Asian Stocks Fall as U.S. Factory Orders Miss Estimates (Source: Bloomberg)
Asian stocks fell for a second day after orders placed with U.S. factories for durable goods rose less than economists estimated, damping the earnings outlook for the region’s exporters. Toyota Motor Corp. (7203), Asia’s biggest carmaker by market value that gets 28 percent of its revenue in North America, fell 1 percent. BHP Billiton Ltd. (BHP), Australia’s biggest oil producer, slid 0.9 percent as crude oil prices traded near the lowest close in a week. Leighton Holdings Ltd. (LEI), Australia’s largest construction company, slumped 6.5 percent after cutting its profit forecast for the 2012 fiscal year because wet weather and lower-than-expected productivity raised costs.
The MSCI Asia Pacific Index dropped 0.2 percent to 127.01 as of 9:38 a.m. in Tokyo, having lost 1.5 percent this month. The measure added 11.8 percent this year through yesterday, headed for the biggest three-month gain since the third quarter of 2010, amid speculation a strengthening U.S. recovery will boost the earnings for Asia’s exporters. “With all the good news being factored in, we are coming to a tougher period and markets are vulnerable to any bad news,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which has almost $100 billion under management. “We are starting to see data come out on the softer side of what’s expected. On its own, the durable goods data is still consistent with the economic growth in the U.S.”
Japan Stocks Fall Second Day as U.S. Factory Orders Slip (Source: Bloomberg)
Japanese stocks declined for a second day after orders placed with U.S. factories for durable goods rose less than economists estimated and commodity prices dropped, driving down trading companies. Mitsui & Co. (8031), a trading house that counts commodities as its biggest source of revenue, fell 1.7 percent. Nissan Motor Co., a carmaker that gets about a third of its revenue from North America, fell 0.9 percent. Showa Denko K.K., a chemical products producer, retreated 3.1 percent after postponing the restart of one of its factories. Sharp Corp. jumped 5.6 percent, extending yesterday’s surge on Foxconn Technology Group’s plan to invest in the liquid-crystal-display manufacturer. The Nikkei 225 Stock Average (NKY) dropped 0.4 percent to 10,139.61 as of 9:28 a.m. in Tokyo, headed for its longest losing streak since March 7. The broader Topix Index slid 0.4 percent to 861.15, with about four stocks falling for every three that gained.
U.S. Stocks Fall on Economic Data as Energy Shares Slump (Source: Bloomberg)
U.S. stocks fell, sending the Standard & Poor’s 500 Index down for a second day, as a slump in crude oil drove energy producers lower and government data showed that orders for durable goods rose less than forecast. Exxon Mobil Corp. and Occidental Petroleum Corp. (OXY) paced losses in 42 out of 43 energy companies in the S&P 500 as oil slumped following an increase in supplies. The Morgan Stanley Cyclical Index of companies most-tied to the economy lost 1.6 percent as Federal Reserve Chairman Ben S. Bernanke said the recovery isn’t assured. Caterpillar Inc. (CAT) and Alcoa Inc. (AA) slid more than 2.2 percent. Financial shares had the only gain among 10 S&P 500 groups as Bank of America Corp. rallied 1.6 percent. The S&P 500 slid 0.5 percent to 1,405.54 at 4 p.m. New York time. While the benchmark gauge has lost 0.8 percent in two days, it rebounded from its intraday low of 1,397.20 in the final two hours of trading. The Dow Jones Industrial Average declined 71.52 points, or 0.5 percent, to 13,126.21 today. “Investor jitters have been heightened by another economic report coming in a bit light and by the Fed chairman suggesting the economy may be vulnerable to another period of turbulence,” said James Paulsen, who helps oversee about $333 billion as chief investment strategist at Minneapolis-based Wells Capital Management. “The selloff is also being fueled by a collapse in energy stocks. After such a significant advance in the market, investors are already worried about a correction.”
Stocks Fall as Slump in Oil Drags on Energy Producers (Source: Bloomberg)
U.S. stocks fell for a second day, led by commodity producers, as oil plunged on an increase in crude supplies while growth in durable-goods orders trailed estimates. Treasuries fell after demand weakened at an auction. The Standard & Poor’s 500 Index fell 0.5 percent to 1,405.54 at 4 p.m. in New York. Oil retreated for the first time in four days, losing 1.8 percent to $105.41 a barrel. The yield on the 10-year Treasury note increased two basis points to 2.20 percent. Portugal’s two-year note yield fell for the 10th day, the longest stretch since February 2009, as Italian Prime Minister Mario Monti said the euro crisis is “almost over.” Crude helped drag the S&P GSCI Index (SPGSCI) of raw materials down 1.2 percent after U.S. Energy Department data showed supplies of oil rose by 7.1 million barrels last week, more than twice the increase forecast by analysts.
Federal Reserve Chairman Ben S. Bernanke told ABC News yesterday that the U.S. economic recovery isn’t assured and policy makers don’t rule out any further options to boost growth. “We got a larger-than-expected 7.1 million barrel build in crude supplies, which certainly sends a message that there is plenty of crude around,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “There were already a lot of bearish factors at work before the report came out.”
European Stocks Fall for Second Day; Banca Popolare Drops (Source: Bloomberg)
European (SXXP) stocks declined for a second day as European (SXXP) Central Bank Governing Council member Jens Weidmann said boosting the euro area’s rescue funds will not solve its debt crisis. Banca Popolare di Milano Scarl lost 5.4 percent as the lender said it swung to a loss in 2011. JKX Oil & Gas Plc (JKX) plunged 14 percent after saying it will not pay an interim dividend this year. The Stoxx Europe 600 Index (SXXP) declined 1.1 percent to 264.10 at the close. The gauge has still climbed 8 percent this quarter. The number of shares changing hands on the Euro Stoxx 50 Index was 9.1 percent less than the average over 30 days, data compiled by Bloomberg show. “Just like the ‘Tower of Babel,’ the ‘Wall of Money’ will never reach heaven,” Weidmann said in a speech at Chatham House in London today. “If we continue to make it higher and higher, we will, in fact, run into more worldly constraints,” which might include setting “incentives that lead to new problems in the future.”
Euro Near 1-Month High (Source: Bloomberg)
The euro was 0.4 percent from a one-month high after a draft statement from European finance ministers showed governments are preparing to increase rescue funds when they meet tomorrow. Europe’s common currency was poised for its first quarterly gain against the U.S. dollar since June before data forecast to show unemployment in Germany, the region’s biggest economy, remained at the lowest in more than two decades. Demand for the yen was supported on prospects Asian stocks will extend a global rout, supporting demand for haven assets. “It has been a factor supporting the euro and has helped the currency recover,” Greg Gibbs, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney, said of the euro area’s rescue fund. “It has helped the sense of calm in European bond markets over recent weeks.”
The euro bought $1.320 as of 8:34 a.m. in Tokyo from $1.3317 yesterday in New York. The 17-nation currency touched $1.3386 on March 27, the strongest since Feb. 29. It fetched 110.48 yen from 110.40 yesterday. The yen was at 82.96 per dollar from 82.90 yesterday, when it rose 0.3 percent.
FOREX-Yen rises into Japanese fiscal year-end
LONDON, March 28 (Reuters) - The yen rose broadly , supported by seasonal flows from Japanese exporters buying at the end of their financial year, with an accumulation of short positions against the dollar looking vulnerable to a further squeeze. "Short yen versus the dollar has been the main theme of the quarter and the market seems to have taken it too far heading into the Japanese fiscal year-end," said John Hardy, currency strategist at Saxo Bank.
Unemployment May Drop to 6% by Mid-2013, N.Y. Fed Study Finds (Source: Bloomberg)
The jobless rate in the U.S. could drop to as low as 6 percent by the first half of 2013, a bigger decrease than most economists currently project, according to research from the Federal Reserve Bank of New York. The relationship between the number of Americans newly unemployed and those recently finding work indicates joblessness will continue to decline, according to economist Aysegul Sahin. The jobless rate held at a three-year low of 8.3 percent last month after falling by 0.8 percentage point in the year ended January, according to figures from the Labor Department. “Simulations based on historical patterns suggest that the fall in the unemployment rate could be quicker than many forecasters predict,” Sahin wrote in a note on the bank’s Liberty Street Economics blog co-written by research associate Christina Patterson.
The analysis looked at flows into and out of unemployment since the end of World War II, likening it to water in a bathtub. The unemployment rate, or level of water in the tub, would be determined by the difference in the volume of water pouring in and draining out.
Geithner Says Fannie, Freddie Should Cut Some Principal (Source: Bloomberg)
U.S. Treasury Secretary Timothy F. Geithner told a U.S. Senate panel that he believes Fannie Mae and Freddie Mac should reduce principal on some home mortgages. “We’ve been encouraging Fannie and Freddie to take another look at the map, at the economics of the finance because we think there is a strong case in some circumstances to add principal reduction as part of their strategies to help maximize return of the taxpayer,” Geithner testified today to a subcommittee of the Senate Appropriations Committee. At the end of last year 12.1 percent of mortgages were delinquent or in foreclosure, compared with 12.4 percent a year earlier, according to the U.S. Office of the Comptroller of the Currency.
Fannie Mae and Freddie Mac, the mortgage finance companies under government conservatorship since 2008, haven’t granted principal reductions because it would cost the taxpayer-funded companies almost $100 billion, Edward DeMarco, the acting director of the Federal Housing Finance Agency, said in a Jan. 20 letter to Congress. The agency oversees Fannie Mae and Freddie Mac.
Orders for Durable Goods in U.S. Show Sustained Demand: Economy (Source: Bloomberg)
Orders placed with U.S. factories for durable goods rose in February for a fourth month in the last five, signaling manufacturing will remain a source of strength for the expansion. Bookings for goods meant to last at least three years advanced 2.2 percent, less than projected, after a revised 3.6 percent decline in January, data from the Commerce Department showed today in Washington. Orders excluding transportation equipment increased 1.6 percent, in line with the median forecast in a Bloomberg News survey of economists. The report also showed a gain in orders for capital goods that may point to a pickup in corporate spending after a first- quarter slowdown tied to the December expiration of a tax incentive. At the same time, cooler profit growth and slowdowns in Europe and China may keep investment from climbing as fast as earlier in the expansion.
“Business spending will remain a key driver of the U.S. economy, not to the same extent as last year, but still a positive force,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, who accurately forecast the February gain in orders. “No doubt corporate-profit growth will slow this year compared with last.”
Staffing Stocks Poised to Outperform on U.S. Job Gains (Source: Bloomberg)
Shares of staffing and recruiting companies are beginning to outperform as demand for U.S. labor rebounds. The newly-created Bloomberg U.S. Employment Services Index (BNUSSTAF) -- comprising 17 companies including Robert Half International Inc. (RHI), Insperity Inc. and Kelly Services Inc. (KELYA) -- has risen 48 percent since Sept. 22, 2011, compared with a 31 percent gain for the Russell 2000 Index of small-company stocks. This follows almost nine months of underperformance, when stocks of these businesses lagged behind the Russell 2000 by 28 percent. The economy has added 734,000 temporary and permanent jobs between December and February, the biggest three-month increase since May 2010, based on Labor Department data. The pick-up has been broad-based, which indicates a “firmer recovery” is taking hold, said Gus Faucher, senior economist in Pittsburgh at PNC Financial Services Group Inc.
“We are getting into that self-sustaining cycle, where we have job gains driving income growth, driving further consumer- spending growth, driving job gains,” he said. Clients of Troy, Michigan-based Kelly Services are feeling less pessimistic than they were a year ago, when many were making plans in case sales “fell off a cliff,” President and Chief Executive Officer Carl Camden said in a telephone interview. Now, their outlooks are consistent with the Federal Reserve, which forecasts a pick-up in business activity in the second half of the year, he said.
U.S. Durable Goods Orders Probably Rebounded on Aircraft (Source: Bloomberg)
Orders for U.S. durable goods probably rebounded in February as aircraft demand surged, economists said before a report today. Bookings for goods meant to last at least three years rose 3 percent after dropping 3.7 percent the prior month, according to the median forecast of economists surveyed by Bloomberg News. Excluding transportation equipment, demand climbed 1.7 percent after falling 3 percent, economists projected. Growing auto sales and the need to update business equipment are bolstering production, prompting gains in employment that are keeping factories as a source of strength in the expansion. Nonetheless, higher fuel costs and slowdowns in Europe and China may limit manufacturing this year. “Manufacturing has certainly benefited from the surge in demand for cars,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York. “Coming out of this recession, there has been a lot of pent-up demand.”
The Commerce Department will report the durables figures at 8:30 a.m. in Washington. Estimates of the 83 economists surveyed by Bloomberg ranged from a drop of 1.4 percent to a gain of 6.4 percent. An increase in airplane bookings probably contributed to the advance, economists said. Boeing Co., the largest U.S. aircraft maker, said it received orders for 237 planes last month, up from 150 in January.
Asia Set to Double Reserve Pool as Europe Squeezes IMF: Economy (Source: Bloomberg)
Asian policy makers are preparing to double a $120 billion reserve pool to defend the region against shocks, reducing their reliance on traditional backstops such as the International Monetary Fund as Europe saps resources. Officials meeting in the Cambodian capital of Phnom Penh this week will discuss boosting to $240 billion the so-called Chiang Mai Initiative Multilateralization agreement, a foreign- currency reserve pool created by Japan, China, South Korea and 10 Southeast Asian nations that took effect in 2010, said Wei Benhua, director of the fund’s surveillance unit in Singapore. Asian nations, holder of more than half of global reserves, are looking within themselves to protect the world’s fastest- growing region as Europe and the U.S. struggle to recover from the worst economic slump since World War II. The IMF, which bailed out South Korea, Indonesia and Thailand during the 1997-98 Asian financial crisis, estimates that the euro area will take up about 80 percent of its total credit in 2014.
“The global financial crisis and Europe’s debt crisis show that when markets become irrational or extremely volatile, countries need all the resources they can get,” said Tai Hui, Singapore-based head of Southeast Asian economics at Standard Chartered Plc. “When there are trillions sloshing around in foreign-exchange reserves in Asia, adding another $120 billion is very small.”
Bank of China Seeks to Join World’s Biggest Metals Exchange (Source: Bloomberg)
Bank of China Ltd. became the first Chinese company to apply for membership on the London Metal Exchange, the world’s biggest metals bourse. BOCI Global Commodities (U.K.) Ltd. is seeking to become a category 2 member, giving it the right to trade by telephone and electronically, the LME said in a notice today. It won’t have access to the ring, London’s last open-outcry trading floor. China accounts for about 39 percent of global copper usage, 42 percent of aluminum and 43 percent of nickel demand, according to Barclays Capital. The LME opened its first Asian office in Singapore in 2010 and introduced new contracts with the Singapore Exchange Ltd. last year to attract new investors. The LME is also considering takeover bids for the 135-year-old exchange after trading volume climbed to a record last year.
“China is such a big user of the LME,” said Herwig Schmidt, head of sales at Triland Metals Ltd., one of 12 companies trading on the floor of the LME and a unit of Tokyo- based Mitsubishi Corp. “It’s the first step that encourages others to follow.” The LME’s board will review the application on April 23, said Chris Evans, the exchange’s head of business development.
Japan Retail Sales Beat Forecasts as Consumer Confidence Returns (Source: Bloomberg)
Japan’s retail sales rose more than economists forecast in February, indicating that consumer confidence is returning as reconstruction demand boosts the world’s third-biggest economy. Sales (JNNETYOY) increased 3.5 percent from a year earlier, a third straight monthly rise, the Trade Ministry said in Tokyo today. The median estimate of 15 economists surveyed by Bloomberg News was for a 1.4 percent increase. From a month earlier, sales gained 2 percent. The Nikkei 225 Stock Average climbing to pre-earthquake levels and a government subsidy for buyers of fuel-efficient cars are aiding domestic demand, while declines in the yen have helped exporters. Gross domestic product may expand an annualized 1.7 percent this quarter after a 0.7 percent contraction in the final three months of last year, according to the median estimate in a Bloomberg News survey of analysts.
“The eco-car subsidy has made a big difference to spending on autos,” David Rea, an economist at London-based Capital Economics Ltd., said before the report. “As the outlook starts to brighten, we’ll see consumer spending rising further.” A consumer confidence index is back at pre-quake levels and next week’s Tankan index of corporate sentiment may show that large manufacturers are less pessimistic, a Bloomberg News survey indicates.
Japan Faces Tax Battle as DPJ Finishes Plan on Sales Levy (Source: Bloomberg)
Japanese Prime Minister Yoshihiko Noda’s ruling party completed its plan to double the nation’s consumption tax, clearing the way for the Cabinet to approve the legislation and submit it to parliament. The Democratic Party of Japan decided early today on wording that says the levy could be halted in the event of “drastic” changes to the country’s economic outlook. The Cabinet is scheduled on March 30 to approve the measure to raise the sales levy to 8 percent in April 2014 and 10 percent in October 2015, DPJ tax-panel chief Shinichiro Furumoto told reporters. Submitting the legislation to parliament may force a battle with the opposition Liberal Democratic Party, which supported a similar plan when it held power until 2009. While Noda said earlier this month he believes the parties can reach an agreement, LDP leader Sadakazu Tanigaki has suggested new elections should be called first.
“Given the development of political discussions, it’s getting increasingly unclear whether Noda’s government can conduct a vote for the sales tax bill during the current Diet session and pass it,” said Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc. in Tokyo. “The LDP, the largest opposition group, won’t likely cooperate on the bill easily.”
South Korea Returns to Current-Account Surplus in February (Source: Bloomberg)
South Korea returned to a current- account surplus in February as exports rose amid signs of an improving U.S. economy and as the euro zone debt crisis eased. The surplus was $639 million, compared with a revised $969 million deficit in January, the Bank of Korea said in Seoul today. The current account is the broadest measure of trade, tracking goods, services and investment income. South Korean manufacturers’ confidence rose to the highest level in six months and the consumer sentiment index climbed to a four-month high on signs that the outlook for global growth is improving. While the European Central Bank’s injection of more than 1 trillion euros ($1.3 trillion) into the banking system has calmed markets, the best six months of job growth since 2006 in the U.S. are boosting the optimism of consumers whose spending accounts for 70 percent of the economy.
“Global recession fears are fading, which bodes well for Korean exporters,” Kong Dong Rak, a Seoul-based fixed-income analyst at Taurus Investment & Securities Co., said before the release. “Unless oil prices jump further too much, South Korea will continue to see a trade surplus, which should help boost the won.”
Britons See Disposable Incomes Plunge Most Since 1977: Economy (Source: Bloomberg)
Britons suffered the biggest drop in disposable income in more than three decades last year in a squeeze that may continue this year as energy prices increase. Real household disposable income fell 1.2 percent, the Office for National Statistics said today in London. That’s the biggest drop since 1977 when the then Labour government sought to cap incomes growth in an attempt to bring down inflation. The report also showed that the economy shrank 0.3 percent in the fourth quarter, more than the 0.2 percent contraction previously estimated. The Bank of England has said cooling inflation will ease the squeeze on consumers this year and help the economy to recover from the second half. While Chancellor of the Exchequer George Osborne raised the threshold before workers begin paying income tax in his budget last week, any spending pickup may be constrained by rising unemployment and higher gasoline prices.
“We expect that real incomes will fall again this year, reflecting low nominal wage growth and little or no job growth,” said Michael Saunders, an economist at Citigroup Inc. in London. “Consumer spending is likely to remain subdued for several years.”
Swan Says Australia’s Surplus Goal ‘Much Harder’ to Deliver (Source: Bloomberg)
Australia’s budget surplus goal for the next fiscal year will be “much harder” to deliver, requiring spending cuts as global financial turmoil and shifts in the tax base hurt revenue, Treasurer Wayne Swan said. “A number of influences -- both contemporary and structural -- are combining to make that surplus much more difficult to achieve,” Swan said in a speech today in Sydney at a meeting of the Australian Business Economists. Prime Minister Julia Gillard, who faces an election next year, has pledged to end four years of deficits and turn a surplus in the fiscal year that begins July 1. As the government prepares to release its budget plan May 8 in Canberra, Swan’s remarks indicate the fiscal picture has deteriorated and won’t rebound soon, even as he maintained that a surplus is “a vital economic imperative.”
“When it comes to the structural underpinnings of the revenue base, we are in a tough new world,” Swan said. “This is a crucial point: even if we were to witness an enduring global recovery, we should not expect to see a similar recovery in revenues.”
Greece Bailout Seen in Debt With Junk Grade: Euro Credit (Source: Bloomberg)
Greek voters are unlikely to give any party a workable majority in elections as soon as next month, jeopardizing austerity policies on which bailout funds depend. Opinion surveys show as many as eight parties may win seats in the 300-member legislature. Antonis Samaras’s New Democracy leads with about 20 percent of the vote. “All polls suggest the Greek elections won’t lead to a majority one-party government,” said Athanasios Vamvakidis, head European currency strategist at Bank of America Merrill Lynch in London. “Without a strong government in Greece that can implement the program, a disorderly default that could lead to euro exit remains a possibility.”
The rate on government bonds maturing in February 2023 climbed 122 basis points to 19.67 percent since the close on March 12, the day the securities started trading after the biggest-ever sovereign debt restructuring. Yields for Portuguese bonds due in October 2023 were at 11.44 percent, while the rate for Irish securities maturing in March 2025 was 6.97 percent. Like Greece, Portugal and Ireland required rescue funds from the European Union and International Monetary Fund.
Europeans See Crisis Near End, Bernanke Warns on Recovery (Source: Bloomberg)
European leaders signaled rising confidence that their region’s crisis is near an end, while Federal Reserve Chairman Ben S. Bernanke warned that a U.S. recovery isn’t assured. The euro area’s woes are “almost over” after a slow initial response by policy makers, Italian Prime Minister Mario Monti said in Tokyo today. German Chancellor Angela Merkel said yesterday that the crisis is ebbing and her country’s borrowing costs will probably rise as its status as a haven wanes. Bernanke, who cited “green shoots” of recovery in the U.S. in March 2009 only to see his nation’s jobless rate climb to 10 percent seven months later, said in remarks published yesterday “it’s far too early to declare victory.” The jobless rate remains too high and policy makers don’t rule out further options to boost growth, he said in a transcript of an interview with ABC News anchor Diane Sawyer provided by the network.
Bernanke’s comments contrasted with a series of declarations by Monti during a visit to Japan, with the Italian leader saying a solution to Greece’s challenges is almost accomplished, Spain is employing discipline and Italian actions have helped stop deterioration in Europe’s woes.
EU Nears One-Year Boost in Rescue Fund to $1.3 Trillion (Source: Bloomberg)
European governments are preparing for a one-year increase in the ceiling on rescue aid to 940 billion euros ($1.3 trillion) to keep the debt crisis at bay, according to a draft statement written for finance ministers. The euro-area finance chiefs will probably decide at a meeting in Copenhagen tomorrow to run the 500 billion-euro permanent European Stability Mechanism alongside the 200 billion euros committed by the temporary fund, a European official told reporters in Brussels yesterday. Beyond that, they are also set to allow the temporary fund’s unused 240 billion euros to be tapped until mid-2013 “in exceptional circumstances following a unanimous decision of euro-area heads of state or government notably in case the ESM capacity would prove insufficient,” according to the draft dated March 23 and obtained by Bloomberg News.
The boost to the war chest would come after Chancellor Angela Merkel of Germany, the dominant power in two years of crisis fighting, this week warned of “fragility” in Portugal and Spain. It would also be designed to lure the rest of the world into putting more money into the International Monetary Fund’s arsenal. European policy makers are wrangling over amendments to rules written last year that limit total available bailout funds to 500 billion euros. The IMF has made additional aid contingent on Europe first doing more to help itself.
