Asian Stocks Decline, Led by Japanese Shares (Source: Bloomberg)
Asian stocks fell, with the MSCI Asia Pacific Index set for its lowest close since June 2010, amid concern the European sovereign-debt crisis may weaken economic growth. Japanese machinery makers Fanuc Corp. and Komatsu Ltd. and electronics manufacturer Panasonic Corp. lost more than 2.8 percent, leading declines in the MSCI Asia Pacific Index. Hanjin Shipping Co., South Korea’s largest shipping line, tumbled by the daily limit of 15 percent after saying it plans to sell new shares. Nippon Electric Glass Co. sank 12 percent after lowering its profit forecast. U.S. Treasury Secretary Timothy F. Geithner warned at the annual meeting of the International Monetary Fund in Washington that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.” Billionaire investor George Soros said “something needs to be done” to safeguard Europe’s banks because Greece may be unable to avoid default.
Pimco's El-Erian Sees Global Economy Slowing Next Year (Source: Bloomberg)
Pacific Investment Management Co., which runs the world’s biggest bond fund, is forecasting advanced economies to stall over the next year with Europe sliding into recession, underscoring mounting investor concern about the global economic outlook. There will be little to no economic growth in industrial nations during the coming 12 months as Europe’s economy shrinks by 1 percent to 2 percent and the U.S. stagnates, said Mohamed El-Erian, chief executive officer of Newport Beach, California- based Pimco. That will leave worldwide expansion at about 2.5 percent, less than the 4 percent forecast by the International Monetary Fund this year and next. Such gloomy sentiment dominated weekend talks of policy makers, investors and bankers in Washington, where the International Monetary Fund and World Bank held their annual meetings.
The Dow Jones Industrial Average suffered its biggest loss since 2008 last week as the U.S. Federal Reserve said risks to its economy had increased and Europe’s debt crisis went unresolved.
Consumer Spending Probably Slowed in August (Source: Bloomberg)
U.S. consumer spending probably slowed in August, reflecting growing pessimism among households that may further restrain the biggest part of the economy, economists said reports this week will show. Purchases rose 0.2 percent after July’s 0.8 percent gain, according to the median estimate of 63 economists in a Bloomberg News survey before the Commerce Department’s report Sept. 30. Consumer confidence held close to a more than two-year low, home sales dropped for a fourth month and factory orders for big- ticket items declined, other reports this week may show. Scarce employment prospects, tepid wage gains and a stock market rout have pummeled consumer sentiment, which threatens to slow sales for companies like Ford Motor Co. (F) The slowing economy prompted Federal Reserve policy makers last week to introduce another round of unconventional stimulus to ensure the recovery is sustained.
U.S. Equity Futures Advance as Leaders Seeks Ways to Halt European Crisis (Source: Bloomberg)
U.S. stock futures rose, following the biggest weekly drop since October 2008 for the Dow Jones Industrial Average, on speculation European policy makers will announce steps to contain the debt crisis as foreign counterparts lobby for action. Standard & Poor’s 500 Index futures expiring in December advanced 0.7 percent to 1,137.70 at 9:23 a.m. Tokyo time after falling as much as 0.7 percent. Dow futures gained 62 points, or 0.6 percent, to 10,759. U.S. Treasury Secretary Timothy F. Geithner warned at the annual meeting of the International Monetary Fund in Washington that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.” Billionaire investor George Soros said “something needs to be done” to safeguard Europe’s banks because Greece may be unable to avoid default.
Betting on Bernanke Returns 28% for Treasuries (Source: Bloomberg)
Betting on Ben S. Bernanke has been the most profitable trade for government bond investors in 16 years, defying lawmakers in the U.S. and abroad who said the Federal Reserve chairman’s policies would lead to runaway inflation and the dollar’s debasement. Treasuries due in 10 or more years have returned 28 percent in 2011, exceeding the 24.4 percent gain in all of 2008 during worst financial crisis since the Great Depression, according to Bank of America Merrill Lynch indexes. Not since 1995, when the securities soared 30.7 percent, have investors done so well owning longer-dated U.S. government debt. The rally continued last week, driving yields to record lows, as the Fed said it would exchange $400 billion of short- term Treasuries for those maturing in more than six years. The move, dubbed Operation Twist by traders, is designed to lower borrowing costs and keep the economy growing. Previous Fed efforts unlocked credit markets and helped ward off deflation.
Japanese Stocks Decline as Exporters Fall on Europe Debt Crisis Concern (Source: Bloomberg)
Japanese stocks fell after a three- day weekend, with the benchmark Nikkei 225 (NKY) Stock Average heading for its lowest close in more than two years, as exporters and trading companies dropped on concern Europe won’t resolve its debt crisis. Sony Corp., which depends on Europe for about a fifth of its sales, fell 3.4 percent. Mitsubishi Corp., Japan’s biggest commodities trader by sales, slumped 6.5 percent as copper futures extended declines in London. Nippon Electric Glass Co. tumbled 10 percent after the glassmaker cut its profit forecast for the half-year through ending September. The Nikkei 225 Stock Average dropped 1.5 percent to 8,432.20 as of 10:07 a.m. in Tokyo, poised for its lowest close since April 2009, as Japanese share prices caught up with declines late last week in U.S. and Europe. Japanese markets were closed for a holiday on Sept. 23. The broader Topix index declined 1.6 percent today to 732.56.
South Korean Won Declines on Europe Debt Concern as Intervention Waning (Source: Bloomberg)
South Korea’s won fell on concern Europe may fail to contain the region’s debt crisis and as traders said authorities are scaling back intervention that slowed declines last week. Bonds advanced. The won sank to near a one-year low, slumping 1.4 percent to 1,183.30 per dollar as of 9:40 a.m. in Seoul, after last week losing 4.7 percent, according to data compiled by Bloomberg. The currency gained 1.1 percent on Sept. 23 in the final minutes of trading as the finance ministry and central bank said they were ready to intervene. It touched 1,196.13 that day, the weakest level since September 2010. “The won is weakening today as the government artificially intervened in the market on Friday, and as nothing has been solved regarding Europe’s debt issue” said Lee Jung Hyun, a currency dealer at the Industrial Bank of Korea in Seoul. “Still, the government has shown its will to prevent the currency from falling below the 1,200 level, which will make investors cautious about betting on a strong dollar.”
Tumbling Markets Make Quarterly Sales Harder for Italy, Spain: Euro Credit (Source: Bloomberg)
Spain and Italy face a tricky final quarter among the euro-area nations with most bonds left to sell as they try to lure investors amid falling prices. The European Central Bank began purchasing securities of the region’s third- and fourth-largest economies on Aug. 8 after debt-crisis contagion sent borrowing costs up to euro-era records. Still, Italy and Spain may have to trim supply, count on investors to reinvest maturing-bond proceeds and use cash raised from state-asset sales to see them through the final three months of the year, strategists at Barclays Capital and UBS AG said. “The next quarter will be very difficult for Italy and Spain -- every single auction will be scrutinized,” said Nicola Marinelli, a London-based fund manager at Glendevon King Asset Management, which oversees $153 million. “If the market knows you have to refinance in this kind of environment, then it is going to be tough. If there is any hint that the ECB isn't standing behind the bonds, then the auctions will be disasters.”
‘Barrier’ Around Greece Needed: Merkel (Source: Bloomberg)
German Chancellor Angela Merkel said euro-region leaders must erect a firewall around Greece to avert a cascade of market attacks on other European states that would risk breaking up the currency area. Expanding the powers of the region’s rescue fund, the European Financial Stability Facility, as agreed by European leaders in July is necessary to avoid Greece’s problems from spilling over to other countries, Merkel said late yesterday on ARD television. The fund’s permanent successor, due to take effect in mid-2013, is needed “so we can in fact let a state go insolvent” if it can’t pay its bills. “We have to be in a position to react,” Merkel said. “We have to be able to put up a barrier.” Even so, “I don’t rule out at all that at some point we will have the question whether one can do an insolvency of states just like with banks.” She made no mention of setting up the permanent fund before 2013.
Euro Trading Above Average Since 1999 Debut Undermines Calls for Collapse (Source: Bloomberg)
For all the concern about sovereign default in Europe, the euro remains above its average since being created almost 12 years ago, a sign that foreign-exchange traders see little chance of a collapse as officials step up efforts to keep the debt crisis from expanding. “Too much political and ideological capital has been invested into making the euro project work and bringing the continent of Europe closer together since the end of World War II to allow it to unravel now,” Thanos Papasavvas, the head of currency management in London at Investec Asset Management Ltd., which invests about $95 billion, said in a Sept. 20 interview. Investors from billionaire George Soros, whose $10 billion bet in 1992 preceded the Bank of England’s devaluation of the pound, to John Taylor, who runs the world’s biggest currency hedge fund, have predicted the euro’s breakup or forecast it will slump to parity with the dollar.
Europe Faces Pressure From Geithner, Soros to Defuse Sovereign Debt Crisis (Source: Bloomberg)
European policy makers faced mounting pressure from foreign counterparts and investors to step up efforts to prevent their sovereign debt crisis from further roiling the world’s financial markets and economy. U.S. Treasury Secretary Timothy F. Geithner set the tone at the annual meeting of the International Monetary Fund in Washington by warning that failure to combat the Greek-led turmoil threatened “cascading default, bank runs and catastrophic risk.” Billionaire investor George Soros said “something needs to be done” to safeguard Europe’s banks because Greece may be unable to avoid default. Such calls leave European policy makers under pressure to further boost the ammunition of their regional rescue fund even as parliaments focus on ratifying a July plan to broaden its powers. Trading resumes tomorrow after global stocks entered their first bear market in two years last week on concern Greek insolvency is inevitable and Europe can’t contain the damage.
Euro Slumps Amid Concern About Sovereign Debt, Before Germany’s Ifo Report (Source: Bloomberg)
The euro slumped versus most of its 16 major peers before a German report that may show business confidence in Europe’s biggest economy fell to a 15-month low, fanning concern the region’s economy is deteriorating. The 17-nation currency was 0.4 percent from a decade low against the yen as Belgium prepares to sell bonds today amid concern the euro region’s debt crisis is spreading. It declined against the dollar as Greece awaits a decision on its next round of rescue funding. New Zealand’s currency fell versus the majority of its most-traded counterparts after the country posted a wider-than-estimated trade deficit, and Asian stocks dropped, sapping demand for higher-yielding assets.
“It’s certain that the debt crisis is causing an economic slowdown in Europe and that’s the main reason for selling the euro,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s third-biggest bank by market value. “We can’t buy the euro because its economy is the weakest among the U.S., Europe and Japan.”
ECB May Take More Steps If Economic Outlook Worsens, Estonia’s Kaasik Says (Source: Bloomberg)
The European Central Bank may take further steps to support the region’s economy, including cutting interest rates, if the economic outlook worsens, Estonia’s Deputy Central Bank Governor Ulo Kaasik said. While the current ECB economic forecasts don’t warrant moving “very quickly” on interest rates, “if the situation changes we are ready to change our opinion as well,” Kaasik said in an interview in Washington today. Kaasik, whose country joined the euro region this year, said the ECB doesn’t pre- commit on interest rate decisions. Kaasik’s remarks follow indications by ECB Governing Council members Ewald Nowotny and Luc Coene in the past few days that the central bank could step up efforts to boost growth and ease financial-market tensions as early as next month. The latest ECB growth forecasts that came out Sept. 8 were made in August when not all information was available to gauge the strength of European growth, Kaasik said. Nowotny today suggested he expects further downward revisions.
JPMorgan’s Kasman Sees Greek Depression Coming That Will Damage All Europe (Source: Bloomberg)
JPMorgan Chase & Co. (JPM) chief Economist Bruce Kasman said Greece is insolvent and headed toward a depression that will cause catastrophic damage across Europe. “We have a social contract that’s been broken between Greece and the rest of the region,” Kasman said today during a panel discussion at the Institute of International Finance annual meeting in Washington. “Greece is insolvent and the European Union needs to deal with that. It hasn’t yet come to terms with that.” Kasman said the uncoordinated and sporadic response from the region’s political leaders has “fed fears” in the markets that they don’t have the wherewithal to deal with the region’s fiscal problems. The lack of clarity in solving Greece’s credit problems has exacerbated the problem.
European Stocks Decline as Fed Sees ‘Significant’ Global Economic Risks (Source: Bloomberg)
The International Monetary Fund’s $384 billion lending chest may not be enough to meet all loan requests if the global economy worsens, Managing Director Christine Lagarde said. “The fund’s credibility, and hence effectiveness, rests on its perceived capacity to cope with worst-case scenarios,” Lagarde said in an “action plan” distributed to the IMF steering committee today. The current lending capacity “looks comfortable today but pales in comparison with the potential financing needs of vulnerable countries and crisis bystanders.” Tripling IMF resources was part of the Group of 20 leaders’ response to the global recession in 2009. As the European debt crisis threatens to spread and further damp the global recovery, the IMF was asked by its steering committee today to review whether its resources are sufficient.
Prasarn Signals Less Pressure for Thai Rate Rise on Growth Risk (Source: Bloomberg)
Thailand’s central bank may cut its economic growth projections as the global recovery falters, Governor Prasarn Trairatvorakul said, signaling there may be less scope for interest rates to rise further. Inflation expectations aren’t likely to increase and the Bank of Thailand has “closed the gap somewhat” on normalizing borrowing costs, Prasarn said in an interview in Washington on Sept. 24. The bank is due to unveil forecasts next month. Europe’s debt crisis and a weakening U.S. recovery are threatening growth in Asia, prompting central banks from South Korea to the Philippines to refrain from rate increases in recent months. The Bank of Thailand bucked that trend by raising its key rate for a seventh straight meeting last month, citing inflation risks posed by the government’s plan to raise wages and support rice prices.
Australia ‘Rock Solid’ Amid Europe Crisis: Swan (Source: Bloomberg)
Australia is facing the current global economic turmoil from a position of strength, with low unemployment, a strong banking system and a big investment pipeline, Treasurer Wayne Swan said. “The international economy has entered a dangerous new phase,” Swan wrote in his weekly e-mailed economic note yesterday. Australia’s “successful response to the global financial crisis and record of economic reform means our fundamentals today are rock solid.” Global markets are in turmoil on fears that a default by Greece will exacerbate an 18-month debt crisis and tip Europe and the global economy back into recession. The International Monetary Fund cut its forecast for global economic growth this month and predicted “severe” repercussions if Europe fails to contain its debt crisis or if U.S. policy makers reach an impasse over a fiscal plan.
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