China: Rate cut signals start of stocks rally
China’s stocks are poised to gain over the next three months, spurred by the central bank’s first interest-rate cut since 2008, if history is any guide. The chart of the day shows the performance of the Shanghai Composite Index since 1996 in the three months each time after the People’s Bank of China lowered borrowing costs, data compiled show. After the 13 previous rate cuts, the stocks gauge advanced nine times with the average result a 7.5% gain. The index declined four times, all occurring during the midst of the Asian financial crisis in 1998 and the collapse of Lehman Brothers Holdings Inc in 2008. (Bloomberg)
South Korea: Consumer confidence drops to 3-month low on European debt woes
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 expected inflation rate over the next year was 3.7% in June, unchanged from last month, today’s report showed. Consumer inflation held at a 21-month low of 2.5% in May. The consumer confidence index is based on survey responses from 2,072 households in 56 cities. It was conducted by mail and telephone between 12 and 19 June. (Bloomberg)
India: India prepares to counter Rupee’s Slide
India boosted the amount of government bonds foreign investors can purchase by USD5bn, seeking to bolster demand for INR after it tumbled to a record low against USD. Foreign institutional investors can now purchase USD20bn worth of government securities, up from USD15bn previously, the Reserve Bank of India said in a statement today. Long-term overseas buyers such as sovereign wealth funds, central banks and pension funds will be allowed to invest in the debt directly to broaden the base of investors, the Reserve Bank also said. INR is Asia’s worst performer in the past year, having tumbled 21% versus USD, and its decline had contributed to an inflation rate that the central bank last week deemed too high to allow an interest-rate cut. (Bloomberg)
India: Readies measures to counter Rupee slide spurring inflation
India plans to unveil measures today to support the rupee as its slump to a record low against the dollar threatens to intensify price pressures and boost the cost to companies of repaying foreign debt. The government and central bank will make the announcement, Finance Minister Pranab Mukherjee told reporters in Kolkata on 24 June. The ruling Congress party’s nominee for president, Mukherjee told the Press Trust of India he will resign from his current post today. A group of federal and state legislators elects the next president 19 July. India’s currency is Asia’s worst performer of the past year, having tumbled 21% versus USD, and its decline has contributed to an inflation rate that the central bank deemed last week too high to allow an interest-rate cut. (Bloomberg)
NZ: New Zealand names Graeme Wheeler as next RBNZ governor
New Zealand’s government named Graeme Wheeler, a former World Bank official, as central bank governor to replace Alan Bollard who finishes a 10-year term on 25 Sept. New Zealand’s central bank governor has sole responsibility for making interest rate decisions, and Wheeler is being appointed as Europe’s fiscal crisis restrains consumer confidence and weighs on exports, which make up 30% of the economy. The official cash rate is at a record low, with a 58% chance of a rate cut before year end, according to interest rate swaps data compiled by Bloomberg. New Zealand’s economy expanded 1.1% in the first quarter from the prior quarter, the most in five years. Still, consumer confidence fell in June to the lowest level in more than a year, ANZ National Bank Ltd. said, citing a Roy Morgan survey of 1,040 people. (Bloomberg)
BRIC: Biggest currency depreciation since 1998 poised to worsen
The largest emerging markets, whose economies grew more than four-fold in the past decade, are making losers out of everyone from central bankers to Procter & Gamble Co. as their currencies post the biggest declines since at least 1998. For the first time in 13 years, the Brazil’s Real, Russia’s Ruble and Indian’s Rupee are weakening the most among developing-nation currencies, while the China’s Yuan has depreciated more than in any other period since its 1994 devaluation. P&G, the world’s largest consumer-goods maker, cut its profit forecast for the second time in two months last week in part because of currency losses. Brazil’s Fibria Celulose SA, the biggest pulp producer, asked banks to loosen restrictions on dollar loans after the real hit a three-year low. (Bloomberg)
EU: Germans show lowest support for keeping Euro in four-nation poll
Germans showed the lowest support for the euro among the four largest nations using the currency, according to a poll published in four European newspapers on 24 June. The poll shows 39% of Germans favor leaving the euro, versus 28% of Italians, 26% of French and 24% of Spaniards, according to a survey. In all four countries, majorities said that loans to Greece will never be paid back, even as most said that not saving Greece would increase the euro region’s difficulties dangerously. In France and Germany, most of those polled said Greece should leave the euro if it can’t pay back its loans, while in Italy and Spain about half shared that view. (Bloomberg)
EU: Merkel backs debt sharing in Germany amid closer EU union push
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 that risked worsening a deficit squeeze, unexpectedly backed a form of shared liability to help the states meet constitutional budget limits. The two layers of government plan their first joint debt sale in 2013, the government press office said in an e-mailed statement. Merkel’s government 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. The accord doesn’t mean Germany is ready to assume similar liability for the euro zone, Finance Minister Wolfgang Schaeuble said. (Bloomberg)
EU: Euro trades near two-week low before EU leaders meet this week
EUR traded within 0.3% of a two-week low against USD on concern that the European Union summit this week won’t lead to decisive measures to end the currency bloc’s debt crisis. Demand for the US currency as a refuge was supported on prospects that Asian stocks will extend global losses. The two-day EU summit in Brussels starting 28 June is the first meeting of European leaders since the Greek parliamentary elections on 17 Jun that saw victories for pro-bailout parties. France and Italy are urging Germany to take decisive action to end the debt crisis, now in its third year, after Spain’s 10-year bond yields jumped to more than 7% last week. (Bloomberg)
US: Consumer spending probably stalled in May
Consumer spending stalled in May, a sign the biggest part of the US economy may struggle as employment and wages cool, economists said before reports this week. Purchases were unchanged last month after a 0.3 % gain in April. Manufacturing is weakening, while housing shows further signs of stabilization, other reports may show.
A slowdown in payrolls and unemployment above 8% have damped consumer confidence, which may keep restraining sales at companies from Darden Restaurants Inc. to CarMax Inc. Waning demand, together with concern about Europe’s debt crisis and US fiscal policy, helps explain why the Federal Reserve last week extended a program to keep borrowing costs low. (Bloomberg)
US: New home sales reach two-year high as US mortgage rates fall
Demand for new US homes rose more than forecasted 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% from the prior month, the Commerce Department reported. Falling borrowing costs may keep luring buyers to builders like Toll Brothers Inc., even as a cooling job market and limited access to credit restrain the recovery. The Federal Reserve last week extended a programme to keep long-term interest rates low in a bid to reduce unemployment, sustain housing and prevent a global slowdown from stalling the expansion. (Bloomberg)
US stocks slump as European crisis threatens S&P 500 earnings
US stocks tumbled on concern that 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. The S&P 500 slid 1.6% to 1,313.72 at 4 pm New York time as 470 of its 500 stocks declined. The Dow Jones Industrial Average fell 138.12 points, or 1.1%, to 12,502.66. Volume for exchange-listed stocks in the US was about 5.9 billion shares, or 13% below the three-month average. (Bloomberg)
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