Asian Stocks Rise on Central Banking Easing Speculation (Source:Bloomberg)
Asian stocks rose a third day, with the regional benchmark set to extend a three-month high, on speculation central banks from the U.S. to China will take steps to boost growth and after companies including Chimei Innolux Corp. beat estimates. Kobe Steel Ltd. and Iluka Resources Ltd. rose at least 4 percent ahead of a report tomorrow expected to show China’s inflation slowed for a fourth month, giving authorities room to ease policy in the world’s biggest commodities consumer. Chimei Innolux gained 7 percent in Taiwan after the display maker reported a smaller loss than analysts expected. Standard Chartered Plc (2888) dropped 0.7 percent after plunging yesterday as a U.S. regulator said the lender may face a suspension of business activities for dealings with Iran.
“There’s expectations that global easing policies may help stem the economic slowdown,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc. “The recovery in U.S. business conditions will bring benefits for the Asian economy. Investors are becoming less likely to avoid risky assets because of strong expectations Europe will overcome the crisis.” The MSCI Asia Pacific Index (MXAP) gained 0.8 percent to 120.49 as of 10:39 a.m. in Tokyo, headed for the highest close since May 8. Eight stocks rose for each that fell. The gauge gained 9.7 percent from this year’s lowest level in June through yesterday as the Europe eased conditions on Spain’s banking bailout and global central banks relaxed monetary policy.
Most Chinese Stocks Decline on Earnings Concern; Citic Advances (Source:Bloomberg)
Most Chinese stocks fell as speculation concern earnings growth will slow overshadowed speculation central banks will take steps to boost the global economy. Western Mining Co. (601168), China’s fourth-largest maker of zinc concentrate, dropped 0.8 percent after first-half profit slumped 78 percent from a year earlier. Citic Securities Co. climbed 1 percent, leading gains among brokerages after the Securities Times reported that funding for margin trading will be expanded. Seven stocks declined for every two that rose in the Shanghai Composite Index (SHCOMP), which added less than 0.1 percent to 2,158.63 as of 9:45 a.m. local time. China’s statistics bureau is due to release July economic data including industrial production and inflation tomorrow.
“Investors have high expectations that the government will do something to support the market such as a cut in the reserve requirement ratio or suspension of new share sales,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “Tomorrow’s data would probably show economic growth has stabilized but hasn’t picked up yet.” Speculation global central banks will take steps to boost economic growth mounted after Federal Reserve Bank of Boston President Eric Rosengren said yesterday the institution should pursue an “open-ended” easing program of “substantial magnitude.” German Chancellor Angela Merkel on Aug. 6 backed European Central Bank President Mario Draghi’s bond-buying plan.
U.S. Stocks Rise on Policy Bets as Earnings Top Estimates (Source:Bloomberg)
U.S. stocks advanced, sending the Standard & Poor’s 500 Index higher for a third straight day, amid better-than-estimated corporate earnings and speculation global central banks will take steps to boost economic growth. JPMorgan Chase & Co. and Morgan Stanley (MS) rallied at least 1.9 percent to pace gains among financial companies in the S&P 500. Chesapeake Energy Corp., the second-largest U.S. natural- gas producer, increased 9.4 percent after reporting the highest quarterly profit in the company’s history. Fossil Inc. (FOSL) surged 31 percent after forecasting earnings that exceeded analysts’ projections amid increasing sales of its Skagen brand. About two stocks rose for each that fell on U.S. exchanges at 4 p.m. New York time. The S&P 500 (SPX) added 0.5 percent to 1,401.35. It gained 2.7 percent in three days.
The Dow Jones Industrial Average climbed 51.09 points, or 0.4 percent, to 13,168.60. Volume for exchange-listed stocks in the U.S. was 6.4 billion shares, or about in line with the three-month ave rage. “The fear of things collapsing is going away,” said Tom Wirth, who helps manage $1.6 billion as senior investment officer for Chemung Canal Trust Co., in Elmira, New York. “The recession, which everyone was concerned about a month ago, is not going to happen. There’s a perception that the ECB is willing to buy bonds if needed.”
European Stocks Rise as Companies Beat Earnings Forecasts (Source:Bloomberg)
European stocks advanced for a third day as gains by companies that reported better-than-expected earnings offset falls by Standard Chartered Plc and Nestle (NESN) SA. Xstrata Plc (XTA) climbed 1.6 percent and Danske Bank A/S (DANSKE) added 6.7 percent after they reported earnings that beat estimates. Standard Chartered tumbled the most in almost 24 years after a U.S. regulator said the lender faces suspension of business activities because of transactions with Iranian banks. Nestle fell 1 percent. The Stoxx Europe 600 Index rose 0.8 percent to 268.80 at the close of trading. The gauge extended a four-month high yesterday, as Greece and its creditors agreed to strengthen efforts to meet bailout conditions and support economic growth. The measure has climbed 14 percent since June 1 as policy makers eased repayment terms for Spanish banks and optimism grew that central banks will announce stimulus measures.
“Expectations for European (SXXP) equities did get low,” Ben Lofthouse, a fund manager at Henderson Global Investors in London, said in a Bloomberg television interview. “We’ve seen a defensive rally. These companies are doing well. Their results are proving that they are doing OK.”
Recap Stock Index Market Report (Source:CME)
The September S&P 500 trended higher throughout the session and broke out to its highest level since May 1st. It seemed that growing prospects that the ECB was closer to a bond buying program, and that the Fed might pursue more asset purchases provided the early lift. The corporate earnings front was also positive this morning, and that contributed to the risk-on tone. Shares of Fossil were up by more than 30% after posting better than expected earnings and raising their full year outlook. Chesapeake Energy was up by more than 9.0% on the session after reporting a record quarterly profit and from plans to raise a more than expected amount of capital from asset sales. Most of the major S&P sectors were in positive territory, led by gains in energy and material-related shares. The market will get the latest earnings after the close from Walt Disney and Priceline.com.
Recap Interest Rate Market Report (Source:CME)
US Treasury markets traded sharply lower throughout the session, pressured by growing prospects that the ECB could be closer to a round of bond buying. Global equity markets rallied and the US dollar sold off, which further helped to tamp down safety demand for Treasuries. Comments from the Fed official Rosengren earlier this morning talking in favor of more asset purchases by the Central Bank might have limited earlier losses. This afternoon's $32.0 billion 3-Year Note auction drew a slightly higher yield of 0.37%, with an average bid to cover ratio. Prices across the Treasury curve sold off into new low ground for the session shortly thereafter. Some traders suggested that the market was likely to face a negative headwind ahead of tomorrow's $24.0 billion 10-Year Note and $16.0 billion 30-Year Bond auction on Thursday.
Most Emerging Stocks Rise After Germany Backs ECB Plan (Source:Bloomberg)
Most emerging-market stocks rose as speculation central banks in the U.S., Europe and China will boost efforts to lift growth outweighed concern that a global slump will damp earnings. The MSCI Emerging Markets Index (MXEF) was little changed at 967.85 in New York as 393 stocks advanced and 373 declined. Gauges in India, Russia and China rose and China Rongsheng Heavy Industries Group Holdings Ltd. (1101), the country’s biggest shipbuilder outside state control, surged the most in nine months in Hong Kong. Brazil’s Bovespa stock index fell for the first time in three days, led by steelmaker Usinas Siderurgicas de Minas Gerais SA and homebuilder Rossi Residencial SA.
Federal Reserve Bank of Boston President Eric Rosengren said on CNBC that the central bank should pursue an “open- ended” easing program of “substantial magnitude” to boost growth and hiring. German Chancellor Angela Merkel backed a bond-buying plan announced last week by the ECB, a spokesman said yesterday. Earnings announcements by companies in the developing-nations gauge so far this quarter have surpassed analyst estimates by an average 20 percent, according to data compiled by Bloomberg.
Treasuries Snap Loss After Bernanke Notes ‘Struggle’ (Source:Bloomberg)
Treasuries ended a three-day loss after Standard & Poor’s cut its outlook on Greece’s debt rating to negative, spurring demand for the refuge of U.S. securities. Pacific Investment Management Co.’s Mohamed El-Erian said investors who took advantage of a rally in risk markets should reduce exposure in favor of safer assets. The Treasury Department is scheduled to sell $24 billion of 10-year notes today and $16 billion of 30-year bonds tomorrow. It auctioned $32 billion of three-year debt yesterday. Benchmark 10-year yields were little changed at 1.62 percent as of 10:12 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The price of the 1.75 percent security due in May 2022 was 101 6/32. Yields have climbed from the record low of 1.38 percent set July 25.
“This is a good time to buy,” following the increase in rates, said Hajime Nagata, who helps oversee the equivalent of $131.1 billion as an investor in Tokyo at Diam Co., a unit of Dai-Ichi Life Insurance Co., Japan’s second-biggest life insurer. “The problem isn’t solved in Europe. The U.S. economy is not doing well.” S&P cut its outlook on Greece’s debt to negative from stable, which means it is more inclined to reduce its ranking for the nation. The government may fail to make the budget cuts required to receive its next aid payment from the European Union and the International Monetary Fund, the rating company said yesterday in a statement. Greece is ranked CCC by S&P, or eight levels below investment grade.
FOREX-Euro pulls back from 1-mth high; Aussie edges higher
SINGAPORE, Aug 7 (Reuters) - The euro dipped versus the dollar and pulled back from a one-month high, but remained supported by expectations that the European Central Bank will take action soon to lower borrowing costs for Spain and Italy.
"I think the risk or the bias here is perhaps a bit more short squeeze in the euro to the upside," said Sim Moh Siong, FX strategist for Bank of Singapore, referring to the possibility of the euro getting a lift if traders with short positions in the single currency unwind their bearish bets.
Yen Remains Weaker as Yield Gap Widens, Stocks Advance (Source:Bloomberg)
The yen remained weaker against the dollar as the extra yield for two-year U.S. Treasuries over Japan’s government notes widened to the most in almost one month, dimming the appeal of the Asian nation’s debt. Nine of 22 analysts surveyed by Bloomberg News said Japan’s central bank may scrap the yield floor on its purchases of longer-term debt as early as tomorrow. The euro fell against most of its major peers before data forecast to show industrial production in Germany, Europe’s biggest economy, dropped in June. Standard & Poor’s revised the outlook on Greece’s sovereign rating to negative from stable and placed Banco Popular Espanol S.A.’s BB+ on creditwatch with negative implications. “The dollar-yen is becoming responsive to yield differentials,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company. “The euro will fall as economic fundamentals remain weak and there is little the ECB can do,” referring to the European Central Bank. The yen traded at 78.55 per dollar as of 10:07 a.m. in Tokyo from 78.61 at the close in New York, when it fell 0.5 percent. The Japanese currency was little changed at 97.32 per euro from 97.46 yesterday, when it touched 97.82, the weakest since July 12. The 17-nation currency slid 0.1 percent to $1.2390.
Job Openings in U.S. Rose in June to Four-Year High: Economy (Source:Bloomberg)
Job openings in the U.S. rose in June to the highest level in four years, indicating employment gains may accelerate in the second half of the year. The number of positions waiting to be filled climbed by 105,000 to 3.76 million, the most since July 2008, from a revised 3.66 million the prior month, the Labor Department said today in Washington. Hiring and firings cooled. A rising need for workers shows some employers are expanding as sales improve, laying the ground for a pickup in hiring that may help boost consumer spending, which accounts for about 70 percent of the economy. Payrolls rose more than forecast in July even as the unemployment rate climbed to a five-month high, the Labor Department reported last week.
“The economy is still growing, that’s underpinning labor demand,” said Henry Mo, a senior economist at Credit Suisse in New York. “Job availability is increasing, but we still need to see employers put this into action. The economy will grow a little better in the second half than in the first half and the labor market will improve gradually.”
Consumer Credit in U.S. Increased Less Than Forecast in June (Source:Bloomberg)
Consumer borrowing in the U.S. rose less than forecast in June, restrained by the second decline in credit-card debt in the last three months. The $6.5 billion increase was the smallest since October and followed a revised $16.7 billion gain in May that was less than initially estimated, Federal Reserve figures showed today in Washington. Economists projected a $10.3 billion rise, according to the median forecast in a Bloomberg survey. Revolving credit, which includes credit card spending, dropped by $3.7 billion. Non-revolving loans, such as those for college tuition or auto purchases, climbed $10.2 billion. Americans may have been trying to obtain school loans before a possible interest rate increase took place on July 1. President Barack Obama has since signed into law a one-year extension that maintains the lower rate. The strongest auto sales in four months in June showed some households took advantage of cheaper borrowing costs.
“If the consumer is willing to borrow, they feel good about future income prospects,” said Jonathan Basile, an economist at Credit Suisse in New York. “In the last few months, we’ve seen some unevenness in revolving credit, which fits with the weakness we saw in retail sales and the downtick in consumer spending.”
Fed’s Rosengren Urges ‘Open-Ended’ Easing Program (Source:Bloomberg)
Federal Reserve Bank of Boston President Eric Rosengren said the central bank should pursue an “open-ended” quantitative easing program of “substantial magnitude” to boost growth and hiring amid a global slowdown. The Fed should set its guidance based on the economic outcomes it seeks and focus on buying more mortgage-backed securities, Rosengren said today in a CNBC interview. Without new stimulus, the jobless rate would rise to 8.4 percent at the end of this year and economic growth wouldn’t exceed its 1.75 percent average in the first half of the year, he said. “What I would argue for actually is to have it open-ended, that we focus on economic outcomes,” Rosengren said. “It would be setting a quantity that you’re going to continue to buy until you get the economic outcomes that you want.”
Additional accommodation is necessary because unemployment remains at the same 8.3 percent level it was in January even after the central bank has purchased $2.3 trillion in bonds and held its main interest rate near zero since December 2008, Rosengren said. The Boston Fed chief doesn’t have a vote on the policy-setting Federal Open Market Committee this year.
Electricity Use Seen Overstating China Economic Slowdown (Source:Bloomberg)
A stagnation in electricity output that fanned speculation China’s slowdown is intensifying may instead be evidence of an accelerated transition to a more services-based economy. The government will release information on July electricity production tomorrow as part of its report on industrial output. Power generation in June was unchanged from a year earlier even as industrial production rose 9.5 percent. Heavy industries including metals and cement consume about 60 percent of electricity and account for 20 percent of gross domestic product, according to GK Dragonomics, a Beijing-based consultant. The shifts signal that electricity’s relevance as an economic indicator is receding five years after Li Keqiang, now the vice premier, was quoted as saying he watched data on power, rail cargo and loans because GDP numbers were “man-made.” An evolution within manufacturing to more efficient production is also damping electricity use as China upgrades its factories.
“Steel plants, cement plants and refinery facilities -- these big electricity consumers -- have suffered a lot more than service-industry players in the first half,” said Dong Tao, Credit Suisse Group AG’s Hong Kong-based head of Asia economics excluding Japan. “So electricity consumption is not a benchmark but a reference.”
Won Weakening to Samsung’s Kim as Rate Cut to Aid Growth (Source:Bloomberg)
South Korea will probably cut interest rates once more this year and let the won weaken to keep pace with policy makers seeking to shore up economic growth, according to the nation’s largest asset manager. “The growth challenge for Korea is in front of us,” Kim Jun Sung, chief investment officer for equities at Samsung Asset Management Co., which oversees about $100 billion, said in an interview in Seoul yesterday. “There is a lot more room for flexibility” for a weaker won, he said. The Bank of Korea, which unexpectedly cut benchmark borrowing costs on July 12, is likely to make another reduction before December presidential elections to help support indebted households, Kim said. Policy makers need to allow the won, which has gained 1.5 percent against the dollar this quarter, to weaken in the “short term” as Asian nations let currencies fall to stay competitive, he said. South Korea depends on exports for about half of gross domestic product.
Samsung Asset favors South Korean companies that are global and taking market share such as Samsung Electronics Co. (005930) and Hyundai Motor Co. (005380), Kim said. The nation’s benchmark Kospi index has fallen 6.5 percent from its April 3 high, compared with an 8.1 percent drop in the MSCI Emerging Markets Index, as exports slid almost 9 percent in July from a year ago and the central bank forecast economic growth will slow to 3 percent this year from the previous projection of 3.5 percent.
South Korea to Weigh Second Straight Cut Against Signaling Panic (Source:Bloomberg)
The Bank of Korea is set to consider cutting rates for a second straight month, weighing the need to prop up a deteriorating economy against the risk of signaling panic to markets. Ten of 16 economists surveyed by Bloomberg News predict Governor Kim Choong Soo will keep the seven-day repurchase rate at 3 percent tomorrow. The rest expect a quarter percentage point cut to 2.75 percent, which would be the first consecutive reduction in more than three years. The BOK faces increasing pressure to act after exports fell the most since 2009 on Europe’s debt turmoil and inflation eased to a 12-year low. While Kim said last month that the economy is losing steam faster than expected, policy makers may wait to see more data before cutting rates again, according to economist Wai Ho Leong.
“Dropping rates back-to-back after a long period of holding rates might convey an undesired sense of panic in the market,” said Leong, a senior regional economist at Barclays Plc in Singapore. Policy makers may “prefer to deliver easing in a more calibrated fashion, conditional on data releases,” Leong said. Indonesia also decides monetary policy tomorrow and will probably keep interest rates unchanged for a sixth month, according to 25 of 26 economists in a Bloomberg survey. The Bank of Japan (8301) may refrain from adding monetary stimulus for a fourth time, according to all 22 economists polled. The State Bank of Pakistan is scheduled to decide on borrowing costs on Aug. 10. “For Asia as a whole, we won’t see rampant rate cuts,” said Sanjay Mathur, Singapore-based head of research and strategy for non-Japan Asia at Royal Bank of Scotland Group Plc. “The economic environment is not dire enough to say we need to cut rates aggressively.”
Italy Economy Shrinks for a Fourth Quarter as Slump Deepens (Source:Bloomberg)
Italy’s economy contracted for a fourth straight quarter in the three months through June as manufacturing slumped and the euro-area debt crisis intensified. Gross domestic product declined 0.7 percent in the second quarter, Rome-based national statistics institute Istat said in a preliminary report today. The contraction was less than the median forecast for a 0.8 percent decline in a survey of 22 economists by Bloomberg News. GDP fell 2.5 percent from a year earlier, the most since the final quarter of 2009. Prime Minister Mario Monti’s government is implementing 20 billion euros ($25 billion) in austerity measures that have curtailed consumer spending and prompted Italy’s largest manufacturer, Fiat SpA (F), to curb investment. Industrial output declined more than forecast in June, Istat said in a separate release today as Monti’s policies contributed to deepening the country’s fourth recession since 2001.
“We believe Italy faces another two quarters of negative GDP growth this year,” said Catherine Colebrook, euro-area inflation economist at BNP Paribas SA, in a research note. The industrial output decline “suggests that Italy’s economy still has some way to go before it moves back into growth territory.”
U.K. June Production Data May Lead to Upward Revision to GDP (Source:Bloomberg)
U.K. industrial output fell less than estimated in June, indicating the recession may not have been as deep in the second quarter as previously reported. Production dropped 2.5 percent from May due to the extra public holiday for the queen’s Jubilee, the Office for National Statistics said today in London. That’s smaller than the drop estimated in the second-quarter gross-domestic-product data, and the ONS said today’s numbers may mean a 0.07 percentage point upward revision to the 0.7 percent GDP decline. Britain’s recession has worsened as the government’s austerity program and the euro-area debt crisis undermined confidence and curbed demand. The Bank of England, which maintained its current stimulus program last week, will probably cut its U.K. economic outlook when it publishes new forecasts tomorrow, according to a survey of economists.
“Any upward GDP revisions could provide a modest boost to sentiment and would be welcome news for the government,” London-based HSBC Holdings Plc economists John Zhu and Simon Wells wrote in a note to clients today. “However, even if these upward revisions do happen, the news for policymakers may not be huge, and the U.K. would still be stagnating.”
German Factory Orders Fall Twice as Much as Forecast (Source:Bloomberg)
German factory orders declined more than twice as much as economists forecast in June as sales to euro-area countries slumped. Orders, adjusted for seasonal swings and inflation, dropped 1.7 percent from May, when they rose 0.7 percent, the Economy Ministry in Berlin said today. Economists forecast a 0.8 percent decline, according to the median of 35 estimates in a Bloomberg News survey. From a year earlier, orders fell 7.8 percent when adjusted for work days. Today’s report is the latest to show Europe’s largest economy is cooling as the sovereign debt crisis erodes demand for its goods, hurting earnings at companies including Bayerische Motoren Werke AG (BMW), Daimler AG and Siemens AG. While the Bundesbank last month estimated moderate growth in the second quarter, aided by domestic spending, the manufacturing industry is contracting and business confidence fell for a third straight month in July.
“All in all, quite a gloomy report,” said Annalisa Piazza, an economist at Newedge Strategy in London. “Exports are badly hit by the current cyclical slowdown and the export- led German industrial sector is not going to be spared from the slump in trade activity.”
