percent for a second month. Slower global growth that’s tempering demand for raw materials may allow producers to hold down costs and preserve margins, a benefit to consumers facing weaker income gains. Limited inflation also provides Federal Reserve officials with more room to stimulate the U.S. expansion.
“The signs are that inflation pressures are dissipating fairly quickly,” said Jeremy Lawson, a senior U.S. economist at BNP Paribas in New York. “From a producer perspective, it means import costs are low so they can maintain relatively healthy margins. For consumers, it provides some relief, adds to purchasing power, at a time where their incomes are being constrained by very weak wage growth.”

Dimon Says Fiscal Cliff May Be Reached Before Year-End (Source: Bloomberg)
JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon, testifying to a U.S. Senate panel, said the government is risking an earlier-than-expected fiscal crisis as policy makers stay deadlocked on taxes and the budget. “The one thing to keep in mind about the fiscal cliff is it may not wait until Dec. 31,” Dimon, 56, said today before the Senate Banking Committee, which called him to answer questions about a $2 billion trading loss. “Markets and businesses may start taking actions before that, that create a slowdown in the economy.” A so-called fiscal cliff may be reached at year-end when tax-and-spending changes are scheduled to take effect unless Congress acts. Tax cuts enacted under then-President George W. Bush will expire as will a temporary reduction in the Social Security payroll tax. About $1 trillion in automatic spending cuts would begin, expanded jobless benefits will expire and the government will approach the legal limit on federal borrowing.
Dimon said lawmakers’ inability to reach an agreement on budget issues “helped cause a little downturn last year.” He urged approval of a compromise similar to the Simpson-Bowles plan, issued by President Barack Obama’s fiscal commission, which includes spending cuts and tax increases to balance the budget.

Geithner Says European Leaders Know They Must Do More (Source: Bloomberg)
U.S. Treasury Secretary Timothy F. Geithner said European leaders “recognize they’re going to have to do a bunch more” to stem the region’s debt crisis. “This is a very challenging crisis for them still,” Geithner said today during a talk at the Council on Foreign Relations in Washington. Spain and Italy appealed today to European policy makers to step up their response to the crisis after a 100 billion-euro ($125 billion) lifeline for Spanish banks failed to calm markets. Yields on Spanish debt due in 10-years climbed to 6.75 percent today, compared with 5.1 percent at the end of last year. As Geithner spoke, Spain’s credit rating was downgraded three steps by Moody’s Investors Service, citing the nation’s increased debt burden, weakening economy and limited access to capital markets.

Clinton Calls on Russia to End Arms Sales to Syria (Source: Bloomberg)
Syria is “spiraling toward civil war,” with Russia supporting the violence by continuing to arm President Bashar al-Assad’s regime, U.S. Secretary of State Hillary Clinton said. “We have repeatedly urged the Russian government to cut these military ties completely and to suspend all further support and deliveries,” Clinton said yesterday at the State Department. “We know -- because they confirm -- that they continue to deliver.” The remarks were the latest in an exchange of critical comments by U.S. and Russian officials, putting on display their deepening rift over how to deal with the conflict in Syria, a nation that has been Russia’s main Mideast ally. Earlier in the day, Russian Foreign Minister Sergei Lavrov rejected U.S. accusations that it’s sending arms for use against Syrian civilians and said his country is simply fulfilling its contractual obligations.
“We are completing previously signed and paid-for contracts,” Lavrov said during a press conference in Tehran with his Iranian counterpart Ali Akbar Salehi. “All these contracts have to do exclusively with air-defense systems.”

Felda Said to Raise $3.3 Billion in Malaysian Share Sale (Source: Bloomberg)
Felda Global Ventures Holdings Bhd., the world’s third-largest operator of palm oil plantations, raised about 10.4 billion ringgit ($3.3 billion) in the biggest initial public offering since Facebook Inc. (FB), said three people with knowledge of the matter. The Kuala Lumpur-based company sold shares to institutional investors at 4.55 ringgit each, said the people, asking not to be identified as the information is confidential. Felda Global had marketed the shares at 4 ringgit to 4.65 ringgit. Demand for stock from fund managers exceeded supply by more than 29 times at that price, two people said. Malaysian IPOs are defying the market turmoil brought on by Europe’s debt crisis, which caused companies to scrap at least $4.2 billion of first-time sales in the past month. Hospital operator IHH Healthcare Bhd. and power company Malakoff Bhd. are pursuing IPOs that may help Kuala Lumpur’s bourse widen its lead in Asian deals this year.
“Felda is in a sweet spot because it is a large offering in a Malaysian context with a very cash-rich base of investors,” Abdul Jalil Abdul Rasheed, who helps manage $3 billion as chief executive officer of Aberdeen Islamic Asset Management Sdn. in Kuala Lumpur., said yesterday. “We see other IPO markets being weak, but Malaysia has pulled through.” Graff Diamonds Corp. and Formula One are among companies whose plans to go public in Asia were undone in the past month by stock-market volatility. Powerica Ltd., an Indian company backed by Standard Chartered Plc’s private equity unit, shelved plans for an IPO, people familiar with the deal said yesterday.

Indonesia Plans Stimulus to Boost Consumption Amid Slowdown (Source: Bloomberg)
Indonesia will implement stimulus measures to boost consumption and infrastructure spending as a global slowdown limits exports and an imminent election in Greece threatens to deepen Europe’s debt turmoil. The government will tap last year’s 24 trillion-rupiah ($2.5 billion) budget surplus to fund building projects, and lift the tax-free annual income level to 24 million rupiah from 15.8 million rupiah, Bambang Brodjonegoro, head of fiscal policy at the Ministry of Finance, said in Jakarta today. Indonesia currently targets a 2012 budget deficit of 190.1 trillion rupiah, on capital spending of 168.8 trillion rupiah. “During this time, exports aren’t the main driver to support our growth,” Brodjonegoro said. “As exports have fallen, we’ll boost consumption and investment.”
Policy makers are diverging in their responses to growth risks, with South Korea this month eschewing fiscal stimulus and keeping interest rates unchanged while countries from China to Brazil have lowered borrowing costs. Bank Indonesia has held off from adding to a February rate cut, seeking to support a currency that has fallen about 4 percent in 2012 as the European crisis hurt exports and spurred outflows from emerging markets.

Thailand Holds Rate a Third Time as Risks to Growth Increase (Source: Bloomberg)
Thailand’s central bank kept its key interest rate unchanged for a third straight meeting amid rising risks from the European debt crisis and slowing growth in China. The Bank of Thailand held its benchmark one-day bond repurchase rate at 3 percent, it said in Bangkok today, a decision predicted by all 18 economists in a Bloomberg News survey. The monetary authority cut a combined 50 basis points in November and January to spur growth after last year’s floods. Policy makers across the globe are grappling with the challenges posed by Europe and slowing expansion, with China, Brazil and Australia opting for rate cuts in recent weeks. Thai exports unexpectedly declined in April while inflation is still at a “manageable level,” the central bank said last month, adding on May 30 that there is still room for monetary easing.
“The Thai economy is not that weak as to require an immediate rate cut,” said Satoshi Ushijima, the Bangkok-based vice president of the treasury division at Mizuho Corporate Bank Ltd. “A cut is an option for them in the future if the situation deteriorates, and as inflation is not a major issue now.” The Thai baht rose 0.3 percent to 31.58 per dollar as of 2:47 p.m. in Bangkok. The one-year onshore interest-rate swap, the fixed cost needed to receive a floating payment, declined one basis point, or 0.01 percentage point, to 2.72 percent. Southeast Asia’s second-largest economy unexpectedly expanded in the first quarter as factories, including Honda Motor Co., resumed production and local demand revived after the nation’s worst floods in almost 70 years. Manufacturing output rose for the first time in eight months in April.

Rajoy Battles ECB for Loans; Monti Appeals for EU Action (Source: Bloomberg)
Tensions among European leaders are breaking into the open as bond investors reject their fixes for a debt crisis that threatens to overwhelm the euro region’s financial firewalls. German Finance Minister Wolfgang Schaeuble sniped at Greek yacht owners in comments published yesterday while Spanish Prime Minister Mariano Rajoy declared “battle” on the European Central Bank. Austrian Finance Minister Maria Fekter retracted a forecast that Italy would need aid, and Spain pushed back against Finnish advice on how to use its 100 billion-euro ($126 billion) bank bailout. Rifts are deepening with Greek elections on June 17 risking the first exit from the single currency as voters buckle under the continent’s most severe austerity program. Spanish bond yields reached a record after the nation’s request for aid for its banks fueled speculation the world’s 12th biggest economy may need a full rescue.
“What we’re seeing now says much about the deepening cracks in Europe’s political financial and economic edifice,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said in a telephone interview.

Euro-Area Industrial Output Falls Second Month on Germany (Source: Bloomberg)
Euro-area industrial production declined for a second month in April, led by a drop in Germany, adding to signs of a deepening economic slump. Output in the 17-nation euro area slipped 0.8 percent from March, when it decreased a revised 0.1 percent, the European Union’s statistics office in Luxembourg said today. Economists had projected a drop of 1.2 percent, the median of 28 estimates in a Bloomberg News survey showed. From a year earlier, production fell 2.3 percent. European manufacturers are cutting spending and jobs as global growth weakens. China led a slowdown in manufacturing across Asia last month and European economic confidence slumped to the lowest in 2 1/2 years. European Central Bank President Mario Draghi said on June 6 that risks to the economic outlook had increased and “a few” Governing Council members had called for an interest rate cut.
“The latest data clearly show that the euro-land economy is in free fall,” Jan Amrit Poser, chief economist at Bank Sarasin in Zurich, said in an e-mailed note before today’s report. “If measures to counter this development are not put in hand soon, the euro land will slip into a deep recession.”

Spain’s Record Yields Show Italy Bailout Risk (Source: Bloomberg)
Spain’s benchmark borrowing costs rose for a fourth day after touching a record yesterday, raising the specter of sovereign bailouts for the government in Madrid and then Italy that would stretch European Union finances to their limit. The yield on Spanish 10-year government debt rose 2 basis points to 6.73 percent at 9:55 a.m. in Madrid. Yesterday it touched 6.83 percent, the highest since 1997, after Fitch Ratings predicted that Prime Minister Mariano Rajoy will miss budget-deficit targets he’s made the foundation of his economic policy. Italian 10-year yields posted their highest close in six months yesterday and rose for a sixth session today. The bond rout wiped out the effects of 1.1 trillion euros ($1.4 trillion) in official funding for euro-region banks that has held yields in check since December. Spain’s 10-year yield is close to the 7 percent level that forced Greece, Ireland and Portugal to seek bailouts.
Italy, the second-biggest sovereign borrower in the euro area, may need to seek a rescue with in months, said James Nixon, chief European economist at Societe Generale SA (GLE) in London. “The crisis will inevitably roll on to the next domino, and that’s Italy,” Nixon said in a telephone interview. “The southern European economies are effectively in free-fall and market appetite for southern European debt is rapidly drying up. I can’t see anything to turn that dynamic around.”

Down-Under Greeks Send Money as Crisis Stirs Homeland Ties (Source: Bloomberg)
Half a century after leaving Greece and more than 12,000 kilometers (7,500 miles) from Athens, Paul Afkos says there’s no escaping the calling of his motherland. With Greek unemployment four times higher than in his adopted Australia, the 59-year-old head of Afkos Industries, a maker of mining components based near Perth, has plowed A$18 million ($17.9 million) into a 109-bed hotel in northern Greece that opened in April. “I see it as a duty,” Afkos says, after bringing forward by eight months the opening of the Afkos Grammos Hotel Resort in Kastoria. “I can’t be seen as a hypocrite, not helping my fellow Greeks. I wanted to open early to provide some assistance to these people who are in need of a job.”
Australia’s Greek population has grown from seven pirates dispatched by Britain in 1829 to a diaspora of about half a million, making Melbourne the third-largest Greek city behind Athens and Thessaloniki. Armed with patriotism and the best- performing currency against the euro since late-2008, Australia’s Greeks are deploying wealth amassed in the fastest growing major developed economy to a nation that’s needed 240 billion euros ($300 billion) in bailouts. Greece votes June 17 in an election set to decide its future in the euro zone.

N.Z. Signals Rates May Stay at Record Low to 2013 Amid EU Risks (Source: Bloomberg)
New Zealand’s central bank signaled it may keep interest rates at a record low for another year, extending a 15-month pause as weaker growth eases inflation and Europe’s fiscal crisis clouds the outlook. “It remains appropriate for monetary policy to remain stimulatory, with the official cash rate being held at 2.5 percent,” Reserve Bank of New Zealand Governor Alan Bollard said in a statement in Wellington today. The central bank lowered its forecasts for economic growth in the next three years, citing falling commodity prices and spending restraint. The RBNZ’s next step may depend on what happens in Europe, where a Greek election June 17 will influence whether it exits the euro, causing greater financial-market turmoil. The New Zealand dollar rose after today’s language lacked any specific signal Bollard will reduce borrowing costs, even as interest- rate swaps reflect a 69 percent chance of a cut by September.
“If you were to see a real euro-zone meltdown, that’s going to be reflected through in our forecasts,” Bollard said at a news conference. “Absolutely that would be a core issue we would be thinking about in terms of monetary policy.”

Australian Retail Gloom May Lift on Rate Cuts, Deloitte Says (Source: Bloomberg)
Australia’s retail “gloom” may be starting to recede after the central bank slashed the benchmark interest rate by 1.25 percentage points over the past eight months, a Deloitte Access Economics report showed. “Those cuts will free up a substantial chunk of disposable income,” the Canberra-based research company said in a report released today. Government spending measures including payments for school-age children and extra welfare spending may also provide a “sugar hit” to the retail industry, it said. Ebbing consumer confidence and declining prices prompted Myer Holdings Ltd. (MYR), the country’s largest listed department store company, to forecast a 15 percent decline in net income in the year through July. Australian households are saving money at more than twice the rate of their U.S. counterparts. In nine of the past 12 months, pessimists have outnumbered optimists in Westpac Banking Corp. (WBC) surveys.
“Overall, we expect that interest-rate cuts and budget handouts will help the retail sector continue some upward momentum in the coming months,” the report showed. “Real wages growth is picking up, which may also help sustain retail growth at a reasonable level over 2012 and into 2013.” Deloitte said risks to its forecast remain high, as threats to the global economy keep business and consumer confidence fragile and because of wealth losses due to weaker share markets and house prices.

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