Asian Stocks Advance on Europe Optimism (Bloomberg)
Asian stocks advanced for a second day as optimism European officials will protect banks from the region’s debt crisis boosted the earnings outlook for lenders and exporters. National Australia Bank Ltd. (NAB), the nation’s largest lender to businesses, gained 3 percent in Sydney. Mitsubishi UFJ Financial Group Inc., Japan’s biggest listed lender by market value, climbed 1.8 percent in Tokyo. Toyota Motor Corp., Asia’s No. 1 automaker, advanced 1.9 percent, while in Seoul, Samsung Electronics Co. rose 1.3 percent. BHP Billiton Ltd. (BHP), the world’s largest mining company, gained 2.4 percent in Sydney after oil and metal prices advanced. The MSCI Asia Pacific Index rose 1.2 percent to 111.96 as of 9:53 a.m. in Tokyo. Almost four stocks advanced for each that declined on the measure, which is set for a weekly loss. The gauge tumbled 16 percent in the third quarter, the biggest drop since 2008, amid concern that Europe’s debt crisis and a U.S. economic slowdown will drag the world back into recession.
Japanese Stocks Advance Second Day Amid European Optimism; Sony Drops (Bloomberg)
Japanese stocks rose for a second day, trimming their weekly losses, after optimism European officials will take steps to protect banks from the region’s debt crisis boosted the earnings outlook for Asia’s exporters. Honda Motor Co., a carmaker, rose 2.2 percent. Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second-biggest lender by market value, advanced 2 percent after financial shares gained in the U.S. and Europe. Sony Corp. (6758) fell 1.2 percent after Nomura Holdings Inc. cut the consumer-electronics maker’s rating to “neutral” from “buy.” The Nikkei 225 (NKY) Stock Average rose 1.2 percent to 8,627.96 as of 9:04 a.m. in Tokyo. The broader Topix index added 1.2 percent to 745.75. For the week, the Nikkei has fallen 0.9 percent, while the Topix is down 2 percent.
“It certainly sounds like policymakers in Europe are understanding the situation with the banking system,” said Belinda Allen, a senior investment analyst at Colonial First State Global Asset Management in Sydney, which oversees about $145 billion. “It looks like they are getting more willing to recapitalize the banks. That has been a positive step, but we haven’t seen that yet. I think it is a real risk till we see an announcement.”
European Stocks Climb for Second Day; BNP Paribas, Natixis Rally (Bloomberg)
European stocks rose for a second day amid speculation policy makers will reach agreement to contain the sovereign-debt crisis and as the Bank of England expanded its bond-purchase program. BNP Paribas (BNP) SA, Credit Agricole SA (ACA) and Natixis surged after Le Figaro said the French government is working on a contingency plan to take stakes in the country’s lenders. BHP Billiton Ltd. (BHP), the world’s biggest mining company, rallied 5.9 percent as metal prices increased. SABMiller Plc (SAB) surged 7 percent after a report the brewer is in talks to be bought by Anheuser-Busch InBev NV. (ABI) The Stoxx Europe 600 Index climbed 2.7 percent to 230.27 at the 4:30 p.m. close in London. The benchmark gauge has gained 5.9 percent over the past two days as investors speculated that euro-area policy makers are working on plans to boost bank capital.
U.S. Stocks Rise on Speculation About Progress on Europe Crisis (Bloomberg)
U.S. stocks rallied, giving the Standard & Poor’s 500 Index its biggest three-day gain since August, amid speculation that European officials were making progress in containing the region’s debt crisis. Financial stocks in the S&P 500 added 3.2 percent as a group, rising 8.8 percent in three days, the biggest advance since July 2009, as European lenders gained and Treasury Secretary Timothy F. Geithner said U.S. banks have strengthened. Alcoa Inc. (AA), the largest U.S. aluminum producer, climbed 5.4 percent as commodities jumped. Target Corp. (TGT) added 4.3 percent as September sales beat analysts’ estimates. The S&P 500 rallied 1.8 percent to 1,164.97 at 4 p.m. New York time, climbing 6 percent in three days, the most since Aug. 15. The Dow Jones Industrial Average gained 183.38 points, or 1.7 percent, to 11,123.33 today. The Russell 2000 Index of small companies jumped 2.4 percent, extending its three-day advance to 11 percent, the biggest rally since March 2009.
U.S. Jobless Claims Climbed Less Than Forecast (Bloomberg)
Claims for U.S. unemployment benefits rose less than forecast last week to a level that shows companies may be starting to slow the pace of dismissals. Applications for jobless benefits increased by 6,000 in the week ended Oct. 1 to 401,000, Labor Department figures showed today. Economists projected 410,000 claims, according to the median estimate in a Bloomberg News survey. The monthly average dropped to the lowest level since the end of August. Reductions in firings may set the stage for bigger gains in payrolls needed to bring down the unemployment rate, signaling more confidence among companies that demand will hold up. Employers added 59,000 workers to payrolls in September and the unemployment rate held at 9.1 percent, according to the median forecast of economists before tomorrow’s jobs report.
Consumer Comfort Index in U.S. Caps Worst Quarter Since ’09 on Job Outlook (Bloomberg)
Consumer confidence last week capped the worst quarterly performance in more than two years, when the U.S. economy was still in a recession. The Bloomberg Consumer Comfort Index rose to minus 50.2 in the week ended Oct. 2, from the prior period’s minus 53 that was the second-lowest level on record. The gauge averaged minus 48.4 from July through September, the third-worst quarterly reading of all time and the weakest since minus 49.9 in the first three months of 2009. Ninety-two percent of those surveyed had a negative opinion of the economy, underscoring the concerns of Federal Reserve Chairman Ben S. Bernanke, who this week said the central bank can take further steps to sustain a recovery that’s “close to faltering.” An ailing housing market, stagnant payrolls and stock-price declines have reduced Americans’ ability to spend.
Soaring Farmland Prices in U.S. Midwest Bring Fed Scrutiny of Rural Banks (Bloomberg)
When regulators come knocking at the Bank of Newman Grove, Nebraska, inquiring about loan risks, Chairman Jeffrey Gerhart has a “stress test” ready to show how his portfolio would fare if rural land prices dropped 25 percent. Or 50 percent. Or 75 percent. “I hope it’s not going to go to heck in a handbag out here, but this allows us to look at those worst-case scenarios,” said Gerhart, a fourth-generation banker in the 800-person town two hours west of Omaha, deep in the heart of Nebraska’s corn and soybean belt. He began stress testing his bank’s assets, about 90 percent of which are agricultural, in the last two years after prodding from staffers at the Federal Reserve Bank of Kansas City.
Farmland prices in Nebraska rose 30 percent in the second quarter from a year earlier, according to a survey by the Kansas City Fed, driven by soaring farm income from elevated agriculture commodity prices and record-low interest rates. That’s the high end of increases in cropland valuations of 8 percent or more throughout the region stretching from Oklahoma to North Dakota and from Nebraska to Michigan, according to surveys by three Federal Reserve banks. The Fed banks -- Kansas City, Chicago and Minneapolis -- oversee about three-quarters of the nation’s farm banks.
Treasuries Snap Decline as Economists Predict 55,000 New Jobs (Bloomberg)
Treasuries snapped a three-day decline before a government report that economists said will show U.S. jobs gains in September fell short of what’s needed to cut the unemployment rate. The Federal Reserve is scheduled to buy $1.5 billion to $2 billion of Treasuries due from 2021 to 2031 today, according to its website. The purchases are part of the central bank’s plan to support the economy by keeping long-term borrowing costs down. Employment climbed by 55,000, after no change in August, according to the median forecast of 91 economists surveyed by Bloomberg News. The jobless rate probably held at 9.1 percent, the survey shows. “If Treasury yields rise, it’s a good chance to accumulate,” said Hiromasa Nakamura, a senior investor at Mizuho Asset Management Co. in Tokyo, which oversees the equivalent of $39.1 billion and is a unit of Japan’s second- largest bank. “Today’s number will be negative for consumer spending.”
Thai Flood Death Toll Rises as Waters Threaten Honda, Sony (Bloomberg)
The death toll in Thailand’s worst floods in five decades rose to 244 and threatened to disrupt operations of automobile and electronics makers that use the Southeast Asian country as a production base. Heavy rain since July 25 has caused flooding in 59 of the country’s 77 provinces, and 28 of them remain submerged, the Department of Disaster Prevention and Mitigation said on its website today. Industrial parks in Ayutthaya province home to factories from Honda Motor Co. and Sony Corp. are at risk after floods caused nearby plants to shut down. “The situation in Ayutthaya is quite worrisome,” Prime Minister Yingluck Shinawatra, who surveyed the damage by helicopter today, told reporters after landing in Bangkok. “In some areas water has reached levels we have never seen before.”
European Central Banks Extend Global Efforts (Bloomberg)
Europe’s leading central banks returned to crisis-fighting mode, expanding a push by global monetary-policy makers to support economies and financial markets while fiscal authorities struggle to act. The European Central Bank, after a meeting yesterday in Berlin, said it would reintroduce purchases of covered bonds and yearlong loans for banks to support markets rattled by the region’s sovereign-debt crisis. In London, the Bank of England boosted its asset-purchase program by more than a third to 275 billion pounds ($424 billion) in a bid to avert a new recession in the U.K. International central bankers are softening their anti- inflation stances or reviving programs to keep financial systems liquid as they race to keep slumping growth from turning into a full-fledged contraction. The Federal Reserve has eased policy two months in a row, while central banks in Malaysia and South Korea have refrained from raising rates as they focus on maintaining growth over damping price increases.
Merkel-Sarkozy Divided on Greek Default Threat to Their Banks: Euro Credit (Bloomberg)
Angela Merkel and Nicolas Sarkozy are running out of road. Whether to allow Greece to default and how to manage the fallout, questions they have tried to avoid for more than a year, may finally require answers as European officials turn to fortifying banks and consider ways to ease Greece’s debt load. It costs $6 million plus $100,000 a year to insure $10 million of Greek securities for five years, with credit-insurance prices pointing to a 91 percent chance of default. As the German chancellor and French president prepare to meet in two days for their eighth one-on-one summit in 20 months, Merkel has cited the need to prepare for the default that investors see as a sure thing. Sarkozy, whose banks have the most to lose, is unwilling to gamble on letting Greece go.
King Loses Faith in Europe as BOE Acts on ‘Virus’ (Bloomberg)
Bank of England Governor Mervyn King has lost faith in European governments’ ability to resolve the region’s debt crisis. The central bank yesterday announced its biggest stimulus since the depths of the recession, citing “vulnerabilities” related to the euro-area turmoil. King said the move, the first loosening of U.K. monetary policy since 2009, was a response to what may be the worst financial crisis ever. “It’s pretty much a vote of no confidence in European officials,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc, and a former Bank of England official. “Either the virus is already in the U.K. so they had to respond, or they don’t believe the problem will be sorted out. I lean toward the second because of how much they’ve done.”
Bank of England Expands Bond-Purchase Program for First Time in Two Years (Bloomberg)
The Bank of England pledged to buy the most bonds since the depths of the last financial crisis as officials raced to stop the euro-region debt turmoil from pushing the economy back into recession. The nine-member Monetary Policy Committee led by Governor Mervyn King raised the ceiling for so-called quantitative easing to 275 billion pounds ($421 billion) from 200 billion pounds. That’s the biggest expansion since the first round of stimulus in March 2009. Only 11 of 32 economists in a Bloomberg News survey predicted an increase in asset purchases. The pound dropped after the decision, which came a day after a report showed Europe’s second-biggest economy grew less than previously estimated in the quarter through June and as Greece’s crisis strained money markets. The central bank said in a statement that slowing global growth and the turmoil in Europe “threaten the U.K. recovery.”
ECB Keeps Banks Afloat as Governments Act on Greek Default Risk (Bloomberg)
The European Central Bank’s move to keep euro-area banks afloat is buying governments more time to recapitalize them as Greece edges closer to default. The ECB said yesterday it will reintroduce year-long loans, giving banks access to unlimited cash through January 2013, and resume purchases of covered bonds to encourage lending. At the same time, the European Commission is pushing for a coordinated capital injection into banks and German Chancellor Angela Merkel said policy makers “shouldn’t hesitate” if it turns out financial institutions are undercapitalized. “Politicians, including Angela Merkel, have finally realized the urgency in protecting banks as a Greek default can no longer be ruled out and no-one wants a Lehman in Europe,” said Christoph Kind, head of asset allocation at Frankfurt Trust, which manages $24 billion. “From its side, the ECB is making sure that banks won’t face funding issues throughout that period.”
ECB to Buy Covered Bonds, Offer Longer Loans (Bloomberg)
European Central Bank President Jean- Claude Trichet, fronting a policy decision for the final time, said the ECB will resume covered-bond purchases and reintroduce year-long loans for banks as the sovereign debt crisis threatens to lock money markets. The ECB will spend 40 billion euros ($53 billion) on covered bonds starting next month and will offer banks two additional unlimited loans of 12 and 13-month durations, Trichet said at a press conference in Berlin today after policy makers left the benchmark interest rate at 1.5 percent. He also said the ECB will continue to lend banks as much money as they need in its regular refinancing operations at least until July 2012.
The ECB is resisting calls to reverse its two rate increases this year even as the debt crisis threatens to tip Europe back into recession, turning instead to tools it has previously used in an effort to calm financial markets. The Bank of England today unexpectedly expanded its bond-purchase program to 275 billion pounds ($421 billion) from 200 billion pounds after keeping its key rate at a record low of 0.5 percent.
EU Leaders Under Investor Pressure to Devise Bank Rescue Plan Before G-20 (Bloomberg)
European Union leaders are under pressure from investors to devise a comprehensive plan to rescue the region’s banks before a Group of 20 summit in November. “A blanket recapitalization of banks, in some cases, over- capitalizing those banks, would be the only thing that’s going to restore confidence at this juncture,” Simon Maughan, head of sales and distribution at MF Global Ltd. in London, said in a Bloomberg Television interview yesterday. Plans to inject capital into Europe’s banks are “well under way,” European Commission President Jose Barroso said yesterday. The European Central Bank also reintroduced yearlong loans, giving banks unlimited access to cash through January 2013. Lenders in the region may need as much as 200 billion euros ($269 billion) of additional capital, according to the International Monetary Fund’s European head Antonio Borges.
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