Asian Stocks Advance Amid Fed, China Stimulus Speculation (Source: Bloomberg)
Asian stocks gained, with the regional benchmark index heading for its highest close in a month, as investors speculated central banks from the U.S. to China may announce more stimulus measures to boost growth in the world’s largest economies. Sony Corp. (6758), Japan’s biggest consumer electronics maker, jumped 3.8 percent in Tokyo. Renesas Electronics Corp., the world’s largest maker of microcontrollers used in cars, added 1.3 percent after saying its partnership with Taiwan Semiconductor Manufacturing Co. Lynas Corp. gained 3 percent in Sydney, extending its advance for a third day, as a Malaysian parliamentary committee said the miner should be given permissiion for a rare-earths refinery. The MSCI Asia Pacific Index (MXAP) climbed 0.7 percent to 116.53 as of 9:44 a.m. in Tokyo, with almost seven shares rising for each that fell. More than $5 trillion has been erased from global equities since March amid concern growth is slowing in the U.S. and China, and as Europe’s debt crisis intensified.
“There will be more measures taken by central banks to stimulate the economy,” said Daphne Roth, Singapore-based head of Asian equity research at ABN Amro Private Banking, where she helps oversee about $207 billion. “China also has more flexibility to ease monetary and fiscal policy.”
Asia Stocks Rise, Dollar Weakens Before Fed Decision; Corn Falls (Source: Bloomberg)
Asian stocks rose and the dollar held losses amid speculation the Federal Reserve will consider further stimulus measures when it concludes its meeting today. Corn snapped two days of gains. The MSCI Asia Pacific (MXAP) Index rose 0.6 percent at 9:37 a.m. in Tokyo as Japan’s Nikkei 225 Stock Average gained 0.8 percent. Standard & Poor’s 500 Index futures dropped 0.2 percent. The dollar remained lower against most of its major peers after losses yesterday. Corn futures fell 0.5 percent. Signs of faltering growth mean the Fed will announce new steps to boost the economy as soon as this week’s meeting, according to 12 of the 21 primary dealers who trade with the central bank, which is scheduled to release its statement on interest rates and the economy in Washington today. Group of 20 leaders were focusing their response on Europe’s financial crisis at a summit in Mexico as Greece’s creditors appeared set to ease bailout terms.
“We’re expecting something stimulatory,” Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage, said about the U.S. central bank meeting. “Any stimulus from the Fed is bearish for the U.S. dollar.” The dollar rose 0.2 percent to $1.2680 per euro after sliding 0.9 percent yesterday. The greenback on June 18 touched $1.2748, the weakest since May 22. The New Zealand dollar fell 0.4 percent, and the South Korean won gained 0.3 percent. Corn declined to $5.60 a bushel after rising for two days on concern that hot, dry weather will curb yields in U.S. growing areas. Gold for immediate delivery rose 0.1 percent to $1,620.25 an ounce.
Japan Stocks Rise on Optimism Fed, China to Add Stimulus (Source: Bloomberg)
Japanese stocks rose, with the Topix Index heading for its highest in more than a month, as investors speculated central banks in the U.S. and China may announce more stimulus to boost growth in the world’s largest economies. Sony Corp., a consumer electronics company that gets almost a fifth of its revenue in the U.S., gained 3.1 percent. Mitsubishi Corp. (8058), Japan’s top commodities trader by revenue, climbed 1.4 percent after prices of oil and metals increased. Daio Paper Corp. led the sector higher on a Nikkei newspaper report that Hokuetsu Kishu Paper Co. will buy a 20 percent stake. The Topix advanced 1.2 percent to 743.21 as of 9:23 a.m. in Tokyo, set for the highest close since May 17. All 33 industry groups in the index climbed. The Nikkei 225 Stock Average (NKY) rose 0.7 percent to 8,712.82, with volume 9.7 percent lower than the 30-day average.
“There will be more measures taken by central banks to stimulate the economy,” said Daphne Roth, Singapore-based head of Asian equity research at ABN Amro Private Banking, where she helps oversee about $207 billion. “China also has more flexibility to ease monetary and fiscal policy.” Futures on the Standard & Poor’s 500 Index fell 0.1 percent today. The gauge advanced 1 percent yesterday and closed at its highest level in more than a month as analysts at JPMorgan Chase & Co., Jefferies & Co. and Goldman Sachs Group Inc. speculated the Federal Reserve will move to spur growth.
U.S. Stocks Advance to One-Month High as Fed Meets (Source: Bloomberg)
U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level in more than a month, as investors speculated the Federal Reserve will announce more measures to stimulate the world’s largest economy. Bank of America Corp. (BAC) climbed 4.5 percent as the Federal Housing Finance Agency said it plans to help banks avoid being forced to buy back mortgages amid concern lenders are tightening standards even for the most creditworthy buyers. FedEx Corp. (FDX), operator of the largest cargo airline, jumped 2.8 percent after pledging “significant cost reductions.” Microsoft Corp. (MSFT) increased 2.9 percent after unveiling a tablet computer. The S&P 500 rose 1 percent to 1,357.98 at 4 p.m. New York time, gaining for a fourth day. The Dow Jones Industrial Average added 95.51 points, or 0.8 percent, to 12,837.33. Trading volume for exchange-listed stocks in the U.S. was about 6.8 billion shares, or almost in line with the three-month average.
“It’s possible that the Federal Reserve will do something else,” said David Kelly, who helps oversee about $394 billion as chief market strategist at JPMorgan Funds in New York. “It’s possible that they will do some further extension of Operation Twist. They seem overly sensitive to the possibility that the market will react badly to them not taking action.”
European Stocks Climb for Third Day; Home Retail Rallies (Source: Bloomberg)
European stocks gained for a third day as Greece moved closer to forming a government and a Spanish debt sale met targets, outweighing a bigger-than-forecast decline in German investor confidence. Home Retail Group Plc (HOME) surged 24 percent as sales at the Argos chain beat estimates. Whitbread Plc (WTB) jumped 6.4 percent as first-quarter revenue increased. SAP AG (SAP) rose 2.1 percent after U.S. peer Oracle Corp. reported fourth-quarter profit that beat estimates. Danone (BN) tumbled 6 percent after the world’s biggest yogurt maker cut its profitability forecast. The Stoxx Europe 600 Index (SXXP) added 1.6 percent to 248.27 at the close in London, the highest since May 11. The benchmark gauge has still dropped 8.9 percent from its peak on March 16 amid concern that the euro area’s debt crisis has triggered a slowdown in global economic growth.
“The markets have stabilized now, and are waiting for more discussion about the future of the euro zone, especially the question of Spanish debt,” said Yves Maillot, director of investments at Robeco Gestions SA in Paris. “The Greek election result has been played last week, and now the markets expect a new government, hoping for something better.” Greek politicians are close to forming a governing coalition and will seek relief from austerity measures imposed as a condition for bailout loans, probable coalition partners said
Mexico Trading Halt Adds to Series of Glitches on Bourse (Source: Bloomberg)
Mexican stocks ceased to trade for more than 20 minutes because of what an official called “communication issues,” the latest in a series of glitches to halt activity on Latin America’s second-largest equity exchange. Shares stopped moving at 2:11 p.m. local time and remained inactive until 2:34 p.m., according to data compiled by Bloomberg. The benchmark IPC index of 35 Mexican companies ended the day up 1.6 percent, after paring gains from an intraday advance of as much as 1.8 percent. The problem was “solved fast, but the process of rebooting all the connections takes a little time,” Jorge Alegria, the Mexico City-based head of markets and information at the exchange, said in an e-mailed response to questions. He attributed the stoppage to “communication issues.” Today’s stoppage marked the latest in a string of technology shortcomings, both at the bourse and at a now defunct brokerage, that have brought Mexican stock trading to a standstill at least three times since April 13.
That day, late- day transactions by Bulltick Capital Markets set off a circuit- breaker mechanism that pulled the plug on trading. On May 31, a surge of orders overwhelmed the exchange’s operating system and forced it to pause trading.
Dollar Trades Near Month Low Versus Euro on Fed Prospects (Source: Bloomberg)
The dollar was 0.5 percent from the lowest level in almost one month against the euro on prospects the Federal Reserve will consider further monetary stimulus when it concludes its two-day meeting today. The greenback remained lower against most of its 16 major peers as 12 out of 21 primary dealers who trade with the Fed expect some form of added stimulus. The 17-nation euro held gains against the yen after Greece’s Pasok party leader Evangelos Venizelos said a new government could be ready today amid speculation European leaders are renegotiating the country’s bailout conditions. “Any stimulus from the Fed is bearish for the U.S. dollar,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “We’re expecting something stimulatory, whether or not it’s in the form of an extension of Twist, or a little bit of QE,” he said of the program to sell short-maturity debt to buy longer- term bonds and asset purchases known as quantitative easing.
The dollar was unchanged at $1.2685 per euro as of 8:28 a.m. in Tokyo from yesterday, when it slid 0.9 percent. The greenback on June 18 touched $1.2748, the weakest since May 22. The U.S. currency added 0.1 percent to 79.05 yen. The euro added 0.1 percent to 100.28 yen from yesterday, when it rose 0.7 percent.
Aussie Trades Near 6-Week High on Fed Easing Speculation (Source: Bloomberg)
Australia’s dollar was 0.2 percent from its highest level in six weeks on speculation Federal Open Market Committee members will signal additional measures to support U.S. growth at the conclusion of a meeting today. The so-called Aussie remained higher after a two-day advance versus the yen as pro-bailout parties in Greece continue talks to form a three-way government, keeping alive prospects the nation will avoid an exit from the euro bloc. New Zealand’s currency, nicknamed the kiwi, fell after data today showed the nation’s current-account deficit widened in the first quarter. “The market has built in strong expectations for some sort of policy action from the FOMC,” said Andrew Salter, a strategist at Australia & New Zealand Banking Group Ltd. (ANZ) in Sydney. “If we get some sort of flag by the Federal Reserve to additional purchases, then that would be a positive for the Aussie.”
The Australian dollar was at $1.0179 as of 9:17 a.m. in Sydney from yesterday, when it climbed to $1.0201, the strongest level since May 8. It was little changed at 80.45 yen after rising 0.4 percent to 80.44 yen yesterday. The kiwi lost 0.3 percent to 79.57 U.S. cents. It fell 0.2 percent to 62.88 yen
Asian Millionaires Outnumber Those in North America, Report Says (Source: Bloomberg)
Asia-Pacific millionaires outnumbered those in North America for the first time last year as the world’s wealthy saw a decline in their fortunes, according to a report by Capgemini SA (CAP) and RBC Wealth Management. The number of individuals in Asia-Pacific with at least $1 million in investable assets jumped 1.6 percent to 3.37 million, helped by an increase in rich people in China, Japan, Thailand, Malaysia and Indonesia, according to the World Wealth Report released today. So-called high-net-worth individuals in North America dropped 1.1 percent to 3.35 million. “While throughout the world the euro-zone crisis has affected markets in general and investors’ level of uncertainty, within the Asia-Pacific region we have seen strength in their domestic economies underlying their performance from an economic standpoint,” Gay Mitchell, deputy chairman for RBC Wealth Management, said in an interview in Toronto. “As such it’s yielded an increase in population for high net-worth individuals.”
The population of millionaires worldwide was little changed at 11 million, according to the report. Their wealth dropped 1.7 percent to $42 trillion of assets last year, the first decline since 2008, as the euro region’s sovereign debt crisis and lack of economic growth in the U.S. roiled investors.
Fed Born of Morgan’s Bailout Scrutinized After Dimon’s Loss (Source: Bloomberg)
After John Pierpont Morgan stepped in to quell the panic of 1907, U.S. lawmakers created the Federal Reserve in 1913 as a lender of last resort to defend against future financial crises. Almost a century later, the disclosure of a $2 billion trading loss by the man who now heads the Morgan banking empire, Jamie Dimon, has prompted calls to end an arrangement that Vermont Senator Bernie Sanders calls “a clear example of the fox guarding the hen house.” The bill signed by President Woodrow Wilson created a decentralized institution with a Washington-based Federal Reserve Board and 12 regional banks. Each has its own president and board that includes representatives from the banking industry. Dimon, chief executive officer of JPMorgan Chase & Co. (JPM), has served since 2007 as a director of the Federal Reserve Bank of New York, the entity that oversees Wall Street banks including Dimon’s, the largest U.S. lender.
“The optics in a situation like this are not good,” said Alfred Broaddus, former president of the Richmond Fed. “Maybe it is fair now to take a look at this structure and see whether it still makes sense.”
Fiscal-Cliff Concerns Hurting Economy as Companies Hold Back (Source: Bloomberg)
Companies are starting to delay hiring and spending out of concern that Congress won’t reach a compromise in time to avoid automatic tax increases and budget cuts that would pull billions of dollars of purchasing power out of the economy. Faced with a so-called fiscal cliff of more than $600 billion in higher taxes and reductions in defense and other government programs in 2013, U.S. companies are pulling back, though the deadline for congressional action is more than six months away. The best strategy for companies to follow when confronted with such uncertainty ahead of Dec. 31 is to “stay lean and keep your inventories taut,” Sandy Cutler, chief executive officer of industrial equipment-maker Eaton Corp. (ETN) in Cleveland, told a conference May 31.
Economists are predicting this trend will pick up through the year. “A lot of people see the fiscal cliff as a 2013 story, but you don’t board up the windows when the hurricane is there, you board up the windows in anticipation,” said Michael Hanson, senior U.S. economist at Bank of America Corp. in New York.
Housing Starts in U.S. Fall 4.8% in May on Apartments (Source: Bloomberg)
Builders broke ground on more single-family houses for a third consecutive month in May and rising construction permits pointed to further gains, showing the residential real-estate market is weathering the U.S. economic slowdown. Work began on 516,000 one-family houses at an annual rate last month, up 3.2 percent from April and the most this year, the Commerce Department reported today in Washington. A slump in construction of apartments, which is often volatile, led to an unexpected drop in total housing starts. Building permits, a proxy for future construction, climbed to the highest level since September 2008, showing the combination of lower prices and record-low mortgage rates is underpinning demand and encouraging new projects. Toll Brothers (TOL) Inc. is among homebuilders benefiting from an improving housing market on rising demand for move-up homes.
“We saw a very strong number in new permits, indicating builders are seeing improving demand,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. The report “was a lot better than the headline number would suggest.” Total starts dropped 4.8 percent to a 708,000 annual pace in May from a revised 744,000 rate in the prior month that was the highest since October 2008, today’s report showed. The median forecast of 77 economists surveyed by Bloomberg News called for a 722,000 rate. Estimates ranged from 685,000 to 750,000.
Paulson Says Harm to U.S. From Europe Crisis is Minimal (Source: Bloomberg)
Former Treasury Secretary Henry Paulson said the U.S. will emerge relatively unharmed from the debt crisis in Europe as efforts by Greece, Spain and other nations to stabilize their economies persist for the long-term. “Although Europe is a drag, the U.S. will continue to muddle along with growth that really isn’t enough to make a dent in employment,” Paulson, who was Treasury secretary from July 2006 through January 2009, said at a biotechnology industry conference in Boston today. Europe will eventually stabilize and avoid a “catastrophic outcome,” he said. U.S. President Barack Obama and German Chancellor Angela Merkel are among world leaders meeting in Mexico this week to attempt to fix the European debt crisis that’s threatening to plunge the global economy back into recession. They gathered after Spain’s borrowing costs soared to a euro-era record and elections in Greece failed to damp the threat of contagion.
“It’s hard for people over here to understand how committed the Europeans are to the monetary union,” Paulson told executives during the Biotechnology Industry Organization conference. “The monetary union isn’t sustainable unless you forge something that is more like a political union. That’s much more different. You’ve got 17 different countries over there.”
Job Openings in U.S. Decrease by Most in Almost Four Years (Source: Bloomberg)
Job openings in the U.S. decreased in April by the most in almost four years, the latest sign that the labor market is cooling. The number of open positions dropped by 325,000, the biggest decline since September 2008, to 3.42 million from 3.74 million the prior month, the Labor Department said today in Washington. Hiring slowed from the prior month and firings climbed. The decrease in openings coincides with the slowdown in hiring seen in April and May, signaling employers are pulling back as the economy cools. The number of jobs available is down from an average 4.46 million in the two years before the recession began, showing the labor market continues to struggle. “The most worrisome development is this big drop in hiring,” said Harm Bandholz, chief U.S. economist at UniCredit Group in New York. “If you have the outlook that things are getting little bit better, you eventually have to hire more people. But the fact that this is not happening -- that’s worrisome.”
Stocks climbed as the Federal Reserve began a two-day meeting to decide whether more monetary stimulus is needed to boost the economy. The Standard & Poor’s 500 Index rose 1 percent to 1,358.11 at 10:54 a.m. in New York.
China Steps Said to Grow Bond Market, Add Issuer Scrutiny (Source: Bloomberg)
China is allowing more companies to trade bonds and increasing scrutiny over issuers as the government seeks to ensure that the expansion of its nascent debt market isn’t derailed by defaults. The top economic planning agency ordered local governments to examine the ability of companies to repay bonds maturing in 2012 and 2013, two people with direct knowledge of the matter said yesterday, asking not to be identified as they weren’t authorized to speak to media. China Securities Regulatory Commission began allowing mutual funds to invest in private placements by smaller companies, according to an agency document obtained by Bloomberg News.
Chinese companies sold more debt in the first five months of the year than in all of 2010 as the government encouraged companies to boost fundraising through sales of equity and bonds in a campaign to wean them off loans from state-owned banks and make their finances more transparent. The growth is spurring concern given that China has never had a domestic bond default, according to Moody’s Investors Service. “It’s kind of a dilemma because for a bond market you must face default sooner or later,” said Ivan Chung, an analyst at Moody’s in Hong Kong. Chinese officials “worry that one default may cause a confidence crisis and people will lose faith in the bond market,” he said.
Subbarao Says India’s Inflation Rate Is Above Tolerance Level (Source: Bloomberg)
Indian inflation exceeds acceptable levels and restraining it may require sacrificing economic growth, central bank Governor Duvvuri Subbarao said. “Headline inflation has come down, core inflation has come down to below 5 percent, but WPI inflation is still above our tolerance level at 7.5 percent,” Subbarao said in a speech in Mumbai yesterday, referring to India’s benchmark wholesale-price index. “Consumer-price inflation is running above 10 percent. That is quite disturbing.” The Reserve Bank of India unexpectedly left interest rates unchanged on June 18 as price pressures narrow scope to bolster the weakest growth in almost a decade. Curbing the nation’s fiscal deficit and the success of the monsoon are among the keys to controlling inflation, Subbarao said. “India is flirting with stagflation and needs a dose of supply-side reforms to improve medium-term growth potential,” said Prasanna Ananthasubramanian, Mumbai-based chief economist at ICICI Securities Primary Dealership Ltd.
“However, the political realities are such that the chances of structural reforms and fiscal consolidation are uncertain.” Price increases have been stoked in part by costlier imports following a near 20 percent slump in the rupee against the dollar in the past year. The currency tumbled as growth deteriorated and Europe’s debt crisis sapped demand for emerging-market assets.
Crisis Survivor Indonesia Sees Banking Strength: Southeast Asia (Source: Bloomberg)
Indonesia will strengthen banking supervision to ensure that lenders stay insulated from fallout from Europe’s crisis, the incoming head of the country’s new financial regulator said. Commercial banks have about 154 trillion rupiah ($16.4 billion) of exposure to Europe, through channels including trade finance and money markets, a fraction of their more than 3,000 trillion rupiah in assets, Muliaman Hadad, a central bank deputy governor, said in an interview yesterday. Lending growth in Southeast Asia’s biggest economy was an annual 28 percent pace in May, underscoring domestic strength, he said. “While we’re facing a crisis risk from Europe, the performance of our banking industry is shining,” Hadad said in his office at Bank Indonesia in Jakarta. “The industry, as the main engine for the economy, is still growing amid the turmoil in Europe.”
Hadad was a senior analyst at the central bank when the Asian financial crisis forced Indonesia, Thailand and South Korea to tap International Monetary Fund bailouts totaling about $100 billion as their currencies plummeted. As deputy governor, he has overseen lenders in an economy where foreign-exchange reserves have more than quadrupled since 2008, and growth has exceeded 6 percent since 2010 as investment surged.
Greek Leaders Poised to Agree on Three-Way Governing Coalition (Source: Bloomberg)
Haggling among Greek political leaders is set to continue for a third day as they bid to form a coalition that will seek relief from austerity measures tied to emergency loans. Socialist Pasok leader Evangelos Venizelos said a new government could be ready today. Antonis Samaras’ New Democracy party, which won June 17 elections, is hammering out a three-way government committed to staying in the euro. He would partner with Venizelos’s Socialist Pasok, which finished third, and Democratic Left. They would hold 179 seats in the 300-member parliament. Talks resume at 1 p.m. in Athens. “The most critical matter isn’t the form the government takes but the national negotiating team which will seek the best possible revision of the loan accord,” Venizelos told reporters at the party headquarters as they wrapped up a second day of talks. “We must do what we can to fight the recession and unemployment and bring growth and jobs. This is what determines the framework in which the government and the country will move.”
European officials have held out the prospect of flexibility after the election that amounted to a referendum on remaining in the 17-nation currency union. Venizelos, the former finance minister who negotiated a second 130 billion-euro ($165 billion) rescue package earlier this year, spoke as representatives of the three parties met on a joint policy program.
Austerity Doesn’t Pay as Debt Markets Ignore Rating Cuts (Source: Bloomberg)
Britain is forcing Stephen Jobling and his stroke patients to defend the nation’s AAA credit rating. Staffing at the National Health Service hospital ward where Jobling works was reduced by about half in the U.K.’s deepest drive since World War II to shrink its deficit. The goal was to avoid losing the top credit score, which might risk higher interest expenses, according to the government of Conservative Prime Minister David Cameron. “If they could see these people suffering while we have two members of nursing staff running round trying to wash, dress and feed 20 patients, they would think twice,” says Jobling, 27, a nurse at Lincoln County Hospital in eastern England. “You should be looking after your people. You shouldn’t be bothering about some credit agency from somewhere else.”
The bond market says he’s right. After Moody’s Investors Service issued a “negative” outlook for U.K. debt on Feb. 13, yields on government securities relative to benchmark U.S. Treasury debt fell over the next month, instead of rising.
U.K. Inflation Slows to Weakest Since November 2009 on Fuel (Source: Bloomberg)
U.K. inflation slowed to the weakest in 2 1/2 years in May, led by food and fuel prices, which may ease resistance among Bank of England policy makers to increase monetary stimulus. Consumer prices rose a 2.8 percent from a year earlier, compared with a 3 percent increase in April, the Office for National Statistics said today in London. That’s the weakest since November 2009. Economists had forecast a gain of 3 percent, the median of 29 estimates in a Bloomberg News survey showed. From April, prices fell 0.1 percent, the first drop in that period since records began in 1996. While inflation has held above the central bank’s 2 percent target since December 2009, price pressures are easing as oil and food costs drop and Europe’s debt turmoil continues to weigh on Britain. The Bank of England responded last week by introducing measures to stoke bank lending, and Governor Mervyn King said the case for restarting stimulus is “growing.”
“Inflation is likely to fall a lot further on energy prices, and there’s a lot of slack in the economy,” said Joost Beaumont, an economist at ABN Amro Bank NV in Amsterdam. “The central bank will increase asset purchases in July. They think the euro crisis will linger for longer and they want to be ahead of the curve.”
German June Investor Confidence Fell More Than Expected (Source: Bloomberg)
German investor confidence fell the most in 14 years in June as Europe’s sovereign debt crisis weighed on the economic outlook. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, plunged to minus 16.9 from 10.8 in May. That’s the steepest decline since October 1998. Economists forecast a drop to 2.3, according to the median of 38 estimates in a Bloomberg News survey. Germany’s economy, which grew 0.5 percent in the first quarter, is losing momentum as austerity measures across Europe curb demand for its goods and damp confidence. Exports, factory orders and industrial production all fell in April and business sentiment waned in May. The benchmark DAX share index has dropped 12 percent in the last three months. Today’s report “clearly shows a general sense of panic amongst investors,” said Annalisa Piazza, a fixed-income strategist at Newedge Strategy in London.
It points to “risks of a deeper-than-expected recession” in the euro area, she said.
Saddling Spain With Bank Burden Repeats Irish Error: Euro Credit (Source: Bloomberg)
Spain’s surging borrowing costs suggest the nation is hurtling toward a full sovereign bailout as the same aid policies that doomed Ireland to pariah status on the capital markets are repeated in southern Europe. Spain’s 10-year bond yields jumped 76 basis points since the government agreed June 9 to seek 100 billion euros ($126 billion) from the European Union to recapitalize its banks, reaching 7.09 percent today after yesterday’s euro-era record of 7.29 percent. Germany is reluctant to sanction disbursements directly to the region’s banks. Channelling payments via governments, however, increases their debt burdens, undermining their creditworthiness and stoking investor concern about ranking behind official creditors for repayment.
“Germany still refuses to recognize its mistakes,” said Ray Kinsella, a lecturer in banking and finance at University College Dublin. “It is wrong that the burden of adjustment should be borne by these peripheral countries, which are in effect acting as the insurers,” of German and French banks which benefited most from euro-region trade, he said.
