Signs of global slowdown mount; debt crisis weighs
LONDON/NEW YORK, July 21 (Reuters) - Private-sector growth in the euro zone ground to a halt this month and China's factory sector contracted for the first time in a year, surveys showed on Thursday, deepening evidence of a global slowdown.
Hopes that the U.S. economy will snap out of its recent slowdown were supported by a rebound in manufacturing in the country's mid-Atlantic region, although an unexpected rise in jobless claims underscored how weak the labor market remains.
Asian Stocks Retreat as U.S. Lawmakers Fail to Agree Deal on Debt Ceiling (Source: Bloomberg)
Asian stocks fell, led by banks and exporters, as the failure to raise the U.S. federal debt limit raised the prospect of a default that may threaten the global recovery. Toyota Motor Corp., the world’s biggest carmaker by market value, slid 1.2 percent in Tokyo, leading consumer discretionary stocks lower. Honda Motor Co., the Japanese automaker which receives 44 percent of its revenue from the U.S., declined 1.1 percent. Commonwealth Bank of Australia, the nation’s biggest lender by market value, slipped 1.2 percent in Sydney. BHP Billiton Ltd., the world’s No. 1 mining company by market capitalization, slid 0.6 percent, leading raw material producers lower after oil prices declined. “The ongoing saga of needing to raise the debt ceiling in the U.S. is likely to remain a concern for stock markets as the deadline heads closer with no apparent signs of agreement,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “If talks fail, we should expect a credit rating downgrade and another turn downwards in the U.S. economy.”
U.S. Stock Futures Decline After Lawmakers Fail to Reach Debt-Ceiling Deal (Source: Bloomberg)
U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will drop after rallying within 1.4 percent of a three-year high, as President Barack Obama and Congress failed to reach an agreement on raising the federal debt limit, intensifying concern the nation will default. S&P 500 futures expiring in September declined 0.9 percent to 1,328.80 at 9:29 a.m. in Tokyo. Dow Jones Industrial Average futures lost 111 points, or 0.9 percent, to 12,510. House Speaker John Boehner told Republicans that there’s no agreement on a plan for raising the ceiling before a default threatened for Aug. 2. A Republican congressional official said Boehner, speaking by telephone to lawmakers, is reporting that discussions are continuing. The impasse has boosted the chance S&P will cut the U.S. credit rating from AAA within three months to 50 percent, the company said July 21.
US regional factories resume growth, jobs a worry
WASHINGTON, July 21 (Reuters) - Factory activity in the U.S. Mid-Atlantic region rebounded in July, but stubbornly high new filings for jobless benefits suggested an expected pick-up in economic growth in the second half of 2011 would be modest.
The Philadelphia Federal Reserve Bank said its business activity index, which gauges factory activity in the region, rose to 3.2 from a near two-year low of minus 7.7 in June. Orders, hiring and shipments all improved.
Boeing, Google, IBM, Marathon, Weatherford: U.S. Equity Preview (Source: Bloomberg)
Shares of the following companies may have unusual moves in U.S. trading tomorrow. Stock symbols are in parentheses.
Boeing Co. (BA) : The world’s second-largest commercial- plane maker said it expects its 787 Dreamliner certification by September.
Bridgepoint Education Inc. (BPI) : The for-profit provider of college classes said in a filing with the U.S. Securities and Exchange Commission that stockholder Warburg Pincus plans to resell 34.6 million shares.
E*Trade Financial Corp. (ETFC US): The online brokerage plans to hire Morgan Stanley (MS) to explore a sale after its largest shareholder, Citadel LLC, said the company needed to take action to reverse “catastrophic losses” for investors.
Google Inc. (GOOG) : Google may be the best stock pick on the outlook for mobile computing and social networking, as bubble concerns loom for newcomers such as LinkedIn and others, Barron’s reported.
HollyFrontier Corp. (HFC US): HollyFrontier and Marathon Petroleum Corp. (MPC US) are among independent refining companies that may rise as margins improve on a low-cost crude oil supply and facility upgrades, Barron’s reported.
International Business Machines Corp. (IBM) : IBM may rise to $205 or higher in a year or two as it boosts sales in emerging markets and improves profitability, Barron’s reported, without saying how it got the number.
Iridium Communications Inc. (IRDM) : Whitney Tilson’s T2 Partners disclosed a 10 percent stake in the satellite-services provider, and said it plans to pursue talks with management about capital structure, according to a filing with the SEC. T2 Partners holds about 7.04 million shares, up from its previous 6.9 million.
Legacy Reserves (LGCY US): The Midland, Texas-based oil company boosted its quarterly dividend by one cent to 54 cents a unit.
Loews Corp. (L) : James Tisch, the holding company’s chief executive officer, told CNBC that he doesn’t see any mergers and acquisition opportunities “right now.”
Weatherford International Ltd. (WFT) : Weatherford International may rise more than 50 percent by the end of 2013 on cost cutting and as oil exploration and drilling activity stays strong, Barron’s reported.
Treasuries Decline for First Time in Three Weeks as Deficit Talks Collapse (Source: Bloomberg)
Treasuries fell for the first time in three weeks as talks collapsed between President Barack Obama and House Speaker John Boehner over a deficit-cutting package as part of an agreement that would lift the nation’s debt ceiling. Two-year note yields touched the highest in almost two weeks July 21 as Standard & Poor’s reiterated it saw a 50 percent chance of cutting the U.S. credit rating within three months and European leaders reached a deal to stem Greece’s debt crisis. Boehner said yesterday after markets closed he will instead talk with Senate leaders on a way to avoid a U.S. default. The U.S. will sell $99 billion in notes next week. “It’s certainly a negative thing for Treasuries,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia. “The deep divisions between the parties make an agreement much tougher, but we still have the potential for 11th-hour emergency measures.”
U.S. Vulnerable to Downgrade: El-Erian (Source: Bloomberg)
The U.S. government may lose its AAA credit rating even if lawmakers reach a plan to avoid a default, said Mohamed A. El-Erian, whose Pacific Investment Management Co. is the world’s largest manager of bond funds. “In most likelihood, a last-minute political compromise will avoid a default but will leave the AAA rating extremely vulnerable,” El-Erian, the Newport Beach, California-based chief executive officer and co-chief investment officer at Pimco, wrote in an e-mail. “Stock markets around the globe will look to price in a greater uncertainty premium on account of political squabbles in the world’s largest economy and the increasing risk that it may lose its sacred AAA rating.” House Speaker John Boehner plans to press ahead with a shorter-term increase in the U.S. debt limit than President Barack Obama has requested, he told lawmakers yesterday, defying a veto threat and signaling continued stalemate in the U.S. Congress as time runs short for a deal.
The impasse has boosted the chance S&P will cut the U.S. credit rating from AAA within three months to 50 percent, the company said July 21.
States Losing Jobs Almost Equal to Those Gaining, Showing Labor Weakness (Source: Bloomberg)
Payrolls dropped in 24 U.S. states in June and climbed in 26, indicating the labor market is struggling across much of the world’s largest economy. Tennessee led the nation with a 16,900 decrease in payrolls, followed by Missouri with a 15,700 drop, figures from the Labor Department showed today in Washington. Texas and California had the biggest employment gains. The jobless rate rose in 28 states. The report is consistent with nationwide figures released July 8 that showed employers added 18,000 workers in June, the fewest in nine months, and unemployment rose to 9.2 percent, the third straight monthly gain. Hiring needs to accelerate to ensure consumers keep spending, which accounts for about 70 percent of the economy.
Boehner Ends Deficit Talks With Obama, Says Deal Was ‘Never Really Close’ (Source: Bloomberg)
House Speaker John Boehner withdrew from negotiations with the White House on a broad deficit- reduction package and said he will instead talk with Senate leaders on a way to avoid a U.S. default. “A deal was never reached, and was never really close,” Boehner said in a letter prepared for distribution to House colleagues. “In the end, we couldn’t connect.” President Barack Obama said he had offered Boehner an “extraordinarily fair deal” that would cut trillions of dollars in spending, including on entitlement programs. “It is hard to understand why Speaker Boehner would walk away from this kind of deal,” the president said. “We have now run out of time,” Obama said, saying he is calling legislative leaders to the White House at 11 a.m. tomorrow.
Bernanke, Geithner, Dudley Are Said to Meet on Debt Limit (Source: Bloomberg)
Treasury Secretary Timothy F. Geithner was scheduled to meet this morning with Federal Reserve Chairman Ben S. Bernanke to discuss the implications of a failure of Congress to raise the debt limit in a timely manner, according to an administration official. William C. Dudley, president of the Federal Reserve Bank of New York, was also scheduled to take part in the meeting. The administration official wasn’t authorized to discuss the meeting and declined to be identified. President Barack Obama and House Speaker John Boehner, seeking to avert a U.S. default, are pursuing a broad agreement to boost the debt limit while cutting spending by trillions of dollars and overhauling the tax code. Geithner says the Treasury Department’s borrowing ability will expire on Aug. 2 unless Congress raises the ceiling.
U.S. Stocks Advance Amid Europe Optimism (Source: Bloomberg)
U.S. stocks rose this week, including the biggest one-day gain since March for the Standard & Poor’s 500 Index, as Europe pledged support for Greece to end the region’s debt crisis and earnings reports drove companies from Morgan Stanley to Advanced Micro Devices Inc. higher. Morgan Stanley climbed 13 percent after posting the only quarterly gain in trading revenue among major U.S. banks. AMD jumped 21 percent, leading technology stocks in the S&P 500 to a 3.7 percent gain, after the chipmaker’s forecast beat analysts’ projections. Medco Health Solutions Inc. (MHS) surged 22 percent as Express Scripts Inc. agreed to buy it. E*Trade Financial Corp. added 21 percent amid takeover speculation. The S&P 500 increased 2.2 percent to 1,345.02 this week. It jumped 1.6 percent on July 19 amid optimism President Barack Obama and lawmakers will agree to raise the nation’s debt limit before an Aug. 2 deadline. The Dow Jones Industrial Average rose 201.43 points, or 1.6 percent, to 12,681.16 since July 15.
Global Logistic Said to Be Preferred Bidder for LaSalle’s Assets (Source: Bloomberg)
Global Logistic Properties Ltd. (GLP) was selected to begin exclusive negotiations to buy about 140 billion yen ($1.8 billion) of warehouses in Japan, two people with direct knowledge of the deal said. Global Logistic, based in Singapore, will begin the talks with seller LaSalle Investment Management Inc., said the people, who asked not to be identified before the negotiations are completed. Hideko Takee, a spokeswoman for LaSalle, declined to comment. At least three other companies including Mitsubishi Corp. (8058), Kenedix Inc. (4321) and Blackstone Group LP (BX) had submitted proposals in an earlier round of bidding, four people familiar with the deal said this month. The properties held by LaSalle include 24 warehouses in cities such as Tokyo and Osaka, they said.
Threat to Japan’s Food Chain Multiplies (Source: Bloomberg)
Radiation threats to Japan’s food chain are multiplying as cesium emissions from the crippled Fukushima Dai-Ichi nuclear power plant spread more widely, moving from hay to cattle to beef. Hay contaminated with as much as 690,000 becquerels a kilogram, compared with a government safety standard of 300 becquerels, has been fed to cattle. Beef with unsafe levels of the radioactive element was detected in four prefectures, the health ministry said July 23. Agriculture Minister Michihiko Kano has said officials were unaware of the risk that rice farmers might ship tainted hay to cattle growers. That highlights the government’s inability to think ahead and to act, said Mariko Sano, secretary general for Shufuren, a housewives organization in Tokyo.
European Leaders Try to Persuade Investors on Accord to Halt Debt Turmoil (Source: Bloomberg)
Euro-area leaders fanned out to persuade investors that last night’s array of crisis-fighting measures can help stop the debt turmoil that’s defied them for more than a year. German Chancellor Angela Merkel said government chiefs had learned from the “systemic effects” in the single-currency area and widened the scope of their bailout fund to allow it to buy the bonds of debt-laden nations, support banks and offer credit lines. The agreement included new aid for Greece that embraced bondholders, prompting Fitch Ratings to say it will put a default rating on Greek debt. The risk is that the package will follow the pattern of previous agreements and eventually disappoint markets. Leaders declined to increase the 440 billion euro ($632 billion) fund, prompting economists from Citigroup Inc. to Goldman Sachs Group Inc. to question whether it’s big enough to insulate Spain and Italy from contagion. The onus also remains on Greece and other cash-strapped nations to keep delivering austerity measures.
Europe agrees sweeping new action on debt crisis
BRUSSELS, July 22 (Reuters) - Euro zone leaders agreed on a second rescue package for debt-stricken Greece that risks triggering a temporary default and will give their financial rescue fund broader powers to try to prevent market instability spreading through the region.
An emergency summit of leaders of the 17-nation currency area on Thursday pledged to conduct a second bailout of Greece with an extra 109 billion euros ($157 billion) of government money, plus a contribution by private sector bondholders estimated to total as much as 50 billion euros by mid-2014.
EU May Accept Greek Default as Crisis Fight Intensifies (Source: Bloomberg)
Euro-area leaders redoubled efforts to end the 21-month sovereign bond crisis as they erected a firewall around Spain and Italy and risked temporary default to lighten Greece’s debt burden. After eight hours of talks in Brussels, leaders announced 159 billion euros ($229 billion) of new aid for Greece late yesterday and cajoled bondholders into footing part of the bill. They also empowered their 440-billion euro rescue fund to buy debt across stressed euro nations after a market rout last week sparked concern the crisis was spreading. The fund can also aid troubled banks and offer credit-lines to repel speculators. Greek, Spanish and Italian bonds rose after officials drew concessions from Germany, the European Central Bank and investors for a twin-track strategy to support Greece and ensure its woes don’t spread. The summit is the latest in a running- battle to resolve the crisis amid calls this week for tougher action from U.S. President Barack Obama and the International Monetary Fund.
Weidmann Says Greek Crisis Package May Weaken Incentive for Budget Reforms (Source: Bloomberg)
Bundesbank President Jens Weidmann said Greece’s second bailout package may weaken incentives for governments to implement solid fiscal policies. “By transferring sizeable additional risks to aid-granting countries and their taxpayers, the euro area made a large step toward a collectivization of risks in case of unsolid public finances and economic mistakes,” Weidmann said in an e-mailed statement yesterday. “That’s weakening the foundations of a monetary union founded on fiscal self-responsibility. In the future, it will be even more difficult to maintain incentives for solid fiscal policies.” European leaders agreed on a 159 billion-euro ($228 billion) plan to stem Greece’s debt crisis and contain a spillover into larger countries such as Spain and Italy late on July 21. The package empowers the region’s 440-billion euro rescue fund to buy debt of distressed euro nations, aid troubled banks and offer credit-lines to repel speculators. Financial institutions will contribute 50 billion euros to the proposal.
European Stocks Rally After EU Agrees on Second Bailout Plan for Greece (Source: Bloomberg)
European stocks climbed this week, snapping two weeks of losses, as euro-region leaders agreed on a second bailout package for Greece in a bid to end the region’s debt crisis. Banks led gains in the Stoxx Europe 600 Index, with National Bank of Greece SA, Alpha Bank SA and Dexia SA all surging more than 18 percent. Renewable Energy Corp. jumped 33 percent, the most since 2008, after its biggest shareholder said the share price is too low for it to consider selling its stake. Electrolux AB, the world’s second-largest appliance maker, plunged 17 percent after earnings missed estimates. The Stoxx 600 advanced 1.9 percent to 272.02 this past week. The gauge has still fallen 6.6 percent from year’s high in February amid speculation Europe’s fiscal crisis will derail the economic recovery and concern U.S. lawmakers will fail to agree on raising the nation’s debt ceiling.
Dollar Falls Against Swiss Franc on Debt Ceiling Impasse; Yen Pares Gains (Source: Bloomberg)
The dollar fell against the Swiss franc as U.S. lawmakers failed to agree on raising the nation’s $14.3 trillion debt ceiling, boosting the odds of a default as soon as next week. The greenback touched a four-month low against the yen as Republicans prepared to force action on a shorter-term extension of the U.S. debt limit than President Barack Obama has requested. The Australian dollar fell as declines in shares curbed demand for higher-yielding currencies. Gains in the yen were limited on speculation Japan will intervene in the foreign- exchange market to stop its advance. “U.S. dollar down, Swiss franc higher is the most obvious trade on the back of a disappointment,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp, Australia’s second-largest lender. “A half-baked answer would probably also be disappointing to the markets. They’re looking for a solution that’s not just short-term but something long-term and that’s what the ratings agencies have said they want.”
Vietnam’s Inflation Accelerates to 22%, Highest Among Economies in Asia (Source: Bloomberg)
Vietnamese inflation accelerated for an 11th month in July after the central bank cut a key interest rate even as the nation faces the fastest price gains in Asia. Consumer prices rose 22.16 percent from a year earlier, compared with June’s 20.82 percent pace, data released by the General Statistics Office in Hanoi showed today. Prices climbed 1.17 percent from June. The central bank reduced its repurchase rate to 14 percent from 15 percent on July 4 after a spate of increases since November to fight inflation, leading the International Monetary Fund to say the cut may confuse investors. The benchmark VN Index of stocks is down 16 percent this year, on concern price gains will hurt the economy. “The markets were very surprised by the easing,” Prakriti Sofat, a Singapore-based economist at Barclays Capital, said before the release. “It’s too early to go into a full-blown easing cycle given that inflation and inflation expectations remain elevated.”
Canadian Inflation Slows More Than Forecast on Car Discounts, Hotel Rates (Source: Bloomberg)
Canada’s inflation rate slowed more than economists forecast in June as carmakers offered larger discounts, hotel rates declined and gasoline prices eased. The consumer-price index increased 3.1 percent from a year earlier, Statistics Canada said today in Ottawa, following a May increase of 3.7 percent that was the fastest since March 2003. The lowest prediction in a Bloomberg survey of 24 economists was 3.4 percent, with a median forecast of 3.6 percent. The core inflation rate, which excludes eight volatile items such as gasoline, unexpectedly slowed to a 1.3 percent pace in June from May’s 1.8 percent. Economists forecast it would accelerate to 1.9 percent. Bank of Canada Governor Mark Carney said this week that inflation will exceed 3 percent, the top of his target range, in “the short term,” while keeping his key interest rate at 1 percent to foster an economic recovery. Policy makers are weighing rising prices against the risks posed by Europe’s debt crisis and slow U.S. growth.
Canada’s Dollar Rises for Second Week on Central Bank Interest Rate Stance (Source: Bloomberg)
Canada’s dollar rose, touching the strongest level against the greenback in more than three years, as investors took Bank of Canada statements to mean the central bank may become more aggressive with interest-rate increases. Gains by the currency, nicknamed the loonie, were tempered after a government report yesterday showed inflation didn’t increase as much as forecast, quelling speculation the central bank would raise interest rates as soon as September. The currency fell this week against 13 of its 16 most-traded counterparts before a report next week forecast to show the nation’s economy grew at a faster pace in May than April.
“It provided a bit of a counterpoint to what we had earlier in the week in terms of the hawkishness,” said Shaun Osborne, chief currency strategist in Toronto at TD Securities Inc., a unit of Canada’s second-largest bank, by phone from Toronto, referring to the inflation report. “It does suggest there’s no rush to tighten. There’s a chance that we see the Canadian dollar soften up a little.”
Asian Stocks Erase Yearly Drop on Optimism Europe Crisis Easing (Source: Bloomberg)
Asian stocks climbed this week, erasing the regional benchmark index’s loss for the year, as steps by European leaders toward easing the region’s sovereign debt crisis, including fresh aid for Greece, boosted the earnings outlook for Asia’s banks and exporters. Esprit Ltd., a clothier that gets most of its revenue from Europe, jumped 12 percent in Hong Kong through this week. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest publicly listed bank, rose 3.6 percent in Tokyo. Samsung Electronics Co. led technology stocks higher, gaining 2.2 percent in Seoul after Apple Inc.’s profit topped estimates. James Hardie Industries SE (JHX), the biggest seller of home siding in the U.S., rose 4.4 percent after new-homes construction in the nation surged to a five- month high. The MSCI Asia Pacific Index rose 2.5 percent to 139.04 this week, capping the gauge’s fourth advance in five weeks. Last week, the measure dropped for the first time in four weeks after Moody’s Investors Service put the U.S. under review for a possible credit-rating downgrade and European finance ministers declined to rule out a temporary default for Greece.
Stocks off highs, euro up before EU summit
LONDON, July 21 (Reuters) - World stocks held below a 1-1/2 week high after a disappointing services sector survey in the euro zone while the euro ticked up as investors awaited details of a Franco-German deal on a Greek bailout at a European summit later.
"In the last 48 hours the market has been positioning for another flurry of risk appetite and getting back into the high-yielding currencies like the euro," said Derek Halpenny, currency strategist at Bank of Tokyo-Mitsubishi UFJ.
FOREX-Debt deal supports euro but gains seen limited
LONDON, July 22 (Reuters) - The euro hovered near a two-week high against the dollar and jumped against the safe-haven Swiss franc on Friday after euro zone officials agreed a second rescue package for Greece and steps to stop the debt crisis spreading to other countries.
The package was far more ambitious than anticipated earlier this week and propelled the euro to a two-week high of $1.4440 against the dollar and pushed it up 1 percent against the Swiss franc.
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