20120626 1012 Global Market Related News.

Asia Stocks Drop on Concern Euro Summit Won’t Tame Crisis (Source: Bloomberg)
Asian stocks fell for a fourth day on concern a meeting of European Union leaders this week will fail to tame the region’s debt crisis. BHP Billiton Ltd. (BHP), the world’s largest mining company, slid 1.2 percent as investors sold shares with earnings tied to economic growth. Nippon Sheet Glass Co. (5202), the company on Japan’s Nikkei 225 Stock Average that relies most on Europe for sales, fell 1.1 percent. Whitehaven Coal Ltd. (WHC) climbed 5.3 percent as the Australian Financial Review reported that billionaire Nathan Tinkler may unveil an offer of more than $5 billion for the coal producer as soon as next week. The MSCI Asia Pacific Index (MXAP) fell 0.2 percent to 113.35 as of 9:55 a.m. in Tokyo, with three shares declining for every two that rose. The gauge has dropped 0.5 percent this year amid concern economic growth in the U.S. and China is slowing as Europe’s crisis deepens.
“Investors expect a summit of European Union leaders this week to achieve little in solving the euro zone’s ongoing problems,” said Malcolm Wood, an equity strategist at Morgan Stanley Smith Barney Australia in Sydney.

Japan Stocks Decline of Euro Summit, Consumption Tax Vote (Source: Bloomberg)
Japanese stocks fell a third day on concern European leaders will fail to come up with a solution to the debt crisis at a summit this week and before Japanese lawmakers vote on a consumption tax increase later today. Honda Motor Co. (7267), a carmaker that gets about 80 percent of its sales abroad, lost 1.7 percent after the yen strengthened, cutting the exporter’s outlook. Nippon Electric Glass Co. sank 5.4 percent after cutting its net-income outlook, saying it won’t earn any first-quarter profit. Terumo Corp. slid 1.7 percent after the medical tool maker’s equity rating was downgraded to underperform by SMBC Nikko Securities Inc. The Nikkei 225 (NKY) fell 0.4 percent to 8,700.30 as of 9:43 a.m. in Tokyo, with volume more than 10 percent lower than the 30-day average. The broader Topix Index lost 0.2 percent to 743.47. Stocks also fell on a Sankei newspaper report former Democratic Party of Japan leader Ichiro Ozawa may establish a new party as early as next week to oppose doubling the consumption tax.
“There’s increasing concern that the EU summit won’t work out concrete measures to overcome the debt crisis as there has been no change in Germany’s resistance to euro-zone debt sharing,” said Fumiyuki Nakanishi, a strategist at Tokyo-based SMBC Friend Securities Co. “The yen is strengthening and that hurts exporters.”

U.S. Stocks Drop on Europe as Crisis Threatens Earnings (Source: Bloomberg)
U.S. stocks tumbled on concern this week’s European Union summit will fail to tame a crisis which put American earnings on pace for the first decline since 2009. Technology, financial and energy shares dropped the most among 10 groups in the Standard & Poor’s 500 Index. Bank of America Corp. (BAC) and Chesapeake Energy Corp. (CHK) slumped at least 4.2 percent. Microsoft Corp. (MSFT) sank 2.7 percent after agreeing to acquire Yammer Inc. for $1.2 billion in cash. Constellation Brands Inc. surged 13 percent as it may benefit from a potential deal between Grupo Modelo SAB and Anheuser-Busch InBev NV. The S&P 500 slid 1.6 percent to 1,313.72 at 4 p.m. New York time as 470 of its 500 stocks declined. The Dow Jones Industrial Average fell 138.12 points, or 1.1 percent, to 12,502.66. Volume for exchange-listed stocks in the U.S. was about 5.9 billion shares, or 13 percent below the three-month average.
“There are reasons for investors to be concerned,” Stephen Wood, the New York-based chief market strategist for Russell Investments, said in a telephone interview. His firm oversees $140.8 billion. “In addition to the ongoing wounds of Europe, we’ll begin to see softness in corporate earnings.”

German DAX Drops Most in Three Weeks; ThyssenKrupp Sinks (Source: Bloomberg)
German stocks slid the most in three weeks as billionaire investor George Soros warned that failure to produce drastic measures at a meeting of European Union leaders could spell the demise of the euro. HeidelbergCement AG, the world’s third-largest maker of cement, retreated 4.2 percent. Deutsche Bank AG (DBK), the country’s biggest bank, lost 4.1 percent after RBC Capital Markets downgraded the stock. ThyssenKrupp AG (TKA) fell 3.8 percent as JPMorgan Chase & Co. reduced its share-price estimate for Germany’s largest steelmaker. The DAX Index slid 2.1 percent to 6,132.39 at the close of trading in Frankfurt, the biggest drop since June 1. The gauge has fallen 14 percent from its 2012 high on March 16 amid concern that the euro-region debt crisis is harming the economy, trimming the advance in the first six months of the year to 4 percent. The broader HDAX Index retreated 2 percent today.
“There is no conviction to put money to work and take any risks as we wait for this week’s European meeting,” said Daniel Weston, a portfolio adviser at Schroeder Equities GmbH in Munich. “When Soros talks, people listen, and when he talks about a ‘fiasco,’ there is a lack of conviction in buying shares.”

U.K. Stocks Drop for a Third Day as Shire Plunges (Source: Bloomberg)
U.K. stocks retreated for a third day as investors awaited a summit of European Union leaders later this week in Brussels. Shire Plc (SHP) tumbled 11 percent, the largest decline on the benchmark FTSE 100 Index, after the Food and Drug Administration approved a generic version of its second-biggest selling treatment for use in the U.S. SABMiller (SAB) Plc fell 1.7 percent after the stock was downgraded. The FTSE 100 dropped 63.04, or 1.1 percent, to 5,450.65 at the close in London, extending its slide from the beginning of this year to 2.2 percent. The gauge has declined 5.5 percent so far this quarter. The broader FTSE All-Share Index lost 1.2 percent today, while Ireland’s ISEQ Index slipped 0.9 percent. “In this febrile atmosphere, there is little that seems capable of lifting markets from their gloom,” Chris Beauchamp, a market analyst at IG Index in London, wrote in a note. “With yields on Spanish and Italian bonds creeping higher once again, the stage is now being well set up for this week’s summit.”

FOREX-Euro weak as sentiment sours before EU summit
LONDON, June 25 (Reuters) - The euro fell broadly  as concerns about stuttering global growth and low expectations of progress in tackling the debt crisis at a European summit later in the week weighed on demand for riskier currencies.
"There's some nervousness ahead of the EU summit. Reports about the meeting (on Friday) have not intensified hopes or expectations that there will be agreement or any big progress," said Niels Christensen, currency strategist at Nordea.

Treasuries Snap Gain as U.S. to Begin Note Auctions (Source: Bloomberg)
Treasuries snapped a rally from yesterday on concern yields that are within 20 basis points of a record low will damp demand when the government sells $99 billion of notes this week. The U.S. is scheduled to auction $35 billion of two-year securities today, the same amount of five-year debt tomorrow and $29 billion of seven-year notes on June 28. Today’s two-year offering faces an extra hurdle from the Federal Reserve, which is selling short-term Treasuries from its holdings to purchase longer maturities. The Fed announced last week that it plans to extend the program, known as Operation Twist, through year-end to spur the economy. “Yields will rise,” said Kei Katayama, who buys U.S. government debt in Tokyo at Daiwa SB Investments Ltd., which manages the equivalent of $62.2 billion and is a unit of Japan’s second-largest brokerage. “The two-year auction may have difficulties because of Operation Twist. The U.S. economy is not very strong, but I expect steady growth.”
Benchmark 10-year yields increased one basis point, or 0.01 percentage point, to 1.61 percent as of 9:31 a.m. in Tokyo, Bloomberg Bond Trader data show. The 1.75 percent security due in May 2022 fell 3/32, or 94 cents per $1,000 face amount, to 101 1/4.

Euro Trades Near 2-Week Low Before EU Summit This Week (Source: Bloomberg)
The euro traded 0.4 percent from a two-week low against the dollar amid concern that a European Union summit this week won’t lead to decisive measures to end the currency bloc’s debt crisis. The 17-nation euro held onto a drop from yesterday versus the pound before Spain and Italy sell debt today amid concern contagion from Greece will push up borrowing costs. Moody’s Investors Service downgraded 28 Spanish banks yesterday, citing the country’s sovereign debt and rising real estate losses. Demand for the U.S. currency as a refuge was supported as Asian stocks extended global losses. “We expect a disappointing outcome from the EU leaders’ summit, so therefore we think that the euro may weaken into the week’s end,” said Richard Grace, chief currency strategist and head of international economics in Sydney at Commonwealth Bank of Australia (CBA), the nation’s biggest lender. “The U.S. dollar is going to remain quite firm.”
The euro traded at $1.2519 at 10:20 a.m. in Tokyo from $1.2504 at the close in New York yesterday, when it touched $1.2471, the weakest since June 12. It fetched 80.36 U.K. pence from 80.29 pence, following a 0.4 percent decline yesterday. The yen dropped 0.2 percent to 99.80 per euro and lost 0.1 percent to 79.72 against the dollar.

Aussie Dollar Gains as Investors Pare Back Rate-Cut Bets (Source: Bloomberg)
Australia’s dollar rallied after touching its weakest level in 1 1/2 weeks yesterday as traders pared bets on interest-rate cuts on speculation the nation’s economy will be strong enough to weather Europe’s debt crisis. The so-called Aussie strengthened versus most of its 16 major counterparts before officials of the Reserve Bank of Australia gather next week for a policy meeting, where they are forecast to keep the key rate unchanged, according to a Bloomberg News survey. Gains in the Australian and New Zealand currencies were limited before Spanish Economy Minister Luis de Guindos speaks in parliament today after Moody’s Investors Service cut the credit ratings of 28 Spanish lenders.
“The market’s pricing for the extent of RBA rate cuts looks overdone,” said Khoon Goh, a senior foreign-exchange strategist in Singapore at Australia & New Zealand Banking Group Ltd. (ANZ) “I don’t think the Aussie will get sold off too heavily, unless we get a real deterioration in the euro zone debt crisis. Eventually we see the Aussie heading up towards the $1.04 level, probably by early next year.” The Australian dollar rose 0.1 percent to $1.0024 as of 11:07 a.m. in Sydney after reaching 99.69 U.S. cents yesterday, the lowest since June 14. The Aussie gained 0.2 percent to 79.92 yen. New Zealand’s currency advanced 0.2 percent to 78.89 cents after dropping 0.4 percent to 78.73 yesterday. It was at 62.89 yen, 0.3 higher than yesterday’s close. The Aussie has dropped 1.8 percent versus the U.S. dollar since Dec. 31. The kiwi has advanced 1.5 percent.

Treasuries Beat Rest of Bonds as Mortgages Show 1% Growth (Source: Bloomberg)
Treasuries are beating all other U.S. fixed-income securities for the first time in three quarters as investors around the world seek the safest assets. U.S. government debt has gained 2.9 percent since March, while corporate bonds returned 1.9 percent, mortgages rose 1 percent and municipal bonds increased 1.8 percent, according to Bank of America Merrill Lynch index data. The combination of Europe’s debt crisis, China’s slowdown and record stimulus by the Federal Reserve means Treasuries are outperforming the global bond market by 1.3 percentage points, after lagging behind by 2.4 percentage points in the previous quarter.
The returns show that even after the Fed kept the economy growing for 11-straight quarters by buying $2.3 trillion of assets and continuing to swap $667 billion of short-term debt into longer-term securities, bond investors expect the economy will remain sluggish. The extra yield investors demand to own anything else besides Treasuries corresponds to an expansion of less than 1 percent, according to Barclays Plc index data compiled by ING Investment Management.

Central Banks Commit to Ease as Threat of Lost Decades Rises (Source: Bloomberg)
Central bankers are finding it easier to support their economies than to spur expansion as the prospect of Japanese-like lost decades looms across the developed world. Another round of loosely correlated global stimulus has begun after the Federal Reserve extended its Operation Twist program and counterparts from Japan to Europe consider more monetary easing of their own. The Bank of Israel today joined those injecting stimulus by reducing its benchmark interest rate for the first time in five months, in part to insulate its economy from “potential negative consequences” elsewhere. The rub is that even as they renew their rescue efforts, policy makers are postponing forecasts for fuller recoveries and run the risk that their latest actions pack a smaller punch. This raises the prospect of longer-term anemic expansion akin to the doldrums Japan has suffered since the early 1990s.

Home Sales Reach Two-Year High as U.S. Rates Fall: Economy  (Source: Bloomberg)
Demand for new U.S. homes rose more than forecast in May as mortgage rates dropped, bolstering the residential real-estate market while other parts of the world’s largest economy cool. Purchases climbed to a 369,000 annual rate, the most since April 2010 and up 7.6 percent from the prior month, the Commerce Department reported today in Washington. The median estimate in a Bloomberg News survey of 67 economists was 347,000. The number of houses on the market held near a record low. Falling borrowing costs may keep luring buyers to builders like Toll Brothers Inc. (TOL), even as a cooling job market and limited access to credit restrain the recovery. The Federal Reserve last week extended a program to keep long-term interest rates low in a bid to reduce unemployment, sustain housing and prevent a global slowdown from stalling the expansion.
“It’s another sign of life in the housing sector,” said Brian Jones, a senior U.S. economist for Societe Generale SA in New York, who forecast a gain to 362,000. “It’s consistent with a gradual improvement in activity, but we’ve got miles to go before we get back to normal.”

Princeton’s Blinder Says Fed Has Weak Weapons for Growth (Source: Bloomberg)
Princeton University economist Alan Blinder said remaining options for Federal Reserve policy probably won’t provide a powerful boost to the U.S. economy. “The basic problem for the Fed is it’s used all the heavy artillery a long time ago and it’s down to relatively weak weapons,” Blinder, a former Fed vice chairman, said in an interview today on Bloomberg Radio’s “The Hays Advantage” with Kathleen Hays. “Even a full-scale QE3 in mortgage-backed securities is not that powerful a weapon these days with mortgage rates as low as they are” and impediments to the market, including borrowers who can’t refinance because their mortgage is larger than their home’s value, he said. The Fed, seeking to cut borrowing costs, has bought $2.3 trillion of securities in two rounds of quantitative easing, or QE.
Central bank officials on June 20 downgraded their forecasts for growth and employment while noting “significant downside risks” to the economy. At that meeting they announced they would swap $267 billion in short-term Treasury securities with longer-term debt in an extension of their so-called Operation Twist program.

China’s Economy Needs ‘Structural Change,’ Hang Lung Says (Source: Bloomberg)
China’s economy needs “structural change” to encourage consumers to spend more to allow it to weather the global economic slowdown, according to Ronnie Chan, chairman of Hong Kong-based Hang Lung Properties Ltd. (101) “Structurally, China’s economy must change and it’s changing,” Chan said in an interview with Bloomberg TV in New York yesterday. “Personal consumption is one area that’s increasing, so in the coming five to 10 years that will be one of the main games.” China’s economic growth has slowed, prompting the central bank to cut borrowing costs for the first time since 2008 on June 7. Still, the Housing Ministry said this month that China will “steadfastly” retain property curbs including higher down payments and restrictions on the number of homes that buyers can purchase.
Cash-strapped Chinese developers are reluctant to buy land after government curbs in place since 2010 to prevent a property bubble tightened credit, draining liquidity. Hang Lung’s cash ratio, a measure of liquidity, was 2.66 at the end of 2011, the second highest among the 50 biggest Hong Kong-listed builders tracked by Bloomberg. The company is spending more than HK$40 billion ($5.2 billion) building shopping malls in China.

S. Korean Consumer Confidence Drops to 3-Month Low on Europe (Source: Bloomberg)
South Korean consumer confidence dropped to the lowest level in three months as Europe’s debt woes dimmed the outlook for Asia’s fourth-largest economy. The sentiment index was at 101 in June after reaching 105 in May, the Bank of Korea said in an e-mailed statement today. A reading above 100 indicates optimists outnumber pessimists. The Bank of Korea indicated on June 21 it may cut its 2012 growth forecast in July for the second time this year as Europe’s crisis worsens. German Chancellor Angela Merkel yesterday rejected joint euro-area bonds as European Union leaders struggle to agree on a plan ahead of a two-day summit this week. “The European debt woes are finally hurting consumer sentiment here and this is a bad sign for our economy as exports are already declining,” said Lee Sang Jae, a senior economist at Hyundai Securities Co. in Seoul.
“The authorities may have to come up with stimulus such as interest rate cuts should the EU continue to heavily weigh on consumer and business sentiment around the world.”

Moody’s Downgrades 28 Spanish Banks on Sovereign Risk (Source: Bloomberg)
Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s largest lenders, were downgraded by Moody’s Investors Service because of the country’s sovereign debt and souring real-estate loans. At least a dozen lenders were lowered to junk status, Moody’s said yesterday in a statement. The ratings company downgraded six banks by four levels and 10 by three grades with the rest getting one- and two-tier declines. “In Spain you have a combination of a significant sovereign-debt burden coupled with a collapsing real estate market,” said Bruce Simon, chief investment officer at Los Angeles-based City National Bank, which manages $14 billion in client assets and doesn’t own debt issued by the lenders. “That’s doubling the pressure on Spanish banks.”
Moody’s issued a three-step reduction in Spain’s credit grade on June 13, citing the debt, a weakening economy and limited access to capital markets. Spain was lowered to Baa3, the lowest investment-grade rating, from A3 and remains on review for a further cut after announcing plans to borrow 100 billion euros ($125 billion) from European Union rescue funds to recapitalize banks.

Cyprus Requests Funds Becoming Fifth Euro Nation to Seek Aid (Source: Bloomberg)
Cyprus sought a financial lifeline from the euro area’s firewall funds, becoming the fifth of the euro’s 17 member states to request a bailout. “The purpose of the required assistance is to contain the risks to the Cypriot economy, notably those arising from the negative spillover effects through its financial sector, due to its large exposure to the Greek economy,” the Cypriot government said today in a statement distributed by the press and information office in Nicosia. The request will be limited to support for Cypriot banks, which need less than 6 billion euros ($7.5 billion), in hopes of securing aid with fewer conditions than a full-fledged economic rescue package, according to a person familiar with the bailout talks. The government still believes it has a chance to get a loan from China or Russia, which it might use to improve its bargaining position, the person said, declining to be identified because the talks are confidential.
Cyprus, which takes over the European Union’s rotating presidency on July 1, follows Greece, Ireland, Portugal and Spain in seeking help to return to financial health. The third- smallest euro economy has been hurt by losses from Greece’s recession and debt restructuring.

Greece Seen Blocked From Debt Markets Until 2017: Euro Credit (Source: Bloomberg)
Greece may have to wait at least another five years before it can sell bonds to investors, according to financial institutions that trade debt with European governments. A new administration in Athens and signs that European Union leaders are willing to loosen Greek austerity measures failed to convince primary dealers that the country will be able to return to the market before its second bailout ends in the next three years. Three of 20 companies surveyed by Bloomberg News that deal directly with sovereign bond issuers expect it to take at least a decade before Greece issues debt again. Ten say investors would lend money to the country no sooner than 2017, while five predict 2015 at the earliest. The median forecast was a minimum of five years. “The challenges facing Greece remain extremely large,” said Jamie Searle, a fixed-income strategist at Citigroup Inc. in London. “It will be a long while before they can get back to the market.”
Greece last sold bonds in March 2010 before the extra yield that investors demand for holding its 10-year securities instead of German bunds ballooned the next month to 443 basis points, then a euro-era record. That forced the country, facing 8.5 billion euros ($10.7 billion) of bond repayments, to start bailout talks with the EU, the European Central Bank and International Monetary Fund.

Merkel Backs Debt Sharing in Germany Amid Closer EU Push (Source: Bloomberg)
Chancellor Angela Merkel’s government agreed to underwrite the debt of Germany’s states, backing a form of burden-sharing that she is resisting at the euro-area level to combat the financial crisis. The federal government, facing pressure from the 16 states over tighter European Union budget rules, dropped its opposition to a form of shared debt sales to help the states escape a deficit squeeze and meet constitutional limits. The two layers of government plan their first joint debt sale in 2013, the government press office said in an e-mailed statement yesterday. Merkel’s coalition backed down in a deal the opposition, which controls the upper house of parliament, said will help secure ratification of the EU’s fiscal pact in Germany. With EU leaders due to discuss further integration at a summit on June 28-29, the accord in Germany doesn’t mean the bloc’s dominant economy is ready to assume liability for the entire euro zone, Finance Minister Wolfgang Schaeuble said.
Joint debt sales in the 17-nation currency region “don’t make sense” as long as budgets are set by national governments, Schaeuble told ZDF television late yesterday. “As long as the national states make the decisions, they have to be liable. If you can spend money on my tab, you won’t be thrifty.”

Central Banks Face Limits of Power as Crisis Persists (Source: Bloomberg)
Central banks in developed nations are confronting the limits of their ability to aid economic recovery as government efforts to strengthen their finances fall short, the Bank for International Settlements said. “Central banks are being cornered into prolonging monetary stimulus as governments drag their feet and adjustment is delayed,” the Basel, Switzerland-based BIS said in its annual report, published yesterday. “Both conventionally and unconventionally accommodative monetary policies are palliatives and have their limits.” While central banks’ actions were key to limiting damage from the collapse of Lehman Brothers Holdings Inc., interest rates are now “as low as they can go” and debt purchases have swollen central bank balance sheets, the BIS said. European Central Bank President Mario Draghi has indicated that the ECB is close to exhausting its tools after cutting its benchmark rate to a record low and flooding the banking system with cash.
“In the middle of all this we find the overburdened central banks, pushed to use what power they have to contain the damage,” Stephen Cecchetti, BIS economic adviser, said on a conference call. “There are very clear limits to what central banks can do. It’s critical for the health of the global economy to break the vicious cycles and reduce the pressure on central banks.”

Germany to Confront United Euro Bloc at Summit (Source: Bloomberg)
Germany will confront an increasingly united bloc of euro-area nations demanding more ambitious policies to fight the financial crisis this week, as European leaders prepare for a summit setting the course for their currency’s preservation or ultimate demise. As concern mounts over their banking systems and finances, Spanish and Italian leaders have added their voices to those calling for more decisive action, a counterpoint to Germany’s more incremental approach to solving the 2 1/2-year-old crisis. European Union leaders will attend pre-summit meetings as they work to to narrow differences before the June 28-29 gathering in Brussels. “We are too close to the edge of the cliff for comfort, and the time to make big changes is awfully short,” Erik Nielsen, chief economist at UniCredit SpA (UCG) in London, wrote in a note to clients yesterday.

Euro Crisis Hits Profits Globally as P&G Cuts Forecast (Source: Bloomberg)
Europe’s debt crisis is putting pressure on corporate earnings globally with companies from Procter & Gamble Co. (PG) to Danone (BN) cutting forecasts and signaling profits will fall at more companies this year. Analysts predict members of the Standard & Poor’s 500 Index in the U.S. will report a 1.1 percent average drop in second- quarter earnings, after estimating a gain as recently as last month, according to data compiled by Bloomberg. That would be the first decline in 11 quarters after a 6.2 percent average increase in the first quarter. A stronger dollar is another threat to earnings as U.S. exports become more expensive. In Asia, the chairman at computer manufacturer Compal Electronics Inc. (2324) said last week that concern about a global slowdown is making him less optimistic about the second half of the year. Paris-based Danone lowered its 2012 profitability forecast as Spanish shoppers switch to cheaper brands of yogurt.
“There is a lot of trepidation about second-quarter earnings,” Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York, said in a June 22 interview. He oversees about $2 billion including shares of Apple Inc. and DuPont Co. “You are very unlikely to see companies coming out with favorable outlooks given the problems in Europe and the slowing growth in the U.S. and China.”