Asian Stocks Rise Amid Optimism on China Stimulus Outlook (Source: Bloomberg)
Asian stocks rose after China’s Premier Wen Jiabao said the government will increase measures to support growth in the world’s second-largest economy. Miner BHP Billiton Ltd., which gets more than a quarter of its sales from China, rose 1.2 percent in Sydney. Coal producer Whitehaven Coal Ltd. (WHC) soared 15 percent after Australian mining magnate Nathan Tinkler offered to buy out the rest of the company. Daekyung Machinery & Engineering Co. fell 8.3 percent in Seoul after a shipmaker dropped its bid for the chemical machinery maker. ZTE Corp., a Chinese telecommunications equipment maker, slumped 16 percent after saying its first-half profit may plunge 80 percent. The MSCI Asia Pacific Excluding Japan Index rose 0.3 percent to 403.89 as of 9:59 a.m. in Hong Kong, with about three stocks gaining for every two that declined. Japan’s equity markets are closed today for a public holiday.
“There remains significant capacity for China to stimulate further,” 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. “This is not only from a monetary perspective, which includes further rate cuts or lowering the reserve required ratio again, but also the ability for additional targeted fiscal stimulus.”
Hong Kong Stocks Advance on China Stimulus Speculation (Source: Bloomberg)
Hong Kong stocks rose, with the benchmark index heading for a second day of advance, after Premier Wen Jiabao said China’s government will boost measures to support growth in the world’s second-biggest economy. Belle International Holdings Ltd. (1880), China’s largest retailer of women’s shoes, advanced 1.8 percent. China Everbright International Ltd., a renewable energy company, added 0.8 percent to its highest since January after winning a project to convert waste into energy in Hainan, China. Sun Hung Kai Properties Ltd. slipped 0.7 percent after the billionaire co- chairmen of Hong Kong’s biggest developer were charged with bribery and public misconduct by the city’s anti-graft agency.
“There remains significant capacity for China to stimulate further,” 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. “This is not only from a monetary perspective, which includes further rate cuts or lowering the reserve required ratio again, but also the ability for additional targeted fiscal stimulus.” The Hang Seng Index (HSI) gained 0.3 percent to 19,141.60 as of 10:02 a.m. local time, with about three shares rising for every two that fell. The gauge dropped 3.6 percent last week amid concern slowing growth in China and the U.S, will hurt corporate profits. The Hang Seng China Enterprises Index of Chinese companies listed in the city added 0.2 percent 9,258.51.
U.S. Stocks Gain for Week, Erasing Loss on JPMorgan Rally (Source: Bloomberg)
U.S. stocks rose for the week, reversing losses on the final day, as a rally in JPMorgan Chase & Co. (JPM) and speculation China will boost stimulus measures tempered concern about earnings and the global economy. JPMorgan jumped 6.4 percent for the week as Chief Executive Officer Jamie Dimon said the bank will probably post record earnings for 2012 even after reporting a $4.4 billion trading loss. Procter & Gamble Co. (PG) surged 6.2 percent for the second- biggest gain in the Dow Jones Industrial Average. Technology and raw-material shares in the Standard & Poor’s 500 Index slumped more than 1.2 percent amid concern a slowdown in the global economic recovery will damp demand. The S&P 500 gained 0.2 percent to 1,356.78 for the week. The index jumped 1.7 percent on July 13 after falling for six consecutive days. The Dow added 4.62 points, or less than 0.1 percent, to 12,777.09 during the week.
“The market was oversold, JPMorgan news was not as bad, and we had some data that was a little bit better,” Sasha Kostadinov, portfolio manager at Cleveland, Ohio-based Shaker Investments LLC, which manages about $100 million, said in a telephone interview. “Any small change in the outlook can cause a big change, because there’s a lot of money to be put to work.”
European Stocks Rise for Sixth Straight Week; Aegis Jumps (Source: Bloomberg)
European stocks climbed for a sixth straight week, the longest winning streak in more than two years, amid speculation that central bank policy makers will add to stimulus measures to support the economy. Aegis Group Plc (AGS) soared 45 percent for the biggest advance in 19 years after Dentsu Inc. agreed to buy the advertising company. Temenos Group AG sank 26 percent as the Swiss maker of banking software cut its sale forecast and Chief Executive Officer Guy Dubois quit. The Stoxx Europe 600 Index climbed 0.7 percent to 256.26 this week, for the longest stretch of gains since April 2010. The measure has rallied 9.6 percent from this year’s low on June 4 as the European Central Bank and People’s Bank of China cut their benchmark interest rates and euro-area leaders eased repayment rules for Spanish banks and relaxed conditions for possible aid to Italy.
“We expect the European Central Bank to cut interest rates again and globally interest rates are being lowered to restart the economy,” said Pierre Mouton, a fund manager who helps oversee $6.5 billion at Notz Stucki & Cie. in Geneva. “European policy makers have made a strong commitment vis-a-vis banks. That eliminates systemic risk for the euro zone and makes investors more optimistic.”
Euro Near Two-Year Low Before Confidence, Inflation Data (Source: Bloomberg)
The euro traded 0.6 percent from its lowest level in two years before reports this week that may show stagnating inflation and weakening confidence in currency bloc as the deepening sovereign crisis curbs growth. The euro weakened versus most of its major peers after German Chancellor Angela Merkel said she hasn’t softened her stance on measures to stem debt contagion that’s prompted five euro states to seek international aid. Demand for the Australian and New Zealand dollars was supported as Asian shares rose and on prospects central banks to add to measures to prop up growth. “The overall picture is still pretty cautious,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “There’s been a recession in the euro zone. I would still like to sell the euro on rallies.”
The euro lost 0.1 percent to $1.2237 as of 10:16 a.m. in Tokyo after falling to $1.2163 last week, the weakest level since June 2010. It bought 96.82 yen, 0.2 percent lower than the 96.98 close on July 13. Japan’s currency added 0.1 percent to 79.13 per dollar after completing a 0.6 percent advance last week to close at 79.18.
FOREX-Euro subdued after Italy rating downgrade
LONDON, July 13 (Reuters) - The euro hovered near two-year lows against the dollar on Friday after a Moody's downgrade on Italy added to an already bearish stance on the single currency, while commodity currencies rose on growth figures from China that met expectations. "The auction was not too bad but the bigger news is the double notch downgrade rather than an auction that has gone okay," said Derek Halpenny, European head of FX research at Bank of Tokyo Mitsubishi.
Treasuries Surge on Refuge Demand as Auctions Set Records (Source: Bloomberg)
Treasury yields fell close to all- time lows as an almost insatiable desire for the safest assets amid signs global growth is stalling helped the U.S. draw record rates at 10- and 30-year debt auctions. U.S. government debt rallied for a third consecutive week as Europe’s economy slipped toward its second recession in three years amid a worsening debt crisis, lower-than-forecast growth in China and the Federal Reserve disappointing some traders looking for a hint of more stimulus. Fed Chairman Ben S. Bernanke will present his semi-annual report on the outlook for the economy and monetary policy to Congress on July 18.
“Debt sales were strong even though yields were not far off their record lows, which underscores the fear in investor sentiment,” said Christopher Sullivan, who oversees $1.9 billion as chief investment officer at United Nations Federal Credit Union in New York. “The flight-to-quality demand is still high given the economic slowing in the U.S. and around the world, and the fact that we are no closer to a European resolution.” The yield on the 30-year bond fell nine basis points, or 0.09 percentage point, on the week to 2.57 percent in New York time, according to Bloomberg Bond Trader prices. It touched a record low of 2.5089 percent on June 1.
Retail Sales Probably Rose on Autos: U.S. Economy Preview (Source: Bloomberg)
Sales at U.S. retailers probably rose in June for the first time in three months, reflecting a pickup in demand for automobiles that outshined spending on other goods, economists said before a report this week. The projected 0.2 percent gain in purchases would follow a 0.2 percent decline in May, according to the median forecast of 72 economists surveyed by Bloomberg News ahead of the Commerce Department figures tomorrow. Other data may show the cost of living was little changed and manufacturing accelerated. Receipts at merchants other than auto dealers were probably little changed as a weakening job market sapped households of the confidence and the incomes needed to boost expenditures. Federal Reserve Chairman Ben S. Bernanke will address the outlook for growth when he testifies Congress this week and may hint at steps that can be taken to revive the expansion.
“The overall consumer picture is lackluster -- still growing -- but not particularly strongly,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “The momentum in the economy has clearly waned.”
Fed May Need to Begin New Asset Purchases, Lockhart Says (Source: Bloomberg)
Federal Reserve Bank of Atlanta PresidentDennis Lockhart said the central bank may need to begin a new program of asset purchases if recent economic weakness continues and undermines his forecast for a pickup in the second half of the year. “If the economy continues on the track indicated by the most recent incoming data and information, that forecast will become untenable, as will the policy premises underlying it.” Lockhart said today in Jackson, Mississippi. “My support for the current stance of policy rests on a forecast that sees a step-up of output and employment growth by year-end and into 2013.” Lockhart joins the ranks of Fed officials who are prepared to consider additional stimulus after a report showed that payroll growth lagged behind forecasts in June. The Atlanta Fed president cited the release of minutes from the central bank’s last meeting as showing as many as four policy makers are “quite receptive at this time” to further easing.
The policy-making Federal Open Market Committee voted last month to extend its maturity-extension program, known as Operation Twist, to provide more support for a slowing U.S. economy and said it would consider additional stimulus if needed.
New York Fed Says It Knew Barclays Underreported Libor (Source: Bloomberg)
The Federal Reserve Bank of New York became aware that Barclays Plc was underreporting borrowing costs for the London interbank offered rate in April 2008, according to documents released after U.S. lawmakers demanded information about the rate-rigging scandal. A Barclays employee explained to a New York Fed staff member that the bank “was underreporting its rate to avoid the stigma associated with being an outlier with respect to its LIBOR submissions, relative to other participating banks,” the New York Fed said in a statement posted today on its website. The person “also stated that in his opinion other participating banks were also under-reporting their LIBOR submissions.”
Members of Congress are seeking information from U.S. regulators about the scandal that led to Barclays being fined a record 290 million pounds ($451 million) and cost Chief Executive Officer Robert Diamond his job. At least a dozen banks are being investigated for manipulating Libor, the global benchmark for $360 trillion of securities.
Wen Warns China’s Economic Recovery Yet to Show Momentum (Source: Bloomberg)
China’s Premier Wen Jiabao warned the momentum for a recovery in economic growth isn’t yet in place and that “difficulties” may persist for a while, the official Xinhua News Agency reported. Even so, the current pace of economic expansion is within the targeted range and government measures to stabilize growth are “bearing fruit,” the premier said during an inspection tour in southwest Sichuan province, according to a Chinese- language report from Xinhua yesterday. The article didn’t mention government policies toward the property market. Wen’s comments follow data that showed Asia’s largest economy had the weakest expansion in three years as Europe’s fiscal crisis sapped exports and a crackdown on property speculation curbed domestic demand. At the same time, a recovery in home sales and a jump in investment signaled lower interest rates and banks’ reserve requirements may be starting to arrest the slowdown.
“It should be clearly understood that the momentum for a stable rebound in the economy has not yet been established,” Xinhua cited Wen as saying. “We need to comprehensively assess the situation and recognize the problems, difficulties and risks, in particular the downward pressure on the economy,” Wen said.
Easing Prices Bypass India as RBI Lacks Tetangco Scope (Source: Bloomberg)
Moderating inflation pressure across most of Asia offers central banks scope to cut interest rates further in coming months, with India an exception as consumer prices probably jumped at a faster pace last month. The Asian Development Bank lowered its inflation forecast for the region last week and China reported the smallest price gains in more than two years. By contrast, India today will report wholesale prices rose at a faster pace in June from a year earlier, according to the median estimate in a Bloomberg News survey. India’s accelerating inflation leaves its central bank constrained as counterparts across emerging economies take action. South Korea and China surprised markets with a reduction in interest rates this month and Governor Amando Tetangco said three days ago the Philippines has scope to ease monetary policy.
Emerging-market policy makers “have by far the greatest room to counteract economic weakness,” JPMorgan Chase & Co. analysts led by Jan Loeys, chief market strategist in New York, wrote in a July 13 note. They can “boost spending through monetary stimulus, fiscal stimulus, or simply by providing more clarity about their future actions,” they said.
Merkel Gives No Ground on Demands for Oversight in Debt Crisis (Source: Bloomberg)
Chancellor Angela Merkel gave no ground on Germany’s demands for more central control over euro member states in return for joint burden-sharing as the region struggles to contain the debt crisis. The German leader said yesterday she hadn’t softened her stance at last month’s summit in Brussels and that a so-called banking union involving a bloc-wide financial overseer will have to include joint oversight on a “new level.” She chided member states who had sought to slow moves toward greater central control “since the first summit” in the 2 1/2-year-old crisis. “All of these attempts will have no chance with me or with Germany,” Merkel said in an interview with broadcaster ZDF in Berlin.
Two weeks after a European Union summit aimed at bridging differences over crisis resolution, euro leaders are still squabbling over details of how to lift the bloc out of the turmoil. Merkel hardened Germany’s position that any attempt to share burdens in Europe -- such as jointly issued euro bonds or common banking bodies -- must first be met with greater cooperation and a handover of some sovereignty to Brussels. The euro fell to its lowest level against the U.S. dollar in more than two years last week, sliding to as low as $1.2163 on July 13. Europe’s most credit-worthy government bonds climbed, with German two-year note yields down to a record minus 0.052 percent, as investors sought havens from the euro crisis.
Italy Aims to Cut Its Debt by 20% by 2018, Grilli Tells Corriere (Source: Bloomberg)
Italy plans to sell public assets valued at as much as 20 billion euros ($24.5 billion) annually in order to cut its debt by one sixth within five years, Finance Minister Vittorio Grilli told Corriere della Sera in an interview published today. Under the plan, the government would sell assets each year worth as much as 1 percent of gross domestic product, Grilli told the Milan-based newspaper. That and annual growth of 1 percent would enable Italy to reduce the public debt “by 20 percent within five years,” Corriere cited the minister as saying. Grilli also said that the Italian economy will contract less than 2 percent this year, Corriere reported. That compares with a 1.2 percent GDP contraction forecast by the government on April 18. Italy’s public debt rose to 120.1 percent of GDP in 2011 and is projected to reach 123.4 percent this year, the government said in April.
Aiding Italy on Borrowing Costs Isn’t Justified, Weidmann Says (Source: Bloomberg)
Italy’s borrowing costs don’t justify asking the euro area’s rescue fund for help, Bundesbank President Jens Weidmann said. “Of course I can understand why a country would want to lower its refinancing costs,” Weidmann said in an interview with Boersen-Zeitung e-mailed to Bloomberg News by the German central bank he heads. “But because of the last-resort aspect of financial aid in the currency union, that alone can’t be a justification for granting it.” “If Italy stays the course on reforms, it’s on a good path,” Weidmann told the German newspaper. Asked whether the euro area’s third-largest economy needs to tap the planned European Stability Mechanism, he said, “No, I don’t see Italy in that situation.”
The European Central Bank Governing Council member’s comments indicate German reluctance to allow the government-run bailout funds to buy Italian bonds to insulate that country from the debt crisis. Italian Prime Minister Mario Monti has sought a “debt shield” against spillover from the crisis at Spain’s banks, which are getting as much as 100 billion euros ($122 billion) in rescue loans.
German, French Yields Fall to Records as Investors Seek Havens (Source: Bloomberg)
Europe’s highest-rated government bonds rose this week, pushing German two-year note yields down to a record minus 0.052 percent, as investors sought havens from the euro-area’s financial turmoil. Austrian, French, Belgian and Finnish two-year yields fell to all-time lows this week and those on similar-maturity Dutch debt dropped below zero for the first time. The European Central Bank said overnight deposits from financial firms slid to the lowest since December as it ended paying interest on excess cash after cutting interest rates. Italian notes rose this week even after Moody’s Investors Service cut the nation’s credit rating. “With no credible end in sight to the euro-zone debt crisis, bund yields continue to trend lower with the short-end trading in negative territory,” said Brian Barry, an analyst at Investec Bank Plc in London. “Despite remaining largely risk averse, investors who need to pick up yield are increasing exposure to the semi-core sovereigns that have maintained their high ratings.”
Germany’s two-year yield fell three basis points, or 0.03 percentage point, this week to minus 0.042 percent at 5 p.m. London time yesterday. The zero percent note maturing in June 2014 gained 0.06, or 60 euro cents per 1,000-euro ($1,223) face amount, to 100.08.
Greeks Favor Renegotiation of Loan Even at Risk of Euro Exit (Source: Bloomberg)
Almost three-quarters of Greeks want Antonis Samaras’s coalition government to insist on a renegotiation of the terms of the country’s international loan agreement, an MRB poll showed. Of 1,011 people surveyed, 74 percent said the coalition should insist on discussing the terms, even if such talks lead to the prospect of Greece leaving the euro area, according to the poll in the Sunday edition of the Athens-based Real News newspaper and pre-released today. That compared with 15.5 percent who said the government should accept the current terms of Greece’s bailout without any talks, according to the poll. Samaras, the leader of the New Democracy party, formed a coalition government with the socialist Pasok party and Democratic Left after an election on June 17. The vote followed an inconclusive May 6 election that underlined concern Greece might have to abandon the euro.
Weidmann Says Weaker Outlook, Cheaper Oil Justify Rate Cut (Source: Bloomberg)
The worsening of the euro area’s economic prospects and the decline in oil prices justify this month’s interest-rate cut by the European Central Bank, Bundesbank President Jens Weidmann, who is also an ECB Governing Council member, was cited as saying in an interview published today in Het Financieele Dagblad. The outcome of the last summit of European leaders left room for interpretation and was damaging because it gave the impression the meeting was about only a collective-liability arrangement for banks, the Amsterdam-based newspaper cited Weidmann as saying. Euro-area nations “should discuss giving up sovereignty with the same openness as the question of how to resolve the debt problem collectively,” he told the paper.
The involvement of non-European Union organizations in trying to resolve the euro-zone crisis can help because it brings a neutral party to the table, but it can also be a concern because they don’t fully grasp the complexity of the issue, Weidmann said in response to a question about the role of the International Monetary Fund, according to the newspaper.
Gilts Gain as Europe Debt Crisis Spurs Safety Demand (Source: Bloomberg)
U.K. government bonds gained for a second week and the pound strengthened versus the euro amid signs the euro-region debt crisis is deepening. Ten-year gilt yields dropped to the lowest in six weeks as Moody’s Investors Service downgraded Italy’s bond rating by two levels and reiterated its negative outlook. Sterling climbed to the strongest since November 2008 against the euro as investors bet the U.K. economy will outperform after the Bank of England released details of a new lending program to limit contagion from the single-currency area. “People are very nervous over the outlook in the euro region,” said Charles Diebel, the head of market strategy at Lloyds Banking Group Plc in London. “That continues to drive demand for gilts.”
The U.K. 10-year yield fell four basis points, or 0.04 percentage point, this week to 1.55 percent. The 4 percent bond due in March 2022 gained 0.395, or 3.95 pounds per 1,000-pound face amount, to 121.875. The yield dropped to 1.505 percent on July 12, the lowest level since June 1. Gilts have returned 1.4 percent this month, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. They gained 17 percent over the past year as investors sought alternatives to euro-area assets.
Swiss Stocks Rise on China Stimulus Speculation (Source: Bloomberg)
Stocks in Switzerland advanced, paring weekly losses, as China’s economy slowed down for a sixth quarter, fueling speculation policy makers will add to stimulus measures. Cie. Financiere Richemont SA led gains, adding 3.7 percent. Adecco SA (ADEN) rose 2.6 percent after Morgan Stanley predicted a short-term price increase. Ems-Chemie (EMSN) Holding AG climbed 1.2 percent after the Swiss supplier of resins to General Motors Co. raised its 2012 sales and profit forecast. The Swiss Market Index (SMI) climbed 0.6 percent to 6,181.81 in Zurich, and closed little changed for the week. The benchmark gauge has rallied 8.2 percent since its 2012 low on June 4 as Greek leaders formed a government and global central banks added stimulus to boost growth. The broader Swiss Performance Index added 0.5 percent today.
“They’ve got a lot of scope for just conventional measures intended to stimulate demand,” Mike Lenhoff, chief strategist at Brewin Dolphin Securities Ltd. in London, said in a Bloomberg Television interview with Caroline Hyde. “I think with the determination of the Chinese to do that we are going to see some modest pickup in momentum in the second-half of the year.”
