Asia Stocks Fall, Won Drops on Europe Concern (Source: Bloomberg)
Asian stocks (MXAP) fell to a seven-week low and South Korea’s won weakened a fifth day after bidding in a German bund auction fell short of the offer amount, fueling concern Europe’s debt crisis is worsening. The MSCI Asia Pacific Index slumped 0.5 percent as of 9:21 a.m. in Tokyo, set for the lowest close since Oct. 5. The Nikkei 225 Stock Average sank 1.6 percent as Japan’s financial markets resumed trading after a holiday yesterday. Standard & Poor’s 500 Index futures were little changed before the Thanksgiving break. The won dropped as much as 0.7 percent to 1,160.30 per dollar and the euro traded at $1.3358 from $1.3342 yesterday, when it lost 1.2 percent. Oil dipped 0.5 percent to $95.72 in New York.
German 10-year yields jumped yesterday after bids at a sale of securities repayable in January 2022 fell 35 percent short of the 6 billion euros ($8 billion) on offer, signaling bunds are losing their haven status as Europe’s crisis spreads. Economic data yesterday showed services and manufacturing output in the 17-nation euro region shrank for a third month, while U.S. durable goods orders fell and jobless claims topped forecasts.
Asia Stocks Fall on German Debt Sale (Source: Bloomberg)
Asian stocks (MXAP) fell for a second day after Germany failed to receive sufficient bids at a debt sale, adding to concern Europe’s crisis is worsening and driving away investors from risky assets. Sony Corp., Japan’s No. 1 exporter of consumer electronics that gets 21 percent of its sales in Europe, fell 3 percent. Sumitomo Mitsui Financial Group Inc., Japan’s second-biggest lender by market value, dropped 1.4 percent. Billabong International Ltd., a global surfwear maker, fell 8.2 percent in Sydney. The MSCI Asia Pacific Index dropped 0.5 percent to 109.77 as of 9:17 a.m. in Tokyo. Almost four stocks fell for each that rose on the index.
“The market has finally realized that Germany has a high level of public debt,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “Germany looks to be losing its safe-haven status, and it highlights the extent to which the European debt crisis has deteriorated. It can be only bad news for risky assets like equities.”
U.S. Stocks Decline as Europe Bond Risk Climbs (Source: Bloomberg)
U.S. stocks slumped, sending the Standard & Poor’s 500 Index down for a sixth straight day, as the cost of insuring European government debt against default rose to a record on concern the region’s crisis is worsening. About nine stocks fell for each that rose on U.S. exchanges. Alcoa Inc. (AA) and Halliburton Co. (HAL) tumbled at least 4.1 percent as data indicated China manufacturing will shrink, sparking concern about slower demand for commodities. Bank of America (BAC) Corp. dropped 4.3 percent to the lowest since March 2009. Groupon Inc., the largest Internet daily-deal site, plunged 16 percent to below its initial public offering price.
The S&P 500 slid 2.2 percent to 1,161.79 at 4 p.m. New York time, the lowest since Oct. 7. It lost 7.6 percent in six days, the most since Aug. 10. The Dow Jones Industrial Average fell 236.17 points, or 2.1 percent, to 11,257.55. About 6.9 billion shares changed hands on U.S. exchanges, 16 percent below the three-month average, ahead of Thanksgiving. The market will close tomorrow and trading will end at 1 p.m. on Nov. 25.
European Stocks Retreat for Fifth Day as German Bond Auction Misses Target (Source: Bloomberg)
European stocks declined, with the benchmark Stoxx Europe 600 Index posting its longest losing streak since August, as Germany failed to attract sufficient bids at an auction of benchmark 10-year bunds. Rio Tinto Group, the world’s second-largest mining company (RIO), dropped 2.3 percent as Australia’s lower house of parliament passed legislation introducing a tax on coal and iron-ore profits. Logica (LOG) Plc, the Anglo-Dutch computer services provider, slid 4.2 percent after Jefferies Group Inc. cut its recommendation on the shares. Dexia SA (DEXB) jumped 13 percent. The Stoxx 600 declined 1.3 percent to 220.31 at the close in London, for a fifth day of losses. The benchmark index has tumbled 7.1 percent over the last five trading days as Italian, Spanish and French bond yields soared, adding to concern that the debt crisis is spreading to the euro area’s larger economies.
U.K. Stocks Post Longest Losing Streak Since 2003; RBS, Lloyds Decline (Source: Bloomberg)
U.K. stocks (UKX) fell for an eighth day, their longest stretch of losses since 2003, as euro area borrowing costs climbed after a German bond auction fueled concern the region’s debt crisis is worsening. Royal Bank of Scotland Group Plc (RBS) and Barclays Plc (BARC) both lost more than 3 percent as costs to insure government debt in Europe climbed to a record. Rio Tinto Group retreated 2.3 percent after a report showed Chinese manufacturing may contract and Australia passed a mining tax. The FTSE 100 Index sunk 67.04, or 1.3 percent, to 5,139.78 at the close in London, extending the gauge’s loss since Nov. 11 to 7.3 percent. The FTSE All-Share Index dropped 1.3 percent, while Ireland’s ISEQ Index slid 1.2 percent.
“The headlines out of Europe continue to be negative and this is forcing many investors to move away from anything risky,” said Joshua Raymond, chief market strategist at City Index in London. “The German bond auction was a real shock to the markets. The lack of appetite for bonds naturally raises suspicion that perhaps investors are starting to question the strength of Germany.”
Consumer Spending, Durable Orders Signal Slower Growth (Source: Bloomberg)
Americans pulled back on spending in October and manufacturers received fewer orders for durable goods, tempering expectations for a pickup in economic growth in the fourth quarter. Consumer purchases, which account for 70 percent of the economy, increased 0.1 percent after a 0.7 percent gain in September, Commerce Department figures showed today in Washington. Bookings for equipment meant to last at least three years fell 0.7 percent after a 1.5 percent drop in September. Unemployment stuck near 9 percent and confidence at recession levels prompted consumers to curb spending on the eve of the holiday shopping season. Manufacturers may see orders cool as the European sovereign-debt crisis roils financial markets and threatens the global expansion.
Fed Seeks to Bolster Confidence in 31 Largest U.S. Banks With Stress Tests (Source: Bloomberg)
The Federal Reserve sought to bolster confidence in the U.S. banking system as concerns over the European sovereign-debt crisis roil financial markets and pose risks to the economic expansion. The Fed yesterday told the 31 largest U.S. banks to test their loan portfolios against a deep recession to ensure they have enough capital to withstand losses. Banks with large trading operations will also test against a European market shock. The most severe scenarios outlined by the Fed include an unemployment rate of as much as 13 percent, an 8 percent drop in gross domestic product and a 52 percent plunge in stocks from the third quarter of 2011 to the fourth quarter of 2012. “This is a daunting test,” said Karen Shaw Petrou, managing partner at Federal Financial Analytics, a Washington regulatory research firm whose clients include the largest banks. “The Fed’s credibility as a tough guy can’t be challenged based on this.”
Confidence Among U.S. Consumers Rises to the Highest Level in Five Months (Source: Bloomberg)
Confidence among U.S. consumers rose in November to the highest level in five months. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 64.1 this month, the highest since June, from 60.9 in October. The median estimate of economists surveyed by Bloomberg News called for a reading of 64.5. Further gains in sentiment, which is still at levels seen during the last recession, may provide ballast for the consumer spending that makes up about 70 percent of the economy. Unemployment hovering around 9 percent and concerns over a possible euro zone default and deficit reduction gridlock in the U.S. are weighing on consumers’ spirits. “Confidence is still in recession territory, well below normal,” Sal Guatieri, a senior U.S. economist at BMO Capital Markets in Toronto, said before the report. “Confidence hasn’t fully recovered the drop-off from earlier in the summer that stemmed in part from the debt-ceiling fiasco, the downgrade and the escalation of the euro credit crisis.”
Orders for U.S. Durable Goods Fall as Demand Cools for Jets, Capital Goods (Source: Bloomberg)
Orders for durable goods fell in October as demand for aircraft and business equipment cooled, indicating a slowing global economy may temper purchases of U.S. manufactured goods. Bookings for equipment meant to last at least three years declined 0.7 percent, less than forecast, after a 1.5 percent drop the prior month that was more than twice as large as originally reported, data from the Commerce Department showed today in Washington. Excluding defense and aircraft, demand for computers and other business equipment decreased by the most since January. The risk the global economy is losing steam as Europe deals with its debt crisis may lead overseas companies, which have supported U.S. factories, to scale back. Even so, a government tax break targeted at stimulating business investment may sustain capital investment while a weaker dollar keeps American- made goods attractive to foreign buyers.
Initial Claims Rise; Durable Goods Orders Fall (Source: Bloomberg)
Nov. 23 (Bloomberg) -- More Americans than forecast filed for unemployment benefits last week. Applications for jobless insurance increased 2,000 in the week ended Nov. 19 to 393,000, Labor Department figures showed. Economists forecast 390,000 claims according to the median estimate in a Bloomberg News survey. Orders for durable goods fell 0.7 percent in October after a 1.5 percent revised drop the prior month, and consumer spending rose 0.1 percent for the month, the Commerce Department added. Betty Liu, Dominic Chu and Michael McKee report on Bloomberg Television's "In the Loop." (Source: Bloomberg)
China Lowers Reserve Ratio for Some Banks (Source: Bloomberg)
China’s central bank is lowering reserve requirements for more than 20 rural cooperative banks by half a percentage point, adding to signs of a shift toward allowing greater credit growth as the economy slows. The move reduces the percentage of deposits that the cooperatives are required to park with the central bank to 16 percent, a “normalization” after an increase a year ago, the People’s Bank of China’s Hangzhou branch said in an e-mailed statement yesterday. The central bank gave no indication whether it may cut reserve requirements for the largest commercial banks, a step that Bank of America Merrill Lynch predicts may come in January. Yesterday’s decision follows a pledge by Premier Wen Jiabao’s government to implement more “forward looking” and flexible monetary policy as the global economy struggles to sustain its recovery. With prospects for Chinese export demand slipping, a preliminary manufacturing purchasing manager index for November fell to its lowest level since 2009.
Chinese Banks ‘Built on Quicksand’: Chanos (Source: Bloomberg)
Chinese banks are “extremely fragile” because the lenders don’t have enough capital to offset bad loans, said Jim Chanos, president and founder of the $6 billion hedge fund Kynikos Associates Ltd. Chinese lenders are saddled with non-performing loans accumulated in the late 1990s and early 2000s, Chanos, the short seller who predicted the collapse of Enron Corp. in 2001, said in an interview on Bloomberg Television yesterday. The banks are failing to recognize the losses on the bad loans and have carried out a lending binge since 2008, said Chanos. “The Chinese banking system is built on quicksand and that’s the one thing a lot of people don’t realize,” said Chanos, who is shorting the shares of Agricultural Bank of China. “Everybody seems to think it is a free and clear open checkbook. It’s not. The banking system in China is extremely fragile.”
Manufacturing in China May Contract Most in Three Years as Housing Falters (Source: Bloomberg)
China’s manufacturing may contract this month by the most since March 2009 as home sales slide, adding to evidence the world’s second-biggest economy is slowing, a preliminary purchasing managers’ index shows. The reading of 48 reported by HSBC Holdings Plc and Markit Economics today compares with a final number of 51 last month. A number below 50 indicates a contraction. Europe’s sovereign-debt crisis threatens to cut export demand just as small businesses complain of a credit squeeze, and Premier Wen Jiabao’s campaign to cool home prices triggered a 25 percent slump in sales last month. Today’s Chinese data indicated easing inflation pressures that leave more room for measures to boost growth after the U.S. yesterday reported a weaker-than-estimated expansion.
India Relaxes Rules to Boost Dollar Supply (Source: Bloomberg)
India’s central bank loosened rules for companies to borrow abroad and raised the interest rate on bank deposits by its citizens living overseas to help stem the decline in Asia’s worst-performing currency. Companies borrowing abroad can now pay as much as 3.5 percentage points over the London Interbank Offered Rate for loans longer than three years and up to five years, raising the cap by 50 basis points, or 0.5 percentage point, according to a central bank statement in Mumbai yesterday. For non-resident Indians, the spread over Libor was increased between 25 basis points and 100 basis points for two different deposit plans. The measures follow after the rupee plunged to a record low this week on concern Europe’s debt crisis will hurt demand for emerging market assets. Restraining the rupee’s slide will aid the Reserve Bank of India’s fight against inflation, which is the highest among BRIC nations.
Japanese Shift Funds to Gilts From Bunds (Source: Bloomberg)
Japanese investors are buying more bonds in the U.K. than in any other nation overseas as Europe’s struggle to control its debt crisis left Germany unable to complete a sale of securities yesterday. Money managers in Japan scooped up 1.53 trillion yen ($19.9 billion) of U.K. gilts in 2011 through Sept. 30, set for the biggest annual purchase since 2008, Ministry of Finance data showed on Nov. 9 in Tokyo. Japanese investors unloaded the most debt in Germany, totaling almost 1.46 trillion yen, followed by sales in Italy and France, the figures show. Demand for gilts has pushed 10-year yields to parity with German bunds for the first time since 2009 and to levels unseen in two decades against Japanese debt. Nissay Asset Management Corp., Mitsubishi UFJ Asset Management Co. and Mizuho Asset Management Co., which manage a combined $192 billion, are all bullish on U.K. bonds after investors pulled money out of Europe, sending Italian and Spanish yields to euro-era highs.
BOE’s Miles Sees Risk a Country May Exit Euro Area as Debt Crisis Persists (Source: Bloomberg)
Bank of England policy maker David Miles said there’s a risk a country may leave the 17-nation euro area and that the threat from the region’s crisis has increased uncertainty about the outlook for the U.K. economy. “I don’t think any of us can feel confident one way or another about whether all the countries that are currently in the euro zone will still be in it,” Miles said in an interview on ITV broadcast late yesterday. In the U.K., “the return to more normal rates of growth is something that is going to be a gradual process over the course of the next two years,” Miles said. “There’s plenty of risks and that might turn out to be too optimistic, that might turn out to be too pessimistic.” The Bank of England, which restarted bond purchases in October to aid the recovery, cut its 2012 growth forecast this month by more than half. While data today may show that gross domestic product rose 0.5 percent in the third quarter, the central bank said yesterday that underlying growth was probably weaker than that.
Greece Has Last Chance to Reshape Economy, Stay in Euro, Central Bank Says (Source: Bloomberg)
Greece has one last chance to reshape its economy and stay in the euro region, the country’s central bank said, adding to European Union pressure on Greek political leaders to move decisively on economic revamping. A 130 billion-euro ($174 billion) bailout approved by EU leaders on Oct. 26 “represents a milestone on the adjustment path of the Greek economy,” the Bank of Greece said today in its interim monetary policy report. Greece’s debt-sustainability dynamics have changed in the past year, putting the country in its most critical situation since World War II. “We must step up the pace not just to reach our goals but to make up for lost ground,” Greek central bank Governor George Provopoulos said in Athens, according to an e-mailed transcript of his statements. “What is at stake is very great: it is Greece remaining a member of the euro and I think that for most Greeks there is no dilemma here. We must succeed.”
Dollar Is Near Seven-Week High Versus Euro Before German Sentiment Report (Source: Bloomberg)
The dollar was 0.2 percent from a seven-week high against the euro before a German report that may show a gauge of business confidence dropped for a fifth month, increasing the allure of the U.S. currency as a haven. Europe’s common currency held a loss against the yen as Italy prepares to sell bills tomorrow after Germany failed to get bids for 35 percent of the 10-year government bonds that it offered for sale yesterday. The Australian dollar was within 0.1 percent of a one-month low against the yen on prospects Asian stocks will extend a global rout of equities. “There will be a rush for safe havens like the dollar now,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “It’s quite clear that the picture is deteriorating at a fast pace in the euro zone.”
Euro Tumbles to a Six-Week Low as German Bond Sale Fuels Concern on Crisis (Source: Bloomberg)
The euro fell to a six-week low against the dollar after Germany received insufficient bids at a bond auction, adding to concern Europe’s sovereign-debt crisis is driving investors away from the region’s assets. The dollar climbed versus all of its 16 most-traded peers as a gauge of European services and manufacturing shrank and data signaled China’s manufacturing will slip. The euro weakened further as European Union Economic and Monetary Affairs Commissioner Olli Rehn said the crisis is “ravaging Europe.” Brazil’s real was the biggest loser versus the greenback. “The U.S. seems like a lonely safe-haven destination, and the dollar is the safe haven by default,” said David Mann, regional head of research for the Americas at Standard Chartered in New York. “The feeling we are getting is that people are looking to sell the euro on any rally, which may mean that any rallies will be very shallow at this point.”
JPMorgan to Purchase Bankrupt MF Global Holdings in London Metal Exchange (Source: Bloomberg)
JPMorgan Chase & Co. (JPM) agreed to buy the London Metal Exchange shares of MF Global U.K. Ltd., while talks on the sale of remaining assets in the U.K. continue, the special administrator said. MF Global (MF) filed for bankruptcy protection last month after making bets that went bad on European sovereign debt. Its British unit, MF Global U.K. Ltd., one of 12 category 1 members of the LME that normally hold the right to trade on the floor, was stopped from trading on the bourse on Oct. 31. The company’s special administrator in Britain, KPMG LLP, put the unit’s stake on sale. Following a “competitive bidding process,” JPMorgan agreed to purchase all of MF Global’s shareholding, Richard Fleming, Richard Heis and Mike Pink, the special administrators of MF Global U.K. Ltd. at KPMG, said today in an e-mailed statement. “The sales process for various aspects of the MF Global U.K. business continues apace and we are in negotiations with several parties to this end,” Heis said in the statement.
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