Asia Stocks Swing From Loss, Gain Before Europe Meetings
Asian stocks swung between gains and losses as the European Union’s outlook was cut by Moody’s Investors Service ahead of meetings of the region’s policy makers today. Energy companies rose after oil advanced. The MSCI Asia Pacific Index was little changed at 117.68 as of 10:12 a.m. in Tokyo after falling as much as 0.3 percent and adding less than 0.1 percent.
China’s Stock Futures Rise on Government Stimulus Speculation
China’s stock-index futures rose as speculation for more government stimulus overshadowed Societe Generale SA predicting a weaker growth outlook and Goldman Sachs Group Inc. cutting its estimates for Chinese earnings. Futures on the CSI 300 Index (SHSZ300) expiring in September gained 0.2 percent to 2,238.4 at 9:28 a.m. in Shanghai as a front-page commentary in the China Securities Journal outlined possible new government stimulus measures. China Eastern Airlines Corp. may gain after saying it will boost capacity growth. China Vanke Co. may be active after the Beijing News reported the city’s new home inventory fell. Angang Steel Co. may move after the government set production capacities for producers. For stocks to rise, “we will need either a stabilised global economy or the Chinese government’s macro policy addressing stimulus or structural reform,” Peggy Chan and Vincent Chan, analysts at Credit Suisse Group AG, wrote in a report today.
The Shanghai Composite Index (SHCOMP) added 0.6 percent to 2,059.15 yesterday. The CSI 300 Index rallied 1.1 percent to 2,228.37. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong advanced 0.1 percent. Signs that China’s economic slowdown is deepening have dragged the Shanghai Composite down 7.5 percent this quarter. The gauge sank 2.7 percent in August, a fourth straight month of declines. That’s the longest streak since the five months through August 2004, according to data compiled by Bloomberg.
Japan Stocks Swing Between Gains, Losses on Euro Outlook
Japanese shares swung between gains and losses, with the Nikkei 225 (NKY) Stock Average trading near its lowest close in a month, after the European Union’s outlook was cut by Moody’s Investors Service and as Inpex Corp. led energy shares higher after it was rated a buy. Shimano Inc. (7309), a bicycle-parts maker that relies on Europe for about a third of its revenue, declined 1.2 percent. Inpex Corp. (1605), Japan’s biggest oil explorer, advanced 1.2 percent after Barclays Plc advised buying the shares and crude prices rose to the highest in a week. Toyota Motor Corp. sank 0.5 percent after the automaker’s sales in China dropped 15 percent last month. The Nikkei 225 fell 0.2 percent to 8,769.21 as of 10:30 a.m. in Tokyo, the lowest since Aug. 6. Volume was 14 percent above the 30-day average. The broader Topix Index lost 0.2 percent to 727.20 after rising as much as 0.2 percent.
The European Central Bank “is more likely to trigger action when they meet” in two days, said Matthew Sherwood, Sydney-based head of markets research at Perpetual Investments, which oversees about $25 billion. “Whether it’s comprehensive enough to keep sentiment strong and keep markets rallying is a different issue because in the end there’s not much central banks can do to address the global debt situation.” The Topix dropped 17 percent from this year’s peak on March 27 on concern Europe’s debt crisis is deepening as amid slowing economic expansion in China and the U.S. Stocks on the gauge were valued at 0.9 times book value, compared with 2.2 for the Standard & Poor’s 500 Index and 1.5 for the Europe Stoxx 600 Index. A number less than one means companies can be bought for less than the value of their assets.
Emerging Stocks Rise Most in Two Weeks on Stimulus Bets
Emerging-market stocks advanced, with the benchmark index posting the biggest gain in almost two weeks, as economic data from China to Poland fueled speculation central banks will take more steps to boost growth. The MSCI Emerging Markets Index rose 0.6 percent to 952.83 at 4:34 p.m. in New York, advancing the most since Aug. 21. Zijin Mining Group Co. (2899), China’s largest gold producer by market value, and OAO Severstal (CHMF), Russia’s second-biggest steel company, increased for the first time in seven days as stimulus speculation lifted metals. Brazil’s Bovespa Index rose 0.4 percent, snapping three days of losses. Chinese manufacturing shrank for the first time in nine months in August, while South Korea reported the slowest inflation in 12 years. Poland’s central bank has scope to cut interest rates, Governor Marek Belka said in a Bloomberg Television interview.
U.S. Federal Reserve Chairman Ben Bernanke signaled on Aug. 31 another round of bond purchases to support the world’s largest economy is possible. “More stimulus measures by the U.S., China and other countries will bolster investors’ sentiment in the equity markets,” saidVattana Vongseenin, chief executive officer of Bangkok-based Phillip Asset Management Co., which oversees about $20 million. “Still, the long-term global growth outlook remains very gloomy.”
European Stocks Advance With Metals on Stimulus Outlook
European stocks rose for a second day and copper advanced on speculation central banks will take more steps to boost growth as reports signaled the economic slowdown is deepening. Spain’s bonds gained and emerging-market shares climbed the most in two weeks. The Stoxx Europe 600 Index added 0.8 percent at 4:30 p.m. in New York, and the MSCI Emerging Markets Index jumped 0.6 percent. Standard & Poor’s 500 Index futures rose 0.3 percent and Brazil’s Bovespa Index snapped three days of declines. The U.S. market is closed for the Labor Day holiday. Spain’s two- year note yield fell 15 basis points to 3.51 percent. Sweden’s krona weakened against its 16 major peers. Copper gained 0.8 percent and nickel jumped 1.7 percent.
Euro-area manufacturing contracted more than initially estimated in August and China’s factory output unexpectedly shrank for the first time in nine months, according to reports from London-based Markit Economics today and a government survey in Beijing Sept. 1. Federal Reserve Chairman Ben S. Bernanke said Aug. 31 that he wouldn’t rule out more stimulus. European Central Bank President Mario Draghi may unveil details of his bond-purchase program after a policy meeting Sept. 6. “The door for further quantitative easing is clearly not shut and is very much dependent on what the near-term data tells us about the labor market trend,” Jim Reid, a strategist at Deutsche Bank AG in London, said in a research note. “Draghi’s press conference will likely be the highlight of the week with markets hoping for further guidance around the ECB’s bond purchasing program.”
Earnings Matter Most for U.S. Stocks as Economic Obsession Fades
Profits (SPX) are moving U.S. equity prices more than any time since the bull market began 3 1/2 years ago, rewarding investors for picking stocks based on company data instead of following the herd rocked by Europe’s debt crisis and the slowing U.S. economy. Companies in the Standard & Poor’s 500 Index rose or fell an average of 4.4 percent the day after releasing results since July, according to data compiled by Bloomberg. The last time they moved more was in the second quarter of 2009. Daily swings in the benchmark gauge narrowed to 0.4 percent last month from 2.2 percent a year ago, as economic and policy changes battered investors. More than 475 S&P 500 stocks moved in the same direction in six of the first nine days of August 2011, with all 500 down on Aug. 8.
Bulls say lockstep moves are diminishing because investors are changing their behavior, making choices based on corporate results at a time when analysts estimate profits for companies in the S&P 500 will rise almost 10 percent a year through 2014. Bears say the focus on earnings won’t bring back individuals who have drained more than $420 billion from U.S. equity mutual funds over the past four years even as stocks rallied 108 percent since March 2009 and net income was unchanged in the second quarter. “I’m not saying it’s an easy job to be a stock picker in this environment, but it’s certainly easier,” Sandy Lincoln, the Chicago-based chief market strategist with BMO Global Asset Management, which oversees about $100 billion, said in an Aug. 28 interview. “Stock selection does have the opportunity here to finally show a face with a smile.”
Yen Is Near 5-Week Highs Versus Aussie, Kiwi on Slowdown Concern
The yen traded within 0.2 percent of five-week highs against the Australian and New Zealand dollars as signs of a global economic slowdown increased the allure of the Japanese currency as a refuge. Japan’s currency held a three-day gain versus the greenback before data forecast to show U.S. factory activity failed to expand, following reports yesterday that said manufacturing in the euro area and China contracted. The dollar remained lower against the euro on bets the Federal Reserve will implement a third round of quantitative easing, which debases the U.S. currency. Demand for Australia’s dollar, the so-called Aussie, was limited before the Reserve Bank decides on policy today. “The yen tends to be bought in bids for safety,” said Junichi Ishikawa, a Tokyo-based analyst at IG Markets Securities Ltd. “The yen is strengthening against the Aussie on concerns China’s economy is slowing and it is strengthening against the dollar with the expectation of additional easing by the Fed.”
The yen traded at 80.19 per Australian dollar at 10:16 a.m. in Tokyo from 80.18 at the close yesterday, when it climbed to 80.07, the strongest since July 25. Japan’s currency touched 62.33 per New Zealand dollar, nicknamed the kiwi, the highest since July 26, before trading at 62.44. The yen fetched 78.37 per dollar from 78.26 in New York. It touched 78.19 on Aug. 31, the most since Aug. 13. Japan’s currency slid 0.2 percent to 98.71 per euro. The dollar was little changed at $1.2595 per euro. The Reserve Bank of Australia is forecast to keep the overnight cash-rate target at 3.5 percent today, according to all 24 economists surveyed by Bloomberg News.
Aussie-Yen to Drop on Retracement: Technical Analysis
The Australian dollar may be set for further declines against the yen as it tests a support area defined by a so-called Fibonacci retracement level, UBS AG said. The Aussie, as the currency is also known, has been testing 80.10 yen, the 38 percent Fibonacci retracement of its advance from a low of 74.48 on June 1 to a high of 83.58 on Aug. 21, Richard Adcock, head of fixed-income technical strategy in London, wrote in an e-mailed note to clients yesterday. The currency may head toward 79.54 yen to 79.03 yen, Adcock wrote. The 79.54 figure was the lowest level in July, while 79.03 is the Aussie’s 50 percent retracement level last seen on June 18, according to data compiled by Bloomberg. The Australian dollar-yen cross “has been under selling pressure,” Adcock wrote. “With the recent weakness seeing daily and weekly trending tools turn negative, the picture is bearish.”
Australia’s currency was little changed at 80.19 yen at 11:27 a.m. in Sydney from 80.18 yesterday, when it touched 80.07, the lowest since July 25. The Aussie has declined 1.8 percent since June 29 versus its Japanese counterpart, heading for its back-to-back quarterly losses since 2008. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low. A break below support, as levels where there may be orders to buy are known, indicates it may decline to the next level. Resistance is an area on a chart where sell orders may be clustered,
South Korean Bond Yields Fall to Record Lows, Won Drops
South Korea’s bond yields declined to all-time lows and the won weakened as data signaled an economic slowdown, boosting speculation the central bank will cut interest rates. Overseas sales contracted for a second month in August, factory output declined in July from the previous month and inflation cooled to a 12-year low last month, data showed in the past week. Eight out of eleven economists expect the Bank of Korea to lower the benchmark rate by 25 basis points to 2.75 percent at the Sept. 13 meeting after last month’s pause, according to a Bloomberg survey. The rest expect no cut. “Inflation now is not an obstacle to cutting rates, and data we saw at the end of August were gloomy,” said Yum Sang Hoon, a fixed-income analyst at SK Securities Co.in Seoul. “Bonds will be supported until the next rate meeting, and if we see a cut this month, another one may come within the year.”
The yield on the government’s 3.5 percent bonds due March 2017 fell one basis point, or 0.01 percentage point, to 2.82 percent as of 9:35 a.m. in Seoul, Korea Exchange Inc. prices show. That’s the lowest for a benchmark five-year note on data compiled by Bloomberg going back to August 2000. The rate for 3.25 percent notes due June 2015 fell one basis point to 2.74 percent. Three-year debt futures advanced 0.05 to 106.40 and the one-year interest-rate swap slipped one basis point to 2.81 percent. The won weakened 0.1 percent to 1,132.40 per dollar in Seoul, after touching a more than a one-week high of 1,129.73 yesterday, according to data compiled by Bloomberg. One-month implied volatility, a measure of exchange-rate swings used to price options, slid 18 basis points, or 0.18 percentage point, to 7.50 percent. The Kospi (KOSPI) index of shares fell 0.2 percent.
Treasury Yields Touch Month Lows Before ISM Factory Data
Treasury yields touched one-month lows before U.S. data forecast to show manufacturing is struggling to recover, fanning speculation the Federal Reserve will expand monetary easing. Rates slid on Aug. 31 after Fed Chairman Ben S. Bernanke said he wouldn’t rule out a third round of bond buying in so- called quantitative easing to spur growth. The policy-setting Federal Open Market Committee will next meet on Sept. 12-13. “Treasury yields will decline.” said Hiromasa Nakamura, who invests in U.S. debt from Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $41 billion. “The U.S. economy is very fragile.” The yield on 30-year debt reached 2.65 percent, the lowest since Aug. 7, and was at 2.66 percent as of 9:33 a.m. in Tokyo today, one basis point lower than the close on Aug. 31. The price of the 2.75 percent security maturing in August 2042 gained 6/32, or $1.88 per $1,000 face amount, to 101 25/32, according to Bloomberg Bond Trader prices.
The benchmark 10-year yield was little changed at 1.55 percent after falling to as low as 1.54 percent, a level unseen since Aug. 6. The Institute for Supply Management Inc.’s U.S. factory index for last month is estimated at 50, the dividing line between growth and contraction and compared with 49.8 in July, according to a Bloomberg News survey of economists. The report is due today. Speaking on Aug. 31 in Jackson Hole, Wyoming, Bernanke said the costs of “nontraditional policies” appear manageable when considered carefully. That implies Fed policy makers “should not rule out the further use of such policies if economic conditions warrant,” he said.
Obama Lays Foundation for Speech Stressing Choices
President Barack Obama was 1,600 miles away from delegates gathering at the Democratic National Convention, laying the foundation for a week in which he will draw sharp contrasts with Republican Mitt Romney. “They have tried to sell us this tired, trickle-down, you’re on your own, snake oil before,” Obama told 13,000 people gathered yesterday at the University of Colorado-Boulder. “Those ideas don’t work. They didn’t work then, they won’t work now. They did not create jobs. They did not cut the deficit.” For the incumbent, whose candidacy four years ago was fueled by a theme of hope and change, much of this week at the Democratic convention in Charlotte, North Carolina, will be about setting himself apart from Romney. “Nothing is going to be like 2008,” Obama’s chief political strategist David Axelrod said in an interview. Less about reigniting the enthusiasm of four years ago, the convention this week will focus more on sharpening the differences with Romney.
“Mitt Romney spoke for 45 minutes and never mentioned any of his proposals,” Axelrod said, referring to Romney’s convention speech last week in Tampa, Florida. Obama advisers insisted that the president’s focus won’t be predominantly negative and will reflect optimism that the economy will be better than the last four years.
Merkel, Monti Lead Diplomatic Push as Draghi’s Plan Takes Shape
European leaders are stepping up shuttle diplomacy this week as they brace for their central banker’s plan to defend the euro from bond-market turmoil. European Union President Herman Van Rompuy is traveling to Berlin for talks with German Chancellor Angela Merkel today as Italian Prime Minister Mario Monti welcomes French President Francois Hollande to Rome. They were all given a hint about what may be in store when European Central Bank President Mario Draghi told officials yesterday he would be comfortable buying three-year government bonds to bring down borrowing costs for nations in financial distress.
The stewards of the single currency, who have sparred as borrowing costs diverged in the 17 nation-euro area, have a chance to fall in line behind Draghi. Merkel, whose country shoulders the largest cost of bailing out weaker governments, has indicated she would back a more active crisis-fighting role at the ECB and yesterday told a crowd of beer drinkers in Bavaria that Germany must show solidarity with Europe. “I think there is broad agreement among these people,” said Luca Jellinek, head of European interest-rate strategy at Credit Agricole Corporate & Investment Bank in London. “Many people are realizing that monetary policy is broken in Europe, badly broken.”
The yield on Italian 10-year bonds declined 8 basis points yesterday to 5.77 percent. That was still 439 basis points more than the yield on similar maturity German bunds. Spain’s 10-year bond yields ended at 6.85 percent, near the 7 percent level that led Greece, Portugal and Ireland to seek bailouts.
Draghi Told Lawmakers ECB Can Buy Three-Year Bonds, MEP Says
European Central Bank President Mario Draghi told lawmakers he would be comfortable buying bonds with maturities of up to about three years, said Jean-Paul Gauzes, a member of the European Parliament. Purchasing short-dated bonds doesn’t constitute state financing, Draghi said during a closed-door parliamentary session in Brussels today, Gauzes told reporters afterwards. “He thinks it’s not a violation of the treaty and you can do it under the current legal framework,” said Gauzes, a French Christian Democrat. “He said for example three years is ok, 15 years no.” The euro rose against the dollar after the comments, which indicate Draghi may be in a position to announce details of the ECB’s new bond-purchase program after policy makers meet on Sept. 6. The European currency jumped more than a quarter of a cent to $1.2611 and traded at $1.2599 at 7:27 p.m. in Brussels, up 0.2 percent on the day.
Draghi said on Aug. 2 that the ECB was working on a bond- buying program to lower yields in countries such as Italy and Spain as long as they also ask Europe’s rescue fund to buy their debt. Germany’s Bundesbank opposes government bond purchases and the country’s constitutional court won’t rule on the legality of the permanent fund, the European Stability Mechanism, until Sept. 12.
Slowing Polish Economy May Force Tusk to Ease Budget Cuts
Poland’s slowing economy is putting pressure on Prime Minister Donald Tusk to ease deficit cuts to avoid the fate of other European Union nations where austerity measures to tackle the debt crisis helped suffocate growth. Tusk’s Cabinet will meet in Warsaw today to discuss a revised 2013 budget after the economy expanded at the slowest pace in 11 quarters in the three months through June. While Poland will stick to a plan to cut the 2012 budget gap within the EU’s limit of 3 percent of output, the slowdown means its “ambitious goal for a 2.2 percent deficit next year is out of the question,” Maja Goettig, a member of Tusk’s Council of Economic Advisers, said by phone on Aug. 31. “Everyone, including markets, would understand and maybe even appreciate it, if the government avoided excessively harsh austerity for the sake of growth, which is now key to financial stability,” said Goettig, who’s also a Warsaw-based strategist at KBC Securities.
Tusk, the first Polish premier to serve a second term since communism ended in 1989, must weigh EU deficit demands against concerns that further spending cuts may damp growth in the nation of 38 million people, whose GDP-per-capita is 40 percent below the 27-nation bloc’s average. While his Cabinet still enjoys broad support in polls, governments across Europe have collapsed after protests against austerity policies that helped plunge economies from Romania to Spain into recession.
London Luxury Homebuilding to Jump 70% on Foreigner Cash
Luxury-home builders plan to complete more than 15,000 houses and apartments in London over the next decade as demand from overseas encourages development outside the city’s traditional prime neighborhoods, according to EC Harris LLP. The 10-year development pipeline has increased 70 percent from a year earlier and companies now expect to construct homes with a sales value of 38 billion pounds ($60 billion), the consulting firm said in a report today. About 3,800 units are expected to be completed in 2016, more than seven times this year’s total of 500. “The pipeline now is pretty unprecedented,” Mark Farmer, head of residential property for EC Harris, said in an interview. “Follow where the money is and at the moment it’s in London prime.”
Home prices in London’s most expensive areas have gained 49 percent since a March 2009 low point and are now 14 percent above the previous peak in 2008, according to broker Knight Frank LLP. Investors from abroad, including the Middle East and mainland Europe, consider central London real estate a safe haven from economic and political unrest in their home markets. About 2 billion pounds worth of new luxury homes were sold in 2011 at developments such as One Hyde Park, Farmer said. The firm estimates sales of 10.2 billion pounds in 2016 and 8.5 billion pounds the following year.
Germany Sheltering Weary and Burdened Rejuvenates Siemens
After graduating from the National Technical University of Athens, Vlasios Ntizos spent months sending out as many as six resumes a day seeking work. His luck finally turned when he signed up for a apprenticeship at Siemens AG (SIE) in Berlin and nabbed a slot, beating more than other 1,000 compatriots to train for three years as an electrical engineer in the German capital. “I guess I am one of the chosen few,” Ntizos said during a break from dismantling electric plugs in the sprawling red- brick training center at Siemensstadt, the company’s main manufacturing complex. “For me, this is a great chance.” Ntizos, 25, is part of a team of 29 European youths who signed up at Germany’s biggest engineering company in search of a brighter future, the first time Siemens has made a concerted effort to add foreigners to its crop of apprentices in Germany. The European debt crisis has unleashed a wave of job seekers flocking to Germany, where a rigid trainee system churns out a steady stream of skilled professionals.
Germany’s apprenticeship programs and its renown as the standard bearer of quality manufacturing are helping companies rejuvenate their aging workforce with foreigners eager to escape economic malaise at home. Admitting foreigners promises to give German companies a reputational halo as Europe’s largest economy seeks to avoid the image of bullying laggards into austerity. The country’s vocational system combines practical training with classroom sessions and has companies pitching in, offering more than half a million high-school graduates annually hands-on education in hundreds of professions as a well-respected alternative to a university degree. With the government paying for the schools, the system has helped keep youth unemployment at 7.9 percent, the lowest rate in Europe, according to International Labor Organization data.
Euro-Area Manufacturing Output Contracts More Than Estimated
Euro-area manufacturing contracted more than initially estimated in August, suggesting the economy may struggle to avoid a recession in the third quarter. A gauge of manufacturing in the 17-nation euro area based on a survey of purchasing managers was revised lower to 45.1 from the reading of 45.3 estimated earlier, London-based Markit Economics said today. The index, which stood at 44 in July, has held for 13 months below 50, indicating contraction. European manufacturers are feeling the impact of the sovereign-debt crisis and tougher austerity measures that have undermined export and consumer demand. Euro-area economic confidence fell to a three-year low and inflation accelerated to 2.6 percent in August. The jobless rate held at a record 11.3 percent in July. “The euro-zone manufacturing sector remains firmly in contraction territory,” Rob Dobson, senior economist at Markit, said in the report. “The sector is on course to act as a drag on gross domestic product in the third quarter.”
The euro fell against the dollar on the purchasing-managers data and traded at $1.2569 at 10:44 a.m. in Brussels, down 0.1 percent on the day. The European currency has declined more than 11 percent in the past year.
Swedish Manufacturing Unexpectedly Shrinks as Orders Plunge
Sweden’s manufacturing unexpectedly shrank in August at the fastest pace since May 2009 as the krona’s appreciation sent export orders plunging amid sagging demand from debt-stricken Europe. The purchasing managers’ index fell to a seasonally adjusted 45.1 from 50.6 in July, Stockholm-based Swedbank AB (SWEDA), which compiles the gauge, said today. A reading below 50 signals a contraction. The index was seen falling to 50.1, according to the average estimate of 10 economists surveyed by Bloomberg. “Sweden won’t go unscathed through this period of an international slowdown,” said Roger Josefsson, chief economist at Danske Bank A/S in Stockholm. “In contrast to data that’s been published earlier, this is data that’s come in after the still recent strengthening of the krona.”
Sweden’s central bank, which is set to announce its next interest rate decision on Sept. 6, in July kept its key rate unchanged and pushed back tightening plans because of turmoil in Europe. The Nordic country relies on sales abroad for about half of its output and sends 70 percent of its exports to Europe where economies are contracting amid austerity measures. The krona fell 0.6 percent to 8.3893 per euro and 0.7 percent to 6.6724 per dollar as of 9:55 a.m. in Stockholm after strengthening more than 9 percent against the euro since May 17. The currency hit a 12-year high of 8.17 per euro last month as the largest Nordic economy emerged as a haven from Europe’s debt crisis. The PMI’s production sub-index fell to 45.8 from 54 while the order index fell to 41.1 from 51.2. The employment index declined to 45.1 from 47.7.
“This is an indication that things will look much weaker going forward,” Josefsson said. “This probably can’t be dismissed as a blip in the data since the reading was broad- based if one looks at the details of the release.”
