Asia Stocks Rise as IMF Outlook, Spain Debt Ease Concerns (Source: Bloomberg)
Asian stocks rose, with the regional benchmark headed for its biggest gain in three weeks, after the International Monetary Fund raised economic forecasts and Spain sold more debt than targeted, boosting the earnings outlook for exporters. Toyota Motor Corp. (7203), Asia’s biggest carmaker by market value, gained 2.6 percent in Tokyo. Canon Inc. (7751), a Japanese camera maker that gets almost a third of its sales from Europe, increased 2.4 percent. BHP Billiton Ltd. (BHP), the world’s largest mining company and Australia’s No. 1 oil producer, advanced 1.4 percent after commodity prices gained. China Overseas Land & Investment Ltd. may be active today in Hong Kong after the developer’s sales surged in the first quarter.
The MSCI Asia Pacific Index (MXAP) gained 0.9 percent to 124.75 as of 9:24 a.m. in Tokyo before the opening of markets in Hong Kong and China. More than 17 stocks rose for each that fell, with the gauge headed for its biggest gain since March 27. Japan’s Nikkei 225 Stock Average increased 1.5 percent, with trading volume 32 percent below the 30-day average. Australia’s S&P/ASX 200 Index gained 1.2 percent. “The environment for equities is pretty good,” said Donald Williams, chief investment officer at Platypus Asset Management Ltd. in Sydney, which manages about $1 billion. “Even though 2012 is going to be a tough year because most of Europe will be in recession for a large part of this calendar year, you are still looking at a global growth rate of 3.5 percent, which is a pretty decent growth rate.”
Japan Stocks Rise on IMF Forecast, Spanish Bonds (Source: Bloomberg)
April 18 (Bloomberg) -- Japanese shares rose, with the Nikkei 225 (NKY) Stock Average heading for its biggest advance in three weeks, after the International Monetary Fund raised its global economic forecast and Spain sold more debt than its target, boosting the earnings outlook for Japanese exporters. Sony Corp., a consumer electronics company that gets a fifth of its sales in Europe, added 1.7 percent. Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second-biggest lender by market value, rose 2.6 percent. Inpex Corp. (1662), the nation’s No. 1 energy explorer, advanced 1.6 percent on rising crude prices. The Nikkei 225 gained 1.6 percent to 9,618.33 as of 9:11 a.m. in Tokyo, heading for its biggest gain since March 27, with all but four stocks gaining. The broader Topix Index added 1.7 percent to 817.03 with all 33 of the gauge’s industry groups advancing.
“The environment for equities is pretty good,” said Donald Williams, chief investment officer at Platypus Asset Management Ltd. in Sydney, which manages about $1 billion. “Even though 2012 is going to be a tough year because most of Europe will be in recession for a large part of this calendar year, you are still looking at a global growth rate of 3.5 percent, which is a pretty decent.”
U.S. Stocks Post Biggest Rally in 1 Month as Apple Surges (Source: Bloomberg)
U.S. stocks rose, giving benchmark indexes the biggest rallies in a month, as higher forecasts from the International Monetary Fund and gains in Spanish bonds overshadowed declines in housing starts and factory production. Apple Inc. (AAPL), the most valuable technology company, surged 5.1 percent after yesterday capping its longest losing streak since October. Bank of America Corp. and Citigroup Inc. (C) added more than 1.4 percent as European lenders jumped after Spain sold more debt than targeted. Coca-Cola Co. (KO), rose 2.1 percent as earnings beat estimates. International Business Machines Corp. and Intel Corp. (INTC), which gained in anticipation of their results, slumped at least 2.4 percent in extended trading.
The Standard & Poor’s 500 Index rose 1.6 percent to 1,390.78 at 4 p.m. New York time, after falling 1.3 percent in two days. The Dow Jones Industrial Average added 194.13 points, or 1.5 percent, to 13,115.54. The Nasdaq Composite Index climbed 1.8 percent to 3,042.82. About 6 billion shares changed hands on U.S. exchanges, or 11 percent below the three-month average. “The market was able to shrug off disappointing U.S. economic reports,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management. His firm oversees $160 billion. “We’ve got data showing the German economy is growing strong, positive earnings surprises in the U.S. and some good news out of Spain. There’s a lot of room for positive surprises given how pessimistic things were.”
European Stocks Climb Most Since December on Spain Debt (Source: Bloomberg)
European stocks rallied the most this year as demand increased at a Spanish debt sale, German investor confidence topped forecasts and the International Monetary Fund boosted its global growth outlook. Banks contributed the most to the Stoxx Europe 600 Index’s advance as Banco Popolare SC (BP) and Barclays Plc (BARC) climbed. Danone rose 2.9 percent as the world’s biggest yogurt maker reported higher first-quarter sales. Repsol YPF SA (REP) plunged 6.1 percent as Argentina took control of the Spanish company’s YPF unit following a dispute over slumping oil output and investments.
The Stoxx 600 gained 2 percent to 259.45 at the close of trading, the biggest jump since Dec. 20. The benchmark index has climbed 6.1 percent this year as the European Central Bank flooded financial markets with 1 trillion euros ($1.3 trillion) of cheap loans for three years to ease credit. ECB Governing Council member Ewald Nowotny said late yesterday that he doesn’t see an “immediate need” for an extension of the measures, known as the longer-term refinancing operation, or LTRO. “The Spanish debt auction today shows there is still liquidity in the market,” said Witold Bahrke, a senior strategist at PFA Pension A/S in Copenhagen, where he helps oversee $55 billion. “We’ve cleared some smaller tests on sentiment surrounding the euro area ahead of the real tests late in the week when France and Spain sells debt maturing later than the LTRO’s.”
GLOBAL MARKETS-Spanish debt costs pressure euro
LONDON, April 17 (Reuters) - The euro lost ground slightly and German government bond prices edged away from record highs on Tuesday as investors waited to see if concerns over Spain's budget deficit and banking sector push up borrowing costs at a debt sale.
"Concern over the situation in Spain, with the bill auction today and the problems with the economy and debt remaining a key focus, will keep the euro under pressure," Niels Christensen, currency strategist at Nordea in Copenhagen said.
Stocks, Commodities Gain on Spanish Debt Auction, IMF (Source: Bloomberg)
Stocks surged and Treasuries fell as Spain sold more debt than targeted and the International Monetary Fund raised economic forecasts, overshadowing declines in U.S. housing starts and factory production. Commodities rose. The Standard & Poor’s 500 Index added 1.6 percent to close at 1,390.78 at 4 p.m. in New York, its biggest gain in a month, and the Stoxx Europe (SXXP) 600 Index rallied 2 percent for its best advance of 2012. Yields on Spanish 10-year bonds fell 18 basis points to 5.89 percent and the Italian yield lost 12 basis points. Ten-year Treasury yields increased two basis points to 2.00 percent. Canada’s currency strengthened against 15 of 16 major peers as policy makers said they may boost interest rates. Oil helped lead gains in commodities.
The IMF increased its outlook for global growth in 2012 to 3.5 percent from 3.3 percent and lifted its forecast for the U.S. expansion to 2.1 percent from 1.8 percent, easing concern that Europe’s debt crisis will stifle the recovery. Spain sold 12-month and 18-month bills a day after yields on its 10-year bonds reached the highest level this year. German’s ZEW survey of investor confidence unexpectedly rose to a two-year high. “It’s a collection of things that have ignited investors’ animal spirits again,” Mark Luschini, chief investment strategist for Philadelphia-based Janney Montgomery Scott LLC, which manages about $54 billion, said in a telephone interview. “We’ve had the IMF upgrade of global activity, good news out of Europe and decent earnings reports so far. That’s boosting confidence.”
IMF Raises Global Forecast for First Time Since Early 2011 (Source: Bloomberg)
The International Monetary Fund raised its global growth forecast for the first time in more than a year, with the U.S. boosting the outlook while recent improvements remain “very fragile.” The world economy will expand 3.5 percent this year, compared with a January projection of 3.3 percent, the Washington-based IMF said today in its World Economic Outlook. It sees growth of 4.1 percent in 2013, up from 4.0 percent. It raised its forecasts for the U.S. to gains of 2.1 percent this year and 2.4 percent in 2013. The report reflects the IMF’s view that the euro area, while still facing an economic downturn and the “hard to quantify” potential risk of a country’s default, has stabilized since last year. The euro area economy is projected to decline by 0.3 percent in 2012, an improvement from the 0.5 percent in the IMF’s previous forecast. China is projected to grow 8.2 percent and Japan 2 percent this year.
“For the last six months the world economy has been on what is best described as a roller-coaster,” IMF chief economist Olivier Blanchard said at a briefing in Washington today. After European governments took measures to reassure markets, “an uneasy calm remains. One has the feeling that at any moment things could well get very bad again.”
Better IMF Outlook Boosts Equities After Slump: China Overnight (Source: Bloomberg)
Chinese equities traded in the U.S. rose for the first time in three days, defying stock declines in Shanghai and Hong Kong, after the International Monetary Fund boosted its forecast for global economic growth. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. climbed 1.2 percent yesterday to 102.80. The Shanghai Composite Index and Hang Seng China Enterprises Index (HSCEI) declined for a second day, after data showing foreign investment in China slipped for a fifth month. New Oriental Education & Technology Group (EDU) Inc. jumped the most in a month while Trina Solar Ltd. (TSL) led gains in solar companies. China Unicom (Hong Kong) Ltd. traded at its widest premium over Hong Kong in two weeks.
The world economy will expand 3.5 percent this year and 4.1 percent in 2013, up from January projections of 3.3 percent and 4 percent, as the euro region stabilizes and the U.S. outlook improves, the IMF said yesterday. The Washington-based lender maintained a forecast of 8.2 percent growth for China, where policy makers last month cut their 2012 own target to 7.5 percent, the lowest level since 2004. China is the world’s largest exporter. “The implication here is that the global economy is doing better and therefore export numbers out of China will be better,” Elena Ogram, who manages $50 million in emerging market assets, including Chinese stocks, at Bank am Bellevue AG in Zurich, said by phone yesterday. A better global outlook is “positive for China’s economic growth and for Chinese equities,” she said.
FOREX-Euro vulnerable ahead of Spanish bill auction
LONDON, April 17 (Reuters) - The euro was steady on Tuesday, staying vulnerable ahead of a Spanish bill sale that could intensify concerns over the country's precarious fiscal position as euro zone debt jitters showed no signs of abating.
"I think we'll see a test of $1.30 within the next week. Concern over the situation in Spain, with the bill auction today and the problems with the economy and debt remaining a key focus, will keep the euro under pressure," said Niels Christensen, currency strategist at Nordea in Copenhagen.
Yen Falls Versus Peers on Stock Gain, Before Jobs Report (Source: Bloomberg)
The yen fell against all of its major peers as Asian stocks extended a global rally and before U.S. data that may show fewer Americans filed for jobless benefits, reducing demand for safer assets. Japan’s currency retreated from a six-week high versus the dollar after the Nikkei newspaper said the Bank of Japan (8301) may raise its inflation forecasts, fanning speculation the central bank will add to monetary easing to achieve its price target. The euro was 0.4 percent from a 19-month low against the pound before Spain sells bonds tomorrow. “On balance, you would still say conditions in Asia and the U.S. will sustain global growth activity at a reasonable level and prevent Europe from dragging the global economy into a severe downturn,” said Greg Gibbs, a currency strategist at Royal Bank of Scotland Group Plc in Sydney. “We’ll see some strength in a range of currencies against the yen.”
The yen fell 0.3 percent to 81.10 per dollar at 9:29 a.m. in Tokyo from yesterday. It reached 80.30 on April 16, the strongest since Feb. 29. Japan’s currency lost 0.4 percent to 106.48 per euro. The 17-nation euro was little changed at 82.40 pence after touching 82.10 on April 16, the lowest since September 2010. The euro was unchanged at $1.3127.
Korean Won Climbs, Bonds Fall on IMF Forecast, Spain Auctions (Source: Bloomberg)
South Korea’s won gained for the first time in three days and bonds slid as the International Monetary Fund raised its global economic growth forecast and Spain sold more debt than targeted. The IMF predicted growth of 3.5 percent this year in its World Economic Outlook yesterday, compared with a January projection of 3.3 percent. It sees growth of 4.1 percent in 2013, up from 4 percent. Spain sold 3.18 billion euros ($4.2 billion) of debt yesterday, compared with the Treasury’s maximum target of 3 billion euros. The Kospi (KOSPI) Index of shares rallied, following a 1.6 percent advance in the Standard & Poor’s 500 Index yesterday. “Global stock gains following the revised economic forecast and Spain’s debt auctions will support the won at the mid-1,130 level,” said Lee Yong Hee, a Seoul-based currency dealer at the Industrial Bank of Korea. “Overseas investors repatriating dividends paid out by South Korean companies may limit won gains.”
The won strengthened 0.5 percent to 1,134.88 per dollar as of 9:12 a.m. in Seoul, according to data compiled by Bloomberg. One-month implied volatility for the won, a measure of exchange- rate swings used to price options, slid 23 basis points, or 0.23 percentage point, to 8.45 percent.
U.S. Housing Starts Unexpectedly Drop to Five-Month Low (Source: Bloomberg)
Builders began work on fewer homes than forecast in March, signaling a sustained industry recovery will take time to get underway. Housing starts dropped 5.8 percent to a 654,000 annual rate, less than the lowest estimate of economists surveyed by Bloomberg News and the least since October, Commerce Department figures showed today in Washington. The slump was led by the volatile multifamily category, which at the same time showed a jump in permits, a proxy for future construction. While warmer weather may have spurred home construction at the beginning of 2012, a competing supply of cheap existing properties may be steering potential buyers away from purchasing a new home. That means home construction may not help boost the economy in 2012.
“Housing continues to bump along the bottom,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York. “The best we can hope from housing over the next couple years is that it won’t subtract from growth. The numbers in the past few months were decidedly impacted by a much milder winter, so a significant portion of construction was pulled forward.”
U.S. Factories Cool for First Time in Four Months: Economy (Source: Bloomberg)
Production at U.S. factories dropped in March for the first time in four months as the industry cooled following the strongest surge in three decades. Manufacturing, which makes up about 75 percent of industrial output, decreased 0.2 percent last month as appliance and furniture makers cut back, data from the Federal Reserve showed today in Washington. The decline followed a revised 3.4 percent gain from December through February that marked the biggest three-month jump since March 1984. The rebound in manufacturing that helped the world’s largest economy climb out of the recession in June 2009 may now be giving way to gains among service industries, including retailers, as consumer spending grows. Another report showed builders broke ground on fewer houses than forecast last month, a sign residential real estate continues to lag behind.
“We’ve had a very strong run -- manufacturing just sort of plateaued a little bit here in March,” said Omair Sharif, a U.S. economist at RBS Securities Inc. in Stamford, Connecticut, who is the most-accurate forecaster of industrial production for the two years ended February, according to data compiled by Bloomberg. “The services sector has begun to take off and is more of the leader, but manufacturing is continuing to contribute.”
Jobs Data Simultaneous Release Jeopardized by U.S. Curbs (Source: Bloomberg)
The U.S. Department of Labor said it can’t assure news organizations they will be able to transmit market-sensitive economic data at exactly the same moment under changes resulting from the first review of procedures in a decade. The agency ordered journalists to remove computer hardware, software and communications lines they currently have installed at the department to transmit news on data such as the jobless rate and consumer prices. Instead, reporters will have to use equipment, software and Internet connections provided by the government. “I’m not going to guarantee anything,” Carl A. Fillichio, the department’s senior adviser for communications and public affairs in Washington, said on a conference call when asked if every news organization will be assured a connection to the Internet “at exactly the same millisecond.”
Under the current system, credentialed journalists in so- called lockups are given data in advance of their release to the public, allowing time to prepare stories, headlines and tables. Communication by phone or computer is cut off for the half hour that reporters are typically given to write their stories. A Department of Labor employee then flips a switch that opens telephone and data lines, allowing journalists to transmit their stories using their own equipment.
U.S. Homebuilding Probably Rose, Capping Best Quarter Since 2008 (Source: Bloomberg)
Homebuilding in the U.S. probably climbed in March, marking the best quarter since 2008 and indicating the real-estate industry has steadied, economists said before a report today. Housing starts increased to a 705,000 annual rate last month from a 698,000 pace in February, according to the median estimate of 82 economists surveyed by Bloomberg News. Starts probably averaged 703,000 in the first three months of 2012, the most since the third quarter of 2008. Warmer weather alongside historically-low lending costs and faster job creation may have spurred more home construction at the beginning of 2012. While the number of single-family housing starts last year was the lowest on record, work on multifamily units is providing homebuilders with new business.
“Housing starts are starting to see stabilization,” said Anika Khan, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “The numbers are still coming from a very low base, but there’s improvement. We’re also still contending with a lot of the effects from weather.”
Treasuries Snap Gain on Speculation Retail Sales Rose (Source: Bloomberg)
Treasuries stayed lower after falling yesterday as economists said government and industry reports will show initial claims for jobless insurance declined and sales of existing homes rose. Treasuries have handed investors a loss of 0.1 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. The MSCI All-Country World Index (MXWD) of stocks returned 10 percent including reinvested dividends. “As long as the labor market is healthy, I’m not worried about the U.S. economy,” said Tsutomu Komiya, who helps oversee the equivalent of $111 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-biggest brokerage. “Yields will rise” in the months ahead. Benchmark 10-year notes yielded 2 percent as of 9:34 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent security due in February 2022 changed hands at 99 30/32.
The rate increased two basis points, or 0.02 percentage point, yesterday. It has risen from the record low of 1.67 percent set Sept. 23 and is still less than the average of 3.84 percent for the past decade.
Japan Will Provide $60 Billion to Expand IMF’s Resources (Source: Bloomberg)
Japan said it will provide $60 billion to the International Monetary Fund’s effort to expand its resources and shield the global economy against any deepening of Europe’s debt crisis. Finance Minister Jun Azumi unveiled the commitment in speaking to reporters in Tokyo today before semiannual meetings of the IMF and World Bank in Washington April 20-22. Azumi said he hopes for an early agreement among Group of 20 members, who will also gather in Washington, on contributions to the IMF. Japan, the world’s third-largest economy, becomes the largest donor yet outside of Europe to IMF Managing Director Christine Lagarde’s campaign to bolster the fund’s resources for the second time in three years. Azumi said that the stance of China, the world’s largest holder of foreign-exchange reserves, is in the same direction as Japan’s and that he hopes Japan’s pledge will accelerate the commitments of others.
“It’s in everyone’s best interest that Europe gets back on its feet as soon as possible,” said Matthew Circosta, an economist at Moody’s Analytics in Sydney. The announcement may “add stability to financial markets that had been weakening over the last few weeks as the crisis flared up again, particularly in Spain.”
Japan Poised for Era of Sustainable Inflation, Nomura Say (Source: Bloomberg)
Japan is poised to exit more than a decade of deflation as a strengthening yuan bolsters China’s buying power, fueling Japanese production and buoying prices, according to Nomura Holdings Inc. Demand from China will propel continuous gains in Japanese consumer prices next year as companies ramp up production with factories now running at about three quarters of capacity, Takahide Kiuchi, Nomura’s chief economist, said in an interview on April 13. The yuan has gained 5.2 percent against the yen this year, making Japanese products more affordable in China, which became Japan’s biggest overseas market in 2009.
Premier Wen Jiabao last month said China will adopt policies to encourage domestic consumption and wean the country from its dependence on exports. The shift may help Japan absorb a glut of unused factory capacity and unwind a cycle of declining prices that has weighed on economic growth. Deflation has driven wages down 16 percent since a 1997 peak and caused tax revenues to fall by about 20 percent in the same period, according to government data compiled by Bloomberg. “Even mild deflation is a bad thing,” Kiuchi said. “When people expect deflation, wages tend to decline more rapidly. That means real wages decline and that undermines consumption."
India Cuts Key Rate for First Time Since 2009 (Source: Bloomberg)
India slashed its benchmark interest rate by a greater-than-forecast half a percentage point, seeking to bolster growth with the first reduction since 2009. Inflation might limit the room for further cuts, the central bank said. Governor Duvvuri Subbarao lowered the repurchase rate to 8 percent from 8.5 percent, the Reserve Bank of India said in a statement in Mumbai today. The outcome was predicted by three of 25 economists in a Bloomberg News survey. Seventeen expected a 0.25 percentage-point cut and the rest predicted no change. The move stoked gains in the rupee and government bonds, and may buttress demand in an economy hampered by political gridlock that’s restraining investment. Policy makers are seeking at the same time to contain inflation that remains the fastest among the BRIC nations.
“They are playing with fire,” said Jahangir Aziz, an economist at JPMorgan Chase & Co. in Washington who used to work at the International Monetary Fund. “I am increasingly assured that this is going to be last rate cut” given the risks to inflation from oil prices and loose fiscal policy, he said.
Indonesia Raises $2.5 Billion in Second Overseas Sale This Year (Source: Bloomberg)
Indonesia raised $2.5 billion from sales of 10- and 30-year dollar bonds, tapping global investors to spur economic growth for the second time this year after winning investment-grade ratings. The government sold $2 billion of debt due in April 2022 yesterday to yield 3.85 percent, or 184 basis points more than that for similar-maturity U.S. Treasuries, according to data compiled by Bloomberg. It also issued $500 million more of 5.25 percent bonds due 2042 at a yield of 4.95 percent, 181 basis points more than U.S. debt. The government of Southeast Asia’s largest economy is taking advantage of relative borrowing costs close to an eight- month low as it plans to spend $53 billion until 2020 to build railways, airports and seaports. Emerging-market debt sales climbed 31 percent to $331 billion this year, showing demand for those bonds even as Europe’s debt crisis worsened.
“This is a good time to issue given the global low interest rates and strong demand for emerging-market bonds,” Chia Tse Chern, the Singapore-based co-head of Asian fixed- income at UOB Asset Management, which oversees the equivalent of $15 billion of assets, said before the sale. “Demand will be strong from the U.S. and Europe because of Indonesia’s investment-grade status.”
Euro-Area March Inflation Rate Exceeds Estimate on Energy (Source: Bloomberg)
European consumer prices increased at a faster pace than initially estimated in March, driven by energy costs, complicating the European Central Bank’s task as it tries to push the inflation rate below its 2 percent limit. Inflation in the 17-nation euro region held at 2.7 percent for a fourth month, the European Union’s statistics office in Luxembourg said in an e-mailed statement today. That’s higher than the estimate of 2.6 percent published on March 30. The economy may struggle to gather strength as budget cuts and rising energy prices erode consumer spending and company investment. European Central Bank President Mario Draghi on April 4 quashed talk of an early exit from emergency stimulus measures as Spain struggled to borrow in financial markets. Policy makers left the benchmark rate at a record low 1 percent.
“Inflation remains relatively high on the back of one-off factors,” said Annalisa Piazza, a fixed-income analyst at London-based Newedge Group. “However, the ECB has clearly signaled that policymakers are ready to act in a timely manner, should pass-through effects start to put upside risks to medium term inflation.”
Euro-Region Weakness Tests Maersk Competition Armistice: Freight (Source: Bloomberg)
Europe’s container-shipping operators need a pause in the slowdown afflicting the region to bolster the truce they’ve called in their fight for customers. Economic weakness caused by the debt crisis in Europe, which accounts for more than a third of global trade, is putting pressure on earnings at companies including A.P. Moeller-Maersk A/S, the world’s largest container line. Operators have shored up margins by raising charges after a price war last year, and Maersk plans to implement a further increase next month. While European Central Bank President Mario Draghi says the euro-area economy is showing signs of stabilization “at a low level,” the ECB itself predicts a contraction in the region this year. Analyst Rikard Vabo at Fearnley Fonds ASA in Oslo suggested shipping lines will struggle to stave off the effects of austerity and two years of debt-fueled turmoil.
“Maersk made a U-turn and started focusing more on the profitability and rates again, which basically saved the industry,” Vabo said in a phone interview. “For these rates to stick and for operators to keep the utilization level required on their ships, you will need to see an uptick on demand in the U.S. and Europe, and the outlook for Europe isn’t very encouraging.” He has a reduce recommendation on Maersk stock.
Spain’s Surging Bad Loans Cast New Doubts on Bank Cleanup Plan (Source: Bloomberg)
Spain’s surging bad loans are spurring doubt on whether the government can persuade investors that it can clean up the country’s banks without further damaging public finances. Non-performing loans as a proportion of total lending jumped to 7.91 percent in January, the highest level since 1994, from less than 1 percent in 2007, according to Bank of Spain data. The regulator is set to publish data for February today. Defaults are rising and credit is shrinking at a record pace as 24 percent unemployment corrodes the quality of loans built up in the country’s credit boom and saps the appetite of banks to make new ones. Doubts about the extent of Spain’s non- performing loans problem is hurting bank stocks and driving up the government’s borrowing costs on investor concern that the expense of propping up ailing lenders may add to the debt burden.
“One of our concerns in Spain is to what extent contingent liabilities could pass to the central government,” said Andrew Bosomworth, Pacific Investment Management Co.’s Munich-based head of portfolio management. Non-performing loans “will have to rise when you take into account the unemployment rate and what’s happening with the economy,” he said.
