Asia Stocks Fluctuate as Europe Concern Offsets U.S. Data (Source: Bloomberg)
Asian stocks swung between gains and losses as speculation the U.S. housing market is bottoming and China may step up efforts to support its economy tempered concern that Europe’s debt crisis is deepening as leaders of the stricken region prepare for another summit this week. Boral Ltd. (BLD), the Australian seller of building materials, slumped 4.4 percent after cutting its profit forecast. Japan Tobacco Inc. (2914), Asia’s largest cigarette maker by market value, climbed 2.2 percent as investors soughts shares of companies with earnings less tied to economic growth. Oracle Corp. Japan advanced 3.1 percent as its profit forecast topped estimates. The MSCI Asia Pacific Index (MXAP) was little changed at 113.21 at 9:56 a.m. in Tokyo, before markets in China and Hong Kong opened. The gauge fell 0.5 percent this year through yesterday amid concern that growth in the U.S. and China is slowing as Europe’s debt crisis spreads from the periphery to core countries like Spain and Italy.
“Markets have already priced in a lot of the bad news,” said Nader Naeimi, Sydney-based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages almost $100 billion. “All you need for a rally in equities is for the backdrop to become less bad. When the housing sector improves it has a strong trickle-down effect to the wider U.S. economy. But there’s still a struggle with what’s going on in Europe.”
No Second-Half Rally for China’s Stocks, Top Fund Manager Says (Source: Bloomberg)
China’s economy will probably stay in the “doldrums” in coming months, preventing a second-half rally for the nation’s equities, according to the country’s best-performing fund manager. The government will do just enough to prevent the world’s second-biggest economy from slowing further instead of taking more aggressive measures to boost growth, Yu Guang of Invesco Great Wall Fund Management Co. in Shenzhen, said in an e-mailed interview on June 21. Property, auto and household-appliance stocks may outperform even as the overall market stalls, said Yu, whose Core Competitiveness Fund has returned 25 percent this year, ranking it first among 714 China-based mutual funds, according to data compiled by Bloomberg as of June 25.
China’s economy grew 8.1 percent in the first quarter, the slowest pace in almost three years, as slowing global growth dragged on the nation’s exports. The Shanghai Composite Index (SHCOMP) has fallen 6.3 percent in June, poised to be Asia’s worst- performing benchmark index for the month, as a manufacturing slump and concern Europe’s debt crisis is curbing exports overshadowed the first cut in interest rates since 2008. The tumble in stocks pared the Shanghai gauge’s gain in 2012 to 1 percent. “Stocks will be range-bound in the second half of the year,” Yu said, declining to give equity-index forecasts or name any stock picks. “China’s economy will remain in the doldrums for a while, in line with the trend of the global economy. It’s difficult to see either a big decline or a big rally.”
Japan Stocks Drop as Rising Europe Yields Offset U.S. Home Data (Source: Bloomberg)
Japanese stocks declined for a fourth day after Italian and Spanish bond yields jumped at debt sales, overshadowing the slowest decline in U.S. home prices in more than a year. Canon Inc. (7751), which depends on Europe for almost a third of its sales, sank 2.6 percent. Keihin Corp. lost 2.3 percent after Deutsche Bank AG cut the partsmaker’s equity rating to “hold.” Osaka Gas Co. climbed for a second day after saying it aims for 10 times growth at its Chinese subsidiary by 2016. The Nikkei 225 Stock Average (NKY) fell 0.1 percent to 8,653.87 as of 9:33 a.m. in Tokyo, with volume 32 percent below the 30- day average for the time of day, according to data compiled by Bloomberg. Borrowing costs for Italy and Spain increased at debt auctions yesterday ahead of a summit of European leaders -- the 19th since the crisis began -- this week.
“Investors are finding it difficult to take positions,” said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd., which oversees about $75 billion. “The U.S. is overcoming its structural problems of deteriorating home markets, but at the same time we don’t see signs of improvement in Europe’s debt crisis.”
U.S. Stocks Advance as Home Data Tempers Economic Concern (Source: Bloomberg)
U.S. stocks advanced, rebounding from yesterday’s selloff, as optimism about the housing market tempered concern about a worsening of Europe’s debt crisis. News Corp. rose 8.3 percent as Rupert Murdoch’s company said it’s considering splitting into two publicly held corporations. Apollo Group Inc. (APOL), the largest U.S. for-profit college chain, surged 10 percent after beating earnings and revenue estimates and raising its forecast. A measure of homebuilders in Standard & Poor’s indexes jumped 3.8 percent as housing prices dropped at the slowest pace in more than a year. The S&P 500 (SPX) rose 0.5 percent to 1,319.99 at 4 p.m. New York time. It tumbled 1.6 percent yesterday. The Dow Jones Industrial Average increased 32.01 points, or 0.3 percent, to 12,534.67. Volume for exchange-listed stocks in the U.S. was about 6 billion shares, or 12 percent below the three-month average.
“There are lots of variables at play,” said Keith Wirtz, who oversees $15 billion as chief investment officer for Fifth Third Asset Management in Cincinnati. He spoke in a phone interview. “People are looking at signs of stabilization in the housing market, there’s the European summit this week, it’s almost quarter end. It’s going to be a volatile week.”
Most European Stocks Drop on Spain Debt, U.S. Confidence (Source: Bloomberg)
Most European stocks declined as demand fell at a Spanish debt auction, U.S. consumer confidence sank to a five-month low and Germany criticized European Union proposals to address the financial crisis for putting too much emphasis on debt sharing. Infineon Technologies AG (IFX) tumbled the most in three years after cutting its sales forecast. Bayerische Motoren Werke AG (BMW) slid 2.3 percent as Citigroup Inc. downgraded the world’s biggest maker of luxury vehicles. Stagecoach Group Plc (SGC) gained 5.5 percent after earnings beat analysts’ estimates. The Stoxx Europe 600 Index (SXXP) fell 0.1 percent to 242.6 at the close of trading, as two shares declined for each that increased. The measure fluctuated between gains and losses at least 20 times today. The gauge has fallen 2.8 percent over the past four days as EU leaders prepared to begin a two-day summit in Brussels on June 28, the 19th meeting since the euro-region debt crisis broke out in early 2010.
“Stocks have ended in a soft manner today with clients holding back from taking on risk ahead of the EU summit later this week,” Ishaq Siddiqi, a market strategist at ETX Capital in London, wrote in note. “Worries that leaders are set to disappoint continue to grow, as Germany refrains from its stance on euro bonds.”
Emerging Stocks Rise From Three-Week Low on American Home Prices (Source: Bloomberg)
Emerging-market stocks rose from a three-week low after residential real estate prices in the U.S. fell less than expected, overshadowing concern about Europe’s debt crisis and a EU summit starting June 28. The MSCI Emerging Markets Index (MXEF) added 0.3 percent to 906.85 by the close in New York, snapping a three-day drop and rising from the lowest level since June 6 yesterday. Telecommunication companies led the advance as OAO Rostelecom (RTKM), Russia’s dominant fixed-line phone company, surged 1.9 percent to lift Russia’s Micex Index from a three-week low. Oi SA (OIBR4) rose in Sao Paulo while Cia Hering tumbled. The S&P/Case-Shiller index of property values in 20 U.S. cities dropped 1.9 percent in April from the same month in 2011, the smallest decline since November 2010. The median forecast was for a 2.5 percent drop. European Union leaders will hold a two-day summit to find a solution to the debt crisis. Brent oil in London advanced for a third day.
“The Case-Shiller numbers are supporting the positive market trend for today and fit in with the general picture that the U.S. is doing better,” Daniel Lenz, the emerging markets chief strategist at DZ Bank AG in Frankfurt, said by phone today. “Markets like when things are a little better than expected. There is also some hope ahead of the summit, though we don’t expect a huge breakthrough.”
Treasuries Snap Loss on Speculation Manufacturing to Slow (Source: Bloomberg)
Treasuries snapped a loss from yesterday before a U.S. report that economists said will show orders for durable goods failed to make up for the worst four months since the recession. U.S. government securities returned 3.2 percent this quarter through yesterday, according to Bank of America Merrill Lynch indexes, driven by demand for the relative safety of Treasuries as economic growth ebbed and European governments struggled to pay their debts. The MSCI All-Country World Index of stocks handed investors an 8.9 percent loss. The U.S. is scheduled to sell $35 billion of five-year notes today. “I’m bullish,” said Tsutomu Komiya, who helps oversee the equivalent of $111.2 billion as an investor in Tokyo at Daiwa Asset Management Co., a unit of Japan’s second-biggest brokerage. “The economy is improving, but the growth rate is worse than expected. Demand is strong because Treasuries are the safe haven.”
Ten-year notes yielded 1.61 percent as of 9:40 a.m. in Tokyo, according to Bloomberg Bond Trader data. The record low yield was 1.44 percent set June 1. The price of the 1.75 percent note due in May 2022 was 101 7/32.
FOREX-Euro held down by receding EU expectations
LONDON, June 26 (Reuters) - The euro was pinned down near a two-week low against the dollar, as rising peripheral euro zone debt yields added to concerns that an upcoming European summit was unlikely to produce anything substantial to solve the region's crisis.
"There are vague proposals on the table for discussion towards a closer fiscal union but frankly it is tough to see anything concrete coming out of the summit," said Chris Walker, currency strategist at UBS.
"Given the markets are already bearish on the euro, there is a risk of a short squeeze, but that would be good opportunity to sell the euro."
Euro Remains Lower Against Yen Before Merkel, Hollande Meeting (Source: Bloomberg)
The euro was 0.4 percent from a one- week low against the yen before German Chancellor Angela Merkel and French President Francois Hollande meet today before a European Union summit. The 17-nation currency remained lower versus the dollar following a two-day decline amid concern the summit starting tomorrow will fail to push Europe toward a resolution of its debt crisis. The dollar maintained a loss against the yen from yesterday ahead of U.S. data this week that economists said will show consumer spending stalled. “We can’t really think of a plausible scenario where the euro makes sustained gains,” said Sean Callow, a senior currency strategist in Sydney at Westpac Banking Corp. (WBC), Australia’s second-biggest lender. “We don’t expect anything” from the EU summit.
The euro fell 0.2 percent to 99.16 yen as of 9:38 a.m. in Tokyo from the close in New York yesterday when it slid as much as 0.9 percent to 98.75, the lowest since June 18. It traded at $1.2487 after losing 0.6 percent over the prior two days to $1.2491. The dollar slid 0.1 percent to 79.41 yen following a 0.2 percent decline yesterday.
Yen Gains, South Korean Stocks Drop Before Europe Crisis Summit (Source: Bloomberg)
The yen strengthened for a third day and South Korean stocks fell before a European summit on the region’s debt crisis. Corn dropped for the first time in four days. Japan’s currency rose 0.2 percent versus the dollar and gained against 16 major peers as of 9:57 a.m. in Tokyo. South Korea’s Kospi Index (KOSPI) dropped 0.8 percent. Futures on the Standard and Poor’s 500 Index slipped 0.1 percent, with the benchmark U.S. equities gauge headed for a 6.3 percent decline this quarter. Corn slid 0.8 percent after surging the previous three days amid dry weather that has devastated crops.
Spanish and Italian bond yields jumped yesterday as German Chancellor Angela Merkel repeated her opposition to a shared debt burden in Europe before a meeting of the region’s leaders starting tomorrow. Data yesterday showed U.S. housing prices fell at the slowest pace since 2010, while a measure of consumer confidence slipped to a five-month low. In Japan, Prime Minister Yoshihiko Noda moved closer to passing a sales tax increase at the cost of dividing his party. “Investors are in sort of a stalemate,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which manages almost $100 billion. “We’ve seen numerous summits come and go. They usually deliver something but it’s often no more than the bare minimum.”
Consumer Confidence in U.S. Declines to a Five-Month Low (Source: Bloomberg)
Confidence among U.S. consumers dropped in June for a fourth consecutive month as mounting concern over jobs and incomes dimmed the outlook for spending. The Conference Board’s sentiment index fell to 62, a five- month low, from a revised 64.4 in May, figures from the New York-based private research group showed today. Another report showed home prices were stabilizing. The slide in confidence raises the risk that the slowdown in hiring revealed by last month’s jobs report will cause households to retrench, restraining the spending that accounts for about 70 percent of the economy. The weak labor market is overshadowing the benefit of the lowest gasoline prices in five months, one reason why companies like Ford Motor Co. (F) are keeping an eye on attitudes.
“The employment situation continues to weigh on consumer minds,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who correctly forecast the confidence index. “Usually consumers react to falling gasoline prices by increasing their spending, but this time around it looks like they’re a little bit cautious.”
Congress Said to Consider Delaying Automatic Budget Cuts (Source: Bloomberg)
Republican and Democratic congressional leaders are weighing whether to delay automatic federal spending cuts until March 2013, according to a House aide and industry officials who were briefed on the discussions. The $1.2 trillion in automatic spending cuts over a decade, half of which would affect the Defense Department, are scheduled to begin in January 2013. At the same time, lawmakers must decide what to do about income tax cuts and other tax breaks scheduled to expire at the end of the year. Leaders in both chambers are discussing whether to propose a catch-all bill that would delay the automatic cuts, fund the government through March or later and temporarily extend the George W. Bush-era tax cuts and other tax laws, said the House aide and industry officials, who asked to speak on condition of anonymity.
“It is being seriously considered as one of the options and there is no doubt about that,” Steve Bell, the senior director of the Economic Policy Project at the Bipartisan Policy Center, said in an interview. The measure would follow a short-term stopgap spending bill to keep the government operating after the start of the new fiscal year on Oct. 1, the people said.
Home Prices in U.S. Cities Fall at Slowest Pace Since ’10 (Source: Bloomberg)
Residential real estate prices fell in April at the slowest pace in more than a year, adding to signs the U.S. housing market was firming. The S&P/Case-Shiller index of property values in 20 cities dropped 1.9 percent in April from the same month in 2011, the smallest decline since November 2010, after decreasing 2.6 percent in the year ended March, the group said today in New York. The median forecast of 28 economists in a Bloomberg News survey projected a 2.5 percent drop. A turnaround in prices is a necessary step toward luring more buyers and sustaining demand for housing, which is starting to stabilize after precipitating the last recession almost five years ago. Record-low borrowing costs, due in part to Federal Reserve efforts to hold down long-term rates, may keep promoting home sales in the presence of an 8.2 percent unemployment rate.
“Housing has picked up since the middle of last year,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York, who correctly forecast the monthly gain in prices. “Sales have improved and the inventory of homes for sale has been falling, which has brought a bit more balance into the market and fed into a bit of stabilization of prices.”
Noda Victory on Japan Sales Tax Legislation Risks Party Majority (Source: Bloomberg)
Japanese Prime Minister Yoshihiko Noda’s biggest step yet toward winning a sales tax increase aimed at reining in the nation’s public debt came at the cost of alienating one-fifth of his party’s lower house lawmakers. While the chamber yesterday approved legislation to double the 5 percent levy by October 2015, 57 lawmakers in the ruling Democratic Party of Japan voted no, and former DPJ leader Ichiro Ozawa signaled he may leave. If he takes more than 50 followers with him, it could endanger the party’s majority. Noda, who called the rebellion “unfortunate,” now must hold together a deal with the opposition Liberal Democratic Party to win passage for the bill in the upper house. With the Diet session extended until Sept. 8, weeks of political wrangling may be in store for a country that has seen six prime ministers since 2006.
“Noda got the bill passed, which is what he wanted, but it came at a very high price,” said Koichi Nakano, a political science professor at Sophia University in Tokyo. “Now he has to decide whether to play hardball and expel the rebels, which could imperil the bill, or try to be more conciliatory and buy some time.”
Singh Takes on India Finance Role After Mukherjee’s Resignation (Source: Bloomberg)
Pranab Mukherjee resigned as India’s finance minister to vie for the presidency, prompting Prime Minister Manmohan Singh to take charge of the portfolio as he tries to revive a faltering economy. Singh will head the ministry until Mukherjee’s successor is appointed, Pankaj Pachauri, communications adviser to the prime minister’s office, said in New Delhi yesterday. Singh was finance minister in the 1990s, sparking an economic turnaround that now faces one of its sternest tests. Mukherjee, the ruling Congress party’s nominee for the presidential poll in July, quit earlier yesterday. Mukherjee departs with the government projecting record borrowing to plug its budget deficit and as political gridlock hampers efforts to spur investment and ease bottlenecks stoking elevated inflation. The veteran politician’s attempt on June 25 to halt a slump in the rupee by allowing foreigners to buy more bonds fizzled, leaving the currency close to its weakest level against the dollar as his three-year tenure ends.
Singh’s decision to refrain from appointing a successor immediately implies he “wants to keep the portfolio with himself for some time to push stalled reforms and lift the slowing economy in order to boost confidence” said Satish Misra, an analyst at the New Delhi-based Observer Research Foundation.
Singapore Homes Most Affordable as Rents Climb: Mortgages (Source: Bloomberg)
Shivram Anantharaman paid a monthly rent of S$2,650 ($2,069) until March. Now, he’s paying S$40 less every month after buying a three-bedroom condominium in Singapore’s East Coast region. “The clincher in Singapore is that monthly installments toward repayment of your loan are lower than what you would pay in rent,” said Anantharaman, a private banker at ICICI Bank Ltd., who took out a S$1.04 million mortgage for his S$1.3 million property late last year. “It’s one of the few countries in the world where that is possible,” because of the low interest rates, he said. Homebuyers like Anantharaman are taking advantage of mortgage rates at an all-time low in the Southeast Asian island- state, even as prices are almost at a record high and the government introduced measures to cool the property market. Home affordability in Singapore has risen to the highest in a decade because of historically low interest rates and flexible payment options available to buyers, according to Jefferies Group Inc.
Draghi May Enter Twilight Zone Where Bernanke Fears to Tread (Source: Bloomberg)
European Central Bank President Mario Draghi is contemplating taking interest rates into a twilight zone shunned by the Federal Reserve. While cutting ECB rates may boost confidence, stimulate lending and foster growth, it could also involve reducing the bank’s deposit rate to zero or even lower. Once an obstacle for policy makers because it risks hurting the money markets they’re trying to revive, cutting the deposit rate from 0.25 percent is no longer a taboo, two euro-area central bank officials said on June 15. “The European recession is worsening, the ECB has to do more,” said Julian Callow, chief European economist at Barclays Capital in London, who forecasts rates will be cut at the ECB’s next policy meeting on July 5. “A negative deposit rate is something they need to consider but taking it to zero as a first step is more likely.”
Should Draghi elect to cut the deposit rate to zero or lower, he’ll be entering territory few policy makers have dared to venture. Sweden’s Riksbank in July 2009 became the world’s first central bank to charge financial institutions for the money they deposited with it overnight. The Fed rejected cutting its deposit rate from 0.25 percent last year. With Europe’s debt crisis damping inflation pressures and curbing growth, the ECB may feel the benefits outweigh the negatives.
Cyprus’s Sylikiotis in China to Explore Ground for Loan (Source: Bloomberg)
Cyprus hasn’t specified a figure for a possible rescue package it requested from euro-area countries yesterday, which could involve the International Monetary Fund, the east Mediterranean island’s finance minister said. “Neither ourselves nor the people we are talking to have ever raised the question of the amount,” Vassos Shiarly told reporters today. “It is a matter that will be determined in the process that will follow.” Negotiations will begin “as soon as Europe and ourselves are ready to negotiate,” he said, adding that the IMF’s involvement “is something that is being discussed at the moment”. Cyprus, which has been shut out of markets since May last year, is the fifth euro-area member to seek a European rescue after Greece, Ireland, Portugal and Spain. The euro area’s third-smallest economy has also been cut to junk by all rating companies.
Hungary Holds Interest Rate at EU’s Highest for 6th Month (Source: Bloomberg)
Hungary’s central bank left its benchmark interest rate at the European Union’s highest level as a surging forint and a looming recession balanced concern over the fastest inflation in the 27-member bloc. The Magyar Nemzeti Bank voted “overwhelmingly” to keep the two-week deposit rate at 7 percent today for a sixth month, after considering a proposal for a quarter-point cut, President Andras Simor told reporters in Budapest. That matched the forecast of all 27 economists in a Bloomberg survey. The government and central bank last week agreed on amendments to a central bank law to unblock bailout talks, stalled for seven months as lenders including the International Monetary Fund said the legislation threatened monetary-policy independence. Progress toward aid talks, along with the election of pro-bailout parties in Greece this month, helped the forint rally.
“The council will consider a reduction in interest rates if Hungary’s risk premium falls persistently and substantially and the outlook for inflation improves,” the rate-setting Monetary Council said in a statement.
Hollande Reality Makes French Debt Less Attractive (Source: Bloomberg)
During his first two weeks in office, President Francois Hollande saw French borrowing costs go in one direction, and that was down. Not anymore. The yield on the French benchmark 10-year bond advanced to 2.63 percent at 4:00 p.m. in Paris, up from a euro-era low of 2.071 percent on June 1. It was as high as 2.902 percent on May 15, when Hollande took office. The rate is at risk of rising further with French banks vulnerable to the region’s debt-ridden nations as economic growth stalls. Investors already demand more than 6 percent to buy 10-year Spanish securities and almost as much for similar Italian debt. While Hollande has sought to reassure investors in France’s 1.35 trillion-euro ($1.7 trillion) sovereign debt market by repeatedly pledging to cut France’s budget deficit, the financial turmoil to the south makes his task more difficult.
“France has been out of the spotlight, but once the sheer misery of Spain and Italy is figured in, the next target will be France,” said Bill Blain, a Newedge Group Ltd. strategist in London. “I’m seeing a very small number of international institutional players buying French debt. People are very nervous.”
King Is Pessimistic on Euro Crisis as Global Economy Teeters (Source: Bloomberg)
Bank of England Governor Mervyn King said his vote for more stimulus this month reflected his worries about a deteriorating global economic outlook at a time when he’s pessimistic that Europe’s debt crisis can be resolved. “What’s concerned me in the last several months, and why I voted for easing in policy, is the worsening in the position in Asia and other emerging markets,” King told lawmakers in London today. Another reason is that “my colleagues in the U.S. are more concerned than they were at the beginning of the year about what’s happening in the American economy. It’s not a comfortable position,” he said. King was defeated at this month’s policy meeting in a push to expand the bank’s bond-purchase program by 50 billion pounds ($78 billion) to 375 billion pounds, with a majority on the panel preferring no change. In the last six weeks, investor concern grew that a Greek election result may lead to its expulsion from the euro, while Spain asked for a bailout.
“I’m very struck by how much has changed” since the bank published forecasts on May 16, King said. “I am pessimistic, and I am particularly concerned because for two years now we’ve seen the situation in the euro area get worse, the problems have been pushed down the road.”
