Asia Stocks Rise on U.S. Economic Growth Outlook (Source: Bloomberg)
Asian stocks rose, sending a benchmark index toward its biggest weekly gain since May 2009, as the fastest U.S. economic growth in a year boosted the earnings outlook for Asian exporters after Europe announced measures to contain the region’s debt crisis. Honda Motor Co., Japan’s second-largest carmaker by market value that gets 83 percent of its revenue abroad, rose 3.1 percent. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest lender, advanced 2.6 percent. BHP Billiton Ltd. (BHP), Australia’s No. 1 mining company, jumped 2.1 percent after metal and crude prices increased. Fears of a U.S. recession are fading, according toTim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “It’s not an economic scenario at this stage that the U.S. will go into a recession,” he said. “The market has been pricing in less macro-economic risks as a result of what happened over the last 24 hours.”
U.S. Economy Expands at Faster Pace (Source: Bloomberg)
The U.S. economy grew in the third quarter at the fastest pace in a year as Americans reduced savings to boost purchases and companies stepped up investment in equipment and software. Gross domestic product, the value of all goods and services produced, rose at a 2.5 percent annual rate, up from 1.3 percent in the prior three months, Commerce Department figures showed today in Washington. Household purchases, the biggest part of the economy, increased at a 2.4 percent pace, more than forecast by economists. The biggest drop in incomes in two years, along with declines in home prices and consumer confidence, cast doubt on whether the increase in spending can be sustained. Federal Reserve policy makers, who meet next week, and the Obama administration are considering additional measures to reduce an unemployment rate that has been stuck around 9 percent or higher for 30 months.
S&P 500 Extends Biggest Monthly Rally Since 1974 on European Crisis Deal (Source: Bloomberg)
U.S. stocks rose, extending the biggest monthly rally since 1974 for the Standard & Poor’s 500 Index, as European leaders agreed to expand a bailout fund to $1.4 trillion and American economic growth accelerated. Bank of America Corp. (BAC) and JPMorgan Chase & Co. (JPM) advanced at least 8.3 percent, following gains in European lenders. The Dow Jones Transportation Average, a proxy for the economy, jumped 4.5 percent. The index extended its October rally to 20 percent and is poised for its best monthly gain since 1939. Alcoa Inc. (AA) and General Electric Co. climbed more than 6.2 percent to pace gains in companies most-dependent on economic growth.
The S&P 500 rose 3.4 percent to 1,284.59 at 4 p.m. New York time, erasing its 2011 loss and rising to the highest level since Aug. 1. The gauge has climbed 14 percent so far in October. The Dow Jones Industrial Average added 339.51 points, or 2.9 percent, to 12,208.55. The Russell 2000 Index of small companies rallied 5.3 percent and is up 19 percent in October. About 11.9 billion shares changed hands on U.S. exchanges at 4:30 p.m., or 29 percent above the three-month average.
Consumers Negative on Economy (Source: Bloomberg)
Consumer confidence declined last week as Americans’ views of the economy sank to the lowest since the recession, highlighting the challenges facing the recovery. The Bloomberg Consumer Comfort Index fell to minus 51.1 in the week ended Oct. 23, the lowest in a month, from minus 48.4 the prior period. Ninety-five percent of those surveyed had a negative opinion about the economy, the worst since April 2009 and one percentage point shy of a record high. Morass in the housing market, slow hiring and limited wage growth that have soured attitudes may contain consumer spending after a third-quarter pickup. The Obama administration and some Federal Reserve officials said shoring up residential real estate would help speed the recovery.
Jobless Claims in U.S. Decline 2,000 in Limited Labor Market Improvement (Source: Bloomberg)
Fewer Americans filed applications for unemployment assistance last week, while those on benefit rolls dropped to a three-year low, signaling limited improvement in the labor market. First-time jobless claims decreased by 2,000 to 402,000 in the week ended Oct. 22, Labor Department figures showed today in Washington. The median forecast of economists in a Bloomberg News survey called for a drop to 401,000. The number of people collecting unemployment benefits fell in the prior week by 96,000 to 3.65 million, the fewest since September 2008. Waning dismissals, which lay the groundwork for gains in payrolls, may forestall cutbacks by consumers whose spending accounts for about 70 percent of the economy. At the same time, faster hiring is needed to trim unemployment, lift household confidence and spur the recovery.
“We’re not making much progress,” said Robert Dye, chief economist at Comerica Inc. in Dallas. “Unless we see the labor market improve, we won’t see income growth. The consumer will remain fundamentally constrained.”
Fed Refuses to Share Internal View Traders See Underlying Significant Risk (Source: Bloomberg)
At BNP Paribas (BNP) SA’s New York trading desk, Julia Coronado, the bank’s chief North America economist, watched as three words helped undermine the Federal Reserve’s latest attempt to aid the U.S. economy: “significant downside risks.” The phrase, tucked into a seven-paragraph policy statement about the Fed’s plans to move $400 billion into long-term debt from short-term bonds, warned about the economic outlook while offering no clue on the risks’ severity. The Sept. 21 statement said Fed officials expected “some pickup” in the pace of recovery, though unemployment would “only gradually” decline.
Before they acted last month, members of the Federal Open Market Committee saw far more specific predictions. They had “the Teal Book,” an economic forecast that Fed Chairman Ben Bernanke’s staff of 50 or so Ph.D. economists produces every six weeks -- with numeric forecasts for unemployment, growth and inflation down to the decimal point. The document, so influential it’s been called the “13th member” of the 12- person FOMC, is withheld from the public for five years -- unlike the forecasts of other central banks.
Pending Home Sales Decreases by 4.6% (Source: Bloomberg)
The number of contracts to purchase previously owned U.S. homes unexpectedly fell in September as lower prices and borrowing costs failed to support demand. The 4.6 percent decrease in the index of pending home sales, the biggest since April, followed a 1.2 percent drop the previous month, the National Association of Realtors said today in Washington. Economists forecast a 0.4 percent gain, according to the median of 38 estimates in a Bloomberg News survey. Consumer sentiment at depressed levels, unemployment above 9 percent and limited access to credit are preventing Americans from taking advantage of near record-low mortgage rates and discounted pricing on homes. The prospect of more foreclosures adding to supply and further weighing on prices means any recovery in housing may take years.
Treasuries Rise on Speculation Growth Won’t Justify Yield Surge (Source: Bloomberg)
Treasuries rose, snapping a loss from yesterday, on speculation the U.S. economy isn’t expanding fast enough to justify the rout that sent yields up in October by the most in 2011. Benchmark 10-year rates climbed 46 basis points this month as European leaders compiled a package to stem the region’s debt crisis and the U.S. economy showed signs of improvement. In September, investors forecasting a recession pushed the rate to a record low as they sought the relative safety of American government debt. Ten-year yields fell two basis points to 2.38 percent as of 9:38 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2.125 percent note maturing in August 2021 rose 1/8, or $1.25 per $1,000 face amount, to 97 25/32. The record low rate was 1.67 percent on Sept. 23.
Japan Stocks Head for Biggest Weekly Gain Since 2010 on Faster U.S. Growth (Source: Bloomberg)
Japan’s Nikkei 225 (NKY) Stock Average rose, set for its biggest weekly gain in a year, as faster U.S. economic growth boosted the earnings outlook for exporters and after Europe struck a deal on measures to solve the debt crisis. Honda Motor Co., a carmaker that gets 83 percent of its sales abroad, rose 3.3 percent. Sharp Corp., a producer of liquid-crystal displays that gets about half of its sales outside Japan, jumped 5.5 percent. Nippon Sheet Glass Co., which counts Europe as its biggest market, advanced 1.7 percent Fears of a U.S. recession are fading, according toTim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne. “It’s not an economic scenario at this stage that the U.S. will go into a recession,” he said. “The market has been pricing in less macro-economic risks as a result of what happened over the last 24 hours.”
Sarkozy Temper Boils, Banks Yield to Save Euro (Source: Bloomberg)
The guardians of the euro arrived in Brussels last week knowing their efforts to quell the Greek debt crisis over the past two years had failed to build confidence. Europe’s image is “disastrous,” Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro finance chiefs, said Oct. 21 as the six-day meeting marathon began. By the time everyone headed home in the wee hours yesterday, Europe had its revamped plan to prevent a Greek default, safeguard banks and shield Italy from the contagion. In the meantime, tempers flared, threats were made and French President Nicolas Sarkozy’s simmering resentments toward his British and Italian counterparts boiled over. “We have found a durable solution to the Greece crisis,” said Sarkozy at about 3:55 a.m. yesterday, hustling to the podium to hold the first post-summit press conference.
Even so, the timeline was defined by Germany, where lawmakers demanded the right to ratify the crisis plan, requiring both an Oct. 23 meeting and the gathering that started on Oct. 26.
EU Crisis Deal Buys Time for Greece: Papandreou (Source: Bloomberg)
Prime Minister George Papandreou urged Greeks to support his efforts to revamp the economy after euro-area leaders hammered out a new bailout package for the country and imposed deeper losses on bondholders. “The crisis gives us the opportunity and this agreement gives us time,” Papandreou said on television late yesterday after he and fellow government chiefs forced investors to accept 50 percent writedowns on Greek debt. “We negotiated and managed to erase a very important part of our debt. Tens of billions of euros have been lifted from the backs of the Greek people.” European Union leaders boosted their rescue fund’s capacity to 1 trillion euros ($1.4 trillion) and carved out the second aid package for Greece at a crisis-fighting summit in Brussels lasting into the early hours of yesterday. The 17-nation currency and stocks climbed while bond spreads narrowed on optimism Europe might contain turmoil threatening its economy.
Berlusconi Says Italy Must Follow Through on Vows to Maintain Credibility (Source: Bloomberg)
Prime Minister Silvio Berlusconi warned that Italy will lose its credibility unless it lives up to pledges made to the European Union last night on overhauling the economy and reducing the euro area’s second-biggest debt. “If we don’t respect our commitments, we won’t be credible anymore,” Berlusconi told reporters in Brussels earlier today. His comments came after euro-area leaders urged Italy to pursue an “ambitious timetable” to boost economic growth and cut debt that amounts to about 120 percent of output, the second most in the region after Greece. The premier also said that Italy “isn’t Greece” and will avoid the social unrest that has hit its Mediterranean neighbor amid a wave of austerity measures, even as unions threatened to take to the streets to protest his bid to gradually raise the pension age and ease laws on firing workers.
Sarkozy Wins China Support for European Rescue Fund as Japan Plans to Help (Source: Bloomberg)
French President Nicolas Sarkozy conferred with his Chinese counterpart Hu Jintao as European policy makers seek to build support for an enlarged rescue fund designed to resolve the region’s sovereign-debt crisis. Hu hopes that the measures will help to stabilize markets, state-owned China Central Television reported. The phone call between the leaders came hours after a euro-region summit ended with an agreement to boost the European Financial Stability Facility to about $1.4 trillion, leveraging existing guarantees by as much as five times. Japan plans to support the increase, and is waiting to hear from European officials on details for the program, according to a person familiar with the matter. Sarkozy’s outreach precedes a Group of 20 summit he will host next week, with Europeans seeking to bolster the role of the International Monetary Fund in overcoming the euro-region’s woes.
Australia’s finance chief said that while it’s “appropriate” to look at the IMF’s resources, Europeans must look to themselves first for bailout money. “The Europeans have their back against the wall and China is the lender of last resort,” Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong, said in a Bloomberg Television interview before Sarkozy’s call.
European Stocks Advance on Sovereign Debt-Crisis Deal; Banks Lead Gains (Source: Bloomberg)
European stocks rallied to the highest in 12 weeks after the region’s leaders agreed to expand a bailout fund to halt the sovereign debt crisis. BNP Paribas (BNP) SA, France’s biggest bank, and Deutsche Bank AG (DBK), Germany’s largest, surged at least 15 percent as policy makers decided to boost the firepower of the European rescue fund to 1 trillion euros ($1.4 trillion). PPR SA, the French owner of the Gucci luxury-goods brand, jumped 5.4 percent after third-quarter sales surpassed analyst estimates. The Stoxx Europe 600 Index rose 3.6 percent to 249.42 at the close, the highest since Aug. 3. The index has rallied 16 percent from this year’s low on Sept. 22 amid growing speculation that policy makers would agree on a solution to the region’s debt woes.
South Korea’s Current-Account Surplus Expands on Demand for Autos, Steel (Source: Bloomberg)
South Korea’s current-account surplus widened in September as global demand for cars, steel and oil products bolstered exports. The surplus was $3.1 billion from a revised $292.6 million in August, the Bank of Korea said in a statement in Seoul today. The current account is the broadest measure of trade, tracking goods, services and investment income. The central bank this month extended a pause in interest- rate increases as growth concerns outweighed the threat posed by inflation. Asia’s fourth-largest economy grew at a slower pace in the third quarter as companies cut spending, a government report showed yesterday. “The economy is slowing but is unlikely to enter a downturn unless Europe’s fiscal problems deepen,” said Kwon Young Sun, a Hong Kong-based economist at Nomura Holdings Inc. “The BOK will continue to take a wait-and-see stance on rate policy at least until the end of this year as uncertainties remain high.”
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