Market Briefs (Source: Reuters)
• US Q1 GDP as f/c 1.9% vs. prev 1.9%
• US Weekly Initial Jobless Claims 386k; f/c 385k prev up to 392k from 387k
• US Weekly Continuing Claims 3.296mm; f/c 3.28mm prev revised up to 3.31mm
• Dutch PM says doesn’t want to think up new instruments to help countries under market pressure; Only way forward for Spain & Italy is to continue with reforms; Spain, Italy can use existing EZ support instruments, but must continue with reforms
• Bank of Italy to take on oversight of Italian insurance sector under govt decree to be approved next week
• IMF Spokesman:Objectives of Greek program remain basis for talks, if new govt has ideas on other ways to objectives then IMF open to discuss them
• U.S. Supreme Court upholds healthcare mandate; says expansion of Medicaid violates U.S. constitution
• ECB’s Coeure: Joint debt issuance can’t be a substitute for fiscal consolidation, restoring competitiveness
Asian Stocks Drop on Skepticism Europe Will Solve Crisis (Source: Bloomberg)
Asian stocks dropped for the first time in three days as European leaders disagreed over the next steps to end the region’s debt crisis at a summit in Brussels. Sony Corp. (6758), Japan’s biggest consumer electronics exporter that makes 20 percent of sales in Europe, slid 2 percent. Nippon Sheet Glass Ltd., the company with the largest revenue exposure to the debt-stricken region on the Nikkei 225 Stock Average, retreated 2.3 percent. David Jones Ltd. (DJS), Australia’s second- largest department store operator, soared 15 percent after receiving an approach about a possible takeover. The MSCI Asia Pacific Index (MXAP) slid 0.2 percent to 114.65 as of 9:22 a.m. in Tokyo. The gauge fell 12 percent through yesterday from its highest level of 2012 in February amid concern growth in China and the U.S. is slowing as the euro-zone debt crisis escalates.
“There’s an awful lot of disagreement,” said George Boubouras, Melbourne-based head of investment strategy at UBS AG’s Australian wealth-management unit. The Swiss bank has about $1.5 trillion in assets under management. “They need to come out with a blueprint with a timeline that says ‘this is what we are going to do and how they’re going to do it.’ That has to include an agreement on banking regulation and a serious consideration of euro bonds.”
China Stocks to Extend Drop After Losing 2012 Gains (Source: Bloomberg)
China’s stocks are poised to extend losses after erasing this year’s gains amid concerns over a slowing economy, according to the only strategist who forecast declines for Chinese shares in 2012. The economy probably expanded at a “subpar” rate in the second quarter and investors should buy shares of companies such as consumer-staples producers, whose earnings may be sheltered from the slowdown, Hao Hong, head of Chinese research at Bank of Communications Co. in Hong Kong, said by e-mail yesterday, declining to name stocks. The Shanghai Composite Index may fall “briefly” below 2,000 in a worse-case scenario, he said. The gauge is down 0.2 percent this year after losing 1 percent yesterday to 2,195.84, the lowest level since Jan. 6. It tumbled 7.4 percent in June, the second-worst performance of 95 major indexes tracked by Bloomberg, as lower-than-estimated industrial output and retail sales data overshadowed the central bank’s first interest-rate cut since 2008.
“The market is collapsing,” said Hong, who was previously a global equity strategist at China International Capital Corp. “I am again waiting for a capitulation like the one in January.” The Shanghai Composite (SHCOMP) sank to a three-year low on Jan. 5 before rallying 15 percent through March 2 amid speculation the government would ease monetary policy to bolster an economy that grew by the slowest pace in almost three years in the first quarter. The People’s Bank of China cut lending and deposit rates by a quarter percentage point on June 8 and has lowered banks’ reserve ratios three times since November.
Japan Stocks Fall on Industrial Output, European Standoff (Source: Bloomberg)
Japan stocks fell, snapping a two- day gain, after the nation’s industrial production fell more than expected and as a standoff between Italy and Germany emerged at a summit over the European debt crisis. Machine-tools maker Okuma Corp. (6103) slid 1.7 percent. Nippon Sheet Glass, which gets almost 40 percent of its revenue in Europe, fell 1.2 percent. Nippon Yusen K.K. fell as shipping companies led declines on the Topix Index. The Nikkei 225 Stock Average (NKY) fell 0.7 percent to 8,808.71 as of 9:40 a.m. in Tokyo, with volume almost 30 percent below the 30-day average. The broader Topix lost 0.5 percent to 755.15, trimming its weekly gain to 0.6 percent. Almost three times as many shares declined as advanced on the gauge. “Investors are waiting for the results of the European Summit meeting and are reluctant to buy shares,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc. “There have been no surprises from the EU meeting so far.”
U.S. Stocks Pare Losses on Bets Europe Nearing Debt Pact (Source: Bloomberg)
U.S. stocks pared losses in the final hour of trading amid speculation European leaders were nearing an agreement to halt contagion from the debt crisis. After the market close, European Union President Herman Van Rompuysaid leaders agreed to spend 120 billion euros ($149 billion) to stimulate growth. JPMorgan Chase & Co. (JPM) tumbled 2.5 percent after the New York Times said trading losses from credit derivatives may total as much as $9 billion, exceeding the firm’s initial estimate. Health-care (S5HLTH) stocks in the Standard & Poor’s 500 Index fell 0.3 percent as the Supreme Court upheld the core of President Barack Obama’s industry overhaul. The S&P 500 dropped 0.2 percent to 1,329.04 at 4 p.m. New York time, paring a loss of as much as 1.4 percent. The Dow Jones Industrial Average slid 24.75 points, or 0.2 percent, to 12,602.26. Volume for exchange-listed stocks in the U.S. was 6.8 billion shares, about in line with the three-month average.
European leaders began a two-day summit in Brussels today intended to chart a path out of their financial crisis. Stocks pared losses as German Chancellor Angela Merkel canceled a press briefing and her spokesman said talks on a growth accord were ongoing.
U.S. Stocks May Set New Low for 2012: Technical Analysis (Source: Bloomberg)
The Standard & Poor’s 500 (SPX) Index was accompanied by other benchmark gauges when it slid to near its 2012 low on June 4, a sign the market may retreat further, according to JPMorgan Chase & Co. Equity gauges from Germany to South Korea and Brazil also tumbled to or near their lowest levels of the year that day, as did other U.S. measures such as the Dow Jones Transportation Average and the Dow Jones Industrial Average. Major bottoms in benchmark equity indexes usually do not occur simultaneously, Michael Krauss, head of global technical research at JPMorgan Chase, wrote in a note to clients dated yesterday. “More likely it was just the first step down, in a larger three-step decline from the April high,” Krauss wrote. “Expect huge divergences at major turns, like this year’s tops” which were “widely dispersed” between February and May, he said.
The S&P 500 slid as much as 11 percent from its four-year high on April 2 through June 4, when it sank as low as 1,266.74 intraday amid concern about Europe’s debt crisis and the weakest growth in American jobs in a year. The gauge then rebounded 5.1 percent through yesterday’s closing level.
European Stocks Near Cheapest Ever as Invesco Buys Repsol (Source: Bloomberg)
Two years of losses have pushed European equities toward the lowest valuations ever, prompting fund managers from Invesco Ltd. to JPMorgan Chase & Co. to increase holdings in Spain, Italy and Germany. While the Euro Stoxx 50 Index has fallen to 0.9 times book value, cheaper than any time except the week markets bottomed in March 2009, Invesco is betting on Repsol SA (REP), the Spanish oil producer. London-based Artemis Investment Management LLC is buying stock in Amplifon SpA (AMP), a hearing aid maker in Milan. Fidecum AG is adding shares of German lender Aareal Bank AG. (ARL) Two emergency plans for lenders from the European Central Bank, four national bailouts and 18 summit meetings for heads of state have failed to keep the euro region’s share gauge from dropping. With more investors than ever saying European equities are undervalued in a monthly survey by Bank of America Corp., managers who help oversee about $430 billion say they are finding bargains across the continent.
“What’s in the price for Europe is beginning to be Armageddon,” Stephanie Butcher, who helps manage $62 billion at Invesco Perpetual in Henley-on-Thames, England, said at a presentation on June 26. “This is a region that has been hugely de-rated, that has a lot of high-quality international assets that are very lowly valued. This is an unusual circumstance and one offering genuine opportunities.”
Emerging Stocks Decline as China Index Erases 2012 Gain (Source: Bloomberg)
Developing-nation stocks fell as the Shanghai Composite Index erased its 2012 advance on concern China’s economic slowdown will choke earnings and as a two-day summit for European Union leaders started in Brussels. The MSCI Emerging Markets Index (MXEF) declined 0.7 percent to 906.71 by the close in New York, snapping two days of gains. The Shanghai Composite fell 1 percent, the seventh straight slide in its longest losing streak in 13 months. OGX Petroleo e Gas Participacoes SA and MMX Mineracao e Metalicos SA slumped to lead decliners on Brazil’s Bovespa index. Russia’s Micex Index (INDEXCF) retreated 1.7 percent, the most since May 23.
China’s curbs on the housing market will remain “tight” this year, preventing transactions and prices from rebounding significantly, Shui On Land Ltd. Chief Executive Freddy Lee said yesterday. European Union leaders approved a 120 billion-euro ($149 billion) plan to promote growth in the 27-nation bloc. The growth plan came before leaders took on the thornier measures to prevent the euro area’s financial crisis from swamping Spain and Italy. “The global markets backdrop remains quite challenging, given the persisting risks on the euro zone crisis front, as well as rising concerns that the global growth outlook may have to be substantially downgraded again,” Benoit Anne, head of emerging-markets strategy at Societe Generale in London, wrote in an e-mailed note to clients.
FOREX-Euro falls as prospect of EU summit progress dims
LONDON, June 28 (Reuters) - The euro fell to a three-week low against the dollar on growing expectations that a European Union ummit starting later in the day will fail to agree concrete measures to deal with the region's worsening debt crisis.
"It's rare that we've seen this amount of discord going into a summit," said Chris Turner, head of foreign exchange strategy at ING. On the face of it it looks like it's going to be reasonably negative for the euro."
Euro Heads for Second Weekly Decline Before French Economic Data (Source: Bloomberg)
The euro headed for a second weekly drop before data today forecast to confirm French growth stalled in the first quarter, adding to signs Europe’s debt crisis is hurting the region’s larger economies. The 17-nation currency fell for a second day versus the yen as French President Francois Hollande said he’ll withhold endorsement of a European Union fiscal pact at least until the end of a two-day summit under way in Brussels. EU leaders pledged to inject 120 billion euros ($149 billion) into the currency bloc’s economy before a report next week may show the region’s unemployment reached the highest on record. The yen gained against all its major counterparts amid investor demand for refuge assets. “I’m bearish on the euro the most among the major currencies,” said Kengo Suzuki, a foreign-exchange strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third- largest bank by market value. “It’s quite clear the European economies are slowing because of austerity measures.”
The euro was little changed at $1.2439 at 9:01 a.m. in Tokyo from the close in New York yesterday, having dropped 1 percent this week. The shared currency slid 0.2 percent to 98.64 yen, after touching 98.33 yesterday, the weakest since June 6. Japan’s currency climbed 0.2 percent to 79.31 yen per dollar.
Aussie, Kiwi Set for Weekly Drop on Europe Growth Woes (Source: Bloomberg)
The Australian and New Zealand dollars headed for weekly declines on speculation growth in the euro zone is continuing to slow even as European Union leaders outlined plans to boost the economy at a summit. The so-called Aussie was set for its first five-day slide versus the greenback in four weeks before figures today that may confirm France’s first-quarter gross domestic product was unchanged from the previous period and ahead of data next week that may show the jobless rate in the 17-nation currency bloc climbed to a record. New Zealand’s dollar, nicknamed the kiwi, is poised to complete its biggest weekly drop since May after a report showed home-building approvals fell last month.
“Whatever does eventually come out of the summit, markets are sooner or later going to face up to the reality that growth in Europe is going to remain weak for some time,” said Mike Jones, a Wellington-based currency strategist at Bank of New Zealand Ltd. “We’re in an environment of slowing global growth, and that will certainly continue to weigh on the Aussie and kiwi.” The Australian dollar lost 0.2 percent to $1.0022 as of 9:35 a.m. in Sydney, extending this week’s slide to 0.4 percent. It bought 79.50 yen, 0.4 percent lower than yesterday’s close in New York. New Zealand’s currency fell 0.4 percent to 78.54 U.S. cents and has dropped 0.7 percent since June 22. The so-called kiwi retreated 0.5 percent to 62.30 yen.
Jobless Claims in U.S. Hovered Last Week Near 2012 High (Source: Bloomberg)
Applications for jobless benefits hovered last week near the highest level of the year, showing continuing weakness in the U.S. labor market. Claims for unemployment insurance payments decreased by 6,000 to 386,000 in the week ended June 23, according to Labor Department figures issued today in Washington. The revised 392,000 claims in the previous week matched the most this year. The Bloomberg Consumer Comfort Index also showed growing apprehension over the state of the economy. Concern about the European debt crisis and the so-called fiscal cliff that the U.S. faces at the end of this year may prompt employers to keep payrolls lean, limiting the hiring needed to boost consumer spending. A 57-cent per gallon decrease in gasoline prices since early April is providing some relief, helping offset concern the job market is weakening by allowing employed Americans to stretch their paychecks.
“We’re going to see consumers be cautious over the next few months,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who projected 385,000 claims. “Spending is going to be soft, and I think it’s because of the job market. The labor market is not creating the wage income necessary.”
Consumer Comfort in U.S. Climbs to Highest Level in Two Months (Source: Bloomberg)
Consumer confidence in the U.S. climbed last week to the highest level in two months as optimism over personal finances helped alleviate growing apprehension about the economy. The Bloomberg Consumer Comfort Index rose to minus 36.1 in the week ended June 24 from minus 37.9 in the previous period. The gauge of household finances was positive for the first time since April, while sentiment toward the state of the economy dropped to the lowest level since February. A 57-cent decrease in gasoline prices since early April is providing some relief, helping offset concern the job market is weakening by allowing employed Americans to stretch their paychecks. At the same time, sentiment among higher-income households turned negative for the first time in three months as Europe’s debt crisis hurts stock prices.
“The decline in confidence among households earning more than $100,000 per year likely reflects concerns about portfolio exposure to the crisis in Europe and the global economic slowdown,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. Since the top 40 percent of income earners accounts for about 60 percent of consumer purchases, “even a modest pullback can have outsized effects on household spending and overall growth,” he said.
Stockton, California, Files for Bankruptcy Protection (Source: Bloomberg)
The California city of Stockton filed a petition seeking U.S. bankruptcy court protection after talks with bondholders and labor unions failed, making the agricultural center the biggest U.S. city to seek court protection from creditors. A river port about 80 miles (130 kilometers) east of San Francisco, Stockton ran out of options after three months of negotiations with creditors ended June 25 without enough concessions to close a $26 million deficit. The city listed assets of more than $1 billion and debt of $500 million to $1 billion in court filings today in U.S. Bankruptcy Court in Sacramento, California. “We are extremely disappointed that we have been unable to avoid bankruptcy,” Mayor Ann Johnston said in a statement. “This is what we must do to get our fiscal house in order and protect the safety and welfare of our citizens. We will emerge from bankruptcy with a solid financial future.”
The Chapter 9 filing allows Stockton, a city of 292,000, to suspend payments to creditors while it seeks court approval for a plan that balances its revenue with its debt. The budget for the fiscal year beginning July 1 calls for defaulting on $10.2 million in debt payments and cutting $11.2 million in employee pay and benefits under union contracts that could be voided by the bankruptcy court.
JPMorgan Slips on Report Trading Loss Widened to $9 Billion (Source: Bloomberg)
JPMorgan Chase & Co. (JPM) fell more than 6 percent in New York trading after the New York Times reported the lender’s losses from credit derivatives may eventually total as much as $9 billion, exceeding the firm’s initial estimate. JPMorgan dropped to $35.77 as of 8:44 a.m. from the $36.78 close in New York yesterday, and reached $34.50 earlier today. Chief Executive Officer Jamie Dimon said on May 10 the bank lost more than $2 billion on bets in credit markets taken by its chief investment office in London and that the loss could increase by as much as $1 billion this quarter. Dimon, 56, has said JPMorgan doesn’t want to “do anything stupid” by unwinding the trades too quickly, and he hopes that by the end of the year the holdings will no longer have a significant impact on results.
The firm’s losses have increased in recent weeks as JPMorgan sought to exit its holdings, the New York Times reported, citing unidentified former traders and executives at the bank. The company has already closed out more than half of its positions, the newspaper said.
Japan’s Industrial Output Falls Most Since 2011 Quake (Source: Bloomberg)
Japan posted its biggest decline in factory output since last year’s disaster, backing forecasts that growth may have peaked in the first quarter. Industrial production slid 3.1 percent in May from April, the biggest decline since March 2011, the Trade Ministry said in Tokyo today. The median estimate of 28 economists surveyed by Bloomberg News was for a 2.8 percent fall. The government’s 20 trillion yen ($252 billion) in spending to rebuild areas devastated by the earthquake and tsunami has supported three straight quarters of economic growth. The risk now is that the European debt crisis and a slowing U.S. economy could hamper exports and slow the recovery just as the effect of domestic public spending begins to taper off. “Growth will peak in the first quarter,” Matthew Circosta, an economist at Moody’s Analytics in Sydney, said before the report. “We expect second quarter growth to be slower because of headwinds facing exporters on the global demand front.”
Japan Consumer Prices Fall Before Central Bank Policy Meeting (Source: Bloomberg)
Japan’s consumer prices declined 0.1 percent in a report released ahead of a central bank meeting next month, when policy makers will review adding more stimulus. Consumer prices excluding fresh food fell 0.1 percent in May from a year earlier, the statistics bureau said in Tokyo today. The median estimate of 28 economists surveyed by Bloomberg News was for no change. The Bank of Japan (8301) is under pressure to do more to help the nation shake off deflation and sustain a recovery from last year’s tsunami and earthquake. A planned increase in the consumption tax in 2014 and 2015, approved by the lower house of parliament this week, may become a drag on the economy by discouraging spending.
“Japan’s progress towards defeating deflation is very slow,” said Yoshiki Shinke, chief economist at Dai-Ichi Life Research Institute in Tokyo, before the release. “The BOJ may come under more pressure for additional stimulus because of stagnant price growth, especially when the government is coming closer to increasing sales tax.” The jobless rate dropped to 4.4 percent in May and the number of available jobs per job applicant rose to 0.81. Household spending increased 4 percent, separate government reports also showed in Tokyo today.
South Korea Eyes Bigger Fiscal Response to Europe Growth Threat (Source: Bloomberg)
South Korea indicated that it’s preserving fiscal firepower for worsening economic conditions after Europe’s debt crisis triggered a cut to the nation’s growth forecast. The government’s 8.5 trillion won ($7.4 billion) of economic support measures announced yesterday, including assistance for small businesses and low-income earners, leaves room for a bigger response if conditions deteriorate, said Choi Sang Mok, a director-general at the finance ministry. Europe’s austerity drive is capping demand for Asian exports, with surging borrowing costs for Spain showing the euro region has yet to contain its crisis. South Korea’s gross domestic product may expand 3.3 percent this year, less than a December estimate of 3.7 percent, the Finance Ministry said yesterday in Gwacheon, south of Seoul. “The European debt crisis is such a big challenge that South Korea will have to struggle to meet even the lowered growth target,” said Kim Nam Hyun, a Seoul-based fixed income analyst at Eugene Investment & Futures.
“The worst may not be over yet.” The government also yesterday announced incentives to attract foreign-currency deposits to banks, a buffer against volatility in capital flows. The cut to the growth forecast followed the central bank paring its estimate to 3.5 percent from 3.7 percent. The finance ministry predicts a 4.3 percent expansion next year.
Singh Seeks to Restart Growth as Rupee Falls: Economy (Source: Bloomberg)
Indian Prime Minister Manmohan Singh pledged to restore confidence in Asia’s third-largest economy as he resumed control of the finance ministry after growth slowed to the weakest in almost a decade and the rupee slumped. Singh, 79, urged senior ministry officials to act quickly to revive investor sentiment as he assumed the role vacated this week by Pranab Mukherjee, who resigned to run for president. India needs to address “problems on the tax front,” as well as in the mutual funds and insurance industries, he said at a meeting in New Delhi yesterday. “At the current juncture, we are passing through challenging times economically,” Singh said in the meeting, according to a statement on the government’s website. “We need to work to get the economy going again and restart the India growth story.”
Singh will need to call on his experience in turning around the economy as finance chief in the 1990s, when India was on the brink of defaulting on some of its overseas debt. He now faces a budget deficit requiring record borrowing, a paralysis in policy making that has hurt efforts to spur investment and a faltering global recovery, which have pushed the rupee to an unprecedented low and put the country’s investment-grade rating at risk.
Reserve Bank Says India Is Facing Inflation, Growth Risk (Source: Bloomberg)
India is likely to face elevated inflation risks from supply bottlenecks and lingering threats to economic expansion, the Reserve Bank of India said. “Threats to stability are posed by the global sovereign debt problem and risk aversion, domestic fiscal position, widening current-account deficit and structural aspects of food inflation,” the central bank said in its Financial Stability Report released in Mumbai yesterday. While India’s financial system “remains robust,” challenges to stability have increased since the last assessment in December 2011. Growth in Asia’s third-largest economy slowed to a near- decade low last quarter, hurt by a faltering global recovery, political gridlock that has deterred investment and price pressures. Prime Minister Manmohan Singh, who took charge of the finance ministry three days ago, faces a budget deficit requiring record borrowing as well as a trade shortfall as he tries to revitalize his development agenda.
“Sovereign default concerns and the need for substantial bank recapitalization in the euro zone have escalated fears of contagion and recession,” central bank Governor Duvvuri Subbarao said in the report. In India, an “already high fiscal deficit leaves little room for the government to stimulate the economy,” he said.
Demands for Bond-Buying Agreement Roil European Summit (Source: Bloomberg)
European Union leaders struggled to meet demands by Spain and Italy for relief from rising borrowing costs, threatening to derail a 120 billion-euro ($149 billion) pledge to boost economic growth. Leaders from the 17 euro nations stayed on to debate the crisis-fighting plan early this morning after all 27 nations informally signed off on the growth strategy. Italy is withholding its final endorsement of the initiative as it pushes for collective action at an EU summit in Brussels to push down its bond yields, said two Italian officials who spoke on the condition that they not be named. EU President Herman Van Rompuy said talks weren’t gridlocked and will continue through the night and later today. “We haven’t yet a conclusion on the growth agenda because we have to discuss also the aspects of financial stability and we do this related to the discussion also foreseen” on the future of the euro, Van Rompuy told reporters late yesterday.
German June Unemployment Rises as Crisis Starts to Bite (Source: Bloomberg)
German unemployment climbed in June for the fourth month this year as the debt crisis in the euro region weighed on companies’ willingness to create jobs. The number of people out of work rose a seasonally adjusted 7,000 to 2.88 million, the Nuremberg-based Federal Labor Agency said today. Economists forecast an increase of 3,000, the median of 30 estimates in a Bloomberg News survey shows. The adjusted jobless rate held at 6.8 percent after last month’s rate was revised up from 6.7 percent. “Signs are increasing that the resilience of the German labor market is slowly cracking up,” Carsten Brzeski, an economist at ING Group in Brussels, said in a note to investors. “This might not be a cause for concern for the German economy, yet, but definitely for the rest of the euro zone.”
Rising joblessness in Europe’s biggest economy underscores the deepening financial crisis in the 17-nation euro area as the turmoil shifts from states on the region’s periphery such as Greece and Ireland to core members Spain and Italy. Chancellor Angela Merkel and fellow European Union leaders begin a summit in Brussels today that aims to address the widening turmoil.
IMF May Consider Greek Loan Changes After Visit Next Week (Source: Bloomberg)
An International Monetary Fund team will start negotiating possible changes to the conditions attached to a loan to Greece after a fact-finding mission travels to Athens early next week, a fund spokesman said. The mission, which includes officials from the European Central Bank and the European Commission, “will assess the recent economic developments and meet with the new authorities,” Gerry Rice, the IMF spokesman, told reporters in Washington today. He said he had no date for the follow-up negotiating mission. “The objectives of the program as agreed remain the basis for those discussions,” Rice said. “If the new government has ideas on how those program objectives can be achieved, we’re open to those discussions.”
Greek Prime Minister Antonis Samaras asked fellow European leaders to loosen budget-austerity requirements for emergency aid while saying he would press ahead with an economic overhaul. Greece has slipped behind budget-cutting targets that euro-area nations and the IMF imposed in exchange for 240 billion euros ($298 billion) in aid pledges in the past two years.
U.K. Disposable Income Plunges as Economy Contracts 0.3% (Source: Bloomberg)
Britons’ disposable income fell for a second quarter in the first three months of the year, when consumer spending unexpectedly declined and the economy shrank. Real disposable income dropped 0.9 percent from the previous three months, when it also fell by that amount, the Office for National Statistics said today in London. Consumer spending was revised to a 0.1 percent decline from a 0.1 percent increase, while gross domestic product fell 0.3 percent. The Bank of England is edging closer to resuming bond purchases to kickstart a recovery as the euro-area debt crisis worsens and the U.K. struggles to shake off a recession. With consumers confidence under pressure, Chancellor of the Exchequer George Osborne this week scrapped a planned fuel-duty increase, his fourth policy U-turn in a month, a move he said was aimed at helping people at a “very difficult economic time.”
“It looks highly questionable whether the economy has been able to return to growth in the second quarter,” said Howard Archer, an economist at IHS Global Insight in London, citing “intensified problems” in the euro area. The economy may begin to recover after that, helped by “ultra accommodative monetary policy,” he said.
Hungary Set to End Stalemate to Start IMF Bailout Talks (Source: Bloomberg)
Hungary is on the brink of breaking a deadlock to start bailout negotiations with the International Monetary Fund after a seven-month stalemate that has made its currency the world’s most volatile. The IMF agreed to start aid talks as soon as legislators approve proposed changes to a disputed central bank law, which has blocked talks since December, Managing Director Christine Lagarde said in a letter to Hungarian leaders, distributed to reporters yesterday. Parliament will vote on the amendments by July 12, government negotiator Mihaly Varga said. The forint, stocks and bonds gained and Hungary’s default risk fell after the announcement. “This is clearly a positive,” Simon Quijano-Evans, head of emerging-market research for Europe, the Middle East and Africa at ING Groep NV (INGA), said by phone from London. “There’s room for more yield and spread compression for bonds.”
Prime Minister Viktor Orban requested the aid in November as the country’s credit grade was cut to junk and the forint fell to a record against the euro. Preliminary talks broke down in December after Hungary passed a law that the IMF and the European Union said may curb central bank independence.
European Leaders Put Bond Buying on Table at Crisis Summit (Source: Bloomberg)
European Union leaders focused on immediate help for Spain and Italy at the start of a two-day summit intended to chart a path out of their financial crisis. The 27 government chiefs will discuss buying Spanish and Italian government bonds to bring down borrowing costs that are near euro-era records, Finnish Prime Minister Jyrki Katainen said. He also proposed that bailout funds buy collateralized government debt in primary markets. The Finnish proposal joined discussion of whether the euro area’s rescue fund should aid banks directly and the role of the European Central Bank, which has already bought more than 200 billion euros ($249 billion) of government bonds and pumped more than 1 trillion euros of three-year loans into the banking system. It shelved its bond-purchase program earlier this year amid growing resistance to the policy on the ECB Governing Council.
European Union Economic and Monetary Affairs CommissionerOlli Rehn said the ECB’s actions have prevented the crisis from worsening. He also called for “concrete measures” to help Italy and Spain and more debate about mutualized public debt.
