Asian Stocks Advance as Fed Extends Economic Stimulus (Source: Bloomberg)
Asian stocks rose, with the regional benchmark index heading for a second day of gains, after the Federal Reserve expanded its economic stimulus program and said it stands ready to take further action. Honda Motor Co. (7267), a carmarker that gets about 44 percent of sales from North America, rose 2.5 percent in Tokyo. Lotte Shopping Co. Lotte Shopping Co. added 1.5 percent in Seoul after the South Korean operator of department stores submitted a bid for Himart Co., an appliance retailer. Woodside Petroleum Ltd., Australia’s No. 2 oil producer, lost 1 percent as crude futures fell. The MSCI Asia Pacific Index (MXAP) added 0.1 percent to 116.83 as of 9:35 a.m. in Tokyo, with about three share rising for every two that fell. More than $5 trillion has been erased from global equities since March amid slowing economic growth in the U.S. and China, and a spreading European debt crisis that pushed Spain’s borrowing costs to a record.
“We continue to believe that the Fed will need to provide additional support given the precarious position of the global economy,” said Sean Darby, chief global equity strategist at Jefferies Group Inc. in Hong Kong.
Japanese Stocks Advance as Fed Expands Operation Twist (Source: Bloomberg)
June 21 (Bloomberg) -- Japanese stocks rose for a second day after the U.S. Federal Reserve expanded its Operation Twist program to buy longer-dated assets and said it stands ready to take further action to fight unemployment. Honda Motor Co. (7267), a carmaker that gets 44 percent of its sales in North America, rose 2.4 percent. Renesas Electronics Corp. (6723) gained 4.6 percent on a report that KKR & Co. and Silver Lake are in talks to invest in the chipmaker. Inpex Corp. (1662), Japan’s No. 1 energy explorer, slid 1.2 percent as crude fell. The Nikkei 225 Stock Average (NKY) gained 0.7 percent to 8,812.83 as of 9:21 a.m. in Tokyo. The broader Topix Index advanced 0.6 percent to 751.59, with about three stocks rising for each that fell. Foreign investors were net buyers of Japanese stocks last week for the first time in nine weeks, data released today showed.
U.S. Stocks Decline With 10-Year Treasuries After Fed (Source: Bloomberg)
U.S. stocks and 10-year Treasuries fell after the Federal Reserve cut growth estimates and expanded its economic stimulus program known as Operation Twist. Oil tumbled to an eight-month low. The Standard & Poor’s 500 Index lost 0.2 percent to 1,355.69 at 4 p.m. in New York, paring a drop of as much as 0.9 percent. The yield on 10-year Treasuries increased four basis points to 1.66 percent, while the rate on 30-year bonds was almost unchanged at 2.74 percent. Crude slid 2.7 percent to $81.80 a barrel after U.S. inventories climbed to a 22-year high. The S&P GSCI Index of commodities fell to the lowest level since 2010. Spanish and Italian bonds rallied on speculation European leaders will act to reduce yields.
Fed Chairman Ben S. Bernanke, who said progress in the job market has slowed, extended the program of replacing short-term bonds with longer-term debt by $267 billion through the end of 2012, disappointing investors anticipating a more aggressive approach. Policy makers cut their estimate for U.S. gross domestic product growth in 2012 to between 1.9 percent and 2.4 percent from 2.4 percent to 2.9 percent. “The Fed’s goal is to take volatility out of the market, keep rates low and stable and help mortgage rates stay low,” said Bret Barker, a money manager at Los Angeles-based TCW Group Inc., which manages about $128 billion in assets. “The Fed is not out of bullets. If things get worse they will act more. This keeps us afloat for now. The Fed is buying time and trying to allow the economy to continue to heal.”
European Stocks Advance Before Fed Rate Decision (Source: Bloomberg)
European stocks advanced, sending the Stoxx Europe 600 Index to its highest level in more than a month, amid speculation the Federal Reserve will expand Operation Twist to help sustain economic growth. Aer Lingus Group Plc surged 15 percent after Ryanair Holdings Plc (RYA) renewed its offer to buy the company. Hennes & Mauritz AB (HMB) rose 4.8 percent after earnings topped forecasts. Unilever NV (UNA) declined after Procter & Gamble Co., the world’s largest consumer-products maker, cut its earnings forecast. The Stoxx 600 (SXXP) rose 0.6 percent to 249.67 at the close in London, the gauge’s highest level since May 11. The benchmark measure has still fallen 8.3 percent from its peak on March 16 amid concern Europe’s sovereign-debt crisis has derailed global economic growth.
“The Federal Open Market Committee is taking center stage with expectations once again high that Fed will finally do something to stimulate increasingly sluggish growth,” said Markus Huber, head of German sales trading at ETX Capital in London. “The Fed will have to deliver something today.” The Fed will probably expand Operation Twist beyond $400 billion to spur growth and buy protection against a deeper crisis in Europe, according to a Bloomberg News survey of economists.
Emerging-Market Stocks Advance on Stimulus Speculation (Source: Bloomberg)
Emerging-market stocks rose to a five-week high after the Federal Reserve said it will extend its monetary stimulus program and German Chancellor Angela Merkel discussed bond purchases to address Europe’s debt crisis. The MSCI Emerging Markets Index (MXEF) gained for a fourth day, adding 0.5 percent to 948.27 by the close in New York, the highest since May 14. Information technology companies rose as SK Hynix Inc., the world’s No. 2 computer-memory chipmaker, surged in Korea and shares of E Ink Holdings Inc. (8069) swelled in Taiwan. LLX Logistica SA (LLXL3) gained 6.1 percent in Brazil.
The Fed today said it plans to extend its Operation Twist program to replace short-term bonds with longer-term debt by $267 billion through the end of 2012 to reduce unemployment and protect the expansion. The statement was followed by Merkel’s announcement that bond purchases by the European bailout fund may be a possibility. German policy makers had been opposed to such use of the fund even as Spanish 10-year bond yields reached a record high earlier this week. “The Fed statement probably met the minimum expectation because a lot of investors were holding out for the possibility of additional stimulus,” Nick Chamie, head of global foreign- exchange strategy at Royal Bank of Canada in Toronto, said by phone today. “Merkel’s comments were a bid for optimism because it showed she is open to increasing resources to slow a vicious cycle of increasing risks.”
FOREX-Euro supported by Fed easing bets, seen vulnerable
LONDON, June 20 (Reuters) - The euro steadied versus the dollar , holding gains made on speculation the U.S. Federal Reserve will adopt further monetary stimulus, although the risk of those expectations being disappointed left the common currency vulnerable.
"The weakness in the dollar is understandable but once that speculation is out of the way, and we know what the Fed are going to do, concerns about the euro zone will come back to the fore," said Simon Derrick, head of currency research at Bank of New York Mellon.
Aussie, Kiwi Approach 7-Week Highs on Stimulus Prospects (Source: Bloomberg)
The Australian and New Zealand dollars traded near the strongest levels in almost seven weeks amid speculation central banks globally will add to stimulus measures. The Australian currency rallied yesterday after Federal Reserve Chairman Ben S. Bernanke said policy makers were prepared to take further action even after they expanded the central bank’s so-called Operation Twist program. The New Zealand dollar advanced after data showed economic growth accelerated. Demand for the currencies was limited before European finance ministers meet today amid concern the euro-area crisis will weigh on global growth. “The U.S. dollar’s going to stay a little bit weak in the near term, particularly against the Aussie and kiwi,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia (CBA), the country’s biggest lender. The Fed’s move is likely to boost the South Pacific currencies, although they’re unlikely to experience “a big lift” due to the turmoil in Europe, he said.
The Australian dollar traded at $1.0188 as of 10:25 a.m. in Sydney from $1.0194 in New York yesterday, when it climbed as high as $1.0224, its strongest level since May 4. The New Zealand currency, known as the kiwi, added 0.4 percent to 79.95 U.S. cents. It earlier touched 80.17 cents, also the highest since May 4.
Euro Falls Before Spanish Sale Amid Debt Crisis Concern (Source: Bloomberg)
The euro fell, snapping a two-day gain against the dollar and yen, as Spain prepared to auction bonds today amid concern that the European debt crisis is deepening in the bloc’s fourth largest economy. Euro-area finance ministers are set to meet in Luxembourg today to discuss the currency union’s financial woes. Demand for the dollar was limited on prospects the Federal Reserve will implement further stimulus if the economy warrants it, depreciating the greenback. The central bank said yesterday it will extend its so-called Operation Twist program, while cutting estimates for growth in the largest economy. New Zealand’s dollar rose after data showed economic growth accelerated. “As long as Spain’s debt problem stays with us, my bearish view on the euro won’t change,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company. “Whether Spain can resolve its debt problem has yet to become clear, so anxieties continue to prevail.”
The 17-nation euro slid 0.2 percent to $1.2682 at 9:02 a.m. in Tokyo from yesterday, when it capped a two-day advance of 1 percent. It fell 0.3 percent to 100.74 yen, after gaining 1.6 percent over the previous two days. The U.S. currency traded at 79.44 yen, 0.1 percent lower than the close in New York. New Zealand’s dollar, known as the kiwi, added 0.5 percent to 80.01 U.S. cents, after earlier touching 80.17, the highest level since May 4.
Fed Expands Operation Twist by $267 Billion Through 2012 (Source: Bloomberg)
The Federal Reserve will expand its Operation Twist program to extend the maturities of assets on its balance sheet and said it stands ready to take further action to put unemployed Americans back to work. The central bank will prolong the program through the end of the year, selling $267 billion of shorter-term securities and buying the same amount of longer-term debt in a bid to reduce borrowing costs and spur the economy. “If we don’t see continued improvement in the labor market, we’ll be prepared to take additional steps if appropriate,” Fed Chairman Ben S. Bernanke said at a news conference in Washington following a two-day meeting of the Federal Open Market Committee. “Additional asset purchases would be among the things that we would certainly consider.”
Policy makers moved to shore up the world’s largest economy as faltering growth leaves it vulnerable to fallout from the European debt crisis and looming fiscal tightening in the U.S. Fed officials today lowered their outlook for growth and employment, foreseeing a jobless rate of at least 7.5 percent at the end of 2013.
Fed Officials Sees Lower U.S. Growth, Slow Progress on Jobs (Source: Bloomberg)
Federal Reserve officials cut their estimates for 2012 growth after last month’s slowdown in hiring and see little progress on unemployment during the rest of the year. Fed officials lowered their central tendency estimate for U.S. 2012 gross domestic product growth to 1.9 percent to 2.4 percent from 2.4 percent to 2.9 percent in April. Estimates for 2013 centered around 2.2 percent to 2.8 percent, compared with 2.7 percent to 3.1 percent in the previous forecast. Consumers and businesses are restraining spending as European financial stress has knocked down U.S. stock prices. Yields on corporate borrowing rates have increased as investors flee from risk. “Financial conditions are becoming somewhat more adverse for the economy,” said Kathleen Stephansen, senior investment strategist and global head of sovereign research at AIG Asset Management in New York. “The markets are still fragile.”
Seven Federal Open Market Committee participants said the first interest rate increase would occur in 2014, while six said it would occur in 2015. U.S. central bankers cut the benchmark lending rate to a range of zero to 0.25 percent in December 2008.
Job Growth May Fizzle in U.S. as Productivity Gains: Economy (Source: Bloomberg)
The U.S. economy may be on the cusp of a pickup in productivity that will make it more difficult for Federal Reserve policy makers to reduce unemployment. After cooling throughout last year, worker output per hour will probably rise at around 1.5 percent, in line with its long- run trend, according to economists like Ellen Zentner and Robert Gordon. That means the lower-than-forecast payroll gains in May and April may be closer to the norm than the exception for the rest of the year as companies redouble efforts to improve efficiency. Payrolls will grow between 80,000 and 120,000 per month, less than this year’s 165,000 average, even as the economy expands by about the same 2 percent, estimates Zentner, a senior economist at Nomura Securities International Inc. Fed Chairman Ben S. Bernanke earlier this year aired his concern that hiring will subside without faster economic growth.
“As the rate of productivity normalizes, businesses won’t need to hire as many workers,” said New York-based Zentner. “The level of job growth we’ve been getting over the past few months is probably pretty normal.”
Bernanke Says Volcker Rule Would Have Influenced JPMorgan Loss (Source: Bloomberg)
Federal Reserve Chairman Ben S. Bernanke said the Volcker Rule may have been able to influence the outcome of JPMorgan Chase & Co.’s $2 billion trading loss. Bernanke said documentation of a trade’s rationale, an auditing process, governance rules and compensation limits that are part of the proposed Volcker Rule may have played a role in changing the result at the largest U.S. bank. The legislation aims to limit proprietary trading while allowing exemptions for market-making and hedging. One relevant feature of the rule “would have been the control of governance aspects,” Bernanke said today at a news conference. “That might have potentially changed the outcome.” Five banking regulators, including the Fed and the Treasury Department’s Office of the Comptroller of the Currency, are finalizing the Volcker Rule. Regulators have struggled with whether JPMorgan’s trade would have been allowed under the proposal’s exemption for portfolio trading.
Fed Seen Extending Operation Twist and Avoiding Bond Buys (Source: Bloomberg)
The Federal Reserve will probably decide today to expand Operation Twist beyond $400 billion to spur growth and buy protection against a deeper crisis in Europe, according to a Bloomberg News survey of economists. Fifty-eight percent of respondents in a June 18 poll said the Fed will prolong the program, which seeks to lower borrowing costs by extending the average maturity of the securities in the central bank’s portfolio. The current program ends this month. Policy makers led by Chairman Ben S. Bernanke may conclude that growth is too feeble to reduce unemployment much further after payroll growth came close to stalling in May. At the same time, with inflation close to their 2 percent goal and the Greek election reducing the risk of a euro breakup, they may decide an additional round of quantitative easing isn’t needed for now, economists said.
“Extending Operation Twist is the path of least resistance,” said Josh Feinman, the New York-based global chief economist for DB Advisors, the Deutsche Bank AG asset management unit that oversees $232.1 billion. “It would be an extension of something we have in place, so it would be more seamless, and it doesn’t complicate exit strategies as much because it’s not expanding the balance sheet,” said Feinman, a former senior economist for the Fed Board in Washington.
China Lowers Entry Barrier for Overseas Institutional Investors (Source: Bloomberg)
China plans to lower the entry barrier for foreign institutional investors looking to buy publicly traded securities in mainland exchanges, as part of reforms to add depth to the country’s capital markets. The government will cut the minimum requirement on assets under management to $500 million from $5 billion for companies seeking a license under the Qualified Foreign Institutional Investor program, the China Securities Regulatory Commission said in a statement on its website yesterday. The regulator also said it will allow them to invest in the country’s interbank bond market. Introducing more long-term funds from abroad will help improve market confidence, promote stable growth in China’s capital markets and provide “robust” investment returns to domestic investors, the CSRC said on May 18. QFII, introduced in 2002, allows approved foreign investors to buy and sell yuan- denominated securities.
Foreign investors will be required to have at least two years of operational experience under the new rules, compared with the current minimum requirement of five years, according to yesterday’s statement. Qualified investors will also be allowed to hold a combined maximum 30 percent stake in any single yuan- denominated stock, compared with 20 percent previously, the CSRC said.
Merkel Balks at Sovereign Debt Purchases to Overcome Crisis (Source: Bloomberg)
German Chancellor Angela Merkel balked at committing to direct sovereign debt purchases through the euro-area bailout fund, pushing back on calls by the bloc’s leaders who backed the measure as a way to ease the crisis. Such a move, while legally possible, “is not up for debate” at present, Merkel said yesterday in Berlin. French President Francois Hollande championed the idea of using the European Stability Mechanism to purchase indebted countries’ bonds as a way to counter rising yields. Just returned from the Group of 20 summit in Los Cabos, Mexico, Merkel said: “I haven’t heard about such things.” “There is no concrete planning that I know about, but there is the possibility of purchasing sovereign bonds on the secondary market,” Merkel told reporters in Berlin after meeting with Dutch Prime Minister Mark Rutte. “But this is a purely theoretical statement about the legal situation.”
Merkel’s non-committal stance on the measure opens a fresh conflict as euro finance ministers meet today and Italian Prime Minister Mario Monti hosts a four-way summit in Rome tomorrow. Hollande prodded Germany to use the European Union’s permanent rescue fund to buy debt from countries such as Italy, which have taken steps to revamp their economies.
Samaras to Name New Greek Government as Euro Area Ministers Meet (Source: Bloomberg)
Greek Prime Minister Antonis Samaras is set to announce the members of his government today after securing agreement from the country’s political leaders on a coalition that will seek relief from austerity measures tied to international loans. Samaras was sworn in as prime minister yesterday, the country’s fourth premier since November, after his New Democracy party won a June 17 election with almost 30 percent of the vote. He’s joining forces with the socialist Pasok party, which finished third, and the sixth-place Democratic Left, to hold 179 seats in the 300-member parliament, ending a period of political limbo that began with an inconclusive May 6 election. “We have the required outcome, which is a necessary condition for the creation of a new, long-term, government that will give stability and hope to people,” Samaras said yesterday in Athens.
European officials have held out the prospect of flexibility over fiscal austerity for Greece after the country’s election amounted to a referendum on remaining in the 17-nation euro currency union. Greece has slipped behind budget-cutting targets that euro-area nations and the International Monetary Fund imposed in exchange for 240 billion euros ($305 billion) in aid pledges in the past two years.
Greece’s Samaras Becomes Premier of Three-Party Coalition (Source: Bloomberg)
Antonis Samaras, head of Greece’s New Democracy party, was sworn in as prime minister after Greek political leaders agreed on a coalition that will seek relief from austerity measures tied to international loans. New Democracy, which won a June 17 election with almost 30 percent of the vote, will join forces with the socialist Pasok party, which finished third, and the sixth-place Democratic Left. They will hold 179 seats in the 300-member parliament, ending a period of political limbo that began with an inconclusive May 6 election. “We have the required outcome, which is a necessary condition for the creation of a new, long-term, government that will give stability and hope to people,” Samaras said today in Athens before he was sworn in by President Karolos Papoulias.
European officials have held out the prospect of flexibility over fiscal austerity for Greece after the country’s election amounted to a referendum on remaining in the 17-nation euro currency union. Greece has slipped behind budget-cutting targets imposed by the euro area and the International Monetary Fund in exchange for 240 billion euros ($305 billion) in aid pledges over the past two years.
King Defeated in BOE Stimulus Push as QE Momentum Grows (Source: Bloomberg)
Bank of England Governor Mervyn King was overruled for the first time since 2009 as he joined a push to expand stimulus that’s gaining momentum amid rising jobless claims and growing risks from Europe’s debt crisis. The Monetary Policy Committee voted 5-4 to keep its bond- purchase target at 325 billion pounds ($511 billion) this month. That defeated votes by King, Adam Posen and David Miles for a 50 billion-pound expansion, and Paul Fisher’s bid for 25 billion pounds. A separate report showed jobless-benefit claims climbed climbed 8,100 in May from the previous month to 1.6 million, the Office for National Statistics said. This month was the first time King voted in the minority since August 2009, showing the central bank is moving closer to adding stimulus after it halted expansion of its quantitative- easing program in May.
The Federal Reserve will probably decide today to expand Operation Twist beyond $400 billion to spur growth, economists say, as Group of 20 leaders meeting in Mexico press Europe to step up measures to contain the region’s crisis. “The risks to U.K. and global activity from financial distress and political tension within the euro area had intensified again,” Bank of England policy makers said in the minutes of their June 6-7 meeting. Most members “judged that some further economic stimulus was either warranted immediately or would probably become warranted to meet” the 2 percent inflation target.
U.K. Jobless Claims Unexpectedly Rise as Euro Crisis Bites (Source: Bloomberg)
U.K. unemployment claims unexpectedly rose in May, suggesting the labor market may be starting to succumb to Europe’s intensifying debt crisis. Jobless-benefit claims climbed 8,100 from April to 1.6 million, the Office for National Statistics said today in London. The median forecast of 20 economists in a Bloomberg News survey was for a drop of 4,000. The unemployment rate as measured by International Labour Organization methods was unchanged at 8.2 percent in the three months though April. “The claimant-count numbers tend to lead what happens in unemployment, so these numbers are a bit worrying,” said George Buckley, an economist at Deutsche Bank AG in London. “I wouldn’t be surprised if this is a response to the euro crisis. Employment may weaken -- that means potentially worse numbers on the public finances.”
The figures suggest the labor-market recovery is running out of steam, increasing pressure on Prime Minister David Cameron. His budget cuts have been blamed by the opposition Labour Party for pushing the U.K. into its first double-dip recession since the 1970s at a time when the euro-region crisis is casting a shadow on prospects for the economy.
Europe Debt Crisis Restrains Rebound in Japan’s Exports: Economy (Source: Bloomberg)
Japan reported its first trade deficit with the European Union since the Finance Ministry began tracking data in 1979 as the debt crisis roiling Spain and Greece limits a rebound in Japanese exports. An overall shortfall of 907.3 billion yen ($11.5 billion) for May, reported today in Tokyo, was bigger than all 24 estimates in a Bloomberg News survey of economists. Exports rose 10 percent from a year earlier, the most in 17 months, while imports exceeded estimates. The trade gap with the EU was 11.1 billion yen. Shipments to the EU fell 0.9 percent even as they surged 38 percent to the U.S., underscoring the threat to Japan’s recovery as Group of 20 leaders meeting in Mexico press Europe to step up damage control. Governor Masaaki Shirakawa said today that Europe poses the biggest risk as his nation’s economy returns to the path of “moderate recovery.”
“The Bank of Japan must be closely monitoring markets as high uncertainties remain in Europe,” said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co. in Tokyo. They’ve indicated they will act “in a timely manner if markets are roiled and the yen gets much stronger.”
Greece Faces Downgrade to Emerging-Market Status by MSCI (Source: Bloomberg)
Greece’s stock market was put under review for reclassification to emerging markets by MSCI Inc. (MSCI), a change that would make the European Union nation the first advanced country to be cut to developing status. The MSCI Greece (MXGR) Index, which includes only two companies, is “structurally no longer in line with Developed Markets size requirements,” MSCI, whose stock indexes are tracked by investors with about $7 trillion in assets, said in a statement yesterday. The index provider said it may discontinue the calculation of the MSCI Greece Index should the stock valuations keep declining.
Greece completed the largest bond restructuring in history in March after holders forgave more than 100 billion euros ($126.9 billion) of debt. The MSCI Greece Index has lost 93 percent over the past five years as the economy contracted and politicians struggled to keep it within the 17-nation euro- region. Companies on the gauge trade at an average 8 times estimated earnings, a 34 percent discount to companies on the MSCI World Index. (MXWO) “The market has already made up its mind about Greek equities,” Michael Shaoul, the New York-based chairman of Marketfield Asset Management, wrote in an e-mail yesterday. “MSCI is simply bowing to the inevitable. In a sense they really need a new category, blown-up developed markets.”
New Zealand GDP Growth Accelerates 1.1%, Most in 5 Years (Source: Bloomberg)
New Zealand’s economy grew at the fastest pace in five years last quarter, sending the local currency near a seven-week high as investors reduced bets the central bank will cut interest rates. Gross domestic product rose 1.1 percent in the three months ended March 31 from the previous quarter, when it expanded a revised 0.4 percent, Statistics New Zealand said in a report released today in Wellington. Growth was the quickest since the first quarter of 2007 and almost three times the 0.4 percent projection by the central bank and the median estimate in a Bloomberg News survey of 14 economists. The acceleration of New Zealand’s export-driven economy may be short lived, economists said, as commodity prices fall and Europe’s fiscal crisis restrains consumer confidence. Reserve Bank Governor Alan Bollard last week signaled the official cash rate may remain at a record-low 2.5 percent through the first quarter next year.
“Clearly this sort of number puts any immediate thoughts of easing very much on the back burner, but I wouldn’t rule it out if the world implodes,” said Darren Gibbs, chief New Zealand economist at Deutsche Bank AG in Auckland. “The question for the RBNZ is we have declining terms of trade, a tightening fiscal stance and some difficulties offshore. Is the economy going to be able to accelerate from here?”
