Asian Stocks Advance After U.S. Earnings Boost Economic Recovery Outlook (Source: Bloomberg)
Asian stocks rose on signs a global economic recovery may be strengthening after Bank of America Corp. swung to a profit and Intel Corp. forecast sales that beat analyst estimates, boosting the earnings outlook for Asia’s companies. Toyota Motor Corp. (7203), the world’s biggest carmaker, rose 0.7 percent. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s largest lender, advanced 0.6 percent, after Bank of America climbed 10 percent in New York. BHP Billiton Ltd. (BHP), Australia’s No. 1 oil producer, added 0.4 percent after crude rose to the highest price in more than a month. “There’s bound to be some residual optimism because of the strong gains in the U.S. on the back of some earnings optimism,” said Will Seddon, who helps oversee more than $300 million at White Funds Management in Sydney. “We’re bound to see some positive momentum in Asian markets, but the risks with the European situation are still very, very high.”
Demand for U.S. Assets Rose Amid S&P Downgrade (Source: Bloomberg)
Global demand for U.S. stocks, bonds and other financial assets in August was greater than forecast as financial-market turmoil following the downgrade of U.S. debt by Standard & Poor’s boosted demand for Treasuries. Net buying of long-term equities, notes and bonds totaled $57.9 billion, the highest since December 2010, compared with net buying of $9.1 billion in July, the Treasury Department said today in Washington. Including short-term securities such as stock swaps, foreigners bought a net $89.6 billion, compared with net sales of $52.4 billion the previous month. Investors sought the safety of Treasuries as global stocks declined following the decision by S&P to cut the top rating on U.S. debt for the first time on Aug. 5. Moody’s Investors Service and Fitch Ratings affirmed their AAA credit ratings on Aug. 2, the day President Barack Obama signed a bill ending an impasse with lawmakers over raising the nation’s debt ceiling.
Undermining Bernanke Energizes Republican Candidates Joining Fed Insiders (Source: Bloomberg)
The U.S. Federal Reserve is under more pressure than at any point in three decades over Chairman Ben S. Bernanke’s efforts to jumpstart the economy, and the criticism threatens to undermine support for the central bank. Mitt Romney, once a Bernanke defender, now says he would replace him, as have Herman Cain, Newt Gingrich and other Republican presidential contenders. Republican congressional leaders have urged the chairman to “resist” further action. And even some Fed presidents came out against the central bank’s recent attempts to lower long-term interest rates. “If you think of the Fed’s reputation, that is its key political asset,” said Sarah Binder, a senior fellow of governance studies at the Brookings Institution in Washington. “All of these criticisms leave a mark over time.”
Bernanke Says Federal Reserve Seeks to Increase Clarity About Policy Goals (Source: Bloomberg)
Federal Reserve Chairman Ben S. Bernanke said the central bank is likely to rely more on public communications as a policy tool as it seeks to provide clarity about the likely future path of interest rates. “The FOMC continues to explore ways to further increase transparency about its forecasts and policy plans,” Bernanke said today in a speech in Boston. “Forward guidance and other forms of communication about policy can be valuable even when the zero lower bound is not relevant, and I expect to see increasing use of such tools in the future.” Bernanke and his colleagues on the Federal Open Market Committee have approved untested policy tools at their last two meetings to spur a recovery that has left the unemployment rate stuck near 9 percent or higher for 30 consecutive months. The central bank in August pledged to hold interest rates near zero until mid-2013, and in September the Fed announced it will swap $400 billion of short-term debt for longer-term securities in a bid to lower interest rates.
Rise in Homebuilder Sentiment Tops Forecast (Source: Bloomberg)
Homebuilders in the U.S. were less pessimistic than forecast in October as near record-low borrowing costs and price decreases raised hopes the market will turn for the better over the next six months. The National Association of Home Builders/Wells Fargo sentiment index climbed to 18, the highest level since May 2010, from 14 in the prior month, data from the Washington-based group showed today. Economists surveyed by Bloomberg News projected the measure would rise to 15, according to the median forecast. Readings below 50 mean more respondents said conditions were poor. The Federal Reserve’s unconventional measures to boost demand and spur job growth combined with concern over the European debt crises have helped reduce mortgage rates, making buying more affordable. At the same time, the prospect more foreclosures will enter the market and unemployment hovering above 9 percent mean it will take a long time for any recovery to develop.
Wholesale Prices in U.S. Rise More Than Economists Estimated on Food, Fuel (Source: Bloomberg)
Wholesale prices in the U.S. rose more than forecast in September, boosted by gasoline, food and trucks, indicating inflationary pressures continue to bubble up the production line. The producer price index climbed 0.8 percent, the most in five months, after no change in August, Labor Department figures showed today in Washington. Economists projected a 0.2 percent gain, according to the median of 71 estimates in a Bloomberg News survey. The so-called core measure, which excludes volatile food and energy, gained 0.2 percent, also more than predicted. Slower growth from China and Europe to the U.S. means demand for raw materials will probably moderate, helping limit further gains in prices. A pickup in expenses would call into question whether inflation will cool enough to give Federal Reserve policy makers room to further spur the recovery should the world’s largest economy falter.
Los Angeles, Wooed by Occupy Protest, Faces Higher Debt Cost (Source: Bloomberg)
Los Angeles faces tens of millions of dollars in additional borrowing costs after the City Council told anti-Wall Street protesters it intends to cut ties with banks involved in financial wrongdoing, Administrative Officer Miguel Santana said. The city may have to pay $27.8 million in termination fees and replacement costs if it’s prohibited from doing business with banks providing letters of credit for just one infrastructure program, Santana said yesterday in a memo to Mayor Antonio Villaraigosa. Debt service would climb $14.9 million a year if it has to refinance commercial paper into long-term debt at higher rates, Santana said.
Council members in the nation’s second-largest city by population passed a resolution Oct. 12 in support of the demonstrations that started as Occupy Wall Street in New York. They promised to accelerate the issuance of “report cards” rating banks on such things as foreclosures and charitable giving. The vote followed three hours of public comment, much of it by participants in Occupy Los Angeles who’ve camped in front of City Hall since Oct. 1.
Treasuries Advance After Spain Credit Rating Downgrade Spurs Safety Demand (Source: Bloomberg)
Treasuries rose, snapping a loss from yesterday, after Moody’s Investors Service cut Spain’s credit rating, adding to concern that Europe’s sovereign-debt crisis is spreading. Benchmark 10-year rates declined two basis points, or 0.02 percentage point, to 2.16 percent as of 9:30 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2.125 percent security due in August 2021 rose 1/8, or $1.25 per $1,000 face amount, to 99 21/32.
S&P 500 Rallies to Highest Since August (Source: Bloomberg)
U.S. stocks gained, sending the Standard & Poor’s 500 Index to the highest level since August, as Bank of America Corp. (BAC) paced a rally in financial shares and optimism grew over progress on expanding Europe’s rescue fund. Bank of America climbed 10 percent after it swung to a profit as credit quality improved. A gauge of homebuilders in S&P indexes jumped 9.6 percent, the most since March 2009, as data showed that industry sentiment increased more than forecast. Caterpillar Inc. (CAT) and Alcoa Inc. (AA) added at least 3.9 percent, pacing gains among companies most-tied to the economy. Apple Inc. (AAPL) tumbled 5.9 percent after the close of regular trading after profit and sales missed analysts’ expectations.
The S&P 500 added 2 percent to 1,225.38 at 4 p.m. New York time, erasing yesterday’s drop. The benchmark gauge rose to the highest level since Aug. 3, two days before S&P stripped the U.S. of its AAA credit rating. The Dow Jones Industrial Average gained 180.05 points, or 1.6 percent, to 11,577.05 today.
Most Accurate China Analyst Sees No Sudden Ease (Source: Bloomberg)
China, facing a hit to exports from Europe’s debt crisis, may refrain from cutting interest rates this year as inflation stays above target and domestic spending supports growth in the engine of the global recovery. Industrial output and retail sales rose at a faster pace in September even as the economic expansion cooled to 9.1 percent in the third quarter, a report released in Beijing yesterday showed. Consumer prices climbed 6.1 percent, exceeding a 4 percent target, a separate release showed last week. “The latest data won’t trigger any sudden change in monetary or fiscal policy, but looking ahead the overall direction is likely to be easing,” said Yao Wei, the only one of 22 economists in a Bloomberg News survey to predict the GDP number. “Consumption has held up quite well,” said Yao, a Hong Kong-based economist for Societe Generale SA.
China’s Economy Expands at Slowest Pace in Two Years on Drag From Europe (Source: Bloomberg)
China’s economy grew 9.1 percent in the third quarter from a year earlier, the slowest pace since 2009, driving stocks lower on concern that Europe’s debt crisis is dragging on the global recovery. The gain was less than the median estimate of 9.3 percent in a Bloomberg News survey of 22 economists and followed a 9.5 percent increase in the previous three months. The statistics bureau released the data in Beijing today. Asia’s benchmark stock index sank after China’s growth was limited by tighter credit and weaker demand from Europe, where Germany yesterday rejected speculation that any immediate resolution of the region’s crisis is possible. A slowdown in the pace of China’s expansion, which remains five times that of the U.S., may help Premier Wen Jiabao to tame inflation that is above the government’s target.
Japanese Stocks Advance as U.S. Earnings Spur Optimism on Economic Outlook (Source: Bloomberg)
Japanese stocks climbed on signs a global economic recovery may be strengthening after Bank of America Corp. swung to a profit and Intel Corp. forecast sales that beat analyst estimates, boosting the earnings outlook for Asian companies. Toyota Motor Corp., the Japan’s No.1 carmaker, gained 0.9 percent. Mitsubishi UFJ Financial Group Inc., Japan’s largest lender by market value, added 1.2 percent. Tokyo Electron Ltd., the world’s second-largest maker of semiconductor equipment, climbed 1.6 percent. Tokyo Steel Manufacturing Co. fell 1.7 percent after the steelmaker reported a wider first-half loss. The Nikkei 225 (NKY) gained 0.9 percent to 8,823.21 as of 9:15 a.m. in Tokyo. The broader Topix index rose 0.8 percent to 757.27, with about six stocks gaining for each that fell.
Spain’s Rating Cut to A1 by Moody’s (Source: Bloomberg)
Spain’s credit rating was cut for the third time since June of last year by Moody’s Investors Service as Europe’s debt crisis threatens to engulf the nation. Moody’s yesterday reduced its ranking to its fifth-highest investment grade, cutting it by two levels to A1 from Aa2, with the outlook remaining negative. Standard & Poor’s downgraded Spain on Oct. 14 to its fourth-highest investment grade, and Fitch Ratings cut it to the same level on Oct. 7, the day it also downgraded Italy. Moody’s, in a statement, cited the “continued vulnerability of Spain to market stress” that is driving up the cost of borrowing, as well as weaker growth prospects. “Moody’s is maintaining a negative outlook on Spain’s rating to reflect the downside risks from a potential further escalation of the euro area crisis.” The euro slipped 0.1 percent to $1.3738 at 7 a.m. Tokyo time.
Merkel Says EU Summit to Be Important, Not Final, Step in Resolving Crisis (Source: Bloomberg)
German Chancellor Angela Merkel said that a European Union summit in five days will mark an “important step,” though not the final one in solving the euro-area sovereign debt crisis. “These sovereign debts have built up over decades, so they won’t be ended with one summit,” Merkel told reporters in Berlin late today. While European officials recognize their responsibility to stop the crisis, “this will require tough, long-term work.” The comments marked the second time in two days that Merkel sought to lower expectations that the European crisis-fighting effort would climax at the Oct. 23 meeting in Brussels, as international officials are advocating.
France Risks AAA on Expanded EFSF Bailout Fund: Euro Credit (Source: Bloomberg)
Proposals to beef up Europe’s bailout fund by offering to guarantee portions of the debt owed by the region’s weaker governments threaten to trash France’s top credit rating. The nation’s 10-year notes are the fourth-worst performers this quarter -- behind Greece, Belgium and Ireland -- as traders speculate the European Financial Stability Facility will be used to insure the first portion of losses in the event of a sovereign default. France’s rating is under pressure, Moody’s Investors Service said yesterday, and investors now demand a record 112 basis points more to hold its bonds rather than German notes, up from 29 basis points in April. “France is the key factor here,” said Bob McKee, chief economist at Independent Strategy Ltd. in London. “Offering insurance increases France’s contingent liability and that puts pressure on its rating. If France loses its AAA status, that in turn increases the pressure on Germany.”
East Europe’s Economic Growth Hurt by ‘Protracted’ Euro Crisis, EBRD Says (Source: Bloomberg)
Economic growth in eastern Europe is slowing “substantially” as a “protracted” euro-area debt crisis infects the region, the European Bank for Reconstruction and Development said. The EBRD cut its 2012 growth forecast for the 29 east European and central Asian nations in which it invests to 3.2 percent from 4.4 percent in July, according to a report released today. Growth will slow from this year’s 4.5 percent, the EBRD said, revising its previous estimate of 4.8 percent. While three months ago the EBRD assumed “a relatively benign external environment” with contained spillover risks from the euro area, it now says the escalating crisis has infected eastern Europe through intertwined trade and banking links. The development bank expects drawn-out repercussions from the euro region’s troubles, which will ultimately be contained, under its main scenario.
Inflation in U.K. Accelerates More Than Forecast to Match 5.2% Record High (Source: Bloomberg)
U.K. inflation accelerated to match a record high in September, a surge Bank of England policy makers set aside as they shifted their focus to combating the threat of another recession. Consumer prices rose 5.2 percent from a year earlier, compared with 4.5 percent in August, the Office for National Statistics said in London today. That matched the record high reached in September 2008, which was the highest since comparable records began in 1997. The median estimate of 35 economists in a Bloomberg News survey was 4.9 percent. Bank of England Governor Mervyn King has said consumer-price growth will probably peak in September and slow “sharply” in 2012.
The Bank of England restarted asset purchases on Oct. 6 to protect Britain’s recovery from risks related to the euro-area debt crisis, and some officials have since signaled they may add to the emergency stimulus if needed. King will deliver a speech in Liverpool later today and minutes of the decision showing how policy makers voted this month will be published tomorrow.
German Investor Confidence Drops to Three-Year Low as Debt Crisis Prevails (Source: Bloomberg)
German investor confidence fell to the lowest in almost three years in October as Europe’s debt crisis threatened to infect banks and curb economic growth. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict developments six months in advance, declined to minus 48.3 from minus 43.3 in September. That’s the lowest since November 2008. Economists expected a drop to minus 45, according to the median of 39 estimates in a Bloomberg News survey. Stocks and the euro erased gains yesterday after the German government said European leaders won’t deliver a complete solution to the region’s debt crisis at an Oct. 23 summit. While Germany’s Bundesbank yesterday predicted “strong” growth in the third quarter thanks to a rebound in industrial production and private consumption, it said the outlook has deteriorated.
U.K. Stocks Decline; Mining Shares Retreat on Chinese Data (Source: Bloomberg)
U.K. stocks declined for a second day after data showed China’s economy grew at the slowest pace in two years, adding to concern that Europe’s debt crisis is dragging on the global recovery. Rio Tinto Group and Vedanta Resources Plc (VED) lost at least 3.5 percent as copper retreated in London. Standard Chartered Plc (STAN) dropped 2.7 percent after Singapore’s Temasek Holdings Pte Ltd. sold $513 million of exchangeable bonds. The FTSE 100 Index (UKX) slid 26.35, or 0.5 percent, to 5,410.35 at the close in London after falling by the same extent yesterday. The FTSE All-Share Index also lost 0.5 percent today, while Ireland’s ISEQ Index rose 0.6 percent in Dublin. “London’s collection of major mining stocks has been under pressure from the start today, providing another drag for the FTSE,” said London-based Yusuf Heusen, a sales trader at IG Index in London. “For now the short-term bears have the upper hand in stock markets.”
European Stocks Fall for Second Day on Debt Crisis, China Growth Concern (Source: Bloomberg)
European stocks fell as concern that France may lose its top credit rating added pressure on the region’s leaders to find a solution to the debt crisis and as China’s economy grew at the slowest pace in two years. BHP Billiton Ltd. (BHP) and Rio Tinto Group led mining shares lower as metals declined. BNP Paribas (BNP) SA and Societe Generale (GLE) SA sank more than 3.5 percent as Moody’s Investors Service said France’s Aaa rating is under strain. Danone rose 2.2 percent as it was said to be in talks to sell water assets to Japan’s Suntory Holdings Ltd. The benchmark Stoxx Europe 600 Index slipped 0.4 percent to 235.33 at the close of trading. The gauge retreated 1 percent yesterday as a German government spokesman said that euro-area leaders will not provide a complete fix to the debt crisis at their next meeting. The measure has still rallied 9.5 percent from this year’s low on Sept. 22.
Yen, Dollar Climb on Spain Rating Cut (Source: Bloomberg)
The yen and dollar strengthened against the majority of their most-traded peers after Moody’s Investors Service cut Spain’s credit rating and before a European report that may show consumer confidence dropped. The euro failed to extend a gain versus the dollar from yesterday, which came as the Guardian newspaper reported Germany and France support boosting a rescue fund for indebted member states to 2 trillion euros ($2.8 trillion). The Australian dollar slid versus 15 of its 16 major peers as futures indicated U.S. shares will fall. “Market sentiment is rather risk-off,” said Kengo Suzuki, manager of the foreign-bond department in Tokyo at Mizuho Securities Co., a unit of Japan’s third-biggest listed bank by market value. “The bias is for the yen to rise amid risk aversion.”
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