Asia Stocks Fall as Merkel Rules Out Euro Bonds
Asian stocks fell for a third day after German Chancellor Angela Merkel ruled out common euro-area bonds and a bigger role for the European Central Bank in fighting the region’s debt crisis, damping the earnings outlook for Asian exporters. Commonwealth Bank of Australia (CBA), Australia’s No. 1 lender by market value, declined 1.9 percent. Hyundai Motor Co. (005380), South Korea’s biggest carmaker by market value, lost 2.3 percent. Elpida Memory Inc. (6665), the world’s third-largest memory chipmaker, soared 7.9 percent after SMBC Nikko Securities Inc. boosted the equity rating to “outperform” from “neutral.” Woodside Petroleum Ltd. (WPL) fell 5.7 percent after Australia’s second-biggest oil producer narrowed its annual output guidance. The MSCI Asia Pacific Index dropped 0.3 percent to 109.81 as of 10:11 a.m. in Tokyo with seven of 10 industry groups sliding. The measure has lost 3.9 percent this week, headed for a fourth weekly loss. The MSCI Asia Pacific excluding Japan Index lost 0.5 percent.
Emerging Stock Funds Post $2.7 Billion Outflows on Europe, Citigroup Says
Emerging-market equity funds (BBOEEEUS) reported net outflows in the week ended Nov. 23, amid concerns Europe’s debt crisis is worsening, Citigroup Inc. said. Funds investing in developing-nation stocks withdrew $2.7 billion in the period, Citigroup analysts led by Markus Rosgen wrote in a report today, citing data compiled by EPFR Global. South Korea had the most outflows in the Asia-excluding-Japan region during the week, according to the report. Concerns over European debt mounted this week after bids for German bonds in a sale fell 35 percent short of the amount on offer. Euro bonds are “not needed and not appropriate,” German Chancellor Merkel said at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France yesterday.
“The numerous things going on in Europe, with the German bond auction the more recent one, have once again brought people back to worry about the systemic crisis,” Kelly Kwok, one of the Citigroup analysts cited in today’s report on fund flows, wrote in an e-mail.
Wal-Mart Allowed to Own 51% of India Ventures
India approved allowing overseas companies to own as much as 51 percent of retailers selling more than one brand, paving the way for global companies such as Wal- Mart Stores Inc. (WMT) and Tesco Plc (TSCO) to own stores. Trade Minister Anand Sharma told reporters after a cabinet meeting yesterday that he will make a statement on the government’s rationale for opening multibrand retail to foreign investment in parliament today. Specific conditions linked to the approval weren’t immediately known. Wal-Mart and Carrefour SA (CA) have been seeking to enter the world’s second-most populous nation to tap a market expected to double to $785 billion by 2015 from $396 billion this year, according to Business Monitor International. Organized stores account for about 5 percent of India’s retail market, according to the Associated Chambers of Commerce and Industry of India.
Treasuries Drop as 10-Year Yield’s Approach to Record Low Seen Unjustified
Treasuries fell, eroding a weekly gain, on speculation yields that dropped to within 20 basis points of the record low aren’t justified given the outlook for economic growth. U.S. 10-year notes yield negative 1.59 percent after accounting for costs in the economy, versus negative 0.31 percent in Germany and positive 0.8 percent in Japan. Treasury rates tumbled this week as the spreading European debt crisis increased demand for the relative safety of U.S. securities. “Everything is trading on European uncertainty, and you have a massive flight to quality into the U.S.,” said Bin Gao, the Hong Kong-based head of interest rate research for Asia and the Pacific at Bank of America Merrill Lynch. “Treasuries are overvalued” as a result, he said.
Dollar Strengthens, Euro Drops to Seven-Week Low on Sovereign Debt Crisis
The dollar climbed against all its major peers, extending this week’s gains as investors sought the safest assets on concern economies in the euro area will worsen as leaders struggle to halt the region’s debt crisis. The euro dropped to a seven-week low against the dollar as Italy prepares to sell bills today after the country’s two-year yield soared to a 14-year high yesterday. The Australian dollar was set for a fourth straight week of declines as Asian stocks extended a global rout in equities after German Chancellor Angela Merkel’s rejection of joint euro bonds damped optimism about a potential remedy for the region’s fiscal struggles. “Risk sentiment is still pretty poor as there doesn’t seem to be one clear solution that will be swift for Europe,” said Besa Deda, chief economist at St. George Bank Ltd. in Sydney. “The U.S. dollar would get some support in this environment particularly, as the euro is out of favor.”
CIC May Give ‘Indirect’ Support to Europe: Wang
China’s sovereign wealth fund may give “indirect” support to Europe through investments without being the nation’s main route for any aid, said Jesse Wang, the executive vice president of China Investment Corp. The fund “wouldn’t be the main channel” if China helps tackle the sovereign-debt crisis, Wang said in an interview at a forum in Beijing yesterday. “However, if during such a process there are good investment opportunities in Europe and if CIC’s investment helped the destination company or country to recover and developed the economy, that would be indirect support.” European leaders are looking to China, the holder of the world’s largest foreign-exchange reserves at $3.2 trillion, as a source of funds as the region’s crisis threatens to trigger a global slump. China is among countries that may be willing to support Europe through the International Monetary Fund if policy makers agree on a plan, World Bank President Robert Zoellick said in a Nov. 17 interview.
Japanese Stocks Swing Between Gains, Losses
Japanese stocks (NKY) swung between gains and losses after German Chancellor Angela Merkel said she remains opposed to common euro-area debt sales. Elpida Memory Inc. led chip stocks higher. Fanuc Corp., the maker of industrial robots that gets about 11 percent of sales from Europe, declined 1.7 percent. Nissen Holdings Co. dropped 2.4 percent after the mail-order business operator said sales on a parent basis fell. Elpida Memory, the world’s third-largest memory-chip maker, jumped 7.6 percent after SMBC Nikko Securities Inc. upgraded the stock to “outperform.” “We are likely to see investors continue to exercise caution in the market,” said Stan Shamu, a strategist at IG Markets in Melbourne. “There’s a feeling Germany is no longer immune to this whole situation and they may act further, which is obviously why everyone is calling for common-euro bonds.”
Japan Consumer Prices Fall as Growth Slows
Japan’s consumer prices fell for the first time in four months, an indication that slowing global demand and the yen’s strength are weighing on growth and prolonging deflation. Consumer prices excluding fresh food fell 0.1 in October, the statistics bureau said today in Tokyo, matching the median forecast of 32 economists surveyed by Bloomberg News. The yen’s surge to postwar highs against the dollar is lowering import costs, putting pressure on prices that have also been damped by weaker demand at home. Europe’s deepening sovereign debt crisis is also threatening the outlook for growth in the world’s third-largest economy. “It’s highly probable that consumer prices will keep falling at a moderate pace as the effect of oil prices and a the strong yen gradually surface,” Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo, said before the report. “Price growth isn’t in sight for Japan.”
Merkel Rejects Euro Bonds Again After Auction
German Chancellor Angela Merkel again ruled out joint euro-area borrowing and an expanded role for the European Central Bank in fighting the debt crisis. Euro bonds are “not needed and not appropriate,” Merkel said today at a press conference with Italian Prime Minister Mario Monti and French President Nicolas Sarkozy in Strasbourg, France. She said euro bonds would “level the difference” in euro-region interest rates. “It would be a completely wrong signal to ignore those diverging interest rates because they’re an indicator of where work still needs to be done.” Merkel, the leader of Europe’s biggest economy, has so far backed a focus on debt reduction and closer economic coordination, calling for a revision of European Union treaties, a move that threatens to bog down in a multiyear negotiation, as core euro economies risk succumbing to the contagion that began in Greece in 2009.
Business Confidence in Germany Advances for First Time Since June: Economy
German business confidence unexpectedly rose for the first time in five months in November, defying Europe’s worsening debt crisis. The Munich-based Ifo institute’s business climate index, based on a survey of 7,000 executives, increased to 106.6 from 106.4 in October. Economists expected a decline to 105.2, according to the median of 40 forecasts in a Bloomberg News survey. “Although downside risks certainly remain, doomsday is not around the corner,” said Andreas Rees, chief German economist at UniCredit Markets and Investment Banking in Munich. “A recession, and especially a deep and nasty one, is not in the pipeline.”
Hungary Cut to Junk at Moody’s After IMF Plea
Hungary lost its investment-grade rating at Moody’s Investors Service after 15 years as the Cabinet seeks International Monetary Fund help to boost confidence in the European Union’s most-indebted eastern member. The foreign- and local-currency bond ratings were cut one step to Ba1, the highest junk-level score, from Baa3, the company said today in a statement. Moody’s, which awarded Hungary its investment grade in 1996, assigned a negative outlook. The country is rated the lowest investment grade at Standard & Poor’s and Fitch Ratings. The government has scrapped two debt sales and reduced the size of another eight auctions in the last three months as the euro region’s debt crisis deepened. Prime Minister Viktor Orban’s Cabinet on Nov. 17 asked for IMF “insurance” that doesn’t entail a loan and doesn’t impose conditions.
U.K. Economic Growth Accelerates, Boosted by Stockbuilding
U.K. economic growth accelerated in the third quarter as stockbuilding and government spending offset weak consumer spending and business investment. Gross domestic product rose 0.5 percent from the previous quarter, when it increased 0.1 percent, the Office for National Statistics said today in London. The figure matched a previous estimate and the median forecast in a Bloomberg News survey of 32 economists. Consumer spending was flat on the quarter, while investment fell 0.2 percent. Underlying growth “is weak,” the office said. The Bank of England, which has restarted bond purchases to aid the recovery, said yesterday that underlying growth was probably weaker than the reported figure due to “heightened uncertainty” related to the euro-area crisis. The bank slashed its 2012 growth forecast by more than half and policy makers have signaled more stimulus may be needed in future.
BOE’s Miles Sees Risk a Country May Exit Euro Area as Debt Crisis Persists
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.”
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