Asian Stocks Snap Two-Day Rally on Greece, Japan Exports (Source: Bloomberg)
Asian stocks fell, with the regional benchmark index snapping a two-day rally, as concerns mounted Greece may exit the euro zone ahead of today’s European Union summit and Japan’s trade data missed estimates, dimming the outlook for exporters. Nintendo Co., a maker of video-game players that depends on Europe for a third of its sales, fell 2.3 percent in Tokyo. Mitsui & Co. (8031), a Japanese trading company, slid 1.8 percent. Woodside Petroleum Ltd. (WPL), Australia’s oil and gas producer, lost 1.5 percent as oil fell. The MSCI Asia Pacific Index fell 1.2 percent to 112.39 as of 10:03 a.m. in Tokyo before the Hong Kong market opened. About eight stocks fell for each that rose, and all 10 industry groups on the measure slid.
“If Greece goes get out of the euro, then that will be a significant event for the market,” said Andrew Pease, Sydney- based chief investment strategist for the Asia-Pacific region at Russell Investment Group, which manages about $150 billion. The market wants to see “a political resolution out of Europe that will either prevent Greece from exiting or, if they do exit, will put in place a strong firewall to prevent contagion effects from going to other countries.”
Japan Stocks Dropped (Source: Bloomberg)
Japanese stocks dropped, with the Nikkei 225 (NKY) Stock Average heading for its first drop in three days, as a report showed exports rose less than estimated and Fitch Ratings cut the nation’s foreign-currency rating. Kyocera Corp. (6971), an electronic components maker that derives more than half of its sales outside Japan, lost 1.3 percent. Mitsubishi Estate Co., Japan’s top developer by market value, sank 2.9 percent. JGC Corp. gained 2 percent on a report the plant builder will invest about 30 billion yen ($375 million) in an Indonesia coal plant. The Nikkei 225 lost 1.1 percent to 8,635.76 as of 9:28 a.m. in Tokyo, with volume 15 percent above the 30-day average. The broader Topix (TPX) slid 0.9 percent to 726.57, with more than three shares dropping for each that gained.
The Topix has plunged 17 percent from this year’s high on March 27 as China’s economic growth slowed and on renewed concern about Europe’s debt crisis. The political gridlock in Greece after an inconclusive election this month reignited concern the nation will renege on austerity pledges required for 240 billion euros ($304 billion) in aid and exit the euro.
U.S. Stocks Reverse Gain in Final Hour on Greece Woes (Source: Bloomberg)
U.S. stocks erased gains in the final hour of trading as concern that Greece would exit the euro and a tumble in Facebook (FB) Inc. shares overshadowed economic optimism. Commodity and technology shares in the Standard & Poor’s 500 Index fell, while financial companies gained. Facebook slumped 8.9 percent, dropping 19 percent in two days. A gauge of homebuilders in S&P indexes rose 1.9 percent amid a better-than- estimated housing report. Best Buy Co. (BBY) rallied 1.6 percent after reporting first-quarter profit that exceeded estimates. Dell Inc. tumbled 12 percent at 5:43 p.m. New York time after forecasting revenue that missed analysts’ projections. About three stocks fell for each rising on U.S. exchanges at 4 p.m. New York time. The S&P 500 added 0.1 percent to 1,316.63, almost erasing a gain of 1 percent. The Dow Jones Industrial Average lost 1.67 points, or less than 0.1 percent, to 12,502.81. About 7.3 billion shares changed hands on U.S. exchanges, or 8.2 percent above the three-month average.
“Stocks did a 180,” said Walter “Bucky” Hellwig, who helps manage $17 billion at BB&T Wealth Management in Birmingham, Alabama. “On a relative basis, the U.S. is the cleanest dirty shirt. Yet Europe is still a dominant story for the market.”
U.S. Stocks Retreat With Euro as Treasuries Trim Drop (Source: Bloomberg)
U.S. stocks erased gains and the euro extended losses versus the dollar, while Treasuries trimmed earlier declines, on concern that Greece was making preparations to exit the euro. Facebook Inc. tumbled 8.9 percent. The Standard & Poor’s 500 Index closed up less than 0.1 percent at 1,316.63 at 4 p.m. in New York after rallying as much as 1 percent. The euro slid 1 percent to $1.2689 and 10-year Treasury yields increased three basis points to 1.77 percent after surging as much as six points earlier. Crops led commodities lower while oil retreated as Iran agreed to let Western nuclear inspectors into the country.
U.S. equities reversed gains in the final hour of trading and the euro sank to its low of the day after Dow Jones reported that former Greek Prime Minister Lucas Papademossaid the nation is considering preparations to leave the shared currency. The comments wiped out an earlier rally in stocks triggered by an increase in U.S. home sales and speculation leaders in Europe and China will step up efforts to bolster economic growth. “We went from risk-on to risk-off pretty quickly,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a telephone interview. “Greece is not a major economy, but there’s obviously fear of contagion in case it exits the euro. These outside factors will weigh on the market even as economic numbers are good.”
Emerging Stocks Extend Rally on China Spending, Europe Stimulus (Source: Bloomberg)
spending, European leaders will take action to stimulate economic growth and sales of U.S. homes rose. The MSCI Emerging Markets Index (MXEF) advanced 0.6 percent to 919.28 by 4:33 p.m. in New York, extending yesterday’s 0.7 percent rebound from the lowest close in five months. Russia’s Micex Index rose as OAO Mechel (MTLR), the nation’s largest producer of coal for steelmakers, climbed 5.3 percent. Brazil’s Bovespa tumbled 2.7 percent as homebuilder PDG Realty SA Empreendimentos & Participacoes plunged 11 percent. China plans to speed up approval of infrastructure projects and allocate construction funding faster to improve growth, the China Securities Journal reported. European leaders will do “everything necessary” to keep Greece in the 17-nation euro and focus on steps to aid economic expansion, German Finance Minister Wolfgang Schaeuble said yesterday.
“Investors are comforted by developments in Europe and expectations of more spending and policy easing” in China, said Chen Liqiu, a strategist at Jianghai Securities Co. in Shanghai. Sales of existing U.S. homes rose 3.4 percent to a 4.62 million annual rate in April, figures from the National Association of Realtors showed today in Washington. Emerging-market equities have added 0.3 percent in 2012 and trade at a multiple of 9.8 times estimated earnings, compared with the average of 11.7 for developed nations, which have advanced 1.5 percent this year.
European Stocks Rise the Most in a Month; Vodafone Climbs (Source: Bloomberg)
European stocks climbed the most in a month amid speculation that China and the euro area will do more to stimulate global economic growth. Vodafone Group Plc (VOD) gained 4.2 percent after posting quarterly service revenue that exceeded analysts’ estimates. Accor SA (AC) surged after saying it will sell its budget Motel 6 chain for $1.9 billion. Sonova Holding AG (SOON) plunged 9.9 percent, its biggest decline in more than a year, after reporting full- year earnings that fell short of analysts’ forecasts. The Stoxx Europe 600 Index (SXXP) gained 1.9 percent to 244.7 at the close, its biggest rally since April 17. The gauge has still fallen 10 percent from this year’s high on March 16 amid mounting concern that Greece will elect a government opposed to implementing pledged austerity measures.
“The rally is mostly technically driven after we became quite oversold last week,” said Raimund Saxinger, a fund manager at Frankfurt-Trust Investment GmbH, which oversees about $22 billion. “The worries that we have seen, they still persist. The next thing that the markets are really focusing on are the Greek elections and in essence if Greek voters will vote to stay in the euro or not.”
U.K. Stocks Rise on China Demand Prospects; Xstrata Gains (Source: Bloomberg)
U.K. stocks climbed the most in more than three months, led by a rally in mining companies, amid a report China is seeking to speed up construction projects spurring demand for industrial metals. Xstrata (XTA) Plc rose as the company forecast Chinese demand for copper will recover in the second half of the year. Vodafone Group Plc (VOD) gained after reporting revenue growth that beat analyst estimates. Barclays Plc (BARC) and Royal Bank of Scotland Group Plc (RBS) led an advance in lenders’ shares. The FTSE 100 Index added 1.9 percent to 5,403.28 at the close in London, the biggest increase since Feb. 1. The gauge lost 5.5 percent last week and has tumbled 9.4 percent from its 2012 high on March 16 amid mounting concern Greece may be forced leave to the euro area. The FTSE All-Share Index rose 1.8 percent today, while Ireland’s ISEQ Index climbed 1.9 percent.
“Murmurings from China of it sustaining growth is helping to underpin sentiment,” said David Jones, chief market strategist at IG Index in London. “Movements in the mining sector always have a disproportionate effect on the FTSE 100. (UKX)” Stocks rose yesterday, snapping a five-day selloff, after Chinese Premier Wen Jiabao said his government will focus more on bolstering economic growth.
Treasuries Snap Three-Day Decline on Demand for Safety (Source: Bloomberg)
Treasuries snapped a three-day decline on concern Greece will abandon the euro as its currency, increasing demand for the relative safety of U.S. securities. Five-year yields were five basis points from the record low before the U.S. sells $35 billion of the securities today. Demand rose at a two-year auction yesterday. Market participants are cutting their yield forecasts. The 10-year rate will be 2.45 percent by year-end, a Bloomberg survey of banks and securities companies shows. The projection declined from last month’s high of 2.58 percent. “If the European Union breaks up and the U.S. has a hard time with its economy, yields will go down,” said Youngsung Kim, the head of fixed income in Seoul at Samsung Asset Management Co., South Korea’s largest private bond investor with the equivalent of $96.4 billion in assets. Demand for safety may drive 10-year rates to a new low of 1.5 percent, he said. Ten-year yields were little changed at 1.76 percent as of 9:53 a.m. in Tokyo, Bloomberg Bond Trader data show. The price of the 1.75 percent security due in May 2022 was 99 7/8. The record low rate was 1.67 percent set Sept. 23. Five-year notes yielded 0.75 percent, versus 0.6960 percent set Feb. 3, which was the least ever.
FOREX-Euro steadies vs dlr as focus shifts to EU summit
LONDON, May 22 (Reuters) - The euro steadied against the dollar as its rebound from a recent four-month low stalled, although traders said selling was likely to be limited in the run-up to an informal meeting of European leaders this week.
"I doubt any news out of the meeting tomorrow will be able to create a positive environment, but people booked some profit at the end of last week and may be waiting for better levels to sell the euro," said Niels Christensen, FX strategist at Nordea.
Dollar Remains Higher on Haven Demand Before EU Summit (Source: Bloomberg)
The Dollar Index (DXY) climbed to a 20- month high before European Union leaders meet today amid concern Greece will exit the euro bloc, boosting demand for the U.S. currency as a haven. The 17-nation euro was 0.1 percent from a four-month low as Greek elections loom on June 17 that may determine whether it stays in the currency union. The yen held a two-day drop after Japan posted a wider-than-estimated trade deficit and before the nation’s central bank concludes a meeting today. “It’s hard to see what will come out of the EU meeting that would stimulate markets anymore,” said Imre Speizer, a strategist in Auckland at Westpac Banking Corp. (WBC), Australia’s second-largest lender. “We have election risks ahead of us for Greece and its potential exit from the euro zone, and that’s what markets are dwelling on and that will support the U.S. dollar as a safe haven for the next few weeks.”
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, reached 81.830, the highest since September 2010, before trading at 81.817 as of 9:37 a.m. in Tokyo, up 0.2 percent from the close in New York yesterday. The euro retreated 0.3 percent to $1.2650 after touching $1.2642 on May 18, the least since Jan. 16. The currency slid 0.2 percent to 101.22 yen. The yen lost 0.1 percent 80.01 per dollar, set for a third-straight decline.
OECD Sees Risk of Europe Crisis Hurting World Economy (Source: Bloomberg)
The Organization for Economic Cooperation and Development said Europe’s debt crisis risks spiraling and seriously damaging the world economy. “The risk is increasing of a vicious circle, involving high and rising sovereign indebtedness, weak banking systems, excessive fiscal consolidation and lower growth,” OECD Chief Economist Pier Carlo Padoan wrote in the organization’s semi- annual report on the global economy. Such a downside scenario “may materialize and spill over outside the euro area with very serious consequences for the global economy,” he said. The remarks amount to a warning to European Union leaders who are preparing to gather in Brussels tomorrow to discuss how to revive growth and grapple with a political impasse in Greece, where voters rejected austerity measures in elections on May 6. The euro has dropped more than 3 percent this month on concern that Greece may opt to leave the 17-nation monetary union.
The OECD, which advises its 34 member governments on economic policy, left its 2012 growth forecast for the group unchanged at 1.6 percent as the gloomier picture in the euro area was offset by improving prospects in the U.S. Gross domestic product in the euro region will shrink 0.1 percent this year and expand 0.9 percent in 2013 instead of posting growth of 0.2 percent and 1.4 percent as predicted last November, the Paris-based OECD said today.
Sales of Existing Homes in U.S. Rise as Market Stabilizes (Source: Bloomberg)
Sales of existing U.S. homes rose in April, driven by broad-based gains in demand that signal the market is stabilizing. Purchases, tabulated when a contract closes, increased 3.4 percent to a 4.62 million annual rate, figures from the National Association of Realtors showed today in Washington. The median price jumped by the most in six years. Owner-occupied properties are taking over from all-cash deals by investors snapping up distressed houses, the agent’s group said. Employment gains, depressed prices and record-low mortgage rates may bring more dwellings within reach of Americans, eliminating a source of weakness for the world’s largest economy just as risks from Europe’s debt crisis climb. “We are making incremental progress,” said Millan Mulraine, a senior U.S. strategist at TD Securities Inc. in New York, who correctly forecast the sales pace. “People are becoming more confident about job prospects and about taking on mortgages. This is all positive for the economy.”
Fed Regional Bank Directors Saw Improvement in Economy (Source: Bloomberg)
Directors at the Federal Reserve’s regional banks saw a pickup in the pace of economic growth last month as housing, motor vehicle sales and consumer spending gained strength. “Directors noted further improvement in economic activity, and they anticipated growth would continue at a moderate pace,” according to minutes released today in Washington summarizing discussions of meetings in April. Board members of the 12 banks “saw the incoming data on consumer spending as a bit more robust than they had expected but cautioned that these gains might be attributable to unseasonably warm winter weather,” the minutes said.
The minutes covered meetings on April 2 and April 23 by the Fed’s Board of Governors to discuss the discount rate, which the central bank charges on emergency loans to banks. The Fed kept the rate unchanged at 0.75 percent. A different Fed panel, the Federal Open Market Committee, met April 24-25 and affirmed a plan to hold interest rates near zero at least through late 2014 to spur growth and reduce unemployment. The minutes of the FOMC meeting in April were released last week. Policy makers next gather in Washington on June 19-20.
JPMorgan's Losses Become Tool in Dodd-Frank Rules Debate (Source: Bloomberg)
U.S. lawmakers and regulators are seizing on the more than $2 billion in losses disclosed by JPMorgan Chase & Co. (JPM) to bolster their positions in the nearly two-year-old debate over Wall Street’s rules. The Senate Banking Committee was the flash point for the debate yesterday, as Democrats and the chairman of the Commodity Futures Trading Commission used the losses to argue for the strict implementation of the 2010 Dodd-Frank Act rules, including a ban on proprietary trading by banks. That argument may shift to lawmakers and regulators pushing to go beyond President Barack Obama’s financial regulatory overhaul. “In the short run, pressure is on regulators to at least look tough in implementing the Volcker Rule,” Brian Gardner, senior vice president at investment bank Keefe Bruyette & Woods Inc., said. “Over longer run, I believe the bigger impact will be on the move to break up or downsize the largest banks.”
JPMorgan’s May 10 disclosure of losses tied to structured derivatives products came at a key point in the debate over the future of the Dodd-Frank Act. Agencies including the CFTC and Securities and Exchange Commission are still in the process of writing and implementing some of the most controversial rules required by the law.
Barclays to Sell Entire BlackRock Stake For $5.5 Billion (Source: Bloomberg)
Barclays Plc (BARC), the U.K.’s second- largest bank by assets, said it will receive net proceeds of $5.5 billion from the sale of its entire stake in BlackRock Inc. (BLK) The lender sold about 26.2 million shares to money managers for $160 each, London-based Barclays said in a statement yesterday. Underwriters have the option to purchase an additional 2.6 million. New York-based BlackRock will buy back a further 6.38 million shares at $156.80 per share, about 8.8 percent less than the stock’s $171.91 close on May 18, the last trading day before the deal was announced. The British bank took the 19.6 percent holding when it sold Barclays Global Investors to BlackRock in December 2009 for about $15.2 billion. The sale turned BlackRock into the world’s biggest asset manager and added passive products such as the iShares exchange-traded funds to its offerings.
Barclays is selling as the latest rules from the Basel Committee on Banking Supervision will force the lender to set aside capital against the stake to cushion itself against any decline in the value of the holding. The Barclay’s offering was priced 2.1 percent below BlackRock’s shares which fell 2.6 percent to $163.37 yesterday in New York.
Japan Rating Cut Rings Alarm on Tax Gridlock (Source: Bloomberg)
Japan’s sovereign-rating cut by Fitch Ratings escalated pressure on lawmakers to double the sales tax, with the Organization for Economic Cooperation and Development warning the nation’s debt is heading into “uncharted territory.” The local-currency rating was reduced one step, and foreign-currency grade two levels, to A+, the fifth-highest ranking, Fitch said in a statement yesterday. The Paris-based OECD said separately that boosting the 5 percent consumption levy is a “top priority.” A surge in demand for Japanese government bonds that sent 10-year yields to the lowest level since 2003 this month is masking the risks from rising debt. Prime Minister Yoshihiko Noda has failed to persuade opposition lawmakers to support his legislation, leaving gross public debt poised to reach 223 percent of gross domestic product next year, the OECD said.
“It’s an alarm bell for Japanese politics and the slow progress in Japan’s fiscal consolidation,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo and a former central bank official. “There’s no commitment to fiscal consolidation -- in the long run, Japan’s creditworthiness and fiscal sustainability aren’t looking good.”
Japan April Exports Rise Less-Than-Forecast 7.9% (Source: Bloomberg)
Japan’s exports rose a less-than- estimated 7.9 percent in April from a year earlier, underscoring the risk that weakness in global demand may limit the rebound in the world’s third-biggest economy. Imports gained 8 percent, leaving a trade deficit of 520.3 billion yen ($6.5 billion), the finance ministry said in Tokyo today. The median forecast in a Bloomberg News survey of 27 analysts was for exports to increase 11.8 percent after rising 5.9 percent in March. Earthquake reconstruction work and gains in consumer spending helped to drive an annualized 4.1 percent expansion in the first quarter after a 0.1 percent gain in the final three months of 2011. Japan’s debt-rating downgrade by Fitch Ratings yesterday signaled the importance of the economy maintaining momentum to limit a deterioration in the nation’s finances.
“The overall picture for exports looks dull,” said Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc. in Tokyo. “If exports stay flat when the effect of post- quake reconstruction is likely to peak out in the latter half of the year, there’s a possibility Japan’s economy will fall into a lull.”
North Korea Denies Nuclear Test Plan as It Upgrades Rocket Site (Source: Bloomberg)
North Korea denied planning a nuclear weapons test while a report indicated it’s upgrading a rocket launch site, conflicting signs that underscore the challenge of gauging the intentions of new leader Kim Jong Un. The totalitarian regime is building a new launch pad for firing larger long-range rockets at its Musudan-ri site in the northeast, according to a U.S. university monitoring project on North Korea. The report came after North Korea’s Foreign Ministry said last month’s botched long-range rocket launch was intended “for peaceful purposes and we never anticipated military measures like a nuclear test.” Kim has shown no sign of abandoning his country’s nuclear ambitions five months after succeeding his late father Kim Jong Il. U.S. and South Korean officials have said Kim’s government may soon detonate an atomic weapon to rebound from the embarrassment of the failed rocket launch.
“North Korea is trying to transition the current state of tensions toward one of dialogue,” said Koh Yu Hwan, a professor of North Korean studies at Dongguk University in Seoul. “By saying that they’ve never planned a nuclear test and turning that around as a theory espoused by the U.S., they are de facto saying they won’t conduct one.”
War-Gaming Greek Euro Exit Highlights Hazards in 46-Hour Weekend (Source: Bloomberg)
Greece may have only a 46-hour window of opportunity should it need to plot a route out of the euro. That’s how much time the country’s leaders would probably have to enact any departure from the single currency while global markets are largely closed, from the end of trading in New York on a Friday to Monday’s market opening in Wellington, New Zealand, based on a synthesis of euro-exit scenarios from 21 economists, analysts and academics. Over the two days, leaders would have to calm civil unrest while managing a potential sovereign default, planning a new currency, recapitalizing the banks, stemming the outflow of capital and seeking a way to pay bills once the bailout lifeline is cut. The risk is that the task would overwhelm any new government in a country that has had to be rescued twice since 2010 because it couldn’t manage its public finances.
“Leaving is difficult and messy, so anyone who thinks it’s easy is just wrong,” said Lorenzo Bini Smaghi, who left the European Central Bank’s executive board last year, in a phone interview. “The Greeks must be rational and protect themselves from rash decisions that they will live to regret. Leaving the euro is not the answer to their problems.” He declined to say whether he thought an exit would occur.
Merkel Faces Hollande Pleas to Shed Taboos at 18th Crisis Summit (Source: Bloomberg)
A plea to shed “taboos” may put German Chancellor Angela Merkel in a corner today as she digs in against joint debt sales to counter Europe’s financial crisis. Merkel, the dominant figure in more than two years of crisis-fighting, heads to a Brussels summit unable to stifle calls for measures she opposes, including euro bonds, the use of European money to recapitalize banks, a bigger rescue fund and extra time for debt-swamped countries to cut spending. “Policy makers across the euro area continue to act in their own interest,” said David Song, a currency analyst in New York at DailyFX.com, the research unit of FXCM Inc. (FXCM) “We may see a growing rift between France and Germany as the anti-austerity movement gathers pace.” The summit, the 18th since Greece was convulsed by debt and the first since an anti-austerity campaign carried Francois Hollande to France’s presidency, takes place with market indicators showing mounting stress on banks.
European Union officials damped expectations for the 27- nation summit starting at 7 p.m., eying the next meeting on June 28-29 as the time to take pro-growth steps. The crisis in the 17 euro countries will come up tonight only “at the very end,” EU President Herman Van Rompuy said in a pre-summit letter.
Merkel Pressed to Share German States’ Debt Costs (Source: Bloomberg)
Chancellor Angela Merkel is being pushed by German states to ease their budget squeeze by sharing borrowing costs, a policy she has opposed in confronting the financial crisis in the rest of the euro region. The opposition Social Democrats plan to press Merkel on so- called Deutschland bonds at a meeting on May 24, Norbert Walter- Borjans, finance chief of North Rhine-Westphalia, the nation’s biggest state, said in an interview. She needs their support to win parliamentary backing for the tougher European fiscal rules she championed. “The parallel between efforts to push euro bonds and Deutschland bonds is remarkable: the motivation for the push, the timing and the risks,” Thilo Schaefer, an analyst at the IW economic institute in Cologne, said by phone. “We know her position on euro bonds. If states open a new offensive for Deutschland bonds, then she faces the same pressure from a different angle.”
German borrowing costs plunged as investors sought a haven from the doubts that Greece can remain in the 17-nation currency zone. The yields on German two-, five-, 10-and 30-year bonds have declined to the lowest on record. States have benefited as well, with five-year debt from North-Rhine Westphalia dropping to as low as 1.5 percent last week from more than 3 percent in 2011. The federal government pays 0.5 percent to borrow for five years.
U.K. Needs More BOE Stimulus and Possible Tax Cuts, IMF Says (Source: Bloomberg)
Britain requires further monetary easing to aid the economy and Chancellor of the Exchequer George Osborne should prepare for temporary tax cuts, the International Monetary Fund said. With the economy mired in its first double-dip recession since the 1970s, the Bank of England and the Treasury should introduce policies to underpin demand and unclog the financial system, the Washington-based lender said in its annual review of the U.K. published today. The central bank needs to inject further stimulus through bond purchases or by cutting interest rates, with tax cuts following as soon as the fall. “If the economy turns out to be significantly weaker than forecast fiscal easing should be considered,” IMF Managing Director Christine Lagarde said at a press conference in the Treasury in London.
The call for action was accompanied with praise for existing deficit-cutting plans, which the IMF said had gained the credibility of investors and lowered government borrowing costs. Should monetary tools fail, Osborne should look at temporary cuts in sales and payroll taxes and more spending on infrastructure, it said.
U.K. Inflation Slows as IMF Sees Need for More Stimulus (Source: Bloomberg)
U.K. inflation slowed more than economists forecast in April, cooling to a level that relieves Bank of England Governor Mervyn King of the task of writing a letter to the government. Consumer prices rose 3 percent from a year earlier, down from 3.5 percent in March, the Office for National Statistics said today in London. The median forecast of 30 economists in a Bloomberg News survey was 3.1 percent. The rate is within the government’s boundaries for the first time since February 2010. The inflation slowdown came as the International Monetary Fund said the Bank of England should add to stimulus for the economy. While the central bank halted its so-called quantitative-easing program this month, King left the door open to more bond purchases at a press conference last week as the central bank lowered growth forecasts.
“These figures give the Monetary Policy Committee slightly more leeway to undertake more QE to cushion the U.K. economy from the euro-zone turmoil,” said Vicky Redwood, an economist at Capital Economics Ltd. in London. “We expect core price pressures to ease further in response to contracting output and weak pay growth.”
Osborne Under Pressure as U.K. Budget Deficit Widens (Source: Bloomberg)
Britain had an underlying budget deficit of 13.8 billion pounds ($21.8 billion) in April, the first month of the fiscal year. The figure, which excludes support for banks, compared with 9.1 billion pounds a year earlier, the Office for National Statistics said in London today. Revenue rose 1.3 percent in April from a year earlier and spending increased 3.8 percent. The public finances received a one-time boost of 30.3 billion pounds from the transfer of Royal Mail Group Ltd. pension assets to the public sector and the impact of the central bank’s Special Liquidity Scheme. This left a budget surplus of 16.5 billion pounds last month. Prime Minister David Cameron has said there can be no retreat from his plan to erase a deficit of 8 percent of gross domestic as the deepening euro-region crisis intensifies pressure for a relaxation of his austerity policies.
