Asia Stocks Fall as Italian Yields Stoke Concern (Source: Bloomberg)
Asian stocks fell, paring yesterday’s advance, after Italian borrowing costs surged at a note sale, reviving concern Europe’s sovereign-debt crisis is spreading, damping investor confidence for riskier assets. Sony Corp. (6758), Japan’s No. 1 exporter of consumer electronics, fell 1.9 percent. Paladin Energy Ltd. (PDN), an Australian firm producing uranium in Africa, jumped 8.4 percent as Australian Prime Minister Julia Gillard seeks to overturn a ban on uranium shipments to India. The MSCI Asia Pacific Index dropped 0.3 percent to 118.38 as of 9:16 a.m. in Tokyo. The measure rose 1.2 percent yesterday, paring two weeks of losses.
U.S. Stocks Decline as European Debt Concerns Return; Boeing Shares Gain (Source: Bloomberg)
U.S. stocks declined, snapping a two-day advance in the Standard & Poor’s 500 Index, as an increase in Italian borrowing costs deepened concern Europe will struggle to contain its sovereign debt crisis. Morgan Stanley and Citigroup Inc. (C) fell more than 2.6 percent. Bank of America Corp. (BAC) slid 2.6 percent after agreeing to sell most of its China Construction Bank Corp. stake to boost capital. Bank of New York Mellon Corp. (BK) slid 4.5 percent as the world’s largest custody bank said it would book a charge of as much as $100 million this quarter. Boeing Co. (BA) added 1.5 percent after winning a record $26 billion order from Emirates. The S&P 500 retreated 1 percent to 1,251.78 at 4 p.m. New York time. The Dow Jones Industrial Average decreased 74.70 points, or 0.6 percent, to 12,078.98. About 5.5 billion shares changed hands on U.S. exchanges, the lowest since April 25.
European Stocks Decline as Borrowing Costs Rise; Banks Retreat (Source: Bloomberg)
European stocks dropped as Italy’s borrowing costs rose after the nation sold 3 billion euros ($4.1 billion) of bonds at the highest yield since 1997. UniCredit SpA (UCG) dropped 6.2 percent after Italy’s largest bank approved a 7.5 billion-euro share sale. Banco Bilbao Vizcaya Argentaria SA (BBVA) led Spanish lenders lower as the nation’s borrowing costs climbed. Hochtief AG (HOT) plunged 11 percent after the construction company said the sale of its airport-operating business has been delayed. The benchmark Stoxx Europe 600 Index retreated 1 percent to 238.47 at the close in London, with all 19 industry groups declining. The cost of insuring against default on sovereign and corporate debt advanced, according to traders of credit-default swaps.
Japanese Stocks Decline as Surging Italian Yields Revive Europe Concern (Source: Bloomberg)
Japan’s Nikkei 225 (NKY) Stock Average fell for the first time in three days, after Italian and Spanish borrowing costs surged, reviving concern Europe’s sovereign-debt crisis is spreading and damping appetite for riskier assets. Nintendo Co., the video-game company that gets more than 40 percent of sales in Europe, sank 2 percent. Inpex Corp. (1605), Japan’s top energy explorer by market value, slid 2.6 percent after crude prices dropped yesterday. Sumitomo Mitsui Financial Group Inc. (8316), Japan’s second-biggest bank by market value, gained 2.7 percent after raising its full-year profit forecast. Olympus Corp. (7733) was poised to soar, extending yesterday’s surge after a report the scandal-hit company may avoid delisting. The Nikkei 225 declined 0.5 percent to 8,563.93 as of 10:30 a.m. in Tokyo, headed for its first drop in three days. The broader Topix index retreated 0.3 percent to 733.54.
Fed Economists: 2012 Recession Odds Top 50% (Source: Bloomberg)
The odds of a U.S. recession in early 2012 exceed 50 percent as a result of Europe’s debt crisis, according to researchers at the Federal Reserve Bank of San Francisco. “Prudence suggests that the fragile state of the U.S. economy would not easily withstand turbulence coming across the Atlantic,” economist Travis Berge, research associate Early Elias and research advisor Oscar Jorda wrote in a paper released by the bank today. “A European sovereign debt default may well sink the United States back into recession.” The probability that the world’s largest economy will slip into another slump has increased since last year, when Berge and Jorda estimated a one-in-two chance such an event would occur toward the first six months of 2012.
Fed’s Fisher Sees U.S. Poised for Growth (Source: Bloomberg)
Federal Reserve Bank of Dallas President Richard Fisher said the U.S. economy is “poised for growth” going into next year and that he sees a declining likelihood the central bank will need to ease further. “The direction we’re moving in is positive,” the policy maker said today in an interview from Bloomberg’s headquarters in New York. He said he expects gross domestic product to expand by 2.5 percent to 3 percent in the fourth quarter, “gradually getting better as we go through time.” Fisher’s comments contrast with those of Chairman Ben S. Bernanke, who predicted on Nov. 2 that the pace of recovery will be “frustratingly slow,” and with researchers at the San Francisco Fed, who project a better than 50 percent chance of recession early next year. The Dallas Fed president is among the most vocal critics of Fed policy, dissenting twice this year against moves to push down long-term rates and keep the benchmark U.S. interest rate low until at least June 2013.
He voted five times in 2008 in favor of tighter policy.
Treasuries Hold Gain on Italy Debt Losses; Gross Sees Low Rates (Source: Bloomberg)
Treasuries held a gain from yesterday as declines in Italian and Spanish bonds added to concern that Europe will struggle to contain a debt crisis that is threatening to slow global economic growth. The Federal Reserve will keep interest rates low “for a number of years” to support the U.S. economy, said Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co. Thirty-year bonds advanced yesterday after the Fed purchased securities maturing from 2036 to 2041 as part of its Operation Twist policy of swapping holdings of shorter-term Treasuries for longer maturities. “Concerns surrounding Europe are likely to keep yields from rising,” said Hitoshi Asaoka, a senior strategist in Tokyo at Mizuho Trust & Banking Co., part of Japan’s third-largest publicly traded bank. “Treasuries are being bought in a mild risk-off environment.”
China Wary of Choking on U.S. Dollar Driving Hong Kong Dim Sum Debt Sales (Source: Bloomberg)
The helicopter swooped over Hong Kong’s Victoria Harbor trailing a huge red-and-white banner: RMB SOVEREIGN BONDS. There were billboards on buses and banks and at the entrance to the cross-harbor tunnel. The city’s biggest sale of bonds in China’s currency, the renminbi, may not have blown away the man and woman on the street. Yet the burst of advertising in August did signal just how important the event was to the Beijing government and to the bankers and traders who feed off the Chinese economy, Bloomberg Markets magazine reports in its December issue. Nicknamed Dim Sum bonds after Hong Kong’s favorite dining pastime, the securities are the hottest financial innovation in town.
Shanghai Cuts Rates in Nation’s First Muni Bonds (Source: Bloomberg)
Shanghai may cut its borrowing costs by almost two percentage points as China allows local governments to sell bonds for the first time, helping policy makers reorganize 10.7 trillion yuan ($1.7 trillion) of debt. The city will probably sell 3.6 billion yuan of three-year notes at 3.15 percent and 3.5 billion yuan of five-year securities at 3.35 percent today, according to the median estimates in a Bloomberg survey of seven finance companies. Five-year bonds sold by companies set up by the city to fund infrastructure yield an average 5 percent, data compiled by Bloomberg show. Tax-exempt, top-rated five-year U.S. municipal debt yields 1.1 percent, according to a Bloomberg index.
The market for regional authorities’ debt, which hasn’t existed since the Communist Party took power in 1949, will require issuers to publish annual reports and stipulate clearer obligations than for the more than 6,000 companies set up by local governments to raise money for sewers, bridges and toll roads. China’s non-performing loans may surge to 12 percent in the next few years from about 1.8 percent at the end of September as many of the enterprises lack sufficient revenue to service debt, Credit Suisse Group AG said in an Oct. 12 report.
Japan Economy Expands at 6% Pace as Exports Drive Post-Earthquake Recovery (Source: Bloomberg)
Japan’s economy expanded for the first time in four quarters as exports recovered from a record earthquake, an expansion that is already slowing because of weakening overseas demand. Gross domestic product grew at an annualized 6 percent in the three months ending Sept. 30, the fastest pace in 1 1/2- years, the Cabinet Office said today in Tokyo. At 543 trillion yen ($7 trillion), economic output was back to levels seen before the March 11 earthquake, the report showed. Japan’s return to growth after three quarters of contraction was driven by companies including Toyota Motor Corp. making up for lost output from the disaster. A sustained rebound will depend on how much reconstruction demand can offset a slowdown in global growth as Europe’s debt crisis damps global confidence and an appreciating yen erodes profits.
India’s Inflation Exceeds 9% for 11th Month, Reducing Scope for Rate Pause (Source: Bloomberg)
India’s inflation exceeded 9 percent for an 11th straight month, crimping the central bank’s scope to keep interest rates unchanged and shield the economy from a faltering global recovery. The benchmark wholesale-price index rose 9.73 percent in October from a year earlier, the commerce ministry said in a statement in New Delhi today. That compares with a 9.72 percent jump in September and the median forecast of 9.65 percent in a Bloomberg News survey of 19 economists. Asian nations from Indonesia to South Korea are either cutting rates or keeping them on hold to protect expansion as Europe’s debt crisis threatens to trigger a global slump. India’s central bank last month signaled it’s nearing the end of monetary tightening, provided inflation slows, after it raised rates for the 13th time since mid-March 2010.
“Prices are not coming off,” said Madan Sabnavis, chief economist at Mumbai-based ratings company Credit Analysis & Research Ltd. “The RBI will have to probably revisit its guidance if inflation remains elevated.”
Indonesia Sells $1B Sukuk at Half 2009 Yield (Source: Bloomberg)
Indonesia sold $1 billion of seven- year Shariah-compliant bonds at half the borrowing cost of its previous sale in 2009, reflecting investor optimism that the nation may win an investment-grade debt rating. The dollar-denominated securities sold at 4 percent, data compiled by Bloomberg show. The sale targeted a rate of 4.25 percent, said a person familiar with the transaction, who asked not to be identified as the details are private. The nation’s debut sukuk, $650 million worth of five-year debt, was issued in April 2009 at 8.8 percent. Indonesia’s foreign-exchange reserves have more than doubled since 2009, while the government of President Susilo Bambang Yudhoyono is targeting economic growth of 6.5 percent this year, the fastest since the Asian financial crisis in 1998. Standard & Poor’s raised Indonesia’s foreign-currency rating to BB+ in April, with a positive outlook, signaling the country may be on the verge of winning investment-grade status.
Argentina Cuts Reserve Requirements After Deposits Tumble by $645 Million (Source: Bloomberg)
Argentina’s central bank cut dollar reserve requirements after bank deposits plunged $645 million last week following the government’s moves to restrict foreign exchange purchases in South America’s second-biggest economy. Argentine banks will be required to hold just 20 percent of their dollar deposits at the central bank as reserves, Banco Central de la Republica Argentina said in a Nov. 11 statement. Banks previously had to keep all dollar savings not being used to finance exporters at the central bank. President Cristina Fernandez de Kirchner’s efforts to slow capital flight since her Oct. 23 re-election by ramping up oversight of foreign exchange purchases, ordering energy and mining companies to repatriate export revenue and telling insurance companies to bring investments back to the country sent investors to banks to withdraw dollars.
Russian Growth Accelerated in Third Quarter for First Time Since Last Year (Source: Bloomberg)
Russia’s economic growth accelerated in the third quarter for the first time since last year as companies stepped up investment and bank lending buoyed consumer spending. Gross domestic product expanded 4.8 percent from a year earlier, the fastest pace since the second quarter of 2010, after increasing 3.4 percent in the previous three months, the Federal Statistics Service said in an e-mailed statement today. The median estimate in a Bloomberg survey of 14 economists was 5 percent. The Economy Ministry estimated it at 5.1 percent. The world’s largest energy exporter is counting on domestic consumption to balance shrinking demand abroad as Europe fights to staunch a debt crisis. Prime Minister Vladimir Putin, who will run for president next year, is seeking annual growth of between 6 percent and 7 percent and turn the economy into one of the world’s five largest.
Euro Maintains Decline Before German Confidence Data, Spanish Bill Auction (Source: Bloomberg)
The euro held losses before a report forecast to show German investor confidence fell to a three-year low as Europe’s debt crisis threatens to curb economic growth. The 17-nation currency weakened against half of its 16 major peers as Spain prepares to sell up to 4 billion euros ($5.5 billion) of bonds on Nov. 17 after Italy’s borrowing costs surged to the highest level since 1997 at a note sale yesterday. Australia’s dollar snapped a decline from yesterday after the nation’s central bank said in minutes to its Nov. 1 meeting that there was a case for keeping interest rates unchanged even though policy makers lowered the benchmark. “A poor reading is expected for November, but probably the risk is that we get an even weaker result on the ZEW survey and that just adds to the poor sentiment over Europe,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “In the short term you must be bearish euro given that the sovereign-debt crisis hasn’t been contained and downside risks remain.”
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