Asian Stocks Advance for Fifth Day Ahead of U.S. Housing Data (Source: Bloomberg)
Asian stocks rose, with the regional benchmark index heading for its fifth day of advance, before the release of U.S. data this week that’s expected to show further signs of stabilization in the housing market. Samsung Electronics Co. (005930), Asia’s No. 1 consumer-electronics maker, added 0.7 percent in Seoul. GS Engineering & Construction Corp. climbed 3.9 percent on speculation the South Korean contractor may win orders from the Middle East. BHP Billiton Ltd., Australia’s biggest oil producer and the world’s largest mining company, advanced 1.4 percent in Sydney as oil futures traded near a one-week high.
“The market should continue to look fairly positive,” Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, said on Bloomberg Television. His firm oversees about $150 billion. “This week will be focused on whether the world economy can continue to recover. Data has been more positive lately, with some signs of stability in Europe and better data out of the U.S.” The MSCI Asia Pacific Index gained 0.4 percent to 128.43 as of 10:27 a.m. in Tokyo. The gauge climbed 12 percent this year through March 16 as positive economic reports from the U.S. boosted the outlook for the region’s exporters.
Japan Stocks Gain as Trading Companies Climb; Utilities Drop (Source: Bloomberg)
Japanese stocks rose, with the Nikkei 225 Stock Average set for its highest close since last year’s earthquake, as trading and oil companies gained on higher crude prices. Utilities fell after Citigroup Inc. cut its outlook on the industry. Inpex Corp. (1605), Japan’s No. 1 energy explorer, rose 0.7 percent. Marubeni Corp. (8002) advanced 3 percent after a report the trading house and a Japanese fund will pay $850 million to acquire a wind-farm company. Kansai Electric Power Co., a utility, slumped 2.7 percent after Citigroup cut its rating on the stock because of uncertainty on dividend payments for next fiscal year. Separately, broadcaster NHK reported Osaka City may urge the utility to abolish nuclear reactors. “What we’re seeing is a return to more buoyant growth taking away the impact of negative growth from the nuclear crisis around this time last year,” said Tim Schroeders, who helps manage $1 billion in equities at Pengana Capital Ltd. in Melbourne.
“Very significant tailwinds are helping share prices move higher in the Japanese market.” The Nikkei 225 Stock Average (NKY) rose 0.4 percent to 10,166.31 as of 10:08 a.m. in Tokyo, headed for the highest closing level since last year’s March 11 earthquake and tsunami. The broader Topix Index climbed 0.3 percent to 869.27, with more than twice as many stocks gaining as falling.
U.S. Stocks Advance as Fed Boosts Economic Outlook (Source: Bloomberg)
U.S. stocks rose for the fifth straight week as the Federal Reserve raised its assessment of the economy and let banks such as JPMorgan Chase & Co. (JPM) boost dividends after reviewing their financial strength. JPMorgan rallied 8.6 percent to help lead financial shares in the Standard & Poor’s 500 Index (SPX) to a 5.9 percent advance, the most among 10 industries. Bank of America Corp. (BAC) surged 22 percent. Apple Inc. (AAPL) increased 7.4 percent and topped $600 for the first time during the week as the company started selling its new iPad. Alcoa Inc. (AA) and General Electric Co. (GE) rose more than 6 percent after the Fed said the economic outlook has improved and strains on global markets have eased.
“The main theme for this week has been positive economic numbers,” Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus & Co., which oversees more than $116 billion in client assets, said in a telephone interview. For banks, “a major overhang for them has been alleviated due to the successful stress tests.” Stocks gained after the central bank said on March 13 that the economic outlook has improved as the labor market gathers strength. Claims for jobless benefits matched the lowest level in four years, according to Labor Department data released two days later. The Fed also said 15 of the 19 largest banks would maintain adequate capital levels in a severe recession even if they kept paying dividends and buying back stock.
Europe Stocks Post Weekly Gain on Global Economic Outlook (Source: Bloomberg)
European stocks posted their biggest weekly rally since early February as reports from the U.S. to Germany indicated growth is gaining pace and the Federal Reserve raised its assessment of the world’s biggest economy. Shares of insurance (SXIP) companies and banks led the advance, with Aegon NV (AGN) and Credit Suisse Group AG jumping at least 11 percent each. Pirelli & C. SpA (PC), Europe’s third-largest tiremaker, soared 15 percent as profit beat analysts’ estimates. The Stoxx 600 Europe Index climbed 2.6 percent to 272.40 during the week. The measure has rallied 11 percent this year on optimism that the euro area will contain the sovereign-debt crisis and as U.S. economic reports beat forecasts. “The U.S. economy is a very, very strong support for the market,” said Pierre Mouton, a fund manager who helps oversee $7.5 billion at Notz Stucki & Cie. in Geneva. “The data is confirming that the economy really is rebounding, and more rapidly than expected. We’ve turned the page.”
Home Sales Probably Increased in February: U.S. Economy Preview (Source: Bloomberg)
Home purchases in the U.S. probably climbed in February to the highest level in almost two years, another sign of stabilization in the real-estate market, economists said reports this week will show. Combined sales of new and previously owned properties rose to 4.93 million at an annual rate, the strongest since May 2010, from 4.89 million in January, according to the median forecasts in a Bloomberg News survey. Home construction also improved as warmer weather bolstered prospects for the industry, another report may show. Job and income gains, cheaper homes and the lowest mortgage rates on record have combined to push affordability to an all- time high. With fewer new dwellings on the market, residential construction may be poised to contribute more to economic growth this year.
“The evidence is very clear that housing is beginning to improve,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “I do not expect housing to be a drag on GDP this year. It started to be a modest positive contributor last year. Now that it’s actually contributing again, that’s a significant turn of events.”
Euro Rises (Source: Bloomberg)
The euro touched a 4 1/2-month high against the yen as German Chancellor Angela Merkel said European officials have discussed combining euro-area bailout funds to reinforce the region’s financial firewall. Demand for the 17-nation euro was also supported before Italian Prime Minister Mario Monti holds talks with unions and employers to revise labor laws this week. The yen traded near an 11-month low versus the dollar as Asian stocks extended a four- day rally from last week, damping demand for haven assets. Federal Reserve Bank of New York President William C. Dudley speaks today at Melville, New York. “There’s no doubt the market would very much like to see the two bailout funds combined,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp. (WBC) “Anything that increases the firepower will be well received. It’s certainly one of the positives for the euro.”
The euro touched 110.15 yen, the highest since Oct. 31, before trading at 109.91 at 10:02 a.m. in Tokyo, little changed from 109.95 on March 16 in New York. The common currency bought $1.3170 from $1.3175 on March 16, when it rose 0.7 percent. The yen fell to 83.47 per dollar from 83.43. Japan’s currency on March 15 touched 84.18 per dollar, the weakest since April 13.
Treasuries Post Biggest Weekly Decline in Eight Months on Growth (Source: Bloomberg)
Treasury (YCGT0025) 10-year notes declined the most in eight months after the Federal Reserve drove investors into riskier assets and reduced speculation of further debt purchases by increasing its assessment of the U.S. economy. Yields on the benchmark note rose to the highest level in more than four months yesterday as a report showing the cost of living rose in February added to concern inflation may accelerate as the recovery strengthens. The difference in yields between 10-year notes and Treasury Inflation Protected Securities climbed to 2.41 percentage points, the most since August, as the U.S. prepared to sell $13 billion of the securities on March 22. “The bear market has begun,” said James Combias, the New York-based head of Treasury trading at Mizuho Securities USA Inc., one of 21 primary dealers that trade with the central bank. “The world has been parked out in the bond market.”
The 10-year yield rose 27 basis points, or 0.27 percentage point on the week, to 2.30 percent in New York, according to Bloomberg Bond Trader prices. The increase was the most since yields rose 32 basis points in the five days ended July 1. The 2 percent note due February 2022 dropped 2 11/32, or $23.44 per $1,000 face amount, to 97 12/32.
Treasuries Decline on Speculation U.S. Home Purchases Inc (Source: Bloomberg)
Treasury 10-year notes fell for a ninth day before a U.S. report this week that economists said will show home purchases climbed in February to the highest level in almost two years. The difference between yields on 10-year notes and Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, widened to 2.42 percentage points today, the most since August. Ten-year Treasury yields rose two basis points, or 0.02 percentage point, to 2.31 percent at 9:45 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 2 percent debt due February 2022 declined 5/32, or $1.56 per $1,000 face amount, to 97 7/32. Rates climbed 27 basis points last week. “The increase in Treasury yields is a recognition that the economy is in better shape,” said Peter Jolly, head of market research at National Australia Bank Ltd. (NAB) in Sydney.
Japan’s Echo Boomers Giving a Lift to Housing: Mortgages (Source: Bloomberg)
Japan’s shrinking economy is poised to get a lift from the children of baby boomers taking out their first mortgages with rates close to a three-year low. As many as 19.1 million people, or 15 percent of the Japanese population, are in the 35 to 39 and 40 to 44 year-old age groups, the second- and third-largest, government data show. Combined, the two groups are roughly double the size of the postwar baby boom generation now in their early 60s, according to the Ministry of Internal Affairs and Communications. “Japan is in a demographic sweet spot,” said Jesper Koll, head of equity research at JPMorgan Chase & Co. “Children of baby boomers are now at their late 30s and early 40s. That is where the demand is going to be coming from.”
So-called echo baby boomers reaching the age to purchase their first home will give a boost to a housing market that accounts for about 15 percent of Japan’s gross domestic product at a time when the nation is struggling to recover from last year’s earthquake, some companies are suffering from worse-than- expected earnings results, pushing up the unemployment rate. The Bank of Japan has maintained rates near zero for 17 years, benefiting home buyers, who are enjoying one of the lowest financing costs in the world.
Monti to Meet Labor Unions Amid Warning of Continued Euro Crisis (Source: Bloomberg)
Italy’s Prime Minister Mario Monti will press ahead with efforts to revise labor laws this week, amid fresh warnings that the three-year-old European debt crisis is far from over. Monti will lead talks with unions and employers in a final round of negotiations beginning tomorrow. Decision makers meanwhile warned against complacency after delivery of the final element of Greece’s 130 billion-euro ($171 billion) bailout package and the completion of the world’s largest sovereign-debt restructuring last week. “Optimism should not give us a sense of comfort or lull us into a false sense of security,” International Monetary Fund Managing Director Christine Lagarde said in a speech at the China Development Forum in Beijing yesterday. “We cannot go back to business as usual,” she said, urging vigilance on oil prices, debt levels, and the risk of slowing growth in emerging markets.
An easing of the crisis offered breathing room for Monti to seek an Italian labor-market overhaul and for euro-area ministers aiming to bolster euro bailout funding before a meeting at the end of the month. Still, urgency was underscored by an IMF warning that the Greek bailout held “exceptional risks” that could prompt a “disorderly” exit from the monetary union unless additional help is prepared.
Britain Will Keep Austerity With Unemployment at 16-Year (Source: Bloomberg)
Britain won’t ease austerity in its budget to be presented this week, U.K. Chancellor of the Exchequer George Osborne said in an interview to be aired today on CNN’s “Fareed Zakaria GPS” program. “We are going to stick with the deficit reduction plan that I set out almost two years ago,” Osborne said, according to a transcript of the interview. U.K. jobless claims rose more than economists forecast in February, and a broader measure of unemployment remained at the highest level in 16 years, according to data released March 14 by the Office for National Statistics in London. Keeping austerity measures in place is important “to provide the stability that the British economy needs and the low interest rates the British economy needs to allow the recovery to take hold,” Osborne said.
Lagarde Says World Can’t Be Lulled Into Sense of Security (Source: Bloomberg)
International Monetary Fund Managing Director Christine Lagarde urged policy makers to be vigilant as oil prices, debt levels, and the risk of slowing growth in emerging markets threaten global economic stability. “Optimism should not give us a sense of comfort or lull us into a false sense of security,” Lagarde said today at a speech in Beijing at the China Development Forum. “We cannot go back to business as usual.” The IMF last week approved a 28 billion-euro ($36.6 billion) loan for Greece as part of a 130 billion euro second bailout by the European Union that requires more austerity and an overhaul of its economy. Greece completed the world’s largest sovereign-debt overhaul and agreed to deeper spending cuts to obtain new funds as it faces a fifth year of recession. “The measures that were proposed are ambitious and it will be important to focus on steady rigorous implementation of the situation on the ground,” Lagarde said about Greece. “We have made important steps forward.”
Greece Auction to Settle $3.2 Billion of Credit-Default Swaps (Source: Bloomberg)
Credit-default swaps dealers will hold an auction today to settle as much as $3.2 billion of Greek bond insurance triggered by the nation’s debt restructuring. The auction will be held under the rules of the International Swaps & Derivatives Association and will determine the amount that sellers of protection must pay by setting a recovery price for Greek bonds. An initial rate will be set at 11 a.m. London time with a final value determined at 3:30 p.m. Greek credit-default swaps are being settled after investors were forced to exchange their bonds at a loss in the biggest ever debt restructuring. The auction ends more than two years of speculation over whether the derivatives are viable for insuring sovereign debt after European policy makers sought to prevent payouts on concern they’d worsen the region’s crisis.
“Triggering CDS might have more positive than negative implications for European government bond markets,” said Ioannis Sokos, a fixed-income strategist at BNP Paribas SA in London. “It’s a clear demonstration that there is a functioning hedging tool out there for holders of other peripheral bonds.”
Germany’s $270 Billion Renewables Shift Biggest Since War (Source: Bloomberg)
Not since the allies leveled Germany in World War II has Europe’s biggest economy undertaken a reconstruction of its energy market on this scale. Chancellor Angela Merkel is planning to build offshore wind farms that will cover an area six times the size of New York City and erect power lines that could stretch from London to Baghdad. The program will cost 200 billion euros ($268 billion), a third of annual gross domestic product, according to the DIW economic institute in Berlin. Germany aims to replace 17 nuclear reactors supplying a fifth of its electricity with renewables such as solar and wind. Merkel to succeed must experiment with untested systems and policies and overcome technical hurdles threatening the project, said Stephan Reimelt, chief executive officer of General Electric Co. (GE)’s energy unit in the country.
“Germany is like a big energy laboratory,” Reimelt said in an interview. “The country has a political and societal consensus to drop nuclear power but lacks a clear technological solution.”
Iran Central Bank Says Rial Can Be Traded at Market Rates (Source: Bloomberg)
Iran’s central bank allowed trading in its currency at market levels after fixing the exchange rate in January as the threat of sanctions over the country’s nuclear program and economic risks spurred Iranians to buy up dollars. “Licensed exchange houses are given permission to buy and sell foreign currencies and answer customers’ needs based on the mechanism of the market’s supply and demand,” the Iranian central bank said in a statement posted on its website. The bank on Jan. 26 fixed the rate at 12,260 after the U.S. dollar surged to almost double that level in unofficial currency markets as Iranians concerned over the economy rushed to buy. Citizens’ demand for foreign currency had to be met by banks or licensed exchange houses selling dollars at the official rate, marking an 8.5 percent devaluation, after the decision.
The easing of restrictions follows a meeting with central bank officials and representatives of the Association for Exchanges of Iran, according to the statement. Minou Kianirad, the bank’s deputy governor for foreign-currency affairs, wasn’t available to comment when a call was made to her office.
Latin American Nations in Worse Shape for Crisis, IDB Says (Source: Bloomberg)
Most Latin American nations, in the event of another global crisis, are in worse shape to implement stimulus than in 2007 as a result of lower budget surpluses before interest payments, the Inter-American Development Bank said. Mexico, Chile, Colombia and the Dominican Republic are among nations less prepared to face a potential crisis, the IDB said in a report released at the bank’s annual meetings in Montevideo, Uruguay, today. Brazil and Argentina are in positions similar to those in 2007, while Uruguay and Jamaica are better prepared, the Washington-based lender said. “The main reason for the deterioration is the widespread reduction in structural primary balances,” the report said. While so-called primary surpluses have eroded, balance sheets across the region are stronger and financial supervision has improved, making many economies more resilient, the report said. Latin American economies will grow on average 3.6 percent this year after averaging 5.4 percent the past two years, the IDB said.
Cambodia Embracing Capitalism With First IPO Since Khmer Rouge (Source: Bloomberg)
Min Sovannry wasn’t born when the Communist Khmer Rouge took power in 1975 and abolished Cambodia’s money, markets and financial system. Now the 21-year- old college student can’t wait to embrace capitalism. One of thousands of Cambodians who have attended more than 200 stock-trading seminars in Phnom Penh, Min said she plans to invest as much as one-third of the $300 monthly salary she expects to earn next year in the country’s stock exchange, which is scheduled to begin trading its first shares April 18. “I’m very excited,” Min said in an interview. “I’m happy to have this market because it’s a chance for me to make money from buying stocks instead of putting it in the bank.”
Enthusiasm about the start of trading at the exchange, which opened last July without a single listed company, extends beyond the borders of the Southeast Asian country. Investors including Templeton Emerging Markets Group Chairman Mark Mobius said they plan to participate in Cambodia’s stock market after state-owned Phnom Penh Water Supply Authority has its initial public offering next month. “The potential for investors in Cambodia is excellent,” Mobius, who oversees about $50 billion, wrote in an e-mail. “The listing of publicly traded stocks will drive up interest and demand. If a country can list its state-owned enterprises and list enough stocks so that foreign investors can get involved, then it can be very, very good.”
India Finance Minister Says Expects Interest Rates to Come Down (Source: Bloomberg)
Finance Minister Pranab Mukherjee said he expects India’s central bank to reduce interest rates, helping revive sentiment after economic growth slowed. “I expect policy rates to be reversed by the central bank in coming months,” Mukherjee said at a conference in New Delhi today. “That should improve sentiment.”
The minister said in his March 16 federal budget that India’s economic expansion may revive to as much as 7.85 percent in the fiscal year starting April 1 and that inflation will ease. At the same time, he acknowledged yesterday that his decision to increase the service and excise taxes to 12 percent from 10 percent may spur some price pressures. The Reserve Bank of India signaled before the budget that better control of the nation’s fiscal deficit would boost scope to lower borrowing costs, which are at the highest level since 2008, at 8.5 percent. The RBI raised the repurchase rate by a record 3.75 percentage points from 2010 to October last year to fight price increases, with February’s 6.95 percent inflation rate holding close to a 26-month low.
India Deficit Above 5% for Second Year Limits Rate-Cut Room (Source: Bloomberg)
The Reserve Bank of India’s scope for a series of interest-rate cuts to bolster a slowing economy may be hampered by inflation risks from a budget deficit projected to exceed 5 percent for a second year. Benchmark bonds capped their biggest weekly decline in seven as Finance Minister Pranab Mukherjee unveiled an annual budget yesterday that will require record borrowings of 5.69 trillion rupees ($113 billion) to finance a gap estimated at 5.1 percent of gross domestic product. The deficit for the year through March 31 is projected at 5.9 percent, wider than the 4.6 percent target set in 2011. Mukherjee, who proposed a cap on subsidies and raised service and excise taxes, said today the higher levies could spur price gains. Borrowing costs at the highest level since 2008 to fight inflation, policy gridlock and slumping investment contributed to a slowdown in growth to 6.1 percent last quarter, the weakest pace since 2009.
“The RBI said that it was waiting for the budget to crystallize on the timing and magnitude of rate cuts,” said Killol Pandya, the Mumbai-based head of fixed-income investment at the local unit of Daiwa Asset Management Co. “This budget does not give any comfort. It raises concern of the RBI pushing back its timelines regarding rate cuts.”
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