Asian Stocks Advance as ECB Backs Bank-Deposit Guarantee (Source: Bloomberg)
Asian stocks rose as Japan’s machinery orders topped economists’ estimates and the European Central Bank endorsed a plan to guarantee bank deposits. Fanuc Corp., a maker of industrial robots, added 0.7 percent in Tokyo. Mazda Motor Corp. (7261), which gets 17 percent of its sales from Europe, rose 1 percent. OCI Co., South Korea’s biggest maker of polysilicon used in solar panels, jumped 4.5 percent in Seoul after First Solar Inc., the world’s largest maker of thin-film panels, said demand from Europe grew. The MSCI Asia Pacific Index (MXAP) gained 0.2 percent to 113.06 as of 9:36 a.m. in Tokyo, with about three shares rising for every two that fell. The gauge fell 12 percent from this year’s peak on Feb. 29 through yesterday amid concern growth in the U.S. and China is slowing and as Europe’s debt crisis intensified. Greece holds elections June 17 that may determine the country’s future in the euro.
“There is now greater faith in the backstop of the ECB’s liquidity support,” said Markus Rosgen, head of Asian equity strategy at Citigroup Inc. in Hong Kong. “The global outlook is certainly confusing, and far from rosy, but the market has discounted this already.”
Japan Stocks Rise on Machinery Orders, ECB Deposit Plan (Source: Bloomberg)
June 13 (Bloomberg) -- Japanese stocks rose, reversing yesterday’s decline, after the nation’s machinery orders beat estimates and the European Central Bank endorsed a plan to guarantee deposits, boosting demand for risk assets. Hitachi Construction Machinery Co. advanced 0.8 percent, leading machinery manufacturers higher. Mizuho Financial Group Inc. (8411) paced gains among banks. Konica Minolta Holdings Inc. (4902), a maker of photo films that gets 28 percent of its sales in Europe, rose 1.7 percent after being raised to “outperform” by Credit Suisse Group AG. The Nikkei 225 Stock Average (NKY) rose 0.5 percent to 8,580.60 as of 9:15 a.m. in Tokyo after falling 1 percent yesterday. About four stocks advanced for each that lost. The broader Topix Index added 0.3 percent to 726.29.
U.S. Stocks Gain Amid Speculation of More Fed Stimulus (Source: Bloomberg)
U.S. stocks advanced, rebounding from yesterday’s decline, amid speculation the Federal Reserve will take steps to stimulate the economy and after the European Central Bank endorsed a plan to guarantee bank deposits. All 10 groups in the Standard & Poor’s 500 Index rose as commodity, financial and industrial shares had the biggest gains. Boeing Co. (BA) jumped 3.5 percent as Sanford C. Bernstein & Co. raised its recommendation. Textron Inc. (TXT) rallied 4 percent as Warren Buffett’s Berkshire Hathaway Inc. agreed to buy planes from the company. First Solar Inc. surged 21 percent after delaying the close of a German plant to meet European demand. The S&P 500 advanced 1.2 percent to 1,324.18 at 4 p.m. New York time, after briefly erasing gains following Fitch Ratings’ downgrade of 18 Spanish banks. The Dow Jones Industrial Average increased 162.57 points, or 1.3 percent, to 12,573.80. Trading volume for exchange-listed stocks in the U.S. was about 6.2 billion shares, 8.6 percent below the three-month average. “It has been a bit schizophrenic,” said Mark Luschini, chief investment strategist for Philadelphia-based Janney Montgomery Scott LLC, which manages about $54 billion. “What’s taking place in the Spanish bond market is troubling. Yet pessimism is so high that the prospect of any relief would be enough to jump-start a rally in equities. It seems investors are desperate for continued liquidity injections.” Stocks rose as Federal Reserve Bank of Chicago President Charles Evans said he would support measures to generate faster job growth. The policy-setting Federal Open Market Committee meets next week. Equities also gained as the ECB backed a European Commission proposal to guarantee deposits.
German Stocks Resume Advance; EON, Siemens Lead Gains (Source: Bloomberg)
German stocks advanced to their highest level in nearly two weeks as speculation that the Federal Reserve will opt for more stimulus outweighed Fitch Ratings’ decision to downgrade 18 Spanish lenders. EON, the country’s biggest utility, rose 2 percent after UBS AG raised its recommendation on the stock. Bayer AG climbed 1.5 percent. Siemens AG rose 1.1 percent. Deutsche Bank AG and Commerzbank AG, the country’s biggest lenders, fell at least 1 percent. The DAX Index (DAX) rose 0.3 percent to 6,161.24 at the close in Frankfurt, after swinging between gains of as much as 1.1 percent and a decline of 0.9 percent. The gauge has fallen 14 percent from its high on March 16 amid growing concern that Greece will have to exit the euro currency. The broader HDAX Index rose 0.2 percent.
“The negative impact of contagion risk is increasing, with Spain not out of the woods after the 100 billion-euro bailout, if deep reforms are not undertaken,” said Robert Halver, head of capital markets research at Baader Bank AG. “Italy is the next candidate for financial support.” The Federal Open Market Committee holds its next policy meeting on June 20. Federal Reserve Bank of Chicago President Charles Evans said he would support a variety of measures to generate faster job growth.
European Stocks Rise for First Time in Three Days (Source: Bloomberg)
European stocks rose for the first time in three days on speculation that the Federal Reserve will opt for more stimulus, outweighing a surge in Spanish borrowing costs to a euro-era record. TomTom NV (TOM2) rallied 16 percent after Apple Inc. (AAPL) agreed to use its digital maps. Lafarge (LG) SA rose more than 2 percent after announcing plans to increase earnings by 54 percent by 2015. Lagardere SCA (MMB) retreated 2.4 percent after the company lowered its advertising-revenue target. The Stoxx Europe 600 Index (SXXP) gained 0.6 percent to 243.44 at the close in London, after earlier sliding as much as 0.4 percent. The index yesterday erased gains in the final hour of trading yesterday as optimism faded that the 100 billion euro bank bailout for Spain would contain the debt crisis. The gauge has retreated 11 percent from its high this year on March 16.
“There is hope,” said Jerome Forneris, who helps manage $8.5 billion at Banque Martin Maurel in Marseille. “People will say: in nine days, the Fed will do what it can to support the economy. It’s a very important factor of support for U.S. and European stocks. It wouldn’t surprise me to see a strong announcement from the Fed to boost the U.S. economy.”
Emerging Stocks Fall on Europe Concern, Ratings Downgrade (Source: Bloomberg)
Emerging-market stocks fell, dragging down the benchmark index from a two-week high, as concern about Europe’s debt crisis and a downgrade of Spanish lenders by Fitch Ratings crimped demand for riskier assets. The MSCI Emerging Markets Index (MXEF) fell 0.2 percent to 913.00 at the close in New York, after yesterday closing at the highest level since May 29. Information technology stocks led declines on the index as Samsung Electronics Co. (005930), which got 16 percent of its first-quarter revenue from Europe, fell from the highest in almost a month. Brazilian equities rallied on speculation of further stimulus from the Federal Reserve. Spain’s benchmark 10-year sovereign-debt climbed to a euro- era record as optimism faded that the 100 billion euro ($124.8 billion) bank bailout for Spain would contain the debt crisis. Fitch Ratings said euro-area countries face lower ratings because policy makers are failing to demonstrate they can bring the debt crisis under control.
“The European debt crisis is the biggest risk to the stock market now and will cut investors’ risk appetite,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “It looks like the problem is spreading to bigger countries such as Spain and Italy, which is the last thing investors want to see.”
Yen, Dollar Remain Lower as Asian Stocks Snap Decline (Source: Bloomberg)
The yen and dollar remained lower following declines yesterday against most of their major peers as Asian stocks snapped a loss, damping demand for the currencies as havens. The euro maintained a two-day slide versus the U.K. pound before Italy sells debt this week and Greece holds general elections on June 17 amid concern Europe’s fiscal crisis is spreading. The New Zealand dollar touched a one-month high before the Reserve Bank holds a policy meeting tomorrow. “Sentiment in the equity market looks to be dictating a direction for currencies ahead of the Greek elections,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “Firmer stocks are likely to lead to some selling in the currencies such as the yen and dollar.”
The yen slid 0.1 percent to 99.54 per euro as of 9:33 a.m. in Tokyo from the close in New York yesterday. The dollar was unchanged at $1.2503 per euro after falling 0.2 percent yesterday. The 17-nation euro bought 80.33 U.K. pence from 80.31 after having lost 0.7 percent in the prior two days. The MSCI Asia Pacific Index of shares rose 0.2 percent after falling 0.6 percent yesterday. The Standard & Poor’s 500 Index climbed 1.2 percent in New York yesterday.
Aussie, Kiwi Rebound on Speculation Losses Were Overdone (Source: Bloomberg)
The Australian and New Zealand dollars remained higher, after gaining at least 1 percent yesterday, on prospects Asian stocks will extend a global rally and sustain demand for riskier assets. The so-called kiwi traded 0.2 percent from a one-month high against its Australian counterpart before a Reserve Bank of New Zealand meeting tomorrow where policy makers are expected to leave rates unchanged. Demand was limited for the South Pacific nations’ currencies ahead of a June 17 election in Greece, where debt woes have risked a breakup of the euro zone and shaken global investor confidence. “When there is a bit of risk appetite, you don’t need much for strength to come back” in the Aussie and kiwi, said Greg Gibbs, a senior currency strategist at Royal Bank of Scotland Group Plc in Sydney. “While you want to have some havens, you also want some exposure to inflation hedges.”
The Australian dollar traded at 99.53 U.S. cents as of 9:36 a.m. in Sydney from 99.59 yesterday, when it jumped 1 percent. The Aussie on June 11 touched $1.0009, the highest since May 15. It was little changed at 79.25 yen after advancing 1.1 percent yesterday.
FOREX-Euro seen vulnerable as Greek elections loom
LONDON, June 12 (Reuters) - The euro steadied against the dollar on Tuesday as selling pressure driven by concerns over Spain's bank bailout eased, but the common currency still looked vulnerable as wary investors awaited the outcome of Sunday's Greek election.
"Every time we get a piece of good news the market sells into it and looks for some bad news again," said Daragh Maher, currency strategist at HSBC.
Fed’s Evans Says He Would Support Various Stimulus Plans (Source: Bloomberg)
Federal Reserve Bank of Chicago President Charles Evans said he would support a variety of measures to generate faster job growth, underscoring his preference for more stimulus. “I’ve been in favor of pretty much any accommodative policy I’ve heard about,” Evans said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu that was aired today. “Extending the Twist would be useful,” he said, referring to a plan expiring this month that lengthens the average duration of bonds in the Fed’s portfolio. “More asset purchases would be useful. More mortgage-backed securities purchases would be good.” The policy-setting Federal Open Market Committee is meeting next week as slowing job growth at home and a deepening crisis in Europe weigh on the outlook. Evans, who doesn’t vote on the FOMC this year, has been one of the most vocal proponents of additional easing at the Fed.
“I would prefer that we worked harder to clarify our forward guidance,” Evans said in the interview recorded yesterday in Chicago, reiterating his call for the central bank to commit to low interest rates until the unemployment rate falls below 7 percent or inflation breaches 3 percent. The FOMC last met April 24-25, when it said it expected to keep its benchmark rate near zero through at least late 2014 to reduce an “elevated” level of joblessness. Fed officials will also be releasing their revised forecasts for joblessness, growth and inflation on June 20.
U.S. Growth Depends on Fiscal Clarity, Silvia Tells Keene (Source: Bloomberg)
The U.S. economy needs more clarity from lawmakers about taxes and spending to reverse flagging growth, not more government stimulus, said John Silvia, chief economist at Wells Fargo Securities LLC. The recovery in the world’s largest economy is at risk because consumers and businesses don’t know how lawmakers will adjust federal spending and taxation in order to pass a budget this year, Silvia said in a radio interview today on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “We just need some clarity, we need Congress and the president to get together and say ‘listen this is what we’re going to do’” about the payroll tax cut, Bush tax cuts, estate taxes and discretionary spending, Silvia said. “You don’t need another stimulus. We just need people getting together and saying ‘here are the rules and here’s what 2013 is going to look like in terms of taxes and spending.’”
The Charlotte, North Carolina-based economist said he expects growth of 1.5 percent to 2 percent in the second half of this year, while the unemployment rate will probably end 2012 at around 8 percent to 8.2 percent. Wells Fargo & Co.’s mortgage unit is the largest in the U.S.
Fed Says U.S. Wealth Fell 38.8% in 2007-2010 on Housing (Source: Bloomberg)
The financial crisis wiped out 18 years of gains for the median U.S. household net worth, with a 38.8 percent plunge from 2007 to 2010 that was led by the collapse in home prices, a Federal Reserve study showed. Median net worth declined to $77,300 in 2010, the lowest since 1992, from $126,400 in 2007, the Fed said in its Survey of Consumer Finances. Mean net worth fell 14.7 percent to a nine- year low of $498,800 from $584,600, the central bank said yesterday in Washington. Almost every demographic group experienced losses, which may hurt retirement prospects for middle-income families, Fed economists said in the report. “The impact has been a massive destruction of wealth all across the board,” said Lance Roberts, who oversees $500 million as chief executive officer of Streettalk Advisors LLC in Houston. “What you see is an economy that’s really very, very stressed for the bottom 60 to 70 percent of the population that’s struggling just to make ends meet.”
Blankfein Says U.S. Economy in ‘Tough Position’ Next Few Months (Source: Bloomberg)
The U.S. economy will continue to struggle for the next few months as some business owners wait for the national election before making investments, Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein said. “I think we’re in a tough position for the next three or four or five months,” Blankfein said today in an interview on MSNBC. “There’s a lot of uncertainty.”Business owners aren’t sure what the results of the U.S. election will be or how it will affect their taxes, he said. A common view is that “it’s going to be very consequential so I think I’ll wait -- I think there’s a lot of that going on,” Blankfein said.
Prices of U.S. Goods Imports Decrease by Most in Two Years (Source: Bloomberg)
Prices of goods imported into the U.S. fell in May by the most in almost two years, reflecting lower costs for fuel and food. The 1 percent decrease in the import-price index, the biggest since June 2010, follows an unchanged reading in April, Labor Department figures showed today in Washington. The drop matched the median forecast in a Bloomberg News survey. Prices excluding fuel fell 0.1 percent. Slowing economies overseas may reduce demand for raw materials, holding prices in check while energy costs retreat. A “subdued” inflation outlook gives Federal Reserve officials more room to ease monetary policy to spur U.S. economic growth. “Price pressures are beginning to ebb,” said Jacob Oubina, a senior U.S. economist at RBC Capital Markets LLC in New York, who correctly forecast the drop in prices. “Slower global growth is influencing a lot of what we’re seeing on the price front. From the Fed’s perspective, that box of disinflationary conditions has already been checked off.”
Stock-index futures held earlier gains after the report on speculation the Fed will take steps to revive growth. The contract on the Standard & Poor’s 500 Index maturing in September rose 0.4 percent to 1,304.8 at 8:37 a.m. in New York. Federal Reserve Bank of Chicago President Charles Evans said in a Bloomberg Television interview airing today that he would support a variety of measures to boost growth, underscoring his preference for more stimulus.
Angry Bagmaker Shows China Slowdown Worst in Wenzhou (Source: Bloomberg)
Jiang Xiangsong has 18 days to pay a 2 million yuan ($314,000) bank debt or his suitcase company in eastern China will go bankrupt. He’s close to tears as he realizes his last hope, a government-backed office, won’t help. “This is totally useless: If I had any collateral, why the hell would I come here?” he yells at an official in Wenzhou’s state-run loan service, set up to help small businesses after rising bankruptcies and suicides prompted Premier Wen Jiabao to visit in October and pledge support. Wenzhou’s more than 400,000 businesses make everything from shoes in dusty side streets to synthetic leather in dilapidated factories, much of it financed by unregulated lenders that spread during China’s record 2009-10 credit boom. The decline of so-called shadow banking in the city, triggered by Wen’s move to rein in a national property bubble, has left Wenzhou bearing the brunt of the country’s economic slowdown.
China’s plans for a more targeted stimulus than the 4 trillion yuan package unveiled in 2008 ($586 billion at the time) mean Wenzhou may see little reprieve. Wen’s administration in March picked the city, five hours by train south of Shanghai, for a trial program designed to boost capital for private companies, an effort that’s failed to quell locals’ gloom.
IMF Says Yen Is Overvalued and BOJ Should Add Stimulus: Economy (Source: Bloomberg)
The International Monetary Fund said Japan’s currency is overvalued and the central bank should consider further monetary stimulus, including longer-dated government bonds and private securities. “The exchange rate has appreciated over the past year partly because of safe-haven capital inflows, and our analysis suggests that the yen is moderately overvalued from a medium- term perspective,” the IMF said in a report on Japan’s economy released today. Intervention can be used to counter volatile currency movements, David Lipton, the IMF’s first deputy managing director, told reporters in Tokyo. Investor concern about Europe’s sovereign-debt crisis has fueled a 5 percent gain in the yen against the dollar since mid- March, threatening the profits of the nation’s exporters. The Bank of Japan could increase its asset purchases to help the nation overcome more than a decade of deflation, the Washington- based fund said.
“The asset-purchase program could be expanded substantially beyond current plans to increase the likelihood of achieving the 1 percent inflation goal by end 2014,” the IMF said, referring to the BOJ’s price target. “Given the importance of expectations in the current low-interest rate environment, an upfront announcement of such easing could also raise inflation expectations.”
Japan Picks Stimulus Advocates for BOJ Amid Calls for Action (Source: Bloomberg)
Japan’s government nominated two economists to the central bank’s board who previously signaled support for stimulus, underscoring forecasts for policy makers to expand asset purchases in coming months. Prime Minister Yoshihiko Noda’s administration yesterday tapped Takahide Kiuchi of Nomura Securities Co. and Takehiro Sato of Morgan Stanley MUFG Securities Co., pending confirmation by the Diet. The picks broke with a practice of choosing candidates from similar backgrounds to the board members they replace; the retired members had business backgrounds. The nominees would join a central bank that’s boosted its asset fund by 20 trillion yen ($252 billion) this year yet been faulted by lawmakers for failing to do enough to end deflation and stoke growth. Sato said in an interview last month the BOJ’s inflation forecast for next year was “wishful thinking,” and Kiuchi said the bank may need to cut growth and price forecasts.
“Both nominees have indicated that the BOJ has to take more actions,” said Chotaro Morita, chief strategist for fixed income at Barclays Capital Japan Ltd. “Whether they join or not, the BOJ may have to do more soon as uncertainties remain high in the global economy especially in Europe.” Parliament will probably vote on the appointments around June 21, opposition lawmaker Yousuke Tsuruho, who sits on a joint committee that received the nominations, told reporters yesterday. The five-year terms of former board members Seiji Nakamura and Hidetoshi Kamezaki, who had been executives in the shipping and trading-company industries, concluded April 4.
India Factory Output Missing Estimates Adds to Rate-Cut Case (Source: Bloomberg)
Indian industrial production rose less than estimated in April, adding to the case for an interest-rate cut to bolster a weakening economy. Production at factories, utilities and mines increased 0.1 percent from a year earlier, after a revised 3.2 percent drop in March, the Central Statistical Office said in a statement in New Delhi today. The median of 37 estimates in a Bloomberg News survey was for a 1.7 percent climb. The Reserve Bank of India announces its rate decision on June 18, with pressure building on Governor Duvvuri Subbarao to lower borrowing costs for the second time in 2012 even as inflation exceeds 7 percent. Asia’s third-largest economy grew at the slowest pace in almost a decade last quarter, hurt by a stumbling global recovery and political gridlock that has deterred investment.
“It’s a very anemic number and there are not too many reasons to be optimistic about a quick rebound any time soon,” said Anubhuti Sahay, a Mumbai-based economist at Standard Chartered Plc. The central bank is facing a “difficult situation” and will probably reduce its repurchase rate to 7.75 percent from 8 percent next week.
Bundesbank’s Dombret Says ECB Has Done its Job to Solve Crisis (Source: Bloomberg)
Bundesbank board member Andreas Dombret said the European Central Bank has done its job to buy time for governments to fix weaknesses in the euro’s foundations. “To those who ask what else the Eurosystem can do, I say that we have done our part, now it’s up to the political leaders to deliver on the fiscal and structural policy side and decide on governance issues,” Dombret said in an interview in London yesterday. “This is why it can’t be a short-term fix.” The ECB has resisted pressure to step up its crisis response at a time when the euro region’s debt turmoil is forcing Spain to become its fourth member to seek a bailout. ECB President Mario Draghi indicated last week that neither interest-rate cuts nor additional longer-term refinancing operations would be appropriate measures for now.
The ECB “acted decisively” when it lowered interest rates to a record low of 1 percent, flooded banks with more than 1 trillion euros ($1.2 trillion) of cheap cash, and bought sovereign and covered bonds to calm down markets, Dombret said. “All of these measures contributed to stabilize the euro area and buy time to solve the underlying problems,” he said.
U.K. Manufacturing Output Declined More Than Forecast (Source: Bloomberg)
U.K. manufacturing fell more than economists forecast in April, pointing to continued weakness in the economy at the start of the second quarter. Factory output dropped 0.7 percent from March, led by pharmaceuticals, aircraft maintenance and food and drink production, the Office for National Statistics said today in London. The median forecast of 30 economists in a Bloomberg News survey was for a decline of 0.1 percent. Overall industrial output was unchanged on the month, weaker than the 0.1 percent increase forecast by economists. A report earlier this month showed manufacturing shrank the most in three years in May as government budget cuts and the euro-area debt crisis hampered growth. While the Bank of England left its bond-purchase target unchanged this month, policy maker Adam Posen said yesterday he was “too optimistic” when he abandoned a push for more stimulus in April.
“The underlying picture is very worrying,” said Alan Clarke, an economist at Scotiabank in London. “We’re starting to see tangible spillover effects from the euro-zone crisis. Risk aversion is stopping investors from investing, companies from hiring and consumers from spending.”
How Germans Botched the Spanish Bank Bailout (Source: Bloomberg)
Europe’s latest initiative to subdue its financial crisis fell apart in less than a day. The instant response to the plan for supporting Spanish banks had been euphoric. Even as bond markets pushed the cost of Spanish public borrowing even higher, in effect declaring the country insolvent, politicians were still applauding themselves. European Union leaders thought the plan would impress the markets because the sum committed to support Spain’s banks, 100 billion euros ($125 billion), looked adequate -- bigger, in fact, than investors expected. The EU thought it was getting ahead of events for once. It wasn’t. Mistakes in the deal’s design made the plan self-defeating. These errors are worth noting, because they lie at the core of the EU’s larger strategy.
The crucial thing is that the EU gave its support not directly to Spain’s banks but to Spain’s government, which would then lend it on. This had two fatal consequences. First, it added to Spain’s public debt, making its government less creditworthy. Second, depending on how the loans are structured -- a detail left vague as the rescue was announced -- Spain’s new debt to the EU might subordinate existing bondholders. Curbing the risk of a faster run on Spain’s banks was good, investors presumably calculated, but not good enough.
Spain’s Record Yields Show Italy Bailout Risk (Source: Bloomberg)
Spain’s benchmark borrowing costs climbed to a record yesterday, raising the specter of sovereign bailouts for the government in Madrid and then Italy that would stretch European Union finances to their limit. The yield on Spanish 10-year government debt rose for a third day, touching 6.83 percent, the highest since 1997, after Fitch Ratings predicted that Prime Minister Mariano Rajoy will miss budget-deficit targets he’s made the foundation of his economic policy. Italian 10-year yields rose to the highest in almost six months. The bond rout wiped out the effects of 1.1 trillion euros ($1.4 trillion) in official funding for euro-region banks that has held yields in check since December. Spain’s 10-year yield is close to the 7 percent level that forced Greece, Ireland and Portugal to seek bailouts. Italy, the second-biggest sovereign borrower in the euro area, may need to seek a rescue within months, said James Nixon, chief European economist at Societe Generale SA (GLE) in London.
“The crisis will inevitably roll on to the next domino, and that’s Italy,” Nixon said in a telephone interview. “The southern European economies are effectively in free-fall and market appetite for southern European debt is rapidly drying up. I can’t see anything to turn that dynamic around.”
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