Wednesday, July 4, 2012

20120704 0952 Global Market Related News.

Asian Stocks Rise on U.S. Factory Data, Stimulus Optimism (Source: Bloomberg)
Asian stocks rose for a sixth day, with the regional benchmark index heading for its longest winning streak this year, as U.S. factory orders topped estimates and commodities climbed to a two-month high amid speculation central banks will act to boost economic growth. BHP Billiton Ltd. (BHP) jumped 1.9 percent to lead gains among commodity stocks as a surge in raw-materials prices boosted the earnings outlook at the world’s largest mining company. Komatsu Ltd. (6301), a Japanese maker of construction equipment that gets 23 percent of sales in the U.S., rose 1.9 percent. Nissan Motor Co. (7201) advanced 0.8 percent as its North American sales surged 28 percent, beating the 21 percent average estimate of analysts.
The MSCI Asia Pacific Index (MXAP) advanced 0.4 percent to 119.19 as of 9:48 a.m. in Tokyo, before markets in China and Hong Kong opened. Two stocks rose for each that fell. The gauge climbed to its highest level since May 10 after euro-zone leaders last week agreed to relax conditions for recapitalizing lenders, easing concern about the region’s debt crisis. A six-day advance on the Asian benchmark would complete its longest streak of gains since December.

China Stocks Rise for Third Day on Policy, Property Speculation (Source: Bloomberg)
China’s stocks rose for a third day as a pick-up in the property market helped the nation’s service industries expand at a faster pace and speculation grew the government will further ease monetary policy. China Vanke Co. led a gauge of property developers to the biggest gain in three weeks, as the China Securities Journal reported the central bank may make cutting lenders’ reserve ratios the top choice for increasing liquidity. Liquor maker Kweichow Moutai Co. (600519) rose 5.4 percent after Citigroup Inc. recommended an overweight allocation on consumer companies. Sany Heavy Industry Co. paced declines for machinery stocks on concern the economic slowdown is hurting construction activity. The Shanghai Composite Index (SHCOMP) added 0.1 percent to 2,229.19 at the close. The CSI 300 Index (SHSZ300) rose 0.1 percent to 2,468.72. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, lost 0.7 percent yesterday.
“There’s speculation of reserve-ratio cuts again this month and the government is expected to have more policies to boost the market,” Zhang Qi, an analyst at Haitong Securities Co., said in Shanghai. “Stocks dropped too much last month so we are seeing a rebound in July.”

Japanese Stocks Rise on Global Stimulus Bets, Weaker Yen (Source: Bloomberg)
July 4 (Bloomberg) -- Japanese stocks rose a second day amid speculation central banks in China and Europe will take action to spur growth. Shares also gained after U.S. factory orders beat estimates and the yen weakened. Komatsu Ltd. (6301), a maker of construction equipment that gets 23 percent of its sales in the Americas, added 1.8 percent. Inpex Corp. (1662), Japan’s No. 1 energy explorer, advanced 2.9 percent after crude rose to a one-month high. Renesas Electronics Corp. (6723) rose 2 percent after the chipmaker said it will cut more than 5,000 jobs to help trim losses. Nissan Motor Co. (7201) advanced 0.8 percent as its North American sales beat estimates. The Nikkei 225 Stock Average (NKY) gained 0.5 percent to 9,112.95 as of 9:57 a.m. in Tokyo, with about two stocks advancing for each that fell. The broader Topix (MXAP) Index (CRY) advanced 0.3 percent to 779.36. The measure added 1 percent yesterday, the highest close since May 2.
“The market is feeling resolve from policy makers around the world that they will not let the economy get worse,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc. “As better economic outlooks cut risk aversion, the market is getting sensitive to positives rather than negatives.”

S&P 500 Rallies to Two-Month High After Factory Orders (Source: Bloomberg)
U.S. stocks advanced, sending the Standard & Poor’s 500 Index to a two-month high, after data showed factory orders topped estimates and as speculation grew that global central banks will act to spur economic growth. Commodity (S5MATR), industrial and technology shares had the biggest gains among 10 groups in the S&P 500. Alcoa (AA) Inc., Caterpillar Inc. (CAT) and Apple Inc. (AAPL) advanced at least 1.1 percent. Ford Motor Co. (F) rallied 2.2 percent as deliveries of cars and light trucks beat analysts’ estimates. Facebook Inc. (FB) climbed 1.4 percent as General Motors (GM) Co. is said to be talking with the largest social-networking company about resuming advertising.
The S&P 500 rose 0.6 percent to 1,374.02 at 1 p.m. New York time. The Dow Jones Industrial Average added 72.43 points, or 0.6 percent, to 12,943.82. The Russell 2000 Index rallied 1.3 percent to 818.48. The market closed at 1 p.m. today, and will be shut tomorrow for a holiday. Trading in S&P 500 companies was almost in line with the 30-day average at this time of day.

European Stocks Rise for a Third Day; Peugeot Shares Gain (Source: Bloomberg)
European stocks climbed, posting their biggest three-day rally this year, amid optimism central banks will add to stimulus measures and as a report showed that U.S. factory orders rebounded in May. PSA Peugeot Citroen added 3.7 percent as a union official said the carmaker will eliminate more jobs this year than it had announced. Aberdeen Asset Management Plc (ADN) slid 3.7 percent as Credit Suisse Group AG (CSGN) was said to be selling a 7 percent stake in Scotland’s largest money manager. Barclays Plc (BARC) slid 0.8 percent after saying that its chief operating officer instructed the bank’s rate setters to lower their submissions for Libor.
The Stoxx Europe 600 Index climbed 1 percent to 257.39 at the close, completing a three-day gain of 5.2 percent, the gauge’s biggest since November. The benchmark measure has rallied 10 percent from this year’s low on June 4 as euro-area leaders opened the door to directly recapitalizing lenders using the European Stability Mechanism, the currency zone’s permanent bailout fund. “It looks like we’re entering a quieter period,” said Konstantin Giantiroglou, head of investment advisory at Neue Aargauer Bank AG in Brugg, Switzerland. “The market shrugged off yesterday’s disappointing U.S. economic data. Providing we don’t encounter any serious negative news, the current mood may be able to support markets for a while.”

Stocks Pessimism Posts Longest Streak Since 2011 Market Bottom (Source: Bloomberg)
Bearish sentiment in a survey of individual investors has surpassed the historical average for the longest stretch since October, when stocks began a rally that lifted the Standard & Poor’s 500 Index (SPX) 24 percent. A poll by the American Association of Individual Investors showed 44.4 percent of respondents say American stocks will fall over the next six months. That’s the eighth consecutive week that pessimism stayed above the 25-year average of 30 percent. Concern Europe’s debt crisis will deepen and the recovery weaken have erased as much as $1.8 trillion from U.S. equities since March. The last time the proportion of bears topped the average for this long was in the 14 weeks through Oct. 20, 2011, just after the S&P 500 bottomed at 1,099.23. The benchmark measure for U.S. stocks went on to surge as much as 29 percent, reaching a four-year high of 1,419.04 on April 2.
“Individual investors tend to get in when the markets are red hot and they tend to get out when the markets are at the bottom,” Robert Carey, who helps oversee $53 billion as chief investment officer of Wheaton, Illinois-based First Trust Portfolios, said in a telephone interview. “It’s been one series of issues after another, but, ultimately, fundamentals will weigh out and overwhelm any sentiment that people have.”

FOREX-Euro steady as weak U.S. data offsets euro woes
LONDON, July 3 (Reuters) - The euro was steady against the dollar as prospects of weakness in the U.S. economy leading to further monetary easing offset poor euro zone data and doubts about a European plan to support indebted countries.
"There are a lot of implementation risks but for now the market seems to be buying what came out of the EU summit. Before we go back to a trend of selling the euro we may have a bit of consolidation and perhaps some short covering," said Carl Hammer, chief currency strategist at SEB.

Yen Remains Lower as Stocks Advance on Stimulus Prospects (Source: Bloomberg)
The yen held losses against most of its major peers as Asian shares climbed for a sixth day amid speculation central bank stimulus efforts will prop up global growth, sapping demand for Japan’s currency as a refuge. The dollar was 0.1 percent from a two-month low versus its Australian counterpart before U.S. data tomorrow that may show private employment rose at the slowest pace in 10 months. The International Monetary Fund said additional monetary easing may be needed in the U.S., while economists forecast the European Central Bank will probably cut interest rates tomorrow. “The ECB story itself will do wonders to keep the risk on for a little bit longer,” said Gavin Stacey, the Sydney-based chief rate strategist at Barclays Plc. “What we’re seeing in terms of safe-haven currencies, a little bit of softness in dollar and yen, will be consistent with the idea that risk is extending.”
The yen traded little changed at 100.60 per euro as of 9:28 a.m. in Tokyo after losing 0.6 percent yesterday. It lost 0.1 percent to 79.87 per dollar. The greenback was at $1.2596 per euro after sliding 0.3 percent to $1.2608. The U.S. currency was little changed at $1.0284 per Australian dollar after reaching $1.0297 yesterday, the weakest since May 3.

Korea Won Hits Two-Month High, Bonds Fall on U.S. Factory Data (Source: Bloomberg)
South Korea’s won rose to its strongest level in two months and bonds declined as U.S. data beat estimates, easing concern the global economy is faltering. Asian stocks rallied after factory orders rose for the first time in three months in the world’s biggest economy. The European Central Bank will cut its benchmark interest rate by at least a quarter of a percentage point at its July 5 meeting, according to 51 of 62 forecasts in a Bloomberg survey. The Kospi Index (KOSPI) rose for a second day as overseas investors bought more of the nation’s shares than they sold for a third day. “The won is supported with stocks gaining on U.S. data,” said Lee Jung Hyun, a Seoul-based currency dealer with Industrial Bank of Korea. “Steep gains may be limited as traders are aware of the government’s intervention risks at this level, especially as the won gained a lot recently.”
The won strengthened 0.3 percent to 1,135.18 per dollar as of 9:15 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,133.63 earlier, the strongest since May 4, and gained 4.1 percent for the past month. The currency’s one-month implied volatility, a measure of exchange-rate swings used to price options, dropped three basis points, or 0.03 percentage point, to 7.15 percent.

Home Sales Show Bernanke’s Low Rates Are Gaining Traction (Source: Bloomberg)
For Mike and Kathryn Fry, the time was right to take advantage of the Federal Reserve’s low interest rates to buy a home. While the couple had considered buying in recent years, they never pulled the trigger. That changed in April, when they decided on a three-bedroom, two-bathroom colonial home in Arlington, Virginia, and took out a 30-year fixed-rate mortgage at 3.75 percent. “It was a combination of our personal finances being ready and rates being great,” said Mike Fry, 28, who works for a financial-services company. “The market seemed good, and we found a house in our price range.” Their experience shows how Fed Chairman Ben S. Bernanke’s low interest-rate policy may finally be starting to pull housing out of a six-year tailspin, providing a boost to the broader economy. Home buyers are increasingly taking advantage of record-low borrowing costs as barriers such as falling prices and an overhang of foreclosures start to dissipate.
“The Fed is very much focused on the housing market because that’s typically the best way to channel low interest rates -- through home sales and refinancing,” said Michelle Meyer, senior U.S. economist at Bank of America Corp. in New York. “We are seeing some signs that the credit channel is unclogging modestly, and the Fed is going to be quite pleased with that.”

Orders to U.S. Factories Rise for First Time in Three Months (Source: Bloomberg)
Orders placed with U.S. factories rose in May for the first time in three months, easing concern that manufacturing is faltering. Auto sales for June also exceeded analysts’ estimates. The 0.7 percent increase in bookings followed a revised 0.7 percent drop in the prior month, the Commerce Department said today in Washington. The median forecast of economists in a Bloomberg News survey called for a rise to 0.1 percent. Europe’s debt crisis and a slowdown in Asian markets including China is restraining exports, weighing on the outlook for manufacturers like Joy Global Inc. and DuPont Co. (CAT) Business investment, a mainstay of growth, will provide less of a boost to the economy as a weakening labor market holds back American consumers from boosting purchases of vehicles and other goods.
“Orders were so weak in prior months that the healthy gain in May is not enough to buck the softening trend,” said Ellen Zentner, a senior economist at Nomura Securities International Inc. in New York, who projected a gain of 0.9 percent. “Business caution has become more pervasive.” Stocks rallied after the report. The Standard & Poor’s 500 Index climbed 0.6 percent to 1,374.02, a two-month high, at the close of trading in New York.

Fed Officials Signal Tighter Rules on Bank-Sponsored Money Funds (Source: Bloomberg)
Federal Reserve officials spoke out twice in the past month to send a signal to money-market funds resisting tighter U.S. regulation. The message: New rules are coming, one way or another. The officials -- Governor Daniel Tarullo and Bank of Boston President Eric Rosengren -- said the Fed could take steps to limit banks’ reliance on money funds as a source of short-term cash. The U.S. Securities and Exchange Commission has been deadlocked for months over proposed rules that would require the $2.5 trillion money-fund sector to float share prices or hold more capital, measures that could make funds less attractive to investors. The comments were “an effort to tell the industry to work with the SEC because, ‘If they don’t get you, we can,’” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics, a Washington research firm. In a speech in the Netherlands, Rosengren said the Fed’s stress tests should be expanded to include money funds in their calculations.

IMF Lowers U.S. Growth Projections to 2 Percent (Source: Bloomberg)
The U.S. economy will grow by 2 percent this year and about 2.25 percent in 2013 amid a “tepid” recovery and the European debt crisis, the International Monetary Fund said, lowering its previous projections. The U.S. remains “subject to elevated downside risks, in light of financial strains in the euro area and uncertainty over domestic fiscal plans,” the IMF said in a statement today. In an April report, the IMF forecast U.S. growth of 2.1 percent this year and 2.4 percent in 2013. “Further easing” by the Federal Reserve might be needed “if the situation was to deteriorate,” IMF Managing Director Christine Lagarde said at a press conference in Washington today. She said she welcomed previous actions by the Fed to help the U.S. economy, including the expansion of the so-called Operation Twist that replaces short-term Treasuries in the Fed’s portfolio with longer-term debt to lengthen the average maturity of its holdings.
Lagarde said the “downside risks” include the euro crisis and the “fiscal cliff” of expiring tax cuts and mandatory spending reductions that will take effect at the end of the year unless Congress acts.

Echo Surges $700 Million With Casino Bid Seen: Real M&A (Source: Bloomberg)
A potential bidding war between a Malaysian gaming magnate and an Australian billionaire is turning Echo Entertainment Group Ltd. (EGP) into the most expensive casino target since the financial crisis. Companies linked to Kuala Lumpur-based gambling group Genting Bhd. (GENT) and its billionaire chairman Lim Kok Thay last week sought approval to boost their combined stake in Echo to more than 10 percent, mirroring a February request by James Packer’s Crown Ltd. (CWN) Their interest already increased Echo’s market value by almost A$700 million ($700 million) to A$3.3 billion, even as analysts cut 2012 earnings estimates for Sydney’s only casino operator by 40 percent, according to data compiled by Bloomberg. Echo offers Packer, who wants a casino-hotel next to Sydney Harbour, and Genting, the only large Asian casino operator without a stake in Macau, the chance to profit from a surge in Chinese gamblers through Echo’s Sydney monopoly.
Crown can bid as much as A$5 a share, 16 percent above yesterday’s close, CLSA Asia Pacific Markets said. An offer at that level would value Echo at 13 times estimated earnings before interest, taxes, depreciation and amortization, making it the priciest casino takeover since 2006, data compiled by Bloomberg show. “Genting rocking up on the register has turned the heat up,” Nick Berry, a Sydney-based analyst at Nomura Holdings Inc., said in a telephone interview. “Crown is more likely to bid than not. They have to, to get the control they want.”

China Slowdown Cuts Luxury Spending, Hong Kong Retailing (Source: Bloomberg)
China’s slowdown dragged Hong Kong’s retail-sales growth to the weakest pace since 2009 as shoppers visiting from the mainland cut back on purchases of luxury goods such as jewelry and watches. Sales increased 8.8 percent in May from a year earlier to HK$36 billion ($4.6 billion), the government said on its website yesterday. That was the smallest gain since September 2009, excluding seasonal distortions each January and February. The deceleration of Asia’s biggest economy is rippling through Hong Kong, which reported record retail-sales gains as recently as last year, and Macau, where casino revenues are increasing at a reduced pace. A loosening of monetary policy may help China to regain momentum after manufacturing gauges released on July 1 and 2 pointed to a deterioration last month.
“The consumption appetite of mainland visitors has dropped compared with last year because of the economic slowdown,” said Raymond Yeung, a Hong Kong-based economist at Australia and New Zealand Banking Group Ltd. The data “is a warning sign for Hong Kong retailers.”

China Non-Manufacturing Gauge Shows Faster Expansion in June (Source: Bloomberg)
China’s non-manufacturing industries expanded at a faster pace in June as the property market and new orders picked up, an official survey indicated. The purchasing managers’ index rose to a three-month high of 56.7 in June from 55.2 in May, the National Bureau of Statistics and China Federation of Logistics and Purchasing said in Beijing today. The result is among signs that growth in the world’s second-largest economy may steady after leaders stepped up stimulus to counter a slowdown and maintained property curbs aimed at lowering home prices. The government cut interest rates last month for the first time since 2008 and has reduced banks’ reserve requirements three times since November. “Signs are emerging that current economic growth is stabilizing,” Cai Jin, a vice chairman with CFLP, said in a statement today. “Positive factors to drive steady economic growth are converging, which is helpful for the economic expansion to stabilize and turn better in the second half.”
The benchmark Shanghai Composite Index of stocks fell 0.3 percent at 9:38 a.m. local time. The yuan weakened less than 0.1 percent against the dollar to 6.3516.

Wen Eases Off as China’s Cities Seek to Revive Home Sales (Source: Bloomberg)
Liu Xuejun, a building-equipment dealer, couldn’t restock his Shanghai showroom fast enough in 2009 as he sold an excavator every three days. Now he might wait six months between sales. “Scheduled property construction work just doesn’t kick off,” said Liu, 41, as he stood amid dozens of yellow excavators and wheel loaders in the showroom of Shanghai Wo You Construction Machinery Co. on the eastern outskirts of the city. Liu’s sales are a casualty of an economic slowdown tied to China’s efforts since 2010 to prevent a housing bubble with curbs on lending and property ownership. Now, outgoing Premier Wen Jiabao is tolerating some piecemeal measures to support the market. They include the introduction in May of home subsidies in the eastern city of Yangzhou, discounts on mortgages for first-home buyers in Beijing, and raising the tax threshold on purchases of some homes in Shanghai.
“The easing is happening now and it’s going to keep happening,” said Michael Klibaner, Shanghai-based head of China research at Jones Lang LaSalle Inc. “If you would try to get prices to drop suddenly, that would be a really scary and dangerous thing for both the economy and Wen’s legacy.”

BRICs Priced for Economic Meltdown (Source: Bloomberg)
The biggest emerging markets are contributing more than ever to the global economy as their proportion of the world stock market shrinks, leaving investors with the widest valuation gap in seven years. Brazil, Russia (INDEXCF), India and China, known as the BRICs, will comprise 20 percent of the world economy this year after growing more than four-fold in the past decade, International Monetary Fund data show. At the same time, their combined stock-market value has dropped to a three-year low of 16 percent of the total invested in equities, according to data compiled by Bloomberg. To Jim O’Neill, the chairman of Goldman Sachs Asset Management who coined the term BRIC in a 2001 research report, the 4 percentage point difference makes stocks in these markets irresistible. The last time the gap was this wide, in 2005, the MSCI BRIC Index (MXBRIC) jumped 53 percent in 12 months, more than double the gain in the MSCI All-Country World Index. (MXWD)
“Unless we are seeing a major collapse of those economies, it’s a huge opportunity for investors,” O’Neill, who helps oversee $824 billion, said in a June 28 phone interview. The BRIC stock markets may double by 2020 as their share of world gross domestic product increases to about 27 percent, he said.

U.K. Mortgage Lending Declines, Construction Shrinks: Economy (Source: Bloomberg)
U.K. mortgage approvals fell in May and construction shrank at the fastest rate in 2 1/2 years in June, adding to signs the housing market is slowing amid growing concern over the economic outlook. Lenders granted 51,098 loans to buy homes, compared with 51,627 the previous month, the Bank of England said today in London. A gauge of building output based on a survey fell to 48.2 from 54.4 in May, a separate report by Markit and the Chartered Institute of Purchasing and Supply showed. The figures add to the case for Bank of England policy makers to increase stimulus when they meet this week. An index yesterday showed factory output shrank for a second month in June, suggesting the economy remains mired in recession. Demand for homes has fallen as Europe’s debt turmoil casts a shadow over Britain’s economic prospects and banks curb credit, with Nationwide Building Society reporting last week that house prices fell 0.6 percent between May and June.
“Household lending has been depressed for quite a long time and there’s no evidence of improvement on the corporate side,” said David Tinsley, an economist at BNP Paribas SA in London and a former central bank official. Economic growth in the second quarter “could well be negative. It would be very strange if the Bank of England did nothing this week.”

Euro Area Bought Some Time in Staving Off Breakup: Rogoff (Source: Bloomberg)
European leaders probably bought “a little bit of time” in staving off a euro-area breakup after last week’s summit even as the region remains a long way from stabilization, Harvard University Professor Kenneth Rogoff said. Greek Prime Minister Antonis Samaras asked European leaders last week to loosen austerity measures tied to 240 billion euros ($303 billion) in financial aid from international donors for his country. Greece will struggle to meet its targets and still probably default, Rogoff said in an interview with Bloomberg Television today.
European Union leaders at a June 28-29 summit agreed to loosen bailout rules, lay the foundations for a banking union and break the link between sovereign and banking debt through the direct recapitalization of lenders. Euro-area officials, fighting to prevent the sovereign-debt crisis from spreading, also took measures to bolster growth amid a global slowdown. “They are going to continue to do more and more radical measures to stand still,” Rogoff said. “We’re very, very far from a long-term vision. It’s a long difficult path, still. We’re a long ways from stabilization.”

Spain’s Waning Reserve Fund Risks Undermining Bonds: Euro Credit (Source: Bloomberg)
Spain’s social security system risks falling deeper into deficit this year, eroding the ability of its 67 billion-euro ($85 billion) pension-reserve fund to prop up the Spanish bond market. The reserve account has almost doubled its holdings of Spanish debt since 2008 as declining demand for the country’s bonds led the fund to start replacing German, French and Dutch securities with national debt. As the welfare system posts a loss, the fund’s ability to soak up new issues will diminish, adding to pressure on 10-year Spanish bonds, which yielded 482 basis points more than German bunds today. The reserve fund’s assets, built up since 2000, is equivalent to about 11 percent of the central government’s estimated outstanding debt for this year, and more than 75 percent of the planned bond issuance for 2012. Its waning firepower comes as foreign investors shun Spanish bonds and as domestic banks, which had been picking up the slack, begin to reduce their holdings.
“Domestic demand in Spain isn’t sustainably sufficient to take all the supply and any slowdown in social security investment would only worsen that,” said Luca Jellinek, head of European interest-rate strategy at Credit Agricole Corporate & Investment Bank in London.

Diamond Exit Raises Speculation of Investment-Bank Split (Source: Bloomberg)
When Robert Diamond took over Barclays Plc (BARC)’s shrinking securities unit in 1997 he vowed to turn the business into a leading global firm. Fifteen years later, his success in creating a top investment bank, whose profit reached $4.7 billion in 2011, may hasten its split from the lender after the London-based bank admitted to trying to rig global interest rates. Diamond quit as Barclays’s chief executive officer yesterday and hours later Chief Operating Officer Jerry del Missier followed. The departure of Diamond may presage a reorganization of Barclays after regulators in the U.K. and the U.S. pointed to the need for change at the company. The interest rate debacle is intensifying political pressure in the U.K. to build higher walls between banks’ consumer lending and investment-banking divisions to protect savers and taxpayers.
“Now is a very sensible time to pause, draw breath, assess what’s happened and look again at this question of a ring fence or separation,” said Clive Hollick, a former CEO of United News & Media Group Plc and member of the House of Lords Economic Affairs Committee. Barclays was hit by a record 290 million-pound ($455 million) fine last week for rigging the London Interbank Offered Rate, a benchmark for more than $360 trillion of securities. Diamond, as CEO of the investment bank from 1997 through 2010, oversaw the unit where Libor rates were submitted.

Draghi’s Giant Leap on Rates May Be Small Step for Euro Economy (Source: Bloomberg)
European Central Bank President Mario Draghi may take a giant leap in monetary policy tomorrow for limited economic gain. ECB officials meeting in Frankfurt will not only take the benchmark interest rate below 1 percent for the first time to a record low of 0.75 percent, they will also cut the deposit rate to zero, according to Bloomberg News surveys of economists. The easing will do little to aid an economy sliding into recession and may fuel speculation about what the ECB can do after its conventional policy options are spent, some economists said. “It’s a bold move and will lead the ECB into uncharted territory,” said Julian Callow, chief European economist at Barclays Capital in London. “With soaring unemployment and few signs of the economy recovering, some strong monetary medicine is needed. But let’s be honest, a rate cut by itself will not end the recession, we need much more for that.”
Europe’s sovereign debt crisis, which has forced five of the 17 euro nations to seek bailouts, is curbing growth across the continent and damping the global economic outlook. While ECB rate cuts might not stimulate demand, they would lower borrowing costs for troubled banks. They could also build on the confidence boost that euro-area governments provided last week when they took steps toward a deeper economic union.

Asian Tourists Save on Gucci as Euro Weakens, Peso Surges (Source: Bloomberg)
Ayie Aligada, a former airline training manager from Manila, gained from the Philippine peso’s 4 percent jump against the euro in as many weeks when she snapped up a Chloe bag for 1,475 euros ($1,856) on a month-long jaunt through Europe. She had plenty of company on her May tour of Paris, Barcelona and Rome, where Asian shoppers are lining up outside luxury goods stores. Elaine Chua, 32, a Singaporean homemaker, went to Paris for four days in April and saved about 1,500 Singapore dollars ($1,178) on a Chanel bag, the price of a return airfare. Pongsak Luangaram, 41, a lecturer from Bangkok, dropped a plan to visit Japan and went to Italy in May, buying a Ferrari jacket. Europe is becoming a more attractive destination for Asians after the peso surged 19 percent against the euro in the past year and China’s yuan climbed 17 percent. Bookings rose 30 percent in Manila in the first quarter and 12 percent more Chinese are forecast to visit France in 2012.
Their spending is supporting hotels, stores and restaurant s as the debt crisis batters local demand. Ermenegildo Zegna SpA is stocking more styles favored by the visitors and Prada SpA may raise prices. “With the slowing economy and lingering debt crisis, the euro will continue to weaken against Asian currencies,” said Akira Takei, the Tokyo-based head of the international fixed- income department at Mizuho Asset Management Co., which oversees about $41 billion and is part of Japan’s third-biggest publicly traded bank. “Exchange rates are favorable for Asian shoppers and tourism businesses in Europe, but the pickup in visitors won’t be enough to reverse the slump.”

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