Asian Stocks Decline as Earnings Overshadow Europe Optimism (Source: Bloomberg)
Asian stocks reversed earlier gains as weaker earnings from Daewoo Engineering & Construction Co. and Tokyo Steel (5423) Manufacturing Co. overshadowed optimism extra funds pledged to the International Monetary Fund will help contain Europe’s sovereign-debt crisis. Daewoo Engineering dropped 3.8 percent in Seoul after the construction company posted a 38 percent drop in first-quarter operating profit. Tokyo Steel slumped 7.9 percent after the steelmaker’s full-year loss widened on increased production costs. Canon Inc. (7751), Japan’s biggest camera maker that gets 31 percent of its sales in Europe, added 0.9 percent. The additional money for the IMF “just adds another layer of protection for investors against the existing crisis,” said Prasad Patkar, who helps manage about $1 billion at Platypus Asset Management Ltd. in Sydney. “Asia is more likely to trade out of the Chinese news flow in the short term than anything else.”
The MSCI Asia Pacific Index (MXAP) dropped 0.1 percent to 124.04 as of 10:44 a.m. in Tokyo, erasing gains of as much as 0.3 percent. The gauge posted its fourth weekly retreat this year last week as the Group of 20 nations warned Europe’s debt crisis still threatens global growth and as reports showed economic growth is slowing in the U.S. and China. HSBC Holdings Plc and Markit Economics are set to release data today on Chinese factory output in April.
Japan Stocks Swing From Gains, Losses on Shippers, Europe (Source: Bloomberg)
April 23 (Bloomberg) -- Japanese stocks swung between gains and losses as declines in shippers and utility shares overshadowed optimism that policy makers are pitching in more money to fight the European debt crisis. The Nikkei 225 Stock Average (NKY) fell less than 0.1 percent to 9,558.89 as of 10:40 a.m. in Tokyo after earlier rising as much as 0.9 percent. The broader Topix Index lost 0.2 percent to 810.32.
European Stocks Post First Weekly Advance Since Mid-March (Source: Bloomberg)
European stocks capped the first weekly gain since mid-March as the International Monetary Fund raised its forecasts for global economic growth, U.S. corporate earnings beat estimates and German business confidence improved. Hargreaves Lansdown Plc, Britain’s largest retail broker, jumped 13 percent after posting an 11 percent increase in assets under management. Vestas Wind Systems A/S (VWS) rallied 10 percent on speculation it may be acquired by its Chinese rivals. Repsol YPF SA (REP), the Spanish oil company whose Argentine unit was nationalized, fell 15 percent. Cable & Wireless Worldwide Plc (CW/) dropped 14 percent after India’s Tata Communications Ltd. decided against making an offer for the U.K. network operator.
The Stoxx Europe 600 Index (SXXP) advanced 1.7 percent to 257.79 this week, after four weeks of losses. The benchmark gauge has climbed 5.4 percent so far this year as the European Central Bank disbursed more than 1 trillion euros ($1.3 trillion) to the region’s financial institutions, U.S. economic reports topped estimates and Greece won a second bailout. “The market has stabilized after a couple of down weeks,” said Lawrence Peterman, investment director at Eden Financial Ltd. in London. “The earnings coming through positively, both in the U.S. and in Europe, seems to be quite reassuring.”
U.S. Stocks End Two-Week Slump, Led Higher by Defensive Shares (Source: Bloomberg)
U.S. stocks rose, breaking a two- week slump, as industries considered the safest investments led gains after reports on home sales and jobless claims tempered optimism about the economy while earnings lifted companies from Travelers Cos. to General Electric Co. (GE) Gauges (SPXL1) for utilities, consumer staples, health-care and phone stocks climbed the most among 10 groups in the Standard & Poor’s 500 Index, jumping at least 1.5 percent. Travelers and GE added more than 2.5 percent after their profit beat analysts’ estimates. Technology companies were the only group to retreat, falling for a second week. The industry was dragged down by declines of 5.3 percent by Apple Inc. (AAPL) and 1.6 percent by International Business Machines Corp. (IBM), offsetting Microsoft Corp. (MSFT)’s 5.2 percent rally on better-than-estimated results. The S&P 500 rose 0.6 percent to 1,378.53 for the first weekly advance since March 30. The Dow Jones Industrial Average added 179.67 points, or 1.4 percent, to 13,029.26.
“It’s just a small rotation as some investors reduced the amount of risk in their portfolio, maybe trying to reposition in anticipation of a correction,” Robert Pavlik, who helps manage $1.3 billion as chief market strategist at Banyan Partners LLC in New York, said in a phone interview. “We’ve got some decent earnings. But people are still a little bit nervous that we may not see that continued follow-through with earnings expansion.”
Best Rally Since February on Easing Prospects: China Overnight (Source: Bloomberg)
Chinese equities in the U.S. extended their longest stretch of gains since February on speculation policy makers will make further cuts to banks’ reserve requirements to bolster lending and spur growth. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. was little changed at 103.31 in New York on April 20, leaving its third weekly advance at 0.1 percent. Futures on the CSI 300 Index expiring in May, the most active contract, were little changed at 2,636.80 as of 9:18 a.m. local time in Shanghai. HSBC Holdings Plc and Markit Economics are scheduled to release their preliminary manufacturing index for this month, known as the Flash PMI, at 10:30 a.m. today. It was at 48.3 in March, below the 50 threshold for expansion.
Qihoo 360 Technology Co. (QIHU), a security software developer, rose the most on the Bloomberg China index last week after issuing a filing that showed auditors had consented to its 2010 and 2011 financial statements. Huaneng Power International Inc. (600011), the listed unit of China’s largest electricity producer, traded at the highest premium over Hong Kong shares since April 12.
World’s Highest Stock Valuations Signal Japanese Recovery (Source: Bloomberg)
Japan’s stock market, hobbled by more than a decade of deflation, is showing companies will stage a full earnings recovery from the worst nuclear crisis since Chernobyl, pricing in the biggest rise in profits compared with other countries since 2001. Income in the Nikkei 225 Stock Average (NKY) will rise by 69 percent in 2012, after plunging 31 percent last year, according to more than 2,600 analyst estimates compiled by Bloomberg. At 24.5 times reported earnings, Japanese equities are the most expensive among the world’s 60 biggest markets, trading so high that only by meeting analysts’ forecasts will ratios come back in line with global stocks, data compiled by Bloomberg show.
“The worst is over for Japan in terms of earnings,” Masafumi Oshiden, an investment manager at ING Mutual Funds Management Co. (Japan) Ltd., said in a telephone interview on April 18. The firm oversees about 1.5 trillion yen ($18.4 billion). “Consumer spending is improving and corporate earnings are rebounding. The cautious mood following the quake is gone.” Bulls say the valuations show confidence in a recovery that will help Japanese stocks close the gap with the MSCI All- Country World Index, which has risen almost three times as much since 2009. Bears point to combined annual losses from Sony Corp. (6758) and Sharp Corp. of 900 billion yen and an economy that has contracted three of the past four years as evidence the Nikkei 225, which has rallied 17 percent since November, has come too far, too fast.
FOREX-Euro rises on German Ifo, gains seen fragile
LONDON, April 20 (Reuters) - The euro rose on Friday after a better-than-expected a German business sentiment survey, but gains looked set to be capped by concerns over Spain's finances and uncertainty ahead of the first round of French presidential elections on Sunday.
"The reaction for the euro is more likely to come after Sunday when we begin to hear what the market will view as credible policies should the candidates get elected," said Daragh Maher, currency strategist at HSBC.
Dollar Rises Against Major Peers Before Confidence Report (Source: Bloomberg)
The dollar rose against most of its major counterparts on speculation reports tomorrow will signal the U.S. economy is gaining momentum, damping speculation the Federal Reserve will expand monetary easing. The U.S. currency was 0.5 percent from its highest in more than a week against the yen before the data, which are forecast to show consumer confidence held near the strongest level in a year and new home sales rose. Losses in the euro were limited after nations committed more than $430 billion in fresh money to the International Monetary Fund to help it protect the world economy against Europe’s debt crisis. “The possibility of more Fed easing will still be there, but I think it will be a reduced possibility,” said Joseph Capurso, a strategist in Sydney at Commonwealth Bank of Australia (CBA), the nation’s largest bank. “That will at the margin support the dollar.”
The dollar was little changed at 81.38 yen as of 10:26 a.m. in Tokyo from the New York close on April 20, when it touched 81.78, the strongest since April 10. It fetched $1.3192 per euro from $1.3219. The euro slid 0.4 percent to 107.36 yen.
Best Rally Since February on Easing Prospects: China Overnight (Source: Bloomberg)
Chinese equities in the U.S. extended their longest stretch of gains since February on speculation policy makers will make further cuts to banks’ reserve requirements to bolster lending and spur growth. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. was little changed at 103.31 in New York on April 20, leaving its third weekly advance at 0.1 percent. Futures on the CSI 300 Index expiring in May, the most active contract, were little changed at 2,636.80 as of 9:18 a.m. local time in Shanghai. HSBC Holdings Plc and Markit Economics are scheduled to release their preliminary manufacturing index for this month, known as the Flash PMI, at 10:30 a.m. today. It was at 48.3 in March, below the 50 threshold for expansion.
Qihoo 360 Technology Co. (QIHU), a security software developer, rose the most on the Bloomberg China index last week after issuing a filing that showed auditors had consented to its 2010 and 2011 financial statements. Huaneng Power International Inc. (600011), the listed unit of China’s largest electricity producer, traded at the highest premium over Hong Kong shares since April 12.
Treasury Yield Holds Near Record Low Before Fed Meeting (Source: Bloomberg)
Treasury 10-year yields were 29 basis points from the record low on speculation Federal Reserve Chairman Ben S. Bernanke will use a press conference this week to say that more needs to be done to help the U.S. economy. Yields have fallen for five weeks, the longest run since June, as some indicators showed a slowing in the economy and Europe’s fiscal crisis drove demand for the relative safety of U.S. debt. The Fed’s policy setting committee is scheduled to meet tomorrow and the next day. It will issue a statement and Bernanke is scheduled to give a press conference on April 25. He said last month that unemployment is too high. “Bernanke will emphasize the weakness of the labor market,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “That’s positive for Treasuries.”
Benchmark 10-year yields were little changed at 1.96 percent as of 9:44 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The price of the 2 percent security due in February 2022 was 100 11/32. The record low was 1.67 percent set Sept. 23. A basis point is 0.01 percentage point.
Treasury 10-Year Yield Drops for 5th Week on Europe, Data (Source: Bloomberg)
Treasury 10-year note yields fell for a fifth week, the longest stretch since June, as concern Europe’s debt crisis isn’t resolved and weaker-than-forecast U.S. economic data spurred demand for the safest assets. The benchmark security yielded below 2 percent for sixth consecutive days as finance chiefs from the Group of 20 nations meeting in Washington reported the commitment of $430 billion in fresh money yesterday to stem European turmoil. U.S. filings for jobless benefits rose and sales of previously owned homes dropped earlier in the week, renewing concern the economic recovery is slowing before Federal Reserve policy makers meet April 24-25 to set monetary policy.
“The market has been able to kick the can down the road again regarding Europe, but concerns are brewing about the domestic economic picture in the U.S,” said Larry Milstein, managing director in New York of government- and agency-debt trading at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “That has kept a bid in Treasuries.” The 10-year yield fell on the week two basis points, or 0.2 percentage point, to 1.96 percent, according to Bloomberg Bond Trader prices. The 2 percent note due February 2022 rose 6/32, or $1.88 per $1,000 face value, to 100 12/32. The yield has stayed between 1.94 percent to 2.07 percent since April 7.
Slump Taught Profligate Americans Value of Saving: Economy (Source: Bloomberg)
Americans are likely to keep rebuilding their savings for years to come as the specter of job losses and the meltdown in stocks triggered by the recession lingers, economists say. Households are putting money away at a pace more than double that leading up to the economic slump. The saving rate has averaged 4.8 percent since June 2009, when the 18-month contraction ended, compared with 2.2 percent in the three years leading up the downturn. “Households are going to be mired in this deleveraging environment for a few more years,” Ellen Zentner, a senior U.S. economist at Nomura Securities International Inc. in New York, said in a telephone interview. “That’s not atypical following a financial crisis.”
The need to boost cash reserves and pay down debt may eclipse the urge to be the first on the block to drive the newest model car, stemming a recent decrease in the saving rate. Almost three years into the recovery, the economy has yet to regain even half the 8.8 million jobs lost or the $16.4 trillion in household net worth washed away as a result of the recession, indicating consumers will want to keep a bigger cash cushion.
Consumer Spending Probably Paced Growth: U.S. Economy Preview (Source: Bloomberg)
The biggest gain in consumer spending in a year probably helped the U.S. economy keep expanding in the first quarter even as fuel costs climbed, economists said before a report this week. Gross domestic product, the value of all goods and services the nation produced, rose at a 2.5 percent annual rate after advancing 3 percent in the previous three months, according to the median forecast of 72 economists surveyed by Bloomberg News before the Commerce Department’s April 27 release. Consumer purchases that account for about 70 percent of the economy climbed by the most since the end of 2010, the survey showed. Job creation and warmer winter weather helped Americans overcome higher prices at the gas pump as auto sales powered ahead and retailers enjoyed more foot traffic. At the same time, the pace of growth may not be enough to convince Federal Reserve policy makers meeting this week to stray from their plan to keep borrowing costs low through 2014.
“Consumer activity really accelerated last quarter,” said Christopher Low, chief economist at FTN Financial in New York. “The increase in retail sales we saw was really terrific, and it came after three months of almost no spending growth at all.” The economy needs to expand at a faster pace to drive down unemployment and generate bigger job gains, Fed Chairman Ben S. Bernanke said in a speech on March 26. Federal Open Market Committee members begin a two-day meeting on April 24.
Japan Lacking Fiscal Plan May Be Deflation Cause, Shirakawa Says (Source: Bloomberg)
Japan’s absence of “concrete reform plans” for the nation’s finances may be contributing to deflation and sluggish economic growth by discouraging spending by the public, central bank Governor Masaaki Shirakawa said. Consumers may be limiting spending “on concerns over future fiscal developments,” Shirakawa said in remarks prepared for an event in Washington yesterday. This may be “one factor behind sluggish economic growth and mild deflation,” he said. The Bank of Japan is under pressure from lawmakers to step up its attack on more than decade-long deflation as the government seeks to sustain a recovery from last year’s earthquake and economic contraction. Shirakawa has pledged to extend “powerful” easing until a 1 percent price goal is in sight and his policy board next meets on April 27.
The nation’s borrowings will exceed 1,000 trillion yen ($12.4 trillion) for the first time in this fiscal year, the Finance Ministry projects, while the Organization for Economic Cooperation and Development predicts Japan’s public debt will reach 219 percent of gross domestic product.
Geithner Says Europe Must Be Creative, Aggressive in Crisis (Source: Bloomberg)
U.S. Treasury Secretary Timothy F. Geithner said the global economic recovery is fragile and Europe’s effort to prevent the spread of its debt crisis depends on the willingness and ability of the region’s leaders to act aggressively and creatively. “The recovery remains fragile, with continued risks from the euro area and higher oil prices,” Geithner said in a statement today in Washington to the International Monetary Fund’s policy steering committee. The U.S. economy “continues to gather strength,” he said. “The success of the next phase of the crisis response will hinge on Europe’s willingness and ability, together with the European Central Bank, to apply its tools and processes creatively, flexibly and aggressively to support countries as they implement reforms and stay ahead of markets,” Geithner said.
While cautioning Europe to stay vigilant, Geithner was less pessimistic than when he warned the IMF in September to intensify its efforts to avoid the “threat of cascading default, bank runs and catastrophic risk.”
IMF’S Lagarde Enjoys Funds Victory Exposing Europe Rifts (Source: Bloomberg)
Three months after waving her purse in front of global finance chiefs, Christine Lagarde filled it with more than $430 billion in pledges for the International Monetary Fund. She may not enjoy her victory for long. The lender’s spring meetings ended yesterday in Washington with a doubling of its war chest and a number of sores exposed among its 188 members. Managing Director Lagarde fell short of her original $600 billion goal as the U.S. declined to chip in, while Canada proposed making it harder for Europe to tap aid. Big emerging markets demanded more power at the IMF before writing checks. The tensions leave Lagarde pushing her home continent to justify the show of solidarity with greater efforts to fight the crisis, as Spain’s interest rates soar and Dutch austerity talks flop. If Europe resists, she could find it harder to rally support for sending the region more money or face criticism for bailing out undeserving governments.
“Any further lending to euro zone economies is likely to be under even greater scrutiny from the IMF’s other members,” said Eswar Prasad, a former IMF official now at the Brookings Institution in Washington. “Lagarde faces a difficult balancing act.”
Draghi’s ECB Rejects Geithner-IMF Push for Measures (Source: Bloomberg)
European Central Bank officials led by President Mario Draghi resisted calls from the International Monetary Fund and U.S. Treasury to do more to stem the debt crisis roiling the euro-area economy. As talks of global finance chiefs ended yesterday in Washington, euro-area central bankers from Draghi to Bundesbank President Jens Weidmann argued they have done enough by cutting interest rates and issuing more long-term bank loans. “None of the advice that the IMF is offering has been discussed by the Governing Council, in recent times at least,” Draghi said on April 20 while attending IMF meetings in Washington. Weidmann said in an interview that “the problems in Europe can’t be solved by monetary policy measures.”
Officials in Europe and around the world are bickering about additional crisis-calming steps, as turmoil returns to the continent’s bond market amid concern that Spain may need a bailout. While Draghi says Spain and Italy need to agree further action, Prime Minister Mariano Rajoy’s government wants the ECB to reactivate its bond-buying program.
Coene Says Further ECB Action for Spain Now Risks Credibility (Source: Bloomberg)
European Central Bank Governing Council member Luc Coene said immediate further measures to quell financial turmoil in Spain risk stretching the credibility of the bank’s monetary policy. “We have done what we can do so far within our mandate and within the possibilities we have,” Coene told Bloomberg News in an interview yesterday in Washington. “The only thing we could do is overstretch ourselves and then we would even lose the credibility we have at that moment.” The Frankfurt-based ECB hasn’t bought any government bonds for five straight weeks even as Spain’s borrowing costs have risen amid market uncertainty over its budget-cutting plans. Executive Board member Joerg Asmussen said on April 20 that while the ECB will “monitor closely” Spain’s market situation, the problem can’t be solved by a more active central bank. Since December last year the ECB has pumped more than 1 trillion euros ($1.3 trillion) into the banking system to avert a looming credit crunch.
Europe Urged to Fix Crisis as G-20 Warns of More Stress (Source: Bloomberg)
Europe’s governments were told the onus for fixing their debt woes lies with them as the Group of 20 warned the two-year crisis still threatens global growth. With finance chiefs from the G-20 meeting today in Washington, those from Canada and Australia joined the IMF and U.S. in pressing Europe to intensify efforts to quell the turmoil as it spreads to Spain. The G-20 cited “the situation in Europe” first in a list of drags on the world economy, according to a draft statement obtained by Bloomberg News. As she closed in on her goal of bolstering the IMF’s crisis-fighting coffers by more than $400 billion, Managing Director Christine Lagarde said the lender serves as an emergency backstop and that Europe must protect itself, boost economic growth and cut debt. Italian and Spanish bonds fell today as the G-20 noted “stress has increased as of late.”
“Countries have to take measures,” Lagarde told Bloomberg Television’s “InBusiness With Margaret Brennan” in Washington. “I am in charge of improving the stability and I need to have the umbrella in case the clouds break into a nasty rain.”
German Business Confidence Unexpectedly Increased (Source: Bloomberg)
German business and investor confidence has beaten forecasts every month this year, suggesting the strength of Europe’s largest economy may have been underestimated. The Ifo institute’s business climate index, which today unexpectedly rose to a nine-month high, has beaten the median forecast in Bloomberg News surveys every month since September. An investor confidence index published by the ZEW Center for European Economic Research has exceeded the median estimate for the last five months. “German companies taught nervous financial markets another important lesson today,” said Andreas Rees, an economist at UniCredit Group in Munich. “One should not underestimate the German economy and its resilience.”
The Ifo report and today’s U.K. retail data showing the fastest sales increase in more than a year add to evidence of strength in Europe after the debt crisis damped the region’s growth in the fourth quarter. In Germany, companies have increased sales to faster-growing markets in Asia, and unemployment at a two-decade low is bolstering household spending.
Thein Sein Wins Japan Backing for Myanmar Infrastructure Efforts (Source: Bloomberg)
Myanmar’s President Thein Sein returns home with the support needed to resume financing ports, bridges and roads after winning a debt forgiveness deal from Japan, the Southeast Asian nation’s biggest creditor. Japan will forgive 303.5 billion yen ($3.7 billion) in loans and interest to Myanmar, according to a statement distributed to reporters before Thein Sein met Prime Minister Yoshihiko Noda on April 21. Japan will also roll over 198.9 billion yen of debt, and vowed to resume aid. Thein Sein, on his first visit as head of state, is courting investment from Japan amid a shift toward democracy over the past year that’s encouraged re-engagement with developed nations after five decades of military dictatorship. Honda Motor Co. is among companies expressing interest in Myanmar, a nation of 64 million people between India and China.
Japan will extend economic cooperation to “support Myanmar’s efforts for reforms in various areas towards its democratization, national reconciliation and sustainable development,” Noda said in the statement.
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