Asia Stocks Little Changed Amid Renewed Europe Concern (Source: Bloomberg)
Asian stocks swung between gains and losses, halting the biggest two-day loss in eight weeks, after Moody’s Investors Service cut credit outlooks for Germany, the Netherlands and Luxembourg, renewing concern that Europe’s debt crisis is spreading. Nintendo Co., a maker of video-game players that depends on Europe for 34 percent of its sales, fell 1.2 percent in Osaka, Japan. Sharp Corp. (6753), Japan’s largest maker of liquid-crystal displays, dropped 4.8 percent on a report its quarterly loss will be around 100 billion yen ($1.3 billion). Aeon Credit Service Co. advanced 3.2 percent after Daiwa Securities Group Co. recommended investors buy the Japanese credit card company.
The MSCI Asia Pacific Index was little changed at 114.17 as of 9:25 a.m. in Tokyo before the open of markets in China. The index yesterday capped a two-day loss of 2.8 percent, the most since June 4. In Hong Kong, the markets may be closed today as the city sounded its highest storm signal for the first time since 1999 as Severe Typhoon Vicente intensified. “It’s going to take a lot longer to solve Europe,”said Prasad Patkar, who helps manage about $1 billion at Platypus Asset Management Ltd. in Sydney. “Equity markets are in a hurry for a resolution, and I don’t think policy makers, politicians and central banks in Europe can meet that expectation in a realistic way.”
Japan Stocks Drop on Europe Debt-Crisis Concern (Source: Bloomberg)
Japanese stocks fell for a third day after Moody’s Investors Service cut the credit outlook for Germany, the Netherlands and Luxembourg, renewing concern about Europe’s debt crisis. Nintendo Co., a maker of video-game players that depends on Europe for 34 percent of its sales, fell 1.1 percent in Osaka, Japan. Sharp Corp., Japan’s largest maker of liquid-crystal displays, lost 3.7 percent after the Nikkei newspaper reported the company will likely report a wider full-year loss forecast. The Nikkei 225 Stock Average (NKY) lost 0.2 percent to 8,487.66 as of 9:41 a.m. in Tokyo. The broader Topix Index (TPX) slipped 0.3 percent to 718.83.
“It’s becoming increasingly obvious that the European situation will take a long time to solve,” said Diane Lin, a fund manager with Sydney-based fund Pengana Capital Ltd., which manages about $1.1 billion in global assets. “In the short-term there are still risks to the downside. Europe is a large economy in the world and it will have a serious impact on the export sector across the region.” She spoke in a Bloomberg TV interview.
Hong Kong Markets Delay Opening as Typhoon Vicente Passes (Source: Bloomberg)
Hong Kong hoisted its highest storm signal for the first time since 1999 as Severe Typhoon Vicente intensified while passing the city, injuring more than 100 people, grounding flights and delaying stock-market trading. The Hong Kong Observatory issued the number 10 hurricane signal at 12:45 a.m. local time today, as winds and rain caused five cases of flooding and toppled trees. At least 118 people were injured. It reduced the warning level to No. 8, the third- highest, at 3:35 a.m. “Present indications are that local winds have started to weaken,” and the signal will be reduced when wind drops below gale force, the observatory said in a statement posted on its website at about 7 a.m. local time. Maximum sustained wind speeds of as much as 93 kilometers (58 miles) an hour were recorded over parts of the city in the previous hour, it said.
The government closed all schools and public clinics yesterday as strong winds and heavy rain emptied streets. Cathay Pacific Airways Ltd. (293), the city’s biggest carrier, halted all local operations last night and will resume services at 8 a.m. today, with six flights delayed, according to an e-mailed statement. Ferry services have also been suspended.
U.S. Stocks Fall on Concern Europe’s Crisis Is Worsening (Source: Bloomberg)
U.S. stocks declined, sending the Standard & Poor’s 500 Index down for a second day, amid concern Europe’s debt crisis is deepening and after a Chinese central- bank adviser said the nation’s economic growth may slow further. All 10 S&P 500 groups fell as commodity shares had the biggest losses. The Bloomberg China-US Equity Index (CH55BN) of the most- traded Chinese shares in the U.S. sank 2.1 percent. McDonald’s (MCD) Corp. slid 2.9 percent as profit trailed estimates. S&P 500 (SPXL1) futures expiring in September lost 0.4 percent to 1,338.30 at 5:53 p.m. New York time as Moody’s Investors Service lowered the outlooks for Germany, the Netherlands and Luxembourg.
About five stocks fell for each rising on U.S. exchanges. The S&P 500 fell 0.9 percent to 1,350.52 at 4 p.m. in New York, paring a loss of 1.8 percent. The Dow Jones Industrial Average dropped 101.11 points, or 0.8 percent, to 12,721.46. The Chicago Board Options Exchange Volatility Index rose 14 percent to 18.62. Volume for exchange-listed stocks in the U.S. was 6.4 billion shares, or 3.9 percent below the three-month average. “Investors are on edge,” said Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc. His firm oversees $3.56 trillion. “Chinese growth has slowed. It’s not clear that the existing firewalls in Europe are large enough. We knew the Spanish regional governments had debt. The question is: how bad is it?”
Europe Stocks Sink Most in Three Months Amid Debt Crisis (Source: Bloomberg)
European stocks plunged the most in three months as concern grew that Greece will default and more Spanish regions will follow Valencia in seeking a bailout. BNP Paribas SA (BNP) and HSBC Holdings Plc contributed the most to a selloff by a gauge of bank shares. BHP Billiton Ltd. (BHP), the world’s largest mining company, retreated 2.8 percent as a policy maker in China warned of slowing growth. Groupe Eurotunnel SA slumped 5.8 percent after earnings missed analysts’ estimates. Royal Philips Electronics NV, the biggest lighting company, advanced 5 percent as profit increased. The Stoxx Europe 600 Index (SXXP) tumbled 2.5 percent to 251.75 the close of trading, the biggest retreat since April 10. The benchmark measure had climbed for the last seven weeks, its longest winning streak in more than six years, as central banks from Europe to China eased monetary policy to help support economic growth.
“The market has had a reality check, making it impossible to justify higher stock prices on so-so company reporting,” said Henrik Drusebjerg, who helps oversee $230 billion as senior strategist at Nordea Bank AB in Copenhagen. “Concern over Greece and the situation in Spain, with Valencia signing up for a bailout, are part of the reality check -- but investors are also catching up with a string of bad data from the U.S. last week and generally disappointing macro news from Europe.”
Emerging Stocks Drop Most in 8 Months on China Concerns (Source: Bloomberg)
Emerging-market stocks fell as the benchmark index posted the biggest drop in eight months amid renewed concern Europe’s debt crisis is worsening and as a Chinese central bank adviser warned of slowing growth. The MSCI Emerging Markets Index (MXEF) lost 2.6 percent to 912.47 by 5:30 p.m. in New York, the steepest decline since Nov. 23. Brazil’s Bovespa (IBOV) stock index dropped for a second day, pushed lower by beef producer JBS SA and Banco Bradesco SA (BBDC4), the country’s second-biggest bank by market value. China Pacific Insurance (Group) Co. (2601) tumbled by a record in Hong Kong as funds controlled by Carlyle Group LP sought to sell shares in the company.
Spanish borrowing costs surged to a record high on speculation more of the country’s regional governments will follow Valencia in seeking a bailout, increasing concern the debt crisis in Europe is deepening. The 21 countries in the MSCI emerging market index send about 30 percent of their exports to the European Union on average, data compiled by the World Trade Organization show. China’s expansion may cool to 7.4 percent this quarter, said Song Guoqing, an academic member of the People’s Bank of China monetary-policy committee. “People are moving again to risk-off mode due to the increasing Spain borrowing costs, which is a bad sign for everybody,” said Zoltan Koch at Hamburg-based Warburg Invest, which manages the equivalent of about $14.5 billion of assets. “People are just selling risky assets without thinking of direct effect of Spanish bond yields on emerging market fundamentals.”
Euro Near 11-Year Low Versus Yen on Spain, Italy Concern (Source: Bloomberg)
The euro was 0.7 percent from an 11- year low against the yen before Spain and Italy auction securities and ahead of data today that economists say will show the prolonged debt crisis is hurting the region’s economy. The 17-nation currency maintained a four-day decline versus the dollar after bond yields jumped in Spain and Italy. Moody’s Investors Service cut the rating outlook for Germany and the Netherlands to negative yesterday, citing a rising chance that they will have to shoulder the burden of indebted European nations. The yen strengthened against most of its major peers on increased demand for safer assets. “There are few reasons to buy the euro,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “Investors are worried that the debt crisis is spreading to Spain and Italy.”
The euro fell 0.1 percent to 94.91 yen as of 8:03 a.m. in Tokyo from the close in New York yesterday when it touched 94.24, the weakest since November 2000. The common currency was little changed at $1.2120 after sliding to $1.2067 yesterday, the least since June 2010. The yen gained 0.1 percent to 78.30 per dollar. Spain will auction bills today maturing in 84 days and 175 days, followed by Italy’s offerings of zero-coupon debt on July 26 and bills on July 27. Spain’s benchmark 10-year bond yield jumped to 7.565 percent yesterday, the highest since November 1996. The comparative rate in Italy climbed to 6.426 percent, a level unseen since Jan. 19.
FOREX-Euro falls 1 pct vs yen, hits lowest since Nov 2000
TOKYO, July 23 (Reuters) - The euro slid 1 percent against the yen, hitt ing its lowest level in more than 11-1/2 years, pressured by fears that Spain may eventually need a full sovereign bailout.
"With such strong risk aversion it is the yen and the dollar that will keep gaining against risk currencies," said Teppei Ino, currency analyst at the Bank of Tokyo-Mitsubishi UFJ in Tokyo. "The Spanish scenario has not been priced in yet."
Treasury Starts Auctions of Shares in 12 Bailed-Out Banks (Source: Bloomberg)
The U.S. Treasury Department said it started selling stakes today in 12 banks that received taxpayer funds after the financial crisis as the administration seeks to wind down its crisis-era bailout programs. The Treasury said it was beginning auctions of preferred stock and subordinated debt positions in the banks, which include Marquette National Corp. of Chicago, with about $1.7 billion in assets, and Exchange Bank of Santa Rosa, California, with about $1.6 billion. The auctions are part of the Obama administration’s efforts to get repaid for initiatives such as the Troubled Asset Relief Program, which Congress approved in 2008 to prevent further damage from the financial crisis. The administration has said the bailouts helped prevent a deeper recession, while Republican presidential candidate Mitt Romney has slammed President Barack Obama for expanding the budget deficit to fund stimulus programs and loans to General Motors Co. and Chrysler Group LLC.
The election in November “is a factor” motivating the Treasury to sell the bank shares quickly, said Kip Weissman, a partner representing banks for Luse Gorman Pomerenk & Schick P.C. in Washington. “The administration wants this stuff out, wants it resolved. There’s a lot of investor interest, but they’re going down the food chain in terms of quality, and that will be the issue.”
Bond Yields Fall to Records as Stocks, Euro Slide on Debt (Source: Bloomberg)
Government bond yields in the U.S., U.K. and Germany fell to records, while stocks dropped and the euro traded below its lifetime average against the dollar on concern the region’s debt crisis is deepening. Commodities slid as a Chinese central-bank adviser said growth may slow further. The yield on the 10-year U.S. Treasury note declined to 1.44 percent at 4 p.m. New York time after reaching an all-time low of 1.40 percent. Two-year German yields slumped to as low as minus 0.08 percent and Spanish and Italian yields jumped. The Standard & Poor’s 500 Index lost 0.9 percent, with almost eight shares declining for each one rising. The euro fell for a fourth day and oil dropped 3.5 percent. Credit-default swaps on Spain rose as much as 31 basis points to an all-time high of 636. S&P 500 futures expiring in September lost 0.4 percent to 1,338.30 at 5:30 p.m. in New York as Moody’s Investors Service cut the outlooks for Germany, the Netherlands and Luxembourg.
“Nothing is really fixed in Europe,” John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York, said in a telephone interview. His firm oversees $201 billion. “The Spanish situation is chronic. And it’s not just Spain. This isn’t over.”
Investor Confidence Trails Consumers by Most Since 1995 (Source: Bloomberg)
U.S. consumer confidence and equity valuations are diverging the most in 17 years as the economy and profit growth leave stock prices behind. The Standard & Poor’s 500 Index has traded at an average price-earnings multiple of 13.9 this year, 0.18 times the mean level of the Thomson Reuters/University of Michigan final index of consumer sentiment, according to data compiled by Bloomberg. The gap is the widest since 1995, when the S&P 500 gained 34 percent for its biggest annual rally of the last five decades. Bears say the discounted valuations are still too high and anticipate the slowing U.S. recovery will lead to a repeat of last year, when equities lost 19 percent in five months. Bulls say price-earnings ratios as low as during the financial crisis make no sense with housing and industrial production expanding and the U.S. Federal Reserve standing ready to act should employment worsen.
“The world is profoundly underinvested in U.S. equities,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida. His firm oversees $350 billion. “We’re in a confidence crisis, so Mr. Market is unwilling to put a big, higher P/E ratio on it.”
Bernanke May Hit Limit From Buying Too Many Treasuries (Source: Bloomberg)
Federal Reserve Chairman Ben S. Bernanke may hit an obstacle as he considers whether more bond purchases are needed to spur growth: owning too much. Excessive Fed buying of Treasury securities may reduce liquidity by leaving less for private investors to buy, said Nathan Sheets, global head of international economics at Citigroup Inc. Bernanke instead may favor buying mortgage-backed securities or using new tools for easing, he said. Purchasing too many Treasuries may “have a serious long- term effect on the market,” Sheets, who until last August was the Fed’s top international economist, said in a phone interview. “The Fed implicitly has a mandate for financial stability, and as part of that they’re concerned about ensuring the functioning and integrity of financial markets.”
Bernanke testified to Congress last week that the Fed is evaluating additional steps to create jobs and reverse an economic slowdown, including buying mortgage bonds or changing language for its policy outlook. Unemployment hasn’t dropped below 8 percent even though the central bank has held its main interest rate near zero since December 2008 and purchased $2.3 trillion in bonds. Policy makers plan to meet July 31-Aug. 1. Some Fed officials believe continued purchases of longer- term Treasury securities may “lead to deterioration in the functioning of the Treasury securities market that could undermine the intended effects of the policy,” according to minutes of their June 19-20 meeting. Policy makers said it would be “helpful” to determine the magnitude of Fed holdings in Treasuries that would harm the market.
Goldman Sachs Sees ‘Strong’ Recovery Starting for Housing (Source: Bloomberg)
U.S. homebuilders are an attractive investment as the housing market starts a “strong” recovery that may drive a surge in new-home sales, Goldman Sachs Group Inc. (GS) said in a report today. Housing has a “long list of positives,” including rising prices, job growth, supportive government policies and a decline in the so-called shadow inventory of homes, Goldman Sachs analysts Joshua Pollard and Anto Savarirajan wrote in a note to clients. They raised their rating on the homebuilding industry to attractive from neutral. Public homebuilders, which have been taking market share from closely held companies, reported increasing orders this year as mortgage rates fell to record lows and the supply of existing homes for sale shrank. Construction of single-family houses rose 4.7 percent in June to a 539,000 annual rate, the fastest in two years, the Commerce Department said last week.
“The super cyclical housing market has turned and a strong recovery in new-home sales is ahead,” the Goldman Sachs analysts wrote. “Over the last year a number of risks to the housing market have abated, giving us confidence that rising home prices will drive a 3-7 year up-cycle in the U.S. market.” Pollard and Savarirajan added MDC Holdings Inc. (MDC) to its conviction buy list, raised KB Home (KBH) to buy from neutral, increased Ryland Group Inc. (RYL) to neutral from sell and lowered NVR Inc. (NVR) to sell from neutral. They maintained buy ratings on Toll Brothers Inc. (TOL) and PulteGroup Inc. (PHM)
Facebook Earnings Call Offers Shot at Rebuilding Image (Source: Bloomberg)
Facebook Inc. (FB) this week is getting its first crack as a public company to allay the growth concerns that have made it the second-worst performing U.S. technology initial public offering of 2012. The shares have tumbled 24 percent since Facebook, the largest social-networking service, held a May 17 IPO marred by technical glitches and signs that its price was set too high. Executives, probably including Chief Financial Officer David Ebersman and Chief Operating Officer Sheryl Sandberg, will hold a conference call July 26 to discuss second-quarter results. “This call is really critical for this company,” said Paul Argenti, a professor at Dartmouth College’s Tuck School of Business in Hanover, New Hampshire. “This is going to be an opportunity for them to really make a difference in terms of their investor relations strategy and set the record straight. They need to gain that momentum back and the exuberance that they lost as a result of the IPO.”
The call, at 5 p.m. New York time, gives management its first chance since May to make a case that Facebook deserves a higher price relative to earnings than 98 percent of the Standard & Poor’s 500. Shareholders will seek assurances that the company can keep users engaged amid rising competition from Twitter Inc. and Google (GOOG) Inc. and that it can overcome challenges making money from advertising on mobile devices.
Canada Shifts Toward China With $15 Billion Nexen Bid (Source: Bloomberg)
Cnooc Ltd. (883)’s $15.1 billion cash takeover bid for Nexen Inc. (NXY) signals a Canadian shift toward China and away from the U.S. as the nation’s traditional oil and natural-gas partner and main export market. Canada’s oil sands reserves, the third-largest recoverable crude deposits in the world, were developed in part by U.S. money as companies such as California’s Richfield Oil Corp. brought technology to extract bitumen from boreal peat bogs half a century ago. Now, for the first time, a Chinese company will own and operate oil-sands crude production as well as Nexen’s shale-gas assets in British Columbia, along with leases in other parts of the world.
“This is really a decoupling of the north-south axis with the U.S.,” Michael Black, a partner with Fasken Martineau DuMoulin LLP who has advised on C$8.5 billion ($8.4 billion) worth of Canadian deals by Abu Dhabi Nation Energy Co. (TAQA), said in an interview. “The U.S. guys just aren’t coming up here the way they used to. It further illustrates Chinese interest in big assets, big reserves and Canadian expertise.” Chinese oil producers have turned more frequently to Canada after political opposition in the U.S. derailed Cnooc’s $18.5 billion bid for Unocal Corp. in 2005, and after TransCanada Corp. (TRP)’s Keystone XL pipeline route south to Texas was blocked by President Barack Obama’s administration last year.
China Shadow Bankers Go Online as Peer-to-Peer Sites Boom (Source: Bloomberg)
Jack Qiu, spending evenings in front of his laptop in the southern Chinese city of Guangzhou, is earning the best returns of his life: 14.2 percent on an annualized basis in just two months. He’s doing it by lending money to strangers online. An accountant by day, Qiu has turned out to be a better loan manager by night than most banks. Only two investments out of his 80,000 yuan ($12,525) total, each worth 100 yuan, have gone unpaid. Nonperforming loans at a Chinese lender, on average, would be almost four times as much. “I don’t care what the money is used for because that’s beyond my control,” said the 30-year-old certified financial planner who jumped into online lending in May by registering at Ppdai.com, one of China’s largest such sites. “For me, the key is to identify those who have at least a willingness to honor their debt, so I need to keep my eyes wide open.”
Peer-to-peer lending is taking off in China as traditional methods of private lending among family and acquaintances, part of the country’s unregulated $2.4 trillion shadow-banking system, move online. More than 2,000 websites have been set up nationwide since 2007, China National Radio reported in May. Loans brokered online increased 300-fold to 6 billion yuan in the first half of 2011, the latest figures available, from the full year total in 2007, the report said.
Floods Ease in Beijing After Rainstorms Leave 37 People Dead (Source: Bloomberg)
A weekend storm that dumped as much as 16 inches of rain in Beijing, the most since records were first kept 60 years ago, left 37 people dead, including a man who drowned in his car after it was submerged under a bridge. The July 21 rainstorm caused 10 billion yuan ($1.6 billion) in flood damage and stranded about 80,000 travelers after their flights were delayed, China Daily newspaper said. Authorities evacuated 56,933 people from the hardest-hit areas, the official Xinhua News Agency reported. The storm spurred criticism on China’s microblog services that city drainage systems were ill-equipped to handle the deluge even after infrastructure upgrades and a 4 trillion yuan stimulus package during the 2008 global financial crisis. “The sewer system belongs to infrastructure, right?” Wang Mudi, a television host in Guangdong, wrote on his microblog with Sina Corp.’s Weibo service. “Then how much money of the 4 trillion yuan flowed to the sewer system?”
The flooding had eased in Beijing by the afternoon today. The downpour in the capital was part of a broader storm across the country that displaced at least 567,000 people and killed 95 since July 20, Xinhua reported.
Japan Opposition Chief Warns Noda Against Altering Tax Increase (Source: Bloomberg)
Japanese opposition leader Sadakazu Tanigaki said he may submit a no-confidence motion aimed at removing the ruling Democratic Party from government if it backpedals on a plan to double the sales tax. Prime Minister Yoshihiko Noda pushed the measure through the Diet’s lower house last month in a bid to tackle Japan’s record debt and ballooning welfare outlays, at the cost of splitting his Democratic Party as dozens of its lawmakers left. Noda needs support from Tanigaki’s Liberal Democratic Party to pass the plan in the upper house, where he lacks a majority. “If they modify it to please members of the ruling party, we are more likely to tell them to forget the whole thing than to say OK,” Tanigaki said in an interview yesterday with Bloomberg News in his Tokyo office. At that point a no- confidence motion would be “possible,” he said.
Tanigaki’s warning raises the political stakes for Noda as he seeks to secure both the enactment of the tax legislation and the survival of his administration. Noda faces re-election as leader of his party in September, and is the third DPJ prime minister since it took power in September 2009.
Japan Sees Wider Global Slowdown as China Growth Cools: Economy (Source: Bloomberg)
China’s economic outlook was cut by Japan, its biggest Asian trading partner, as the Shanghai Composite Index fell to its lowest level in three years on concern about faltering domestic demand and export growth. “The slowdown in the global economy is becoming more widespread,” the Cabinet Office said in a monthly report released in Tokyo today. Song Guoqing, an academic member of a monetary policy committee, said July 21 that China’s expansion may be 7.4 percent, the least since the first quarter 2009. Japan’s increased pessimism echoes that of the International Monetary Fund, which lowered 2013 global growth forecasts this month on Europe’s debt crisis and slower expansions in emerging markets from China to India. Chinese stocks fell today to the lowest since March 2009 as weakness in corporate profits threatens to add to the drags on growth from property-market curbs and limited export demand.
“The consensus is that China’s economic growth rate will be close to 8 percent in coming months, but I personally am more pessimistic because there are problems on the export side,” Song said at a forum in Beijing.
Brazil Inflation Surprise Won’t Threaten Goal, Tombini Says (Source: Bloomberg)
The jump in Brazilian consumer prices this month was a temporary reversal and won’t jeopardize the government’s 4.5 percent inflation target this year, central bank President Alexandre Tombini said. Prices as measured by the mid-month IPCA-15 index rose 0.33 in July, exceeding all 42 estimates in a Bloomberg survey of analysts whose median forecast was for a 0.18 percent rise. Consumer prices rose 5.24 percent from a year earlier, the national statistics agency reported July 20. Brazil’s economy will accelerate in the second half without stoking inflation, Tombini said today. The mid-July consumer price reading was affected by bad weather that pushed up food prices, he said. “Convergence will take place, this process is not a linear one, it is not a homogeneous one,” Tombini said in a conference call with international reporters. “Between August and December there is a lot of room for the process of convergence to continue and for us to get to our target for 2012.”
The central bank has cut the benchmark Selic rate by 450 basis points since August to a record low 8 percent, as the world’s largest emerging market after China struggles to spur growth and offset the effects of Europe’s debt crisis.
Thailand, Philippines May Resist Rate Cut as Growth Holds Up (Source: Bloomberg)
Thailand and the Philippines will probably refrain from cutting interest rates this week as the Southeast Asian economies withstand a global growth slowdown that spurred policy easing from Brazil to China. The Bank of Thailand will keep its benchmark unchanged at 3 percent for a fourth straight meeting tomorrow, according to all 13 economists in a Bloomberg News survey. Eleven of the 14 analysts in a separate survey forecast the Philippines will hold rates at 4 percent the next day, even as more predicted a reduction this month than for the June meeting. Both countries forecast growth as fast as 6 percent in 2012, aided by government spending in the Philippines and post- flood reconstruction in Thailand, which this month marks 15 years since its baht devaluation sparked the Asian financial crisis. Inflation risks may also re-emerge and crimp scope for easing as a U.S. drought pushes corn and soybean to records and India’s monsoon shortfall threatens rice output in the No. 2 producer.
“Monetary policies in Southeast Asia are fairly accommodative and that’s enough to support growth for now,” said Aninda Mitra, Singapore-based head of Southeast Asian economics at Australia & New Zealand Banking Group Ltd. (ANZ) “The scope to cut rates is tempting but it will be too premature at this point, as inflation risks could be exacerbated.”
Hollande Transaction Tax Drives Investors’ Quest for Loopholes (Source: Bloomberg)
French President Francois Hollande’s transaction tax is set to take effect Aug. 1. Not all investors will be paying it. To escape the tax, many institutional investors will turn to so-called contracts for difference, or CFDs, offered by prime brokers that let them bet on a stock’s gain or loss without owning the shares. Traders have used it successfully to skirt the U.K.’s stamp duty. “We’ve never purchased U.K. stocks without using a CFD,” said Fabrice Seiman, co-chief executive officer of Lutetia Capital, a merger-arbitrage fund in Paris that oversees $100 million. “Now we’ll do the same for French stocks. It is individual investors who are going to pay.”
France will become the first European country to impose a transaction tax on share purchases, including high-frequency trading and credit default swaps. The levy, aimed at curbing market speculation, will be paid on transactions involving 109 French stocks with market values of more than 1 billion euros ($1.2 billion), including Pernod Ricard SA and Vivendi SA. (VIV) The U.K., home to Europe’s biggest financial center, has a stamp duty while opposing a transaction tax. German Chancellor Angela Merkel said on June 22 that she and the leaders of France, Italy and Spain agree on the need for such a levy. The other countries have yet to put one in place. Investors buying U.K. shares pay a stamp duty of 0.5 percent on their purchase.
Germany, Netherlands Rating Outlooks Cut to Negative by Moody’s (Source: Bloomberg)
Germany, the Netherlands and Luxembourg’s Aaa credit rating outlooks were lowered to negative by Moody’s Investors Service, which cited “rising uncertainty” about Europe’s debt crisis. Risks that Greece may leave the 17-nation euro currency and “increasing likelihood” of collective support for European countries such as Spain and Italy were among reasons for the change, Moody’s said yesterday in a statement. “Given the greater ability to absorb the costs associated with this support, this burden will likely fall most heavily on more highly rated member states if the euro area is to be preserved in its current form,” Moody’s said. Europe was plunged into fresh market turmoil yesterday as the first call for bailout aid by a Spanish region sent borrowing costs surging, while Spain and Italy reinstated a ban on betting on stock declines. Government bond yields in the U.S., U.K. and Germany fell to records, while stocks dropped and the euro traded below its lifetime average against the dollar.
With “Germany’s central position in the euro zone, the idea that it could be somehow isolated from the general deterioration of the euro area is not realistic,” said Nicolas Veron, senior fellow at Bruegel, a Brussels-based research organization. “From this standpoint, the downgrade sounds logical.”
Euro Crisis Deepens With New Spain Woes, Short Sale Ban (Source: Bloomberg)
Europe was plunged into fresh market turmoil as the first call for bailout aid by a Spanish region sent borrowing costs surging, while Spain and Italy reinstated a ban on betting on stock declines. Stocks and the euro fell as Catalonia joined a list of Spanish regions that may tap aid from the central government, spurring 10-year yields to rise to a euro-era record. Meantime, Greece’s so-called troika of international creditors -- the European Commission, the European Central Bank and the International Monetary Fund -- arrives tomorrow in Athens, rekindling concern the currency union will splinter. “The problem in the region is profound, but the pace that it has been dealt with was slow,” said John Stopford, head of fixed income at Investec Asset Management, which oversees $98 billion. “The bank bailout for Spain is far from sufficient to deal with the country’s problems.”
After euro finance ministers failed to stanch a decline in the single currency with the approval of a 100 billion-euro ($122 billion) aid package for Spanish banks last week, the ban by the governments in Rome and Madrid reflected renewed concern that the currency union was far from resolving its crisis. The euro slipped below its lifetime average against the U.S. dollar and to the lowest level in more than 11 years against the yen today, dropping to $1.2080 at 2:41 p.m. in Frankfurt. Spain’s 10-year bond yields rose as high as to 7.57 percent. The Stoxx Europe 600 Index dropped 2.4 percent at 3:45 p.m. in London.
Spanish Recession Probably Deepened in Second Quarter: Economy (Source: Bloomberg)
Spain’s recession deepened in the three months through June as the toughest budget cuts in the country’s democratic history pushed the economy into a third consecutive quarter of contraction, the Bank of Spain said. The euro area’s fourth-largest economy shrank 0.4 percent from the first quarter, when gross domestic product fell 0.3 percent, the central bank said in an estimate in its monthly bulletin released in Madrid today. Domestic demand “fell more sharply than in the prior quarter,” while exports showed a “moderate recovery,” it said. Prime Minister Mariano Rajoy last week announced his fourth round of tax increases and spending cuts since Dec. 30 as he struggles to convince investors that the nation won’t need a second bailout. The planned budget cuts through 2014 now amount to more than 10 percent of annual GDP. Spain’s 10-year note yields surged above 7.5 percent today, breaching a level that forced Ireland, Portugal and Greece to seek external aid.
“Confidence suffered further following the latest Spanish news over the past couple of days,” said Christian Melzer, an economist at Dekabank in Frankfurt. “We don’t see the breakup of the euro, but whether the euro region will still be the same in terms of members over the next two years is unclear. We don’t expect Spain to leave; the latest austerity measures are definitely a positive step for the nation.”
Spain, Italy Ban Short Selling to Slow Market Turmoil (Source: Bloomberg)
Spain and Italy reinstated a short- sale ban on stocks as bank shares plunged to record lows, bond yields rose and the euro traded below its lifetime average against the dollar on concern the debt crisis is growing. Spain’s CNMV market regulator banned the creation of negative bets on equities through shares, derivatives and over- the-counter instruments for three months. Italy’s Consob prohibited the practice on 29 banking and insurance stocks for one week, citing “grave tensions” in financial markets. Today’s move echoes decisions in August last year by the two nations plus France and Belgium after European banks hit their lowest levels since the credit crisis of 2008 and 2009. Most bank stocks extended their decline once the bans were lifted.
“I don’t think it is particularly smart but it is to be expected,” said Owen Callan, senior dealer at Danske Bank A/S (DANSKE) in Dublin, in a phone interview. “Last time around it didn’t really have any lasting impact. This is trying to avert hedge- fund speculation, but the selloff is not about speculation. This is not hedge funds trying to bring down the market.” Short-sellers sell borrowed shares with plans to buy them back later at a lower price, a practice some politicians and investors blame for roiling markets.
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