Stocks, Commodities Fall as Euro Extends Slump on Greece (Source: Bloomberg)
Stocks and commodities slid, while the euro extended its longest slump since 2008, as concern that new Greek political leaders will back out of bailout agreements sent the nation’s benchmark equity index to an almost 20-year low. The Standard & Poor’s 500 Index slipped 0.4 percent to close at 1,363.72 at 4 p.m. in New York. The index pared a loss of as much as 1.6 percent after holding for most of the day above 1,350, a technical level watched by traders. Greece’s ASE index plunged 3.6 percent to close at the lowest level since November 1992. Copper and oil lost at least 1 percent as the S&P GSCI Index of commodities wiped out most of its 2012 gain. The euro fell a seventh day, losing 0.3 percent to $1.3013. Ten-year Treasury yields fell to a three-month low.
Speculation that Greece’s new government will reject terms of its financial rescue grew as New Democracy leader Antonis Samaras said he failed to form a coalition following the weekend elections, passing the opportunity to Alexis Tsipras’s Syriza party. Tsipras said he plans to form a government of left-wing parties that would nationalize banks, repeal recent labor reforms and cancel the bailout accords. “The situation in Europe could get worse before it gets better,” said James McDonald, chief investment strategist at Northern Trust Corp. in Chicago. His firm manages $715 billion. “The concern is about the potential that Greece does not carry through on their agreements and they default and leave the euro. While investors have known Greece is going to be challenged to handle their debt load, it’s another thing to watch unfold.”
Asian Stocks Fall to Three-Month Low on Europe Turmoil (Source: Bloomberg)
Asian stocks dropped, with the region’s benchmark index heading for its lowest close in three months, as political tension in Greece fueled concern Europe’s debt crisis may worsen, weakening the outlook for exporters. Samsung Electronics Co. (005930), which depends on Europe for 19 percent of sales, declined 1.1 percent in Seoul. Namco Bandai Holdings Inc. sank 5 percent in Tokyo after the operator of arcades and theme parks forecast a drop in profit. Woodside Petroleum Ltd., Australia’s second-largest oil producer, slid 1.4 percent as crude oil futures traded near a three-month low. “Europe remains the biggest issue facing markets,” said Andrew Pease, Sydney-based chief investment strategist for the Asia-Pacific region at Russell Investment Group, which manages about $150 billion. “It’s not clear how deep the downturn is going to be and the effect this is going to have elsewhere.”
The MSCI Asia Pacific Index (MXAP) slipped 0.5 percent to 120.78 as of 9:33 a.m. in Tokyo, heading for its lowest close since Jan. 24. More than four shares fell for each that rose on the gauge. The measure slumped 2.3 percent on May 7, the biggest decline since November 10, amid concern Europe’s debt crisis may worsen and threaten the global economic recovery after Francois Hollande was elected France’s first Socialist president in almost two decades.
Japan Stocks Drop as Greece Fuels Euro Exit Concerns (Source: Bloomberg)
May 9 (Bloomberg) -- Japanese stocks fell, with the Topix Index falling to a three-month low, as political tension fueled concern that debt-stricken Greece will be the first nation to exit the euro, dimming the earnings outlook for exporters. Mitsubishi Motors Corp. (7211), an automaker that gets 27 percent of its sales from Europe, dropped 2.3 percent. Namco Bandai Holdings Inc., an operator of arcades and theme parks, fell 5.7 percent after it forecast a drop in full-year profit. Seasonings maker Ajinomoto Co. jumped 7.5 percent after announcing a plan to buy back shares. The Topix declined 0.8 percent to 770.77 as of 9:19 a.m. in Tokyo, set for the lowest close since Feb. 6. The Nikkei 225 Stock Average (NKY) dropped 0.9 percent to 9,101.91 as of 9:20 a.m., with about 13 stocks sliding for each that advanced.
“Europe remains the biggest issue facing markets that we need to have clarity on,” said Andrew Pease, Sydney-based chief Asia-Pacific investment strategist at Russell Investment Group, which manages about $150 billion. “It’s not clear how deep the downturn is going to be and the effect this is going to have elsewhere.”
S&P 500 Declines to Lowest Level in One Month on Greece (Source: Bloomberg)
U.S. stocks retreated, sending the Standard & Poor’s 500 Index to the lowest level in almost a month, as political tension in Greece intensified concern about a euro exit and a deepening of the region’s debt crisis. Equities trimmed earlier losses after the S&P 500 dropped below 1,350, a so-called support level being watched by traders. Hewlett-Packard (HPQ) Co. and Bank of America Corp. fell at least 2.1 percent to pace declines among the biggest companies. McDonald’s Corp., the world’s largest restaurant chain, slumped 2.1 percent as April sales trailed projections. Fossil Inc. (FOSL) plunged 38 percent, the most since 1995, after the owner of the namesake watch brand reduced its full-year earnings forecast. The S&P 500 slid 0.4 percent to 1,363.72 at 4 p.m. New York time, trimming a loss of as much as 1.6 percent. The Dow Jones Industrial Average fell 76.44 points, or 0.6 percent, to 12,932.09 for a fifth day of losses.
Greek stocks sank to a two- decade low. About 7.8 billion shares changed hands on U.S. exchanges, or 17 percent above the three-month average. “It’s the unknown in Europe affecting the market,” said Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania. His firm manages about $6.5 billion. “If Greece does exit the euro, will there be contagion? It could have a negative reverberation throughout the globe.”
European Stocks Retreat Amid Greece Government Concern (Source: Bloomberg)
European stocks dropped after the leader of Greece’s biggest political party failed to reach an agreement on a new government following the weekend’s elections. National Bank of Greece SA led a selloff in banks, falling 8.4 percent. Spain’s Bankia SA (BKIA) dropped 4.8 percent. Taylor Wimpey Plc (TW/) led U.K. builders lower after a gauge of house prices fell to a six-month low. Royal KPN NV surged 17 percent after America Movil SAB offered 2.6 billion euros ($3.4 billion) for a larger stake in the business. The Stoxx Europe 600 Index (SXXP) slid 1.7 percent to 250.58 at the close in London as the cost of insuring against default on European sovereign and corporate debt advanced. The Stoxx 600 has fallen 8 percent from this year’s high on March 16, paring the gauge’s advance in 2012 to 2.5 percent. The U.K. and Irish markets were closed for a holiday yesterday.
“European political risk remains center stage for financial markets,” wrote Adrian Cattley, a strategist at Citigroup Inc. in a report to clients dated yesterday. Greece’s election result “suggests no quick path to a new stable government and could raise probability of contagion risks.”
FOREX-Political uncertainty leaves euro vulnerable
LONDON, May 8 (Reuters) - The euro fell on Tuesday and was vulnerable to more losses on worries that political uncertainty in Greece and a change of French president could threaten austerity plans seen as key to tackling the euro zone debt crisis.
"The market will be in a wait and see mode and consolidating around $1.30 until we get new indications as to what direction Europe goes from here," said Audrey Childe-Freeman, global head of currency strategy at JP Morgan Private Bank.
Euro Stays Lower as Greece Remains Without a Coalition (Source: Bloomberg)
The euro remained lower, extending its longest losing streak in 3 1/2 years as Greece’s politicians struggle to form a new government, raising concern that the nation may leave the currency bloc. The 17-nation euro traded 0.5 percent from an almost three- month low versus the yen before Alexis Tsipras of Greece’s Syriza party is due to meet today with leaders of New Democracy and Pasok, the two Greek parties that supported austerity measures. Demand for so-called haven currencies, such as the dollar and yen, was buoyed as Asian stocks extended a global slump in shares before data forecast to show a decline in German exports and a gain in U.S. jobless claims. “If Greece exits the euro bloc, it will be their own decision, which may come if we see the change of leaders there,” said Thomas Averill, managing director in Sydney at Rochford Capital, a currency and interest-rate risk-management company. “Euro is going to be under pressure for some time.”
The euro slid 0.1 percent to $1.2992 as of 9:55 a.m. in Tokyo from yesterday, after touching $1.2955 on May 7, the weakest level since Jan. 25. The seven-day slump through yesterday was the longest stretch of declines since September 2008. The common currency lost 0.1 percent to 103.77 yen, after falling to 103.24 on May 7, the lowest since Feb. 16. Japan’s currency bought 79.88 per dollar from 79.87.
Korean Won Climbs, Bonds Fall on IMF Forecast, Spain (Source: Bloomberg)
South Korea’s won fell to a two-week low and government bonds rose as Greek politicians struggled to form a new government after elections, damping investor appetite for riskier assets. Alexis Tsipras, whose Syriza party placed second in Greek elections on May 6, said he would form a coalition government of left-wing parties that reject austerity measures needed to secure a European Union-led bailout. The Kospi Index (KOSPI) declined as overseas investors sold more Korean shares than they bought for a sixth day. The Bank of Korea will probably leave its benchmark interest rate at 3.25 percent after a policy review tomorrow, according to all 17 economists in a Bloomberg News survey. “Greece’s political struggle is the main issue in the market today, but declines in the won will be limited with exporters waiting to sell the dollar once the won weakens,” said Lee Yong Hee, a Seoul-based currency dealer at Industrial Bank of Korea.
The won dropped 0.4 percent to 1,139.73 per dollar as of 9:41 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,139.89, the weakest level since April 25. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, gained eight basis points, or 0.08 percentage point, to 7.60 percent.
Australian Dollar Weakens on Greece; Yields Drop to Record Low (Source: Bloomberg)
Australia’s dollar weakened and bond yields fell to a record as concern mounted that Greek leaders will be unable to form a coalition government, reducing appetite for riskier assets. The Australian currency slid against all major peers as bets increased that a left-leaning coalition in Greece may undo bailout accords. The so-called Aussie is 0.1 percent from this year’s low versus the dollar after the Australian budget indicated an end to four years of deficits. New Zealand’s currency held its longest stretch of declines in more than six years against the dollar on prospects Asian stocks will extend a global rout. “Risk is going to be on the backfoot while the Greek squabbles continue,” said Joseph Capurso, a strategist in Sydney at Commonwealth Bank of Australia. (CBA) “I don’t have a lot of optimism that these things will be resolved quickly. It’s pulling down many currencies like the Aussie, the kiwi and the Canadian dollar, which are more linked to global growth.”
The Australian dollar fell 0.2 percent to $1.0100 as of 9:01 a.m. in Sydney after touching $1.0089 yesterday in New York, the lowest level since Dec. 29. It lost 0.2 percent to 80.66 yen. New Zealand’s currency was little changed at 78.67 U.S. cents after dropping 0.9 percent to 78.78 cents yesterday. It completed a seven-day decline yesterday, the longest losing streak since November 2005. The kiwi was at 62.83 yen from 62.92.
Job Openings in U.S. Rise to Highest Level Since 2008 (Source: Bloomberg)
Employers in the U.S. were seeking to fill more jobs in March than at any time in almost four years, showing growing confidence in the U.S. economy. The number of open positions increased by 172,000 to 3.74 million, the most since July 2008, from a revised 3.57 million the prior month that was larger than previously estimated, the Labor Department said today in Washington. Another report showed small companies were more optimistic on their outlook. More vacancies are a sign American companies were planning to expand at the end of the first quarter, undaunted by the jump in fuel costs or concerns that global economic growth will slow. The pickup is a “positive” development after a report last week showed payrolls in April grew at the slowest pace in six months, said economist Lou Crandall.
“Businesses were becoming a bit more willing to commit to new hires,” Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey, said in an interview. “The progress is incremental at best and the levels are still very low.”
Factories in U.S. Grow Less Optimistic About Sales (Source: Bloomberg)
Manufacturers in the U.S. became less- optimistic about 2012 sales growth than at the end of last year, while service companies grew more upbeat, according to a survey by the Institute for Supply Management. Purchasing managers at U.S. factories said they anticipate sales will grow 4.5 percent this year, less than a 5.5 percent December prediction, according to the Tempe, Arizona-based group’s semiannual forecast issued today. By contrast, service providers estimated revenue will climb 4.8 percent this year, up from the 3.1 percent forecast in December. Factory managers remain confident enough that they estimate spending on new equipment will climb by 6.2 percent in 2012, compared with a 1.9 percent increase projected in December, today’s report showed. Service providers forecast a 3.6 percent pickup in investment.
“Manufacturing continues to demonstrate its strength and resilience in the midst of global economic uncertainty and volatility,” Bradley Holcomb, chairman of the group’s factory committee, said in a statement. Manufacturers projected employment will increase 1.4 percent for the rest of this year, while service companies predicted a 1.9 percent gain.
China Growth Shift Splits KFC, Hydraulics (Source: Bloomberg)
Rising profits in China for Yum! Brands Inc. (YUM) and slowing sales for electrical-equipment maker Eaton Corp. are signs of a shift in the nation’s economy toward being driven more by consumers. Yum, the operator of Pizza Hut and KFC restaurants, is counting on rising incomes in the world’s second-largest economy and said one measure of operating profit in China rose 14 percent in the first quarter. Eaton cited the same “fundamental change” in China’s economy toward consumption for weakness in its business there. The transition may be evident in reports starting tomorrow, which will probably show imports picked up in April and retail sales held pace while exports and fixed-asset investment decelerated, according to Bloomberg News surveys. The shift will help sustain growth, even as policy easing has a bigger impact driving expansion in the short run, said Tim Condon, chief Asia economist at ING Financial Markets.
“The rebalancing is definitely taking place,” said Condon, who is based in Singapore and formerly worked at the World Bank. In addition, recent easing indicates full-year growth will pick up to about 8.5 percent, he said.
Worst Rupiah Start Since 2005 Pressures Indonesia (Source: Bloomberg)
Indonesia’s central bank will probably consider steps to curb excess funds in the economy and extend a pause in interest-rate cuts as the second-worst performing currency in Asia highlights the threat from inflation. Bank Indonesia will keep the reference rate at 5.75 percent tomorrow, according to all 21 economists surveyed by Bloomberg News. The central bank has left its benchmark unchanged since an unexpected reduction in February. Investors are demanding higher yields to hold Indonesian debt and the rupiah slid to the weakest in almost two years last week amid uncertainty over how the central bank will contain inflation and the impact of the government’s evolving fuel policy. Pressure to reverse monetary easing is climbing as price gains reached 4.5 percent in April, the fastest pace after Singapore among Southeast Asia’s five biggest economies, and growth held above 6 percent for a sixth quarter.
Faster inflation has made “a stronger case for the central bank to start unwinding some of its monetary loosening,” said Gundy Cahyadi, a Singapore-based economist at Oversea-Chinese Banking Corp. who expects Bank Indonesia to start adjusting the minimum level for the overnight rate or raise its reserve requirement rate as early as this week. “As for the BI rate, it is unlikely to be touched for now, given that there is little urgency to do so.”
Gillard Ends 42 Years of Spending Gains for Surplus (Source: Bloomberg)
Australia’s government will cut spending for the first time in at least 42 years as Prime Minister Julia Gillard ends four years of budget deficits, giving the central bank flexibility to lower interest rates. The underlying cash surplus will be A$1.54 billion ($1.56 billion) in the 12 months to June 30, 2013, Treasurer Wayne Swan said in Canberra yesterday. Expenditures are forecast to fall to A$364.2 billion next year, the first drop in figures dating back to 1971. The A$44.4 billion deficit this year is the third- largest on record and 3 percent of gross domestic product. “The surplus years are here,” Swan said in a speech to parliament after he scrapped a planned corporate tax cut. A balanced budget will “provide a buffer against global uncertainty, and continue to give the Reserve Bank room to cut interest rates for families,” he said.
Gillard’s bid for a A$46 billion fiscal reversal risks slower growth heading into an election year with polls showing the opposition Liberal-National coalition would win in a landslide. She’s betting tighter budgets will put the onus on the central bank to further reduce the highest benchmark rate among major developed nations and win a political dividend in an economy where 90 percent of mortgages have floating rates.
German Industrial Output Rises More Than Forecast (Source: Bloomberg)
German industrial output rose more than three times as much as economists forecast in March, adding to signs Europe’s largest economy may have avoided recession. Production jumped 2.8 percent from February, when it dropped 0.3 percent, the Economy Ministry in Berlin said today. February output was revised up from a 1.3 percent decline. Economists forecast a March gain of 0.8 percent, the median of 38 estimates in a Bloomberg News survey shows. In the year, production advanced 1.6 percent when adjusted for working days. Germany’s economy shrank in the final quarter of 2011 as the euro region’s debt crisis damped demand for its goods. Today’s report is the latest to suggest a second quarter of contraction -- the technical definition of recession -- may have been averted as companies tap faster-growing Asian markets. Factory orders gained a better-than-forecast 2.2 percent in March and business confidence unexpectedly rose to a nine-month high in April.
“The debt crisis damps demand for German products in Europe but Russia, China, India, Brazil and South Africa should generally be able to compensate declining sales,” said Gerd Hassel, an economist at BHF Bank AG in Frankfurt. “Germany’s recovery is also based on strong domestic demand as high employment, rising wages and increasing investment fuel consumption and industrial output.”
Greek Default Risk Returns as Bond Maturity Nears (Source: Bloomberg)
Two months after forcing through the biggest-ever sovereign bond restructuring, Greece once again faces the prospect of becoming the first developed nation to default on its debt. The government taking office after this weekend’s election has 30 days to decide whether to make today’s interest payment on 20 billion yen ($250 million) of 4.5 percent notes maturing in 2016, or default. Then, by May 15, officials must decide if they’re going to repay the 436 million euros ($555 million) due on a floating-rate note issued a decade ago. These are among about 7 billion euros of bonds whose holders took advantage of being governed by foreign rather than Greek law to sidestep losses suffered under the private-sector involvement rescheduling, or PSI. Paying the holdouts in full would arouse the ire of Greek taxpayers, as well as investors who cooperated with PSI. A failure to pay would signal Europe’s debt crisis is worsening.
“This poses a real challenge to the Greek government,” said Mario Blejer, vice chairman of Banco Hipotecario SA in Buenos Aires, who ran Argentina’s central bank in the aftermath of his country’s default. “If they pay, the new emerging government will be fiercely criticized for paying the foreigners in full after imposing huge losses on small domestic savers. If they don’t pay, they can expect much litigation, as we have experienced here in Argentina.”
Banks Battling European Debt Crisis Lose on African Deals (Source: Bloomberg)
The colonial ties that bound French and Portuguese banks such as BNP Paribas SA (BNP) and Banco Espirito Santo SA (BES) to Africa are being loosened by the European debt crisis. Lenders from Lisbon and Paris are retreating from funding projects in Africa as they ride out debt woes at home and prepare for more stringent global capital rules. Citigroup Inc. (C), Standard Chartered Plc (STAN) and Barclays Plc (BARC) are filling the gap, while Johannesburg-based Standard Bank Group Ltd. (SBK) and Nedbank Group Ltd. (NED) are boosting mining and oil loans to benefit from an investment surge in the world’s poorest continent. “We’ve definitely seen European banks not as aggressive, or in some cases actually leave this space,” Daniel Hanna, Standard Chartered’s southern African head of origination and client coverage, said by phone from Johannesburg on April 5. That’s “across the various different products, whether it’s syndication, finance, or project finance,” he said.
Citigroup was the leading arranger of syndicated loans in sub-Saharan Africa over the past 12 months with nine deals worth $1.2 billion, followed by London-based Standard Chartered. BNP, France’s largest bank, ranks 25th, with three transactions, according to data compiled by Bloomberg. Between 2008 and 2010, BNP was among the top five.
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