Asian Stocks Rise a Second Day as Japan Exports Increase, Commodities Gain (Source: Bloomberg)
Asian stocks climbed for a second day, led by raw-material producers, as Japan’s exports increased more than expected, signaling a recovery in shipments is withstanding the weakening global economy. Honda Motor Co., the Japanese carmaker that gets over 80 percent of sales overseas, rose 1.4 percent in Tokyo. Toyota Motor Corp., the world’s biggest automaker by market value, added 1 percent. BHP Billiton Ltd., the largest global mining company, advanced 2 percent in Sydney after copper futures extended gains. The MSCI Asia Pacific Index increased 0.9 percent to 117.06 as of 9:45 a.m. in Tokyo, with about 12 stocks rising for each that fell. The gauge had its biggest weekly decline in a month last week after Germany said there would be no quick fix to the European debt crisis.
European leaders meeting in Brussels at the weekend ruled out tapping the European Central Bank’s balance sheet to boost the region’s rescue fund and outlined plans to aid banks, inching toward a revamped strategy to contain the Greece-fueled debt crisis. The complete blueprint won’t come together until a summit on Oct. 26.
U.S. Stocks Rise as S&P Sees Longest Weekly Rally Since February (Source: Bloomberg)
U.S. stocks rose this week, driving the Standard & Poor’s 500 Index to its longest winning streak since February, amid optimism Europe’s leaders will announce a plan to contain the debt crisis and after McDonald’s Corp. (MCD) joined companies beating profit estimates. Financial shares in the S&P 500 added 3.9 percent as European finance ministers began negotiations to prevent a Greek default and shield banks. McDonald’s rose 2.7 percent, while Bank of America Corp. (BAC) and Goldman Sachs Group Inc. climbed more than 4.3 percent after their quarterly reports. PulteGroup Inc. jumped 11 percent as data showed sentiment among homebuilders improved more than forecast. El Paso Corp. (EP) soared 28 percent after Kinder Morgan Inc. agreed to buy it.
The S&P 500 climbed 1.1 percent to 1,238.25, the highest since Aug. 3, and has risen three straight weeks. It has surged 13 percent since Oct. 3, when it closed within 1 percent of a bear market, or 20 percent plunge, from its high in April. The Dow Jones Industrial Average rose a fourth straight week, gaining 164.30 points, or 1.4 percent, to 11,808.79.
U.S. Economy Probably Picked Up in Third Quarter on Consumer Spending Gain (Source: Bloomberg)
The U.S. economy probably grew in the third quarter at the fastest pace this year, easing anxiety that the recovery was on the verge of stalling, economists said before a report this week. Gross domestic product, the value of all goods and services produced, rose at a 2.5 percent annual rate after advancing 1.3 percent in the previous three months, according to the median forecast of 68 economists surveyed by Bloomberg News before the Commerce Department’s Oct. 27 release. Orders for business equipment rose in September and new-home sales stabilized, other data may show. Consumer spending last quarter may have climbed more than twice as fast as in the prior three months, helping the economy withstand the plunge in stocks caused by Europe’s debt crisis. Nonetheless, the pace of growth has failed to cut unemployment, prompting Federal Reserve officials like Janet Yellen and Daniel Tarullo to say that more monetary stimulus may be needed.
Fed Officials Weigh Further Easing Options Even as Economy Gains Strength (Source: Bloomberg)
Federal Reserve policy makers are developing options for further monetary easing even as better- than-forecast economic reports have allayed concerns that the U.S. is on the verge of a renewed recession. Fed Vice Chairman Janet Yellen said yesterday that a third round of large-scale asset purchases “might become appropriate if evolving economic conditions called for significantly greater monetary accommodation.” A day before, Governor Daniel Tarullo said buying mortgage-backed securities “should move back up toward the top of the list of options.” They join Charles Evans, president of the Chicago Fed, and Boston’s Eric Rosengren in calling for consideration of further stimulus to boost growth and bring down a jobless rate stuck around 9 percent or higher for 30 months. A stock-market rally and gains in manufacturing and retail sales may convince the Federal Open Market Committee, which meets Nov. 1-2, to decide that it’s too soon for a third round of bond purchases.
Treasuries Advance on European Economy, Debt-Crisis Concerns (Source: Bloomberg)
Treasuries gained for the first time in three days before a European report projected to show that the region’s services and manufacturing industries contracted. Demand for the relative safety of U.S. debt increased after European policy makers ruled out tapping the central bank to boost a rescue fund for indebted nations, while outlining plans to aid banks. Futures indicated a U.S. stock index will fall. “People may be forgetting about Europe’s economy but it is worsening,” said Kiyoshi Ishigane, a senior strategist in Tokyo at Mitsubishi UFJ Asset Management Co. “That’s not good for the global economy and weighs on bond yields.” Ten-year yields fell two basis points, or 0.02 percentage point, to 2.2 percent as of 9:44 a.m. Tokyo time, according to Bloomberg Bond Trader prices. The price of the 2.125 percent securities maturing in August 2021 rose 5/32, or $1.56 per $1,000 face amount, to 99 11/32.
Payrolls Decline in 25 States , Led by North Carolina; Florida Tops Gains (Source: Bloomberg)
Payrolls fell in 25 U.S. states in September, led by North Carolina and Ohio, a sign the weakness in the job market is broad-based. Employers cut staff by 22,200 in North Carolina last month and by 21,600 in Ohio, according to Labor Department data issued today in Washington. The report also showed the jobless rate decreased in 25 states. Nevada continued to lead the nation in unemployment with a rate of 13.4 percent. The economy needs to generate faster sustained job growth to lower unemployment and spur the consumer spending that makes up about 70 percent of the economy. A Labor Department report on Oct. 7 showed employers added 103,000 payrolls last month, almost half of them telecommunications workers returning from a strike, and the jobless rate was 9.1 percent for a third month.
McDonald's Posts Higher Sales, Profit (Source: CME)
McDonald's Corp.'s third-quarter earnings rose 8.6% as the fast-food giant's continued sales gains helped compensate for higher-than-expected food cost inflation. The Oak Brook, Ill., restaurant chain has consistently outperformed fast food rivals with competitive pricing that attracts consumers in this volatile economy. Even after raising menu prices this year in light of its higher costs, the chain has still been able to boost customer visits and grow sales faster than most of its competitors. For the third quarter, global same-store sales, or sales at restaurants open at least 13 months, rose 5%, with a 4.4% boost in the U.S., 4.9% in Europe and 3.4% in the Asia Pacific, Middle East and Africa division. Chief Executive Jim Skinner said the company's better-than-expected results were "hard-won."
"We are officially out of the recession, but it hardly feels that way," he said. "Consumers everywhere continue to be cost conscious and hesitant to spend." He said global same-store sales remain strong at the beginning of the fourth quarter, and the company expects a between 4% and 5% rise this month. McDonald's reported a profit of $1.51 billion, or $1.45 a share, up from $1.39 billion, or $1.29 a share, a year earlier. Foreign currency translation boosted its third quarter earnings by eight cents a share. Revenue rose 14% from a year ago to $7.17 billion. Excluding currency fluctuations, revenue was up 8%. Analysts polled by Thomson Reuters had expected earnings of $1.43 a share on revenue of $7.03 billion. McDonald's better-than-expected results come as the company faces higher costs, especially for beef, as those prices didn't moderate after the summer grilling season like McDonald's had hoped.
As a result, it raised its commodity inflation outlook to between 4.5% and 5% from 4% to 4.5% in the U.S. and Europe for the year, as higher food costs pressure restaurant margins industry-wide. An increasingly diverse menu "ranging from value offerings to higher-margin products like blended-ice drinks" has contributed to its strong sales and helped offset its rising costs. McDonald's also implemented two rounds of menu price increases this year, averaging 1% in March and 1.4% in May, to further offset food inflation. Still, McDonald's bottom line was hit in the third quarter, as its company-owned restaurant margin decreased by one percentage point to 20% because strong same-store sales were more than offset by higher commodity costs. "We will continue to evaluate additional price increases in light of this inflationary environment, always balancing our goal of driving traffic and market share gains with managing impact of rising costs," said Chief Financial Officer Peter Bensen.
McDonald's expects 2012 commodity inflation to be about the same as this year. Grocery store prices are rising faster than restaurant prices, which might allow McDonald's to increase its menu prices again in the near-term without turning away consumers, Mr. Bensen said. Mr. Skinner added that McDonald's pricing plans are "an inside game," not determined by moves its competitors make. "We have a pricing model that we use very, very effectively," Mr. Skinner said. "And yet it takes intuition and a gut feeling of that when to pull the trigger on these kinds of things."
China Must Control Prices to Curb Inflation: Wen (Source: Bloomberg)
China must continue efforts to control food and housing prices to ease soaring inflation and maintain economic development and social stability, according to Premier Wen Jiabao. Authorities must help boost output of farm products, control the non-food use of corn and increase land supply to make more residential housing available, Wen said in a statement posted on the central government’s website on Oct. 22. Wen’s government has tightened lending and boosted imports of agricultural reserves to keep inflation from derailing growth in the world’s second-biggest economy. China probably won’t ease monetary policies until inflation slows to less than 5 percent, Yu Yongding, a former central bank adviser, said Oct. 21.
“The government has been more flexible in balancing its tightening policies” with the state of the economy, and the measures have worked, Li Qiang, managing director of Shanghai JC Intelligence Co., the country’s biggest independent agricultural researcher, said in a phone interview yesterday. “Food prices, including pork, are trending lower.”
Japanese Stocks Advance, Led by Traders and Commodity Producers (Source: Bloomberg)
Japanese stocks rose, with the benchmark Nikkei 225 (NKY) Stock Average headed for its biggest gain in a week, as trading companies and commodity producers gained on higher oil and metal prices. Mitsubishi Corp. (8058), Japan’s biggest trading company by market value, rose 2.2 percent. Sumitomo Metal Mining Co., a copper producer, increased 3.5 percent. Toyota Motor Corp. (7203), the world’s largest automaker by market value, advanced 1 percent after Japanese exports increased more than expected. The Nikkei 225 rose 1.3 percent to 8,792.31 as of 9:22 a.m. in Tokyo, set for its largest advance since Oct. 17. The broader Topix index increased 1.2 percent to 753.11, with almost 10 stocks rising for each that fell.
Stocks in Europe Post Longest Streak of Weekly Gains This Year as EU Meets (Source: Bloomberg)
European stocks advanced for a fourth week, for the longest rising streak since December, as investors speculated European leaders meeting in Brussels next week will nudge forward a solution to the region’s debt crisis. SGL Carbon SE (SGL) soared the most since 2008 after a report that Bayerische Motoren Werke AG plans to buy a stake in it. Lundin Petroleum AB (LUPE) surged 14 percent after Statoil ASA doubled its estimate of an oil discovery in the North Sea. G4S Plc (GFS) slumped 14 percent after agreeing to acquire ISS A/S, a move resisted by at least one large shareholder. The Stoxx Europe 600 Index advanced 0.2 percent to 238.93 this week, with energy, personal goods and retail industries gaining the most. The gauge trimmed its decline from this year’s high on Feb. 17 to 18 percent. The Stoxx 600 is trading at about 10 times the estimated earnings of its constituent companies, near the lowest valuation since March 2009, according to data compiled by Bloomberg.
EU Rules Out ECB Help in Boosting Fund (Source: Bloomberg)
European leaders ruled out tapping the European Central Bank’s balance sheet to boost the region’s rescue fund and outlined plans to aid banks, inching toward a revamped strategy to contain the Greece-fueled debt crisis. Europe’s 13th crisis-management summit in 21 months also explored how to strengthen the International Monetary Fund’s role. The leaders excluded a forced restructuring of Greek debt, sticking with the tactic of enticing bondholders to accept losses to help restore the country’s finances. “Work is going well on the banks, and on the fund and the possibilities of using the fund, the options are converging,” French President Nicolas Sarkozy told reporters at the Brussels summit yesterday. “On the question of Greece, things are moving along. We’re not there yet.”
EU Pushes to Solve Debt Woes as Merkel Damps Expectations (Source: Bloomberg)
European leaders started the 13th crisis summit in 21 months seeking a breakthrough over how to stamp out the Greece-led debt shock that threatens to tip the world into a recession. Chancellor Angela Merkel of Germany, Europe’s dominant economy, played down the odds of an agreement today to beef up the euro bailout fund, cut Greece’s debt without triggering a default, shield banks from the fallout and insulate Italy and Spain from the turmoil. “Today one shouldn’t expect decisions,” Merkel told reporters before the Brussels summit. She spoke of “a technically complex process” with the aim of forging a comprehensive strategy at the next summit in three days.
European Leaders Say Bank Recapitalization Is ‘Essential’ Part of Package (Source: Bloomberg)
European Union finance ministers will meet Oct. 26 to complete work on bank-recapitalization plans, EU leaders indicated in a draft statement today. The finance chiefs, who met yesterday in Brussels for 10 hours, have progressed “on measures for the banking sector” and should “finalize this work” at a meeting on Oct. 26, the EU’s government heads said in the draft text obtained by Bloomberg News. The EU’s 27 leaders are meeting today in Brussels, with the euro area’s 17 government heads due to gather in the afternoon and again in three days to draw up a plan to stem the Greece- triggered debt crisis. Bank recapitalization is one part.
EU Talks Yield ‘Limited’ Progress on Banks’ Role in Greek Crisis (Source: Bloomberg)
A 10-hour meeting in Brussels failed to yield a blueprint for banks’ role in a revamped Greek rescue as European finance ministers haggled over what they called a “credible firewall” against fallout from deeper writedowns. The ministers’ meeting broke up at about 7 p.m. after reaching agreement that European banks may need about 100 billion euros ($139 billion) in capital after marking their sovereign-debt holdings to market values, according to a person familiar with the discussions. This amount is needed to reach a core tier 1 capital level of 9 percent based on a European Banking Authority test, said the person, who declined to be identified because discussions are private. The struggle to get an accord on bank capital was just one piece of solving the two-year-old financial crisis. Governments also are pushing for deeper writedowns on banks’ holdings of Greek debt, a step the investors are resisting.
European Leaders Consider Fund to Attract Outside Cash to Tame Debt Crisis (Source: Bloomberg)
European finance ministers are considering setting up a fund to entice outside investors to buy troubled euro-area government bonds, as they struggled over how to tame the Greece-fueled debt crisis, said a person familiar with the matter. The insured investment vehicle was one of two options being weighed, along with using the European Financial Stability Facility to boost the rescue firepower from 440 billion euros ($611 billion) currently, the person said. “The principle that we leverage the EFSF with private money is being subscribed by everyone, but the level of success is uncertain,” Dutch Finance Minister Jan Kees de Jager told reporters on the second day of crisis talks in Brussels. “How much can we raise, that is being looked at.”
Berlusconi Pressed by EU Leaders on Deficit (Source: Bloomberg)
Italian Prime Minister Silvio Berlusconi was put on the defensive at a crisis summit over the country’s finances and appointments at the European Central Bank. Before the leaders convened yesterday in Brussels, Berlusconi held face-to-face talks yesterday with European Union President Herman Van Rompuy and European Commission President Jose Barroso and then with German Chancellor Angela Merkel and French President Nicolas Sarkozy. “I never flunked” an exam in my life, Berlusconi told reporters when asked if he was concerned over the push to cut Italy’s debt load, the biggest in the world after the U.S. and Japan. The demand for discipline underscored European leaders’ concern of the vulnerability of Italy, whose debt totals more than $2 trillion, accounting for almost 120 percent of its gross domestic product. The ECB started buying Italian bonds two months ago to contain borrowing costs as yields surged.
Swan Says Europe’s Sovereign Crisis Shouldn’t Damp Confidence in Australia (Source: Bloomberg)
Volatility in global markets caused by the sovereign debt crisis in Europe shouldn’t damp confidence in Australia’s economic outlook, according to Treasurer Wayne Swan. “The situation in Europe will continue to have an impact on our region, our economy and our budget bottom line,” Swan said in his weekly economic note published yesterday. “But Australians should remain confident about our prospects, based on our strong fundamentals, our very low debt, low unemployment and our massive investment pipeline.” European leaders descended on Brussels at the weekend in a last-ditch effort to stamp out a two-year-old financial crisis that threatens to tip the world into a recession. Europe’s economy will expand 1 percent in 2012, compared with 4.3 percent in Australia where a mining boom is stoking the fastest pace of growth among Group of 10 currency nations, according to Bloomberg surveys.
Indonesian Government Prevails in Tussle Over Financial Regulator’s Board (Source: Bloomberg)
Indonesia ended months of impasse over the board composition of a planned financial regulator as lawmakers yielded to the government’s efforts to reduce the risk of political interference in bank supervision. The Financial Services Authority parliamentary working committee agreed Oct. 20 to the government’s plan for two former finance ministry and central bank members on the agency’s board of commissioners, along with seven presidential picks vetted by parliament, Achsanul Qosasi, a vice chairman of the committee, said by phone in Jakarta yesterday. Parliament had wanted two of its members in the mix. “The composition of the board of commissioners is good and it will make this body independent, without political interference in supervising financial institutions,” said David Sumual, an economist at PT Bank Central Asia in Jakarta.
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