Asian Stocks Rise as Stimulus Hopes Offset Europe Concern (Source: Bloomberg)
Asian stocks gained, with the regional benchmark index heading for its biggest weekly advance since February, as optimism the Federal Reserve will act to stimulate economic growth tempered concerns that Europe’s debt crisis will worsen. Li & Fung Ltd. (494), a supplier of toys and clothes to retailers including Wal-Mart Stores Inc., rose 1.1 percent in Hong Kong even as U.S. jobless claims rose unexpectedly. Esprit Holdings Ltd. gained 9 percent, heading for its first advance in three days, after the clothier said it will continue with its transformation strategy after both its chairman and chief executive officer quit. Samsung Electronics Co., the world’s biggest mobile-phone maker that gets about 19 percent of sales from Europe, dropped 3.3 percent in Seoul. The MSCI Asia Pacific Index (MXAP) added 0.4 percent to 113.44 as of 11:10 a.m. in Tokyo, erasing losses of as much as 0.2 percent.
The gauge dropped 12 percent from this year’s peak on Feb. 29 through yesterday amid concern growth in the U.S. and China is slowing and as Europe’s debt crisis intensified. “We’re likely to see increasing talk from governments about how they can encourage the growth agenda,” said Angus Gluskie, who helps manages more than $350 million at White Funds Management in Sydney. “That will benefit the markets as we move towards the second half of the year. There’s plenty of uncertainties out there. We may still see investors continue to be nervous about Spain and Italy in the aftermath of Greece’s election.”
Japan Stocks Rise as U.S. Unemployment Fans Stimulus Bets (Source: Bloomberg)
June 15 (Bloomberg) -- Japanese stocks rose as an increase in U.S. jobless claims fueled speculation central banks will take new steps to spur growth. Trading volume was a third below average before elections this weekend that may determine Greece’s future in the euro. Honda Motor Co. (7267), which depends on North America for 44 percent of its sales, rose 0.4 percent after falling as much as 0.4 percent. Renesas Electronics Corp., a chipmaker that has lost more than a quarter of its value this year, climbed 3.8 percent after a report it will shut or sell half its plants and cut as much as 30 percent of its workers. DeNA Co. (2432) surged 14 percent after the social-gaming company said it plans to buy back as much as 10 percent of its shares. The Nikkei 225 Stock Average (NKY) added 0.3 percent to 8,595.88 as of the 11:30 a.m. trading break in Tokyo, trimming gains of as much as 0.7 percent. Volume was 34 percent below the 100-day average. For the week, the gauge has risen 1.6 percent.
The broader Topix (TPX) index advanced 0.3 percent to 727.88 today. “Investors are on guard for the Greek election on June 17,” aid Matthew Sherwood, Sydney-based head of research at Perpetual Investments, which manages about $23 billion. Markets “believe that low inflation plus increasingly soft labor-market numbers equals another round of quantitative easing,” he said.
U.S. Stocks Rise on Reports Policy Makers May Take Action (Source: Bloomberg)
U.S. stocks advanced, erasing a weekly loss for the Standard & Poor’s 500 Index, amid reports policy makers may take steps to assist economies battered by Europe’s sovereign debt crisis. All 10 groups in the S&P 500 rose, led by telephone service providers. Home Depot Inc. and Walt Disney Co. added at least 2.1 percent after data on inflation and jobless claims fueled bets the Federal Reserve will act to spur growth. Exxon Mobil Corp. (XOM), the largest energy producer by market value, increased 1.9 percent as oil rallied. Travelers Cos. and Bank of America Corp. (BAC) gained at least 2.1 percent as financial companies jumped. The S&P 500 gained 1.1 percent to 1,329.10 at 4 p.m. in New York. The benchmark index for American equities is up 0.3 percent for the week. The Dow Jones Industrial Average rose 155.53 points, or 1.2 percent, to 12,651.91 today. Trading volume for exchange-listed stocks in the U.S. was about 6.6 billion shares, 2.5 percent below the three-month average.
“It’s a sign that they’re talking and that’s good,” Rod Smyth, the Richmond, Virginia-based chief investment strategist of Riverfront Investment Group, which manages $3 billion, said in a telephone interview. “Equity investors are poised with the knowledge that if European policy makers can figure out a way to stem the vicious cycle that’s been building, then stocks look really cheap and bonds look expensive.”
European Stocks Fall a Second Day; BSkyB, BT Group Slide (Source: Bloomberg)
European stocks dropped for a second day as Moody’s Investors Service downgraded Spain and Cyprus, while Switzerland’s central bank said that Credit Suisse Group AG (CSGN) must increase its capital this year. Credit Suisse slumped 10 percent to its lowest price since 1992. British Sky Broadcasting Group Plc (BSY) and BT Group Plc (BT/A) tumbled 3.5 percent each, after winning the rights to show live English Premier League soccer matches by paying an extra 70 percent. Nokia Oyj (NOK1V) plunged 18 percent after reducing its outlook for the second quarter. The Stoxx Europe 600 Index (SXXP) dropped 0.3 percent to 241.84 at the close of trading, extending its slide from this year’s high on March 16 to 11 percent.
“The big news obviously is Spain is ticking up, so the question is how long can they sustain this before having to go back for more funds,” said Chris Beauchamp, a market analyst at IG Index in London. “It’s the rising yields and then you factor in the Italian yields and then obviously you have the Greek elections so you’ve got a perfect storm brewing.” The VStoxx Index, a measure of Euro Stoxx 50 Index options prices, slipped 2.5 percent to 33.01, snapping three days of gains. The volume of shares trading on the Stoxx 600 today was 18 percent higher than the average of the last 30 days, according to data compiled by Bloomberg.
Treasuries Advance on Bets Fed Will Take Steps to Spur Economy (Source: Bloomberg)
Treasuries rose, halting a decline from yesterday, before U.S. data forecast to show production slowed and consumer confidence fell, adding to prospects that the Federal Reserve will take more steps to stimulate growth. The central bank’s policy-setting Federal Open Market Committee will meet June 19-20 as slowing employment growth at home and a deepening crisis in Europe weigh on the economic outlook. Demand for the safety of U.S. government debt was limited on speculation central banks will coordinate assistance if Greek elections on June 17 increase financial-market turmoil. “The Fed is expected to do something to counter an economic slowdown,” said Hiromasa Nakamura, who helps oversee the equivalent of $41.9 billion as an investor at Mizuho Asset Management Co. in Tokyo. “That’s likely to keep yields under downward pressure.”
Ten-year yields slid 1 1/2 basis points to 1.63 percent at 9:59 a.m. in Tokyo from yesterday, when they rose five basis points, according to Bloomberg Bond Trader prices. The 1.75 percent note due in May 2022 gained 1/8, or $1.25 per $1,000 face amount to 101 1/8. The rate has fallen one basis point after dropping to a record 1.4387 percent on June 1. A basis point is 0.01 percentage point. U.S. data due today are projected to show the recovery in the world’s largest economy is losing momentum. Growth in industrial production probably slowed to 0.1 percent last month from 1.1 percent in April, according to the median estimate of economists surveyed by Bloomberg News.
Dollar Set for Weekly Drop Before U.S. Output, Confidence (Source: Bloomberg)
The dollar was set for weekly declines against most major peers before U.S. data that may show production slowed and consumer confidence fell, adding to the case for further monetary stimulus by the Federal Reserve. The euro remained higher versus the greenback following a three-day advance amid speculation traders are trimming bearish bets against the 17-nation currency before Greece holds general elections on June 17. The yen climbed against most counterparts on prospects the Bank of Japan (8301) will refrain from adding to monetary easing when concluding a policy meeting today. “U.S. economic indicators and the European situation have been deteriorating rapidly in recent months,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “The market is pressing the Fed to take action. Their accommodative stance is likely to lead to a lower dollar.”
The dollar traded at $1.2628 per euro as of 11:32 a.m. in Tokyo from the close in New York yesterday, when it slid 0.6 percent to $1.2633. It has fallen 0.9 percent this week, set for the biggest drop since April 20. The yen added 0.2 percent to 100.06 per euro and rose 0.1 percent to 79.23 per dollar.
Aussie, Kiwi Set for Weekly Gains Ahead of Fed, G-20 (Source: Bloomberg)
The Australian and New Zealand dollars were poised for weekly gains amid speculation global policy makers will act to counter slower growth and Europe’s debt crisis, spurring risk appetite. Australia’s currency traded above parity with its U.S. counterpart before data that may show the world’s largest economy is struggling to expand, potentially prompting further monetary stimulus from the Federal Reserve. New Zealand’s dollar, known as the kiwi, touched a one-month high before a Group of 20 nations summit in Los Cabos, Mexico on June 18-19, where leaders will discuss Europe’s fiscal woes. “Any talk of coordination of central bank action is music to the ears for risk appetite,” said Michael Turner, a Sydney- based strategist at RBC Capital Markets. “It’s still pretty precarious really, but it’s certainly enough to see the Aussie and the kiwi rally a little bit.”
The Australian dollar bought $1.0017 as of 12:50 p.m. in Sydney from $1.0024 in New York yesterday, when it touched $1.0033, the highest since May 14. The so-called Aussie has gained 1.1 percent this week. New Zealand’s currency reached 78.38, the highest since May 14 before trading at 78.35 U.S. cents, set for a 1.7 percent weekly advance.
FOREX-Euro supported but Italy, Greece risks loom
LONDON, June 14 (Reuters) - The euro steadied against the dollar but investors were cautious ahead of an Italian bond auction at which borrowing costs are expected to rise and Greek elections on Sunday that could lead to the country's exit from the euro.
"The underlying problem of deteriorating confidence in sovereign debt in Europe is continuing to intensify, although unless there's a material weakening in demand at the Italian auction it's not really going to alter the FX market," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi.
Markets Want Coordinated G-20 Response, IIF Says (Source: Bloomberg)
Investors want global leaders meeting in Mexico next week to take action on reviving economic growth, the Institute of International Finance said. “Markets will be looking expectantly for evidence of a globally coordinated policy response targeted to revive growth prospects worldwide on a sustainable basis,” IIF Managing Director Charles Dallara said in a letter today to leaders attending the Group of 20 summit in Los Cabos, Mexico, on June 18-19. The summit will give European leaders a chance to discuss economic concerns with heads of other major economies, including U.S. President Barack Obama. European governments are more focused on building a consensus for another summit they are holding later this month, a U.S. official said yesterday on condition of anonymity. Europe’s 100 billion-euro ($126 billion) bailout last weekend of Spain’s banks showed “evidence of a willingness to take collective and coordinated action,” Dallara said.
The bailout was a “vital near-term crisis-fighting measure” and highlights the potential benefits of allowing the European Stability Mechanism, or ESM, to recapitalize banks when needed, he said. French President Francois Hollande has called for the ESM to be used to recapitalize banks, the French daily Le Monde reported.
Dark Pool Restrictions Sought in House Committee by NYSE, Nasdaq (Source: Bloomberg)
NYSE Euronext and Nasdaq OMX Group Inc. (NDAQ), the biggest owners of American stock exchanges, are urging U.S. legislators to support changes to rules that caused a proliferation of broker-run markets that draw orders away from public venues. Dark pools and brokers should be required to provide better prices than those available on exchanges or offer quotes publicly at the best levels, the companies said in a written presentation to staff of the House Committee on Financial Services that Bloomberg obtained. Lawmakers are holding hearings on the structure of U.S. markets in Washington on June 20. Dark pools, unlike exchanges, are private venues that execute orders without displaying bids and offers in advance.
The Securities and Exchange Commission should explain why Regulation ATS, approved in 1998 to integrate alternative venues that compete with exchanges listing stocks into the broader marketplace, “remains sound policy,” NYSE Euronext (NYX) and Nasdaq OMX said. That rule and another set of changes the SEC approved in 2005 overhauled trading and led to the creation of more than four dozen venues that compete with the New York Stock Exchange and Nasdaq. Executives at both companies have pushed for changes to how dark pools operate over the last three years.
Fed Gets Room to Ease With Little Growth or Inflation (Source: Bloomberg)
More Americans applied for jobless benefits and consumer prices dropped by the most in three years, giving the Federal Reserve room to spur an economy that’s generating little growth or inflation. Claims for unemployment insurance payments unexpectedly climbed by 6,000 to 386,000 in the week ended June 9, Labor Department figures showed today in Washington. The cost of living fell 0.3 percent in May, led by the biggest decrease in gasoline prices in three years, the agency also reported. Stocks rose as investors increased bets Fed policy makers meeting next week will take additional steps to boost growth and cut an unemployment rate stuck above 8 percent since February 2009. Cheaper energy costs also provide some relief for Americans against a backdrop of moderating job and wage gains that has slowed consumer spending.
“The Fed is really concerned about the outlook for employment and growth,” said Kevin Logan, the chief U.S. economist at HSBC Securities USA Inc. in New York who correctly forecast the decline in prices. “They’ve been pretty sanguine about the inflation outlook, and today’s data certainly didn’t contradict that outlook.”
Fed Growth Forecasts Key to Easing as Job Market Stalls (Source: Bloomberg)
Chairman Ben S. Bernanke told lawmakers last week the “central question” confronting the Federal Reserve at its next meeting is whether growth is fast enough to make “material progress” reducing unemployment. The answer may well be no. Bernanke and his fellow policy makers gather June 19-20 to revise their economic projections after a report yesterday showing retail sales fell for a second month in May prompted economists at Goldman Sachs Group Inc. and Morgan Stanley to cut their growth forecasts. Fed officials, including Vice Chairman Janet Yellen, have said there’s scope for further easing at some point to reduce a jobless rate persisting above 8 percent.
“They’re not closing that employment gap as fast as they’d like, so I suspect it adds up to more action to get things moving again,” said Michael Feroli, chief U.S. economist at New York-based JPMorgan Chase & Co. and a former researcher for the Federal Reserve Board in Washington. “Bernanke has a clear economic mandate, and we’re still far from achieving it.” Economists at Goldman Sachs yesterday reduced their tracking estimate for U.S. second-quarter growth to 1.6 percent from 1.8 percent. Morgan Stanley cut its projection 0.2 percentage point, to 1.8 percent, while Credit Suisse Group AG marked down growth for the period to 2.2 percent from 2.5 percent.
Pimco’s Kashkari Says Fed Likely to Ease Further With QE3 (Source: Bloomberg)
Pacific Investment Management Co.’s Neel Kashkari said the Federal Reserve is likely to start a third round of quantitative easing as BlackRock Inc. (BLK)’s Robert Doll said the central bank will wait to see whether the economy weakens more. “The economy is slowing,” Kashkari, who heads global equities at Newport Beach, California-based Pimco, said today at the Bloomberg Asset Management Summit in Boston. Worsening unemployment, lower equity prices and the risk of shocks coming out of the euro region suggest the Fed will act, he said. U.S. stocks rose today and the dollar weakened as reports on inflation and jobless claims fueled speculation that the Fed will discuss stimulus efforts at its meeting next week. Jobless claims unexpectedly climbed by 6,000 to 386,000 in the week ended June 9, the Labor Department said today. The U.S. economy expanded at a 1.9 percent annual rate in the first quarter, the Commerce Department reported May 31, down from its prior estimate of 2.2 percent.
The Standard & Poor’s 500 Index rose 0.9 percent to 1326.07 at 11:40 am in New York. The dollar weakened against 15 of 16 major peers. Doll, who plans to retire as BlackRock’s chief equity strategist, said regulators would have to see significantly weaker economic growth or a “bust in the euro” before they act to stimulate the economy with another round of bond purchases.
Ex-Soros Adviser Fujimaki Says Japan to Probably Default by 2017 (Source: Bloomberg)
Investors should buy assets in U.S. dollars and other currencies of strong developed nations because Japan may default within five years, said Takeshi Fujimaki, former adviser to billionaire investor George Soros. “Japan is likely to default before Europe does, which could be in the next five years,” the president of Fujimaki Japan, an investment advising company in Tokyo, said in an interview yesterday. Japanese should hold foreign-currency products, such as those denominated in the greenback, Swiss franc, sterling, Australian and Canadian dollars, Fujimaki said. Should the Japanese government default, the yen may weaken to 400-500 per dollar, and the yields on benchmark 10-year bonds could surge above 80 percent, according to Fujimaki. “I’m buying dollars in case of an emergency,” he said.
The yen fell 0.2 percent to 79.48 per dollar as of 9:14 a.m. in Tokyo from its close in New York yesterday. The currency touched the post war high of 75.35 per dollar on Oct. 31 and has averaged about 103 over the past decade. Japan’s 10-year yields were little changed yesterday at 0.86 percent. Rates on June 4 dropped to 0.79 percent, the lowest since June 2003.
O’Neill’s BRICs Risk Hitting Wall Threatening G-20 Growth (Source: Bloomberg)
Even Jim O’Neill is asking whether the BRICs need reinforcing 11 years after he coined the term to describe the world’s future powerhouse economies. O’Neill, chairman of Goldman Sachs Asset Management, says his thesis that Brazil, Russia, India and China would together increasingly buoy the global economy faces “a more challenging test” as investors dump the countries’ stocks. China pared its growth target to the lowest since 2004, Standard & Poor’s may cut India’s investment-grade credit rating, Brazil is on pace to expand less than 3 percent for a second straight year and falling oil prices may hurt Russia.
A prolonged slowdown in the four countries poses a fresh threat to a world economy suffering its weakest spell since the end of the 2009 recession, which the BRICs helped shorten by contributing about half of the international expansion since 2007. Leaders attending next week’s Group of 20 summit in Mexico are already expressing concern, with Brazilian President Dilma Rousseff warning June 4 that emerging markets can’t carry the weight of the world on their shoulders. Rich-nation policy makers “are so wrapped up in their own problems they’re praying some of this weakness is just temporary in the BRICs,” London-based O’Neill, 55, said in a telephone interview. “If it’s not, then it’s pretty worrying.”
India’s Inflation Exceeds Estimates as Rate Decision Looms (Source: Bloomberg)
Indian inflation quickened more than estimated in May as food and fuel prices surged, an acceleration that may fail to prevent an interest-rate cut next week to shore up slowing growth. The benchmark wholesale-price index rose 7.55 percent from a year earlier, after climbing 7.23 percent in April, the commerce ministry said in New Delhi today. The median of 37 estimates in a Bloomberg News survey was 7.5 percent. A separate report showed a decline in Indian exports and imports last month. Indian economic expansion weakened to a near-decade low last quarter, hurt by faltering efforts to open up the economy, a moderation in investment and the impact of Europe’s debt crisis on overseas sales. The slowdown has added pressure on the Reserve Bank of India to reduce borrowing costs at its June 18 policy meeting, even as the nation struggles with the fastest inflation among the biggest emerging markets.
“The growth slowdown and core inflation below 5 percent are giving the central bank room to cut rates,” said Meghna Patel, a fixed-income analyst at Emkay Global Financial Services Ltd. in Mumbai. “But it’s not a monetary policy battle alone, the government has to do its bit on faster reforms to prop up the economy.”
Bank Warns of Major Canada Shock If Europe Crisis Worsens (Source: Bloomberg)
Canada faces a “major shock” to its financial system and economy if Europe’s crisis worsens, the country’s central bank said. While Canada’s financial system has fared well and conditions in the country remain “very stimulative,” deepening turmoil in Europe may boost funding costs for the nation’s banks and generate losses from assets linked to the euro zone, the Bank of Canada said today in its semi-annual Financial System Review. Non-performing loans at Canadian banks would also increase if growth slows. “The combined effect of these events could constitute a major shock for both the Canadian financial system and the economy as a whole,” the Ottawa-based bank said, adding sovereign debt strains in the euro region are the “principal” threat to the country’s financial stability. “Should the crisis worsen and spread further across Europe, the impact on the Canadian financial system could be significant.”
The Canadian central bank, which is headed by Financial Stability Board Chairman Mark Carney, said that banks in the 17- nation euro zone need to be recapitalized with European assets, and that “firewalls” need to be strengthened and brought into force. Recent steps by European governments and central banks “can only create time” and need to be matched by efforts to create a more “robust foundation” for the region’s financial market, such as a banking union, the bank said in the report.
King Says Stimulus Case Grows With Stepped Up Crisis Plan (Source: Bloomberg)
Bank of England Governor Mervyn King unveiled measures to fight an escalation of Europe’s debt crisis as global policy makers prepare for the impact of Greek elections in two days. Warning of a “black cloud” from the euro region, King said in a speech in London late yesterday that the case for more stimulus in the U.K. "is growing." In addition to looser policy, he said the BOE will activate a sterling liquidity facility to aid banks, and plans to have a form of credit easing operating within weeks to boost lending in the economy. King’s measures highlight the alarm of global central bankers over the dangers posed by the mounting euro-area debt crisis after Spain became the fourth member of the region to seek a bailout last week. Greece is due to hold elections on June 17 that may determine its future in the currency zone, and leaders of the Group of 20 nations will hold a summit in Mexico the following day.
Investors want global leaders to take action on reviving economic growth, Institute of International Finance Managing Director Charles Dallara said in a letter yesterday to leaders attending the G-20 summit. He said markets “will be looking expectantly for evidence of a globally coordinated policy response targeted to revive growth prospects.”
Osborne Vows Joint Steps With Central Bank to Spur U.K. Credit (Source: Bloomberg)
Chancellor of the Exchequer George Osborne and Bank of England Governor Mervyn King are preparing two programs to increase the flow of credit amid a deteriorating outlook in the euro area. The U.K. central bank will activate an unused plan to inject at least 5 billion pounds ($7.8 billion) a month into the financial system. Another plan will allow lenders to swap assets with the central bank in return for money to be lent to companies and households. The Treasury will indemnify the bank for any losses. “We are not powerless in the face of the euro-zone debt storm,” Osborne told financiers in his annual Mansion House speech in London today. “The government -- with the help of the Bank of England -- will not stand on the sidelines and do nothing as the storm gathers.”
The plans mark a departure for the central bank, which has so far resisted calls for targeted measures to boost lending to the non-financial sector. Deputy Governor Paul Tucker, a contender to become governor when King’s term ends next year, signaled this week that the bank had eased its stance. The liquidity plan seeks to help banks alleviate the strains resulting from the crisis in the euro area. Originally established in December, the program has never been used. The bank will announce details of its operation tomorrow.
Irish Tell Spain to Imagine the Worst in Banking Bailout (Source: Bloomberg)
Ireland has this banking advice for Spain: imagine the worst and double it. Like Ireland, Spain sought a bank bailout after being felled by a real-estate crash. Now, just as the Irish did, the Spanish are awaiting the results of outside stress tests gauging the size of the hole in the banking system. “Think of the worst possible scenario on banking losses: then double it,” said Eoin Fahy, an economist at Kleinwort Benson Investors in Dublin. “Adopt the most conservative assumptions.” Nine hundred miles northwest of Madrid, Irish analysts wring three lessons from its own banking crisis, among the worst in history. First, quickly present an accurate estimate of the bad loans. Second, force banks to face up to losses, possibly through the creation of a so-called bad bank. Third, share as much of the loss as possible with bank bondholders.
“Spain should face the economic reality, even if they have to value property loans at discounts of 40, 60 or even 80 percent,” said Alan Ahearne, former economic adviser to Brian Lenihan, the finance minister who presided over Ireland’s response to the near-collapse of its financial system. “If the real losses aren’t faced up to, who’s that going to fool?” Spain’s government already ordered banks to set aside provisions equivalent to 45 percent on the nation’s 307 billion- euro ($387 billion) book of loans linked to real-estate developers, Economy Minister Luis de Guindos said May 11.
Draghi Fails to Find Clarity in ECB Communication (Source: Bloomberg)
European Central Bank President Mario Draghi is struggling to find the right balance between saying too much and nothing at all. Draghi won praise for his candor when he took the helm of the ECB seven months ago. Since then, he has kept investors guessing on three key Greek initiatives and confused some of them on the outlook for ECB bond purchases, whipsawing the euro and Italian and Spanish bonds. Economists from Nomura International Plc to ING Group NV say Draghi’s communication is exacerbating market turmoil. “Since the first press conference when Draghi came in with a very confident style, it has basically been downhill on the communication front,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam. “Clearly the communication has sometimes created the wrong impression, and that makes markets that bit more volatile.”
Draghi took the reins of the world’s second-most important central bank in the middle of its biggest crisis, with the future of Europe’s common currency at stake. As concerns about the creditworthiness of euro-area nations drive up borrowing costs and force the ECB ever further into uncharted territory, Draghi must balance the need for transparency against the risk of spooking financial markets.
Central Banks Warn Greek-Led Euro Stress Threatens World (Source: Bloomberg)
Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors. Monetary policy makers from the U.K. to Japan and Canada sounded the alert about potential fallout from the single currency bloc’s troubles. They spoke as Group of 20 leaders prepare to meet in Mexico next week amid the weakest international economy since the 2009 recession. A victory by Syriza, the party that promises to renege on Greece’s end of the bailout deal, could speed the nation’s exit from the euro. Absent a quick fix from divided European governments, central bankers may have to engage in fresh crisis- fighting of their own to ensure markets operate and their economies grow if the election jolts investors. Spain’s 10-year bond yield vaulted above 7 percent yesterday in a fresh sign of the stress that has plagued the region for two years.
The crisis has created a “large black cloud of uncertainty hanging over not only the euro area, but our economy too, and indeed the world economy,” Bank of England Governor Mervyn King said in London late yesterday.
Draghi Fails to Find Clarity in ECB Communication (Source: Bloomberg)
European Central Bank President Mario Draghi is struggling to find the right balance between saying too much and nothing at all. Draghi won praise for his candor when he took the helm of the ECB seven months ago. Since then, he has kept investors guessing on three key Greek initiatives and confused some of them on the outlook for ECB bond purchases, whipsawing the euro and Italian and Spanish bonds. Economists from Nomura International Plc to ING Group NV say Draghi’s communication is exacerbating market turmoil. “Since the first press conference when Draghi came in with a very confident style, it has basically been downhill on the communication front,” said Nick Kounis, head of macro research at ABN Amro in Amsterdam. “Clearly the communication has sometimes created the wrong impression, and that makes markets that bit more volatile.”
Draghi took the reins of the world’s second-most important central bank in the middle of its biggest crisis, with the future of Europe’s common currency at stake. As concerns about the creditworthiness of euro-area nations drive up borrowing costs and force the ECB ever further into uncharted territory, Draghi must balance the need for transparency against the risk of spooking financial markets.
Greek Stocks Rally on Optimism New Democracy Will Win (Source: Bloomberg)
Greek stocks rallied the most in more than nine months, while a gauge of banks jumped 21 percent, amid speculation that New Democracy, the party that backs an agreed bailout for the nation, may win the June 17 elections. The Athens Stock Exchange Index (ASE) climbed 10 percent to 550.1 at the close, the biggest jump since Aug. 29, as economists at EFG Eurobank Ergasias SA (EUROB) said Greece is on course to meet its budget-deficit target for 2012. The gauge pared this year’s decline to 19 percent. The FTSE/Athex Banks Index (ASEDTR) soared 23 percent to 224.21 today. Greeks will vote for a second time in six weeks, after a May 6 ballot failed to result in a government. New Democracy, the largest pro-bailout party, led Syriza, the group opposed to spending cuts, according to the last poll on June 1. Under Greek law, there is a ban on publication of opinion polls two weeks before an election.
“The fact that a vast majority, around 75 percent of Greeks according to polls, prefer to keep the euro, suggests that many of them may think twice before they enter the polling booth,” a team of UBS AG economists led by Martin Lueck in Frankfurt wrote in a report today. “From this angle, even a comfortable Syriza lead in the polls does not necessarily mean that this will be reflected in the election result.”
GLOBAL MARKETS-Spain's debt hits record as euro zone crisis worsens
LONDON, June 14 (Reuters) - Spain's 10-year bond yields hit a euro-era record of 7 percent on Wednesday as investors fled to safe-haven assets on fears the storm surrounding Europe's two-year long debt crisis was worsening, sending European shares and the euro lower.
"The underlying problem of deteriorating confidence in sovereign debt in Europe is continuing to intensify," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi.
