Asian Stocks Drop 2nd Day on U.S. Data, Commodity Prices (Source: Bloomberg)
Asian stocks fell for a second day, with a regional benchmark index paring its weekly advance, as U.S. service industries expanded less than forecast and falling commodity prices weakened the earnings outlook for exporters and raw-material producers. Samsung Electronics Co. (005930), the world’s No. 1 mobile-phone maker by sales, slipped 1.6 percent in Seoul. BHP Billiton Ltd., the world’s biggest mining company, lost 0.9 percent in Sydney. Gloucester Coal Ltd. sank 2.4 percent on speculation the price of the fuel used in power stations may not recover from an 18- month low. “The U.S. data was quite disappointing and it seems like it’s now catching up with the rest of the world,” said Stan Shamu, a market strategist at IG Markets in Melbourne, a provider of trading services in stocks, bonds and commodities. “Commodities prices have weakened, so the likes of BHP will be negatively affected.”
The MSCI Asia Pacific Excluding Japan Index (MXAPJ) dropped 0.3 percent to 441.13 as of 8:30 a.m. in Hong Kong, with about nine shares sliding for every eight that rose. Japanese markets are closed today for a holiday. The regional gauge is heading for its first weekly advance in five weeks following moves to stimulate economic growth in Australia and amid signs manufacturing output in U.S. and China is improving.
Emerging Stocks Slide From 1-Month High as Global Woes Sink Oil (Source: Bloomberg)
Emerging-market stocks slipped from a one-month high, led by energy producers, as concern a global recession will cut demand pushed oil and commodities prices lower and reduced the appeal of riskier assets. The MSCI Emerging Markets Index (MXEF) declined 0.5 percent to 1,024.27 by 4:30 p.m. in New York, after reaching the highest level since April 6 yesterday. Brazil’s Bovespa Index fell on speculation Tim Participacoes SA may lose its chief executive officer. Russia’s Micex index retreated to the lowest level in almost four months as OAO Novatek and OAO Mechel extended losses for a third day. Crude slid for a second day in New York as European Central Bank President Mario Draghi kept the region’s benchmark interest rate at a record low and said the economic outlook in the euro area had become “more uncertain.”
Non-manufacturing industries in China, where the government is predicting the slowest economic growth since 2004, expanded at a slower pace in April than in March, while service industries in the U.S. also grew less last month, data today showed. “The news flow in global markets has deteriorated sharply over the past few days, starting with the data,” Benoit Anne, the head of global emerging-markets strategy at Societe Generale SA in London, wrote in an e-mailed client note. “If this goes on, the fears of a global recession will resuscitate, and that will almost be the guarantee of a sharp sell-off in risky assets, including global emerging markets.”
U.S. Stocks Fall on Economic Data Ahead of Jobs Report (Source: Bloomberg)
U.S. stocks fell, sending the Standard & Poor’s 500 Index down a second day, amid disappointing service industries data and as investors awaited tomorrow’s jobs report to gauge the pace of growth at the world’s largest economy. Commodity and technology shares fell the most among 10 S&P 500 groups as Alcoa (AA) Inc. and Hewlett-Packard Co. (HPQ) slid at least 1.5 percent. General Motors Co. (GM) sank 2.4 percent after earnings tumbled 61 percent. Target Corp. (TGT) lost 2.5 percent as April sales missed projections. Green Mountain Coffee Roasters Inc. (GMCR) plunged 48 percent as profit will be less than it expected. Carlyle Group LP advanced 0.2 percent in its first day of trading. The S&P 500 retreated 0.8 percent to 1,391.57 at 4 p.m. New York time, dropping 1 percent in two days. The Dow Jones Industrial Average declined 61.98 points, or 0.5 percent, to 13,206.59. The Russell 2000 Index (RTY) of small companies decreased 1.5 percent to 806.59.
About 6.9 billion shares changed hands on U.S. exchanges, or 3.8 percent above the three-month average. “It’s a bump in the road,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida. His firm oversees more than $300 billion. “The economic data has turned softer. I wouldn’t be surprised to see the jobs report tomorrow disappoint. All that will do is allow the market to work off its overbought condition.”
European Stocks Are Little Changed; Transocean Advances (Source: Bloomberg)
European stocks were little changed as company earnings were offset by comments from European Central Bank President Mario Draghi who said policy makers didn’t discuss lowering interest rates this week. Porsche SE climbed 2.9 percent as the carmaker reported an 18 percent jump in first-quarter profit. Transocean Ltd. gained 2.5 percent as earnings topped analyst estimates. Banks dropped. The Stoxx Europe 600 Index rose 0.1 percent to 257.53 at the close in London, after earlier advancing as much as 1 percent and falling as much as 0.4 percent. The volume of shares changing hands on the Stoxx 600 was 1.2 percent lower than the average of the last 30 days, according to data compiled by Bloomberg. “The ECB was the main focus for many today,” said Ioan Smith, a strategist at Knight Capital Europe Ltd. in London. “The hope would have been for some sort of quick fix, but he said nothing that suggested they would change their view. The ECB rate path appears to be firmly on hold for the forseeable future.”
The central bank kept its benchmark interest rate at a record low of 1 percent today as predicted by every economist in a Bloomberg News survey. Stocks erased gains after Draghi, speaking at a press conference in Barcelona, said the central bankers did not talk about cutting rates today.
FOREX-Euro steadies ahead of Spain auction, ECB
LONDON, May 3 (Reuters) - The euro steadied against the dollar, paring sharp losses from the previous day, but was vulnerable ahead of a European Central Bank rate decision and a Spanish bond auction set to show how worried markets are about the country's economic problems.
"The temptation is to sell the euro because of what we saw yesterday. The Spanish auction results could cause some ripples but I think we will mainly be in a holding pattern into the ECB," said Daragh Maher, currency strategist at HSBC.
Euro Gains Versus Yen as ECB Refrains From Signaling Cut (Source: Bloomberg)
The euro strengthened versus the yen after European Central Bank President Mario Draghi said policy makers didn’t discuss cutting interest rates at their meeting this week. The 17-nation currency fluctuated against the dollar after Draghi said at a press conference in Barcelona there has been “significant progress” on the fiscal front. Higher-yielding currencies, including Mexico’s peso, declined versus the greenback as stocks and commodities fell amid lower appetite for risk. The dollar pared gains versus the yen after a gauge of U.S. service industries fell more than forecast. “The ECB was somewhat less dovish than some had expected,” said Omer Esiner, chief market analyst in Washington at Commonwealth Foreign Exchange Inc., a currency brokerage. “We saw the euro push up on that. Some market participants were looking for a hint of additional liquidity intervention, and we didn’t get that.”
The euro gained 0.1 percent to 105.59 yen at 1:58 p.m. in New York after dropping to 105.13 yesterday, the weakest level since April 16. It rose earlier today as much as 0.6 percent. The single currency was little changed at $1.3146 after falling earlier as much as 0.5 percent. The yen fell 0.2 percent to 80.32 per dollar, paring an earlier drop of 0.5 percent.
Euro Set for Biggest Weekly Decline in a Month (Source: Bloomberg)
The euro was set for the biggest weekly decline in a month amid concern leadership changes at elections in France and Greece this weekend could derail the region’s austerity efforts. The 17-nation currency was 0.2 percent from an almost two- year low versus the British pound before a private report that may confirm the region’s output of services and manufacturing shrank for a third month. The Dollar Index was poised for a weekly gain before a U.S. data forecast to show employment increased last month in the world’s biggest economy. “Markets are concerned about what new leaders will do,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. Euro demand may see “a more negative impact because of some uncertainties ahead.”
The euro was little changed at $1.3147 as of 8:48 a.m. in Singapore from the close in New York yesterday. It has lost 0.8 percent this week, the biggest slide since the period ended April 6. The common currency fell 0.1 percent to 105.40 yen. It was at 81.22 pence after falling to 81.03 yesterday, the lowest since June 2010. The dollar was little changed at 80.16 yen.
Korean Won Climbs, Bonds Fall on IMF Forecast, Spain (Source: Bloomberg)
South Korea’s won fell for a second day as a report showed service industries in the U.S. expanded less than projected, dimming the outlook for exports to the world’s largest economy. Government bonds were little changed. The U.S. Institute for Supply Management said yesterday its non-manufacturing index fell to a four-month low of 53.5 in April, while data today may show payrolls climbed by 160,000 after a 120,000 gain in March, according to the median forecast in a Bloomberg News survey. The Bank of Korea will probably keep its benchmark interest rate at 3.25 percent for an 11th month at a review next week, a separate survey showed. The Kospi Index of shares dropped for a second day. “With weak data from the U.S., the won is halting its recent appreciation,” said Yun Se Min, a Seoul-based currency trader at Busan Bank. “Investors may clear their short positions on the dollar ahead of the U.S. jobs data today.” A short position is a bet an asset will decline.
The won weakened 0.3 percent to 1,131.98 per dollar as of 9:33 a.m. in Seoul, according to data compiled by Bloomberg. For the week, it advanced 0.3 percent. One-month implied volatility for the won, a measure of exchange-rate swings used to price options, slid 11 basis points, or 0.11 percentage point, to 7.10 percent today.
Aussie Set for Biggest Drop This Year on RBA Easing Bets (Source: Bloomberg)
Australia’s dollar is poised for its biggest weekly drop this year before the Reserve Bank publishes its quarterly monetary policy statement following its unexpected decision to cut interest rates by half a point on May 1. The so-called Aussie has fallen versus all but one of its 16 major peers since April 27 as investors increased bets that policy makers will push the benchmark rate to a record low. New Zealand’s dollar was 0.2 percent from its weakest level in more than three months against its U.S. peer on prospects Asian stocks will extend a global equity rout. Both South Pacific currencies fell yesterday after data showed growth slowed in U.S. services industries, curbing demand for risk assets. “The Aussie has made its move slightly lower against the U.S. dollar,” said Hans Kunnen, chief economist at St. George Bank Ltd. in Sydney. “The Reserve Bank is seeing weaker inflation and growth, and has therefore moved interest rates appropriately.”
The Australian dollar was little changed from yesterday at $1.0270 as of 9:46 a.m. in Sydney. It’s poised for a 1.9 percent drop this week, the biggest since Dec. 16. It bought 82.40 yen from 82.30, having fallen 2 percent since April 27.
Jobless Claims in U.S. Decline More Than Forecast (Source: Bloomberg)
Fewer Americans than forecast filed applications for unemployment benefits last week, easing concern the job market was taking a turn for the worse. Jobless claims fell by 27,000 to 365,000 in the week ended April 28, a one-month low, from a revised 392,000 the prior period, Labor Department figures showed today in Washington. The median forecast of 46 economists surveyed by Bloomberg News called for 379,000 applications. The plunge in dismissals makes it more likely that the surge over the past three weeks was caused by the timing of the Easter holiday rather than a deterioration in employment. Federal Reserve policy makers last week said that while labor- market conditions have improved, the unemployment rate “remains elevated,” helping explain why they stuck to a plan to hold borrowing costs close to zero through 2014.
“The numbers allay some concern that the labor market is deteriorating,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, who accurately projected the decrease in claims. “The Easter argument held.” Stock futures climbed after the report. The contract on the Standard & Poor’s 500 Index maturing in June increased 0.3 percent to 1,401.8 at 8:44 a.m. in New York.
Services Slowdown Signals U.S. Growth May Be Cooling: Economy (Source: Bloomberg)
Service industries in the U.S. expanded less than projected and consumer confidence weakened, signaling the world’s largest economy may be cooling. The Institute for Supply Management said today its non- manufacturing index fell to a four-month low of 53.5 in April from 56 in March. The median forecast of economists surveyed by Bloomberg News was 55.3. A reading above 50 in the Tempe, Arizona-based group’s gauge signals expansion. The Bloomberg Consumer Comfort Index fell to a two-month low last week. Stocks extended losses as the services report added to concern global growth is slowing after European Central Bank President Mario Draghi said the economic outlook has worsened. American consumers, whose purchases rose by the most in a year in the first quarter, may find it difficult to maintain the pace of spending without faster job and wage gains, said James Shugg, a senior economist at Westpac Banking Corp. in London.
“The economy has recently lost some momentum, and a weaker services sector is completely consistent with that,” said Shugg, whose forecast for the ISM gauge was among the lowest. “Consumer spending is softening somewhat.” The Standard & Poor’s 500 Index lost 0.8 percent to 1,391.57 at the close of trading in New York. The Stoxx Europe 600 Index ended little changed, erasing an earlier earnings- driven rally of 1 percent. Ten-year Treasury yields were little changed at 1.93 percent.
Consumer Comfort in U.S. Declines to Lowest Level in Two Months (Source: Bloomberg)
Consumer confidence dropped last week to a two-month low as more Americans grew concerned about their personal finances. The Bloomberg Consumer Comfort Index fell to minus 37.6 in the week ended April 29 from minus 35.8, surrendering gains that had lifted it to a four-year high last month. Views on finances sank to the lowest point since January and more households said it was a bad time to buy needed items. A downshift in hiring and economic growth may be casting doubt on Americans’ ability to sustain spending after purchases grew last quarter at the fastest pace in more than a year. The drop in confidence indicates the run-up in gasoline prices since the start of the year may be starting to pinch even as the cost of fuel has retreated from a 10-month high.
“The reversal of gains in confidence has been particularly pronounced in middle-income groups that are likely caught between sluggish wage increases and rising inflation that has eroded their real purchasing power,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. The deterioration “does not bode well for household consumption.”
U.S. Productivity Falls, Labor Costs Rise Less Than Forecast (Source: Bloomberg)
The productivity of U.S. workers fell in the first quarter, indicating businesses are reaching the limit of how much efficiency they can wring from the workforce. The measure of employee output per hour declined at a 0.5 percent annual rate after a 1.2 percent gain in the prior three months, figures from the Labor Department showed today in Washington. Expenses per worker increased at a 2 percent rate, less than estimated. Employers had to take on more staff at the start of the year even as growth slowed, signaling they can no longer count on existing staff to meet demand. A government report tomorrow may show payrolls increased again in April, according to the median forecast of economists surveyed by Bloomberg News.
“This slowdown in productivity is a positive omen for the labor market,” Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said in a research note. He correctly projected the drop in productivity. “It suggests that additional increases in output will necessitate a faster pace of hiring than what has occurred thus far.”
Disabled Americans Shrink Size of U.S. Labor Force (Source: Bloomberg)
Michael White says he wishes he still could pluck the bass line to Hank Williams Jr.’s “Born to Boogie” and pay bills with money he earns himself. High unemployment -- along with ailments that he says render his fingers inoperative and make him cough up blood -- have dashed his hopes. White is among the 1.6 million Americans who’ve claimed Social Security Disability Insurance, or SSDI, since the 18- month recession began in 2007. When the slump reduced demand for tow-truck drivers, the 60-year-old Fort Myers, Florida, resident, who has also worked as a musician, lost the job he’d held for five years and started collecting unemployment benefits. Complications from chronic obstructive pulmonary disease, or COPD, diabetes and other medical problems then made it impossible for him to return to a labor market that lacks opportunities for people with health problems and those in better shape.
“I can’t stress enough that I’d rather be working, but my health has gotten the worst of me, and any place I would have applied wouldn’t have hired me,” White says. The number of workers receiving SSDI jumped 22 percent to 8.7 million in April from 7.1 million in December 2007, Social Security data show. That helps explain as much as one quarter of the decline in the U.S. labor-force participation rate during the period, according to economists at JPMorgan Chase & Co. and Morgan Stanley.
Small-Cap Tech May Lure Investors Bullish on Growth (Source: Bloomberg)
The investment outlook for small-cap technology companies is improving as cheap valuations and conservative earnings estimates make them more attractive, after being weighed down by concerns about the economy. Small-cap businesses are expanding to provide additional products and services -- including the delivery of storage, software and other computing tasks over the Internet “cloud.” This is boosting sales, as valuations and estimates for 2012 earnings remain moderate, said Steven DeSanctis, head of U.S. small-cap strategy at Bank of America Merrill Lynch Global Research in New York. With cash-flush balance sheets that account for about 20 percent of their market capitalization, tech stocks are poised for “pretty good” growth after last year’s “laggard performance,” he said. The cash hoard is attracting investors because companies may use it to pay dividends, repurchase stock or make acquisitions, he added.
The Russell 2000 Technology Index -- currently made up of 292 businesses with market cap of less than $3.45 billion -- has risen 21 percent since Sept. 6, 2011, compared with a 20 percent gain for the Russell 2000. This follows almost seven months of underperformance, when the tech stocks lagged behind the Russell 2000 by 8.9 percent.
Draghi Leaves Door Open For More ECB Action if Needed (Source: Bloomberg)
European Central Bank President Mario Draghi left open the option of further stimulus if the economy continues to deteriorate as investors await the outcome of elections in Greece and France. While policy makers didn’t discuss lowering interest rates at a meeting in Barcelona yesterday, Draghi pointed to new growth and inflation forecasts next month that may change the ECB’s policy stance. Uncertainty about the commitments of future leaders in Greece and France to fiscal reforms, paired with worsening economic data and renewed tensions in financial markets, may force the ECB’s hand. “There are significant downside risks to the ECB’s growth outlook,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt. “Draghi indirectly hinted at next month’s ECB meeting when the bank will publish its new projections. Since the ECB may lower its growth forecasts, the rate-cut discussion will stay with us.”
Austerity measures aimed at stemming the debt crisis have pushed euro-area economies from the Netherlands to Spain back into recession and may embolden Greek politicians who are challenging the country’s commitment to spending cuts. ECB officials, who have flooded financial markets with more than 1 trillion euros ($1.3 trillion) to avert a credit crunch, have signaled they’re reluctant to do more for now as they press governments to enact reforms.
Draghi Says Rates Accommodative as Economic Outlook Worsens (Source: Bloomberg)
European Central Bank President Mario Draghi said interest rates remain supportive and policy makers still expect a gradual economic recovery this year even as recent data cloud the outlook. Latest indicators “are not enough to change our baseline scenario, which foresees a gradual recovery in the course of the year,” Draghi said at a press conference in Barcelona today after the ECB held its benchmark interest rate at a record low of 1 percent. “We didn’t discuss any specific move in interest rates but we did discuss our general monetary policy stance, which we found accommodative in view of an economic outlook that becomes more uncertain.” Austerity measures aimed at stemming the debt crisis have pushed euro-area economies from the Netherlands to Spain back into recession. While the ECB is reluctant to add to stimulus as it presses governments to enact reforms, Draghi left open the possibility of further action when policy makers have updated economic projections in June.
“By highlighting prevailing major economic uncertainties, acknowledging that the risks to the euro-zone growth outlook are slanted to the downside and indicating that risks to the inflation outlook are now broadly balanced, the ECB does appear to be leaving the door open to an eventual further interest-rate cut,” said Howard Archer, chief European economist at IHS Global Insight in London.
EU Ministers Fail to Reach Deal on Bank Capital Rules (Source: Bloomberg)
European Union finance ministers failed to reach an agreement to toughen bank capital rules in the face of British resistance and now aim for a deal at their next meeting on May 15. Sixteen hours of talks in Brussels that ended early today snagged on when countries can tighten domestic banking regulations and add to EU minimum requirements on how much capital banks must hold. A compromise proposal from Denmark, which holds the EU’s rotating presidency, would allow governments to force their banks to add risk buffers of as much as 5 percent against their domestic and non-EU exposures. U.K. Chancellor of the Exchequer George Osborne was one of the loudest voices calling for member states to gain the additional flexibility. He said the U.K. will also press for discretion on so-called macro-prudential oversight tools, such as when regulators can rein in housing markets.
Ministers will try to bridge differences during the next two weeks, defying a warning yesterday by German Finance Minister Wolfgang Schaeuble that failure to reach decision at this meeting “will be dangerous.” If no consensus is achieved, a decision could be taken through a majority vote. Agreement among finance ministers will serve as a basis for negotiations with the European Parliament, which could begin later this month. The EU faces a Jan. 1, 2013, deadline for adopting rules agreed on by the Basel Committee on Banking Supervision.
Banks May Have to Disclose Profits From ECB Emergency Loans (Source: Bloomberg)
Banks may have to disclose profits from carry trades derived from 1 trillion euros ($1.3 trillion) in European Central Bank loans and exclude the money from bonus pools, under draft proposals from European Union lawmakers. Profit from carry trades, where investors borrow money at a low interest rate to buy higher yielding securities, “should not count toward computation of remuneration and bonus pools” at banks, under plans being weighed by European Union lawmakers, according to a document obtained by Bloomberg News. The measure is one of dozens of proposed amendments to legislation to implement global capital and liquidity rules for EU lenders. The ECB began two rounds of extraordinary three-year loans at an interest rate of 1 percent in December in its longer-term refinancing operations to ease funding conditions for European banks. ECB President Mario Draghi today left open the option of further stimulus if the region’s economy continues to deteriorate.
Banks should disclose “profit made from the ECB LTRO through carry trades” according to proposed amendments from members of the EU parliament contained in the document.
Krugman Wishes He Were Wrong Amid EU Austerity Backlash (Source: Bloomberg)
Europe’s shifting emphasis from enforcing austerity to seeking economic growth marks a hollow victory for Nobel laureate Paul Krugman. “I wish I’d been wrong for the sake of the world,” Krugman said in an interview with Bloomberg Television’s Carol Massar. “You can see that there has been a definite shift in opinion.” The euro area’s push to revive confidence in its economy and financial markets by attacking budget deficits will be challenged at the ballot boxes of France and Greece on May 6 as the region’s economy skids toward its second recession in three years and unemployment nears 11 percent.
Leading demands for a revised strategy, French Socialist Francois Hollande, a reader of Krugman, tops President Nicolas Sarkozy in the polls with the warning that putting debt-cutting over expansion is “bringing desperation to people.” Elsewhere, Greeks are turning to anti-austerity parties, recession-wracked Spain and Italy are relaxing deficit targets, the Dutch government is splintering and European Central Bank President Mario Draghi is calling for a “growth compact.”
