GLOBAL MARKETS-Euro, S&P futures firm on G20; Asian stks weak
HONG KONG, Sept 23 (Reuters) - The euro rose briefly early on Friday on talk of a G20 emergency statement to address the euro zone crisis, but the prospect of a global recession kept Asian stocks firmly on track for their worst weekly drop since November 2008.
Alarm about the risk of another economic downturn, after the U.S. Federal Reserve's dire forecast at its two-day policy meeting which finished on Wednesday, pushed world stocks to 13-month lows as investors shed risky assets from portfolios and scurried to safer havens.
Global Stocks Enter Bear Market (Source: Bloomberg)
Stocks fell, pushing the MSCI All- Country World Index of 45 nations into a bear market for the first time in more than two years, after the worsening European debt crisis and threat of a U.S. recession erased more than $10 trillion from equities since May. The MSCI index has lost more than 20 percent since peaking on May 2, meeting the common definition of a bear market, after slipping 4.5 percent to a 13-month low of 277.38. The MSCI World (MXWO) Index of shares in developed nations also fell into a bear market yesterday, plunging 4.2 percent. The MSCI Emerging Markets Index reached the 20 percent threshold on Sept. 13.
The world is poised for a financial crisis, Mohamed El- Erian, chief executive officer of Pacific Investment Management Co., said in Washington yesterday. The Federal Reserve said Sept. 21 that there are “significant downside risks” in the U.S. economy, prompting the central bank to announce a $400 billion plan to spur growth as the recovery from the worst contraction since the Great Depression falters.
Asian Stocks Set for Worst Week Since 2008 on Recession Concern (Source: Bloomberg)
Asian stocks fell, driving a regional benchmark index toward its biggest weekly drop in almost three years, as concern intensified that policy makers worldwide may be running out of tools to avert another global economic recession. BHP Billiton Ltd. (BHP), the world’s No. 1 mining company, slumped 2.8 percent after crude oil and metal prices tumbled yesterday. Alumina Ltd. (AWC), a partner in the largest global producer of the material used to make aluminum, retreated 1.4 percent in Sydney. Korea Zinc Co., which produces gold and silver, plunged 13 percent in Seoul and Samsung Electronics Co., South Korea’s biggest exporter of consumer electronics, lost 2.7 percent. The MSCI Asia Pacific excluding Japan Index dropped 2.5 percent to 370.04 as of 10:32 a.m. in Tokyo. The gauge is set for an 11 percent weekly drop, the most since October 2008.
The measure has tumbled 16 percent this month amid concern Europe’s debt crisis is spreading and signs of slowing U.S. economic growth. Japanese markets are closed today for a public holiday.
European Stocks Drop as Fed Sees ‘Significant’ Economic Risks; Rio Tumbles (Source: Bloomberg)
European stocks tumbled to a two- year low as the Federal Reserve signaled “significant downside risks” to the world’s largest economy and Moody’s Investors Service downgraded three U.S. banks. Logitech International SA (LOGN), the world’s biggest maker of computer mice, plunged 12 percent after cutting its forecasts for the second time in two months. Rio Tinto Group, the world’s second-largest mining company, sank the most in more than two years as copper fell for a fifth day. LVMH Moet Hennessy Louis Vuitton SA (MC) and Burberry Group Plc (BRBY) led luxury stocks lower. The Stoxx Europe 600 Index sank 4.6 percent to 214.89 at the 4:30 p.m. close in London, the lowest since July 2009. Today’s drop was the biggest in five weeks and extends the decline from this year’s high on Feb. 17 to 26 percent amid concern the global economic recovery is stalling and the European debt crisis is spreading.
Obama Urges Coordinated Action Among Allies to Aid Recovery (Source: Bloomberg)
President Barack Obama used the annual meeting of the United Nations General Assembly to press leaders, in public and private, to take “coordinated action” to prevent the world’s economy from slipping into a recession. As a bid by Palestinians for United Nations recognition dominated discussions at the world body in New York, Obama conferred with French President Nicolas Sarkozy, U.K. Prime Minister David Cameron and Japanese Prime Minister Yoshihiko Noda on finding a way to sustain a fragile recovery amid the European debt crisis and sluggish U.S. growth. “We acted together to avert a depression in 2009,” Obama said in his speech to the General Assembly yesterday. “We must take urgent and coordinated action once more.”
Geithner Predicts Europe Will Act With ‘More Force’ to Resolve Debt Crisis (Source: Bloomberg)
U.S. Treasury Secretary Timothy F. Geithner said Europe will act “with more force” to combat a sovereign-debt crisis that is threatening global growth. “You are going to see them act with more force in the coming weeks and months,” Geithner said at a National Journal event in Washington today. “It’s a difficult challenge to do because it’s not just about financial support.” Geithner spoke as finance ministers and central bankers from the Group of 20 nations gather in Washington for the annual meetings of the International Monetary Fund and World Bank, where the European crisis will be a focus. He said European countries will do what is necessary to address the debt crisis and they, along with the IMF, have the capacity to meet the challenge.
Home Prices Decline 3.3% in U.S. as Buyer Confidence Sapped (Source: Bloomberg)
U.S. home prices declined in the 12 months through July as concerns that the economy may enter another recession sapped the confidence of would-be buyers. Prices dropped 3.3 percent, the Federal Housing Finance Agency in Washington said in a report today. Compared with June, they rose 0.8 percent, more than the 0.1 percent gain that was the average estimate in a Bloomberg poll of 15 economists. Americans are becoming more pessimistic about the economy after growth weakened in the first half of the year to its slowest pace since the recovery began. The unemployment rate has stayed above 9 percent for more than two years, with the exception of slight dips in February and March. The median income for U.S. households dropped in 2010 to the lowest level since 1996, according to a Census Bureau report this month.
U.S. Leading Economic Indicators Rose 0.3% in August, More Than Estimated (Source: Bloomberg)
The index of U.S. leading economic indicators increased more than forecast in August, easing concern the economy is headed for recession. The Conference Board’s gauge of the outlook for the next three to six months climbed 0.3 percent after a 0.6 percent gain in July, the New York-based research group said today. Economists projected a 0.1 percent rise in August, according to the median forecast in a Bloomberg News survey. The figure was boosted by a surge in money supply, a sign investors may be losing confidence in the global economy and reducing their holdings of riskier assets. The Federal Reserve yesterday decided to extend maturities of its Treasury holdings in a bid to push down long-term borrowing costs and said the economy faces “significant downside risks.”
U.S. Consumer Confidence Falls to Lowest Since June ’09 in Bloomberg Index (Source: Bloomberg)
Consumer confidence in the U.S. dropped last week to the weakest point since the recession ended in June 2009 as Americans’ views of the economy worsened. The Bloomberg Consumer Comfort Index fell to minus 52.1 in the period to Sept. 18 from minus 49.3 in the prior week. Sentiment among men slumped to an all-time low. A monthly expectations gauge held at minus 34, the worst reading since March 2009. Stock-market volatility linked to Europe’s debt crisis, declining home values and a lack of job creation help explain why the smallest share of Americans since February 2009 say the economy is improving. Federal Reserve officials yesterday employed another round of unconventional monetary policy to help shore up an economy showing “significant downside risks.”
Treasury 30-Year Bonds Head for Biggest Weekly Gain Since 2008 Recession (Source: Bloomberg)
Treasury 30-year bonds headed for their best week since the U.S. economy was in a recession in 2008 after the Federal Reserve and Pacific Investment Management Co., manager of the world’s biggest bond fund, issued warnings on the economy. Long bonds have returned 16 percent this month, according to Bank of America Merrill Lynch data. The MSCI All Country World Index of stocks handed investors a 10 percent loss, according to data compiled by Bloomberg. The difference between two- and 30-year yields narrowed to 2.56 percentage points yesterday, the least since March 2009. “We’re darn close to a recession,” said Marc Fovinci, who helps oversee $2.9 billion as head of fixed income at Ferguson Wellman Capital Management Inc. in Portland, Oregon. “We bought last week” in the Treasury market.
China Can Help World ‘At the Margin’: Yi (Source: Bloomberg)
China can support the European and global economies “at the margin,” though Europe must find the solution to its debt crisis itself, Chinese central bank Deputy Governor Yi Gang said. “At the margin we can do quite a bit to help,” Yi said in a panel discussion yesterday at the International Monetary Fund in Washington. At the same time, “the real solution of the European sovereign debt crisis has to be done by Europeans themselves.” The remarks come amid investors’ expectations that China may help stabilize the euro region, after Italy this month followed Spain, Portugal and Greece in seeking investment from the world’s fastest-growing major economy. Chinese Premier Wen Jiabao, facing calls to widen support for indebted European countries, signaled this month developed nations should cut deficits and open markets rather than rely on China to bail out the world economy.
China’s Stocks Fall to 14-Month Low on Policy, Economy Outlook (Source: Bloomberg)
China’s stocks fell, dragging the benchmark index to its lowest level in more than 14 months, on concern the global economy may not avoid entering a recession. China Vanke Co. sank 1.9 percent, pacing losses by developers after the Shanghai Securities News said some trust firms had halted real estate trust business. Industrial & Commercial Bank of China (601398) Ltd. declined 1 percent after the central bank asked lenders to maintain a stable loan-to-deposit ratio during public holidays next month. The Shanghai Composite Index lost 1.4 percent to 2,407.70 as of 9:49 a.m. local time, set to close at the lowest level since July 5, 2010. The MSCI All-Country World Index of 45 nations yesterday entered a bear market for the first time in more than two years, after the worsening European debt crisis and threat of a U.S. recession erased more than $10 trillion from equities since May.
China’s Banking Regulator Evaluates Trust Companies’ Loans to Developers (Source: Bloomberg)
China’s banking regulator is looking into financing of developers through trust companies as part of a broader evaluation of real estate lending, a person familiar with the matter said. The inquiries by the China Banking Regulatory Commission are part of regular monitoring and aren’t targeting any individual company, said the person, who declined to be identified because the regulator’s queries were meant to be private. Chinese property developers led by Greentown China Holdings Ltd. (3900) plunged in Hong Kong trading yesterday on concern tightened access to loans will force them to cut prices. Greentown said it hasn’t received any notice following a Reuters report that the banking regulator ordered trust companies to report dealings with the developer.
India’s Rate-Increase Cycle ’Nearing Its End,’ Gokarn Says (Source: Bloomberg)
The Reserve Bank of India is close to the end of its record series of interest-rate increases as inflation will probably slow next year, Deputy Governor Subir Gokarn said. “You could say that the cycle is nearing its end,” he said, “Given the projection that inflation will start coming down and will continue to move down from December onwards.” He declined to specify when the Reserve Bank of India may stop raising rates. The inflation rate will drop because “oil prices do not appear to be going higher,” and “we are seeing some deceleration in domestic growth because demand is being moderated,” Gokarn said in an interview in New York yesterday. Rising interest rates have helped slow consumer demand, he said.
Greece on Edge of Biggest Insolvency 24 Centuries After First City Default (Source: Bloomberg)
History’s first sovereign default came in the 4th century BC, committed by 10 Greek municipalities. There was one creditor: the temple of Delos, Apollo’s mythical birthplace. Twenty-four centuries later, Greece is at the edge of the biggest sovereign default and policy makers are worried about global shock waves of a insolvency by a government with 353 billion euros ($483 billion) of debt -- five times the size of Argentina’s $95 billion default in 2001. “There is a monstrously large amount of uncertainty and a massive range of possibilities,” said David Mackie, chief European economist at JPMorgan Chase & Co. in London. “A macroeconomic disaster could be averted but only by aggressive policy action” by central banks and governments.
Greece Speeds Budget Cuts to Ensure Aid as Transport Workers Hold Strike (Source: Bloomberg)
Greece said it will accelerate budget cuts to keep emergency loans flowing, extending austerity measures that have deepened a recession and failed to ease doubts that it can avoid default. Public-transit workers unions will hold a second 24-hour strike tomorrow, extending today’s action that shut subway, tram, train, and bus services, to protest cuts in civil servants’ wages and pensions. The latest round of deficit fighting was demanded by international lenders to ensure Greece reach targets in a 110 billion-euro ($151 billion) bailout and receive a payment due next month.
“The situation is extremely critical and even dangerous because there is a high level of anxiety in the euro area, the European banking system and the world economy,” Greek Finance Minister Evangelos Venizelos told lawmakers in Athens today, according to a transcript provided by the ministry.
Lagarde: ECB Must Continue ‘Reliable’ Funding (Source: Bloomberg)
International Monetary Fund Managing Director Christine Lagarde said the European Central Bank must continue to provide “solid, reliable” funding for euro-area banks and economies as parliaments in the region pass measures into law to fight the region’s debt crisis. The ECB “plays and can play and I hope will continue to play a critical role,” Lagarde, who took the helm at the IMF in July, said in a Bloomberg Television interview with Tom Keene today. Investors should also “allow the time for democracy” in euro countries that need to approve changes to the bailout mechanism agreed upon by leaders in July. The Washington-based IMF this week cut its global growth forecast and predicted “severe” repercussions if Europe failed to contain its debt turmoil. The ECB started buying Italian and Spanish government bonds last month after investors demanded euro-era record yields while policy makers grew increasingly divided over the best way to fight the crisis.
IMF’s Lagarde Says ‘Downside Risks’ Are High for Global Economic Recovery (Source: Bloomberg)
International Monetary Fund Managing Director Christine Lagarde said “downside risks” are high for the world economy. “We’re in it together and we will be able to solve it together,” Lagarde said in an interview on Bloomberg Television with Tom Keene. “Growth has slowed, the downside risks are high.” Lagarde said she will try to instill a “sense of urgency” at the IMF’s annual meetings this week.
South Africa Keeps Lending Rate at 30-year Low as Economic Growth Slows (Source: Bloomberg)
South Africa’s central bank left its benchmark lending rate unchanged at a 30-year low today to help support economic growth while curbing price pressures from a weakening rand. The repurchase rate was kept at 5.5 percent for a fifth consecutive meeting, Governor Gill Marcus said in a televised speech from the capital, Pretoria, today. That was in line with the forecast of 18 of 19 economists surveyed by Bloomberg. The rand plummeted to 8.3264 against the dollar today, its lowest level in more than two years as concerns of a weakening global economy spurred a sell-off of riskier assets. Africa’s largest economy expanded at the slowest pace in two years in the second quarter, while inflation has stayed inside the bank’s 3 percent to 6 percent target range.
“Downside risks on the growth side, the lack of core inflationary pressures and the widening output gap are being counteracted by the risks surrounding headline inflation pressures, from the currency in particular,” Peter Attard Montalto, an economist at Nomura Plc in London, said in an e- mailed note today.
Dollar Strengthens on Concern Growth Slowing; Commodity Currencies Decline (Source: Bloomberg)
The dollar jumped and currencies of commodity exporters tumbled on concern global growth is stalling after the Federal Reserve said yesterday it saw “significant downside risks” to the U.S. economy. The Dollar Index climbed to a seven-month high as the Fed’s statement stoked concern the global economy is headed for a recession and currency volatility surged to a 16-month high. The euro reached a fresh decade-low against the yen after region’s services and manufacturing contracted. Brazil’s real erased losses against the dollar as the central bank sought to stem the decline. “We’re seeing a disproportionate amount of buying in the dollar right now because there really is no other choice for a safe haven,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. “Investors have finally recognized that the deterioration in the Group-of-Seven outlook is going to have negative consequences for emerging markets.”
Australian, New Zealand Dollars Advance as IMF, World Bank Hold Meetings (Source: Bloomberg)
The Australian and New Zealand dollars rebounded from their lowest levels in more than five months as policy makers gather in Washington for annual meetings of the International Monetary Fund and World Bank. The so-called Aussie gained versus most of its 16 major counterparts after U.K. Prime Minister David Cameron and five other leaders of Group of 20 nations urged French President Nicolas Sarkozy to use his chairmanship of the body to find agreement on actions to boost the global economy. New Zealand’s currency rose against the yen for the first time this week as a technical indicator signaled currency losses were too rapid. “Traders tend to speculate around meetings, particularly” when major leaders are involved, said Kara Ordway, a foreign- exchange strategist at City Index Asia Pacific in Sydney. “I do think this will be a catalyst for them, combined with such big moves overnight, to cover their short positions.”
FOREX-Dollar at 7-mth high as Fed outlook hits risk
LONDON, Sept 22 (Reuters) - The dollar rose to a seven-month high after the Federal Reserve flagged "significant downside risks" to the economy, but stopped short of bold monetary easing, leading to a sell off in higher-yielding currencies. Analysts questioned whether the Fed's move to shift its portfolio in favour of long-term debt would bolster the economy.
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