Asia FX By Cornelius Luca - Tue 16 Oct 2012 16:23:04 CT (Source:CME/www.lucafxta.com)
The appetite for risk improved markedly on Tuesday due to decent US data and earnings, and hopes the European Union's leaders will be able to deal with Spain and Greece's debilitating debt later this week. The Financial Times reported that Spanish government is prepared to officially request a bailout, but the plan is being delayed due to external factors including its possible influence on the decision of other Eurozone countries. All of the European and commodity currencies but the Canadian dollar closed up and the yen further down. The US stock markets advanced. Gold, oil and silver ended a little higher. The short-term outlook for most of the European and commodity currencies is sideways. The medium-term outlook for most of the foreign currencies is slightly bullish. The LGR short-term model is short on all foreign currencies. Good luck!
Overnight
US: Consumer Price Index rose 0.6% in September, the same as in August. The core CPI edged up 0.1% for a third month.
US: Net long-term TIC flows rose to $90.0 billion in August from $67.2 billion in July. Total net TIC flows rose to $91.4 billion from $74.0 billion.
US: Industrial production rose September after sliding a revised 1.4% in August. Capacity utilization edged up to 78.3% from 78.0%.
US: The NAHB Housing Market Index rose to 41 in October from 40 in September.
Canada: Canadian portfolio investment in foreign securities rose C$1.69 billion in August after falling C$4.56 billion in July.
Today's economic calendar
Australia: Westpac Leading Index for August
apan: Machine tool orders for September
Asian Stocks Advance as U.S. Production, Earnings Beat Estimates (Bloomberg)
Asian stocks advanced, with the regional benchmark index headed for the biggest two-day gain in a month, after U.S. industrial production and corporate earnings beat estimates. Mobile phone maker LG Electronics Inc. (066570), which gets about 30 percent of its sales in North America, rose 1.5 percent in Seoul. Advantest Corp. (6857), a Japanese maker of memory-chip testers, slid 1.1 percent after industry bellwether Intel Corp. forecast fourth-quarter profit margins that missed analyst estimates. Camera maker Canon Inc. (7751), which gets 31 percent of its revenue in Europe, rose 2.1 percent in Tokyo after Spain retained its investment-grade credit rating from Moody’s Investors Service. The MSCI Asia Pacific Index rose 0.8 percent to 122.57 as of 9:28 a.m. in Tokyo before markets in Hong Kong and China opened. More than five stocks gained for each that fell on the measure.
Japanese Stocks Rise on U.S. Industrial Output, Earnings (Bloomberg)
Japanese stocks gained after U.S. industrial production rose more than estimated and American companies reported better-than-expected earnings. The Nikkei 225 Stock Average (NKY) rose 0.7 percent to 8,760.69 as of 9:01 a.m. in Tokyo. The broader Topix climbed 0.7 percent to 737.47, with more than seven times as many shares advancing as falling.
Recap Stock Index Market Report (CME)
The December S&P 500 trended higher throughout the US trading session, supported by this morning's positive flow of corporate earnings and favorable economic readings. Goldman Sachs reported earnings that surpassed expectations on revenues that were double their year ago level, as well as raising their dividend by 9%. Financial sharers were also supported by reports that the CEO of Citigroup would step down immediately. Shares of Johnson & Johnson were up more than 1% on the session after better than expected Q3 earnings and after raising their full year profit outlook. Another force that could have added to the bullish fodder this morning was reports that Spain could be close to a partial credit line from the ESM. All of the major S&P sector indices were higher, with strong performances in materials and energy-related shares. The market gets two bell whether tech-related earnings after the close from Intel and IBM.
Emerging Stocks Gain Most in Month on U.S. Sales Data (Bloomberg)
Emerging-market stocks rose the most in three weeks after U.S. retail sales beat estimates and as a report showed German investor sentiment is improving, boosting prospects for exports. The MSCI Emerging Markets Index rallied 0.8 percent to 1,003.35 at the close of trading in New York, the biggest gain since Sept. 21. Samsung Electronics Co. surged the most in more than a month in Seoul. The Bovespa gained 0.2 percent as Vale SA (VALE3), the world’s biggest iron-ore producer, jumped on speculation infrastructure investments in China will boost the commodity. Turkey’s ISE National 100 Index (XU100) rose to the highest level in almost two years. The Commerce Department announced yesterday that retail sales in the U.S. climbed 1.1 percent in September, compared with the 0.8 percent expansion forecast by economists. German investor confidence gained for a second month in October, the ZEW Center for European Economic Research in Mannheim said today.
The 21 nations in MSCI’s developing-nations gauge send about 30 percent of their exports to the European Union and 13 percent to the U.S. on average, according to data compiled by the World Trade Organization. “There is positive news where there wasn’t two months ago,” Charles Robertson, global chief economist at Renaissance Capital in London, said by telephone. “There is a growing belief we might avoid a hard landing.”
German Stocks Rise as Investor Sentiment Tops Forecasts (Bloomberg)
German stocks advanced for a second day, the first back-to-back gains in more than a month, as investor confidence exceeded economists’ forecasts. Deutsche Bank AG (DBK) and Commerzbank AG (CBK), Germany’s biggest lenders, increased at least 4 percent as a gauge of banks led gains in the Stoxx Europe 600 Index. (SXXP) Volkswagen AG (VOW) rose 1 percent as Exane BNP Paribas boosted its price estimate on the shares. Wacker Chemie AG (WCH) dropped as Deutsche Bank downgraded the world’s fourth-largest supplier of polysilicon to the microchip and solar-cell industries. The DAX Index (DAX) climbed 1.6 percent to 7,376.27 at the close of trading in Frankfurt, the biggest gain since Sept. 6. The benchmark gauge has rallied 24 percent from this year’s low on June 5 as European Central Bank policy makers approved an unlimited bond-buying program and the U.S. Federal Reserve started a third round of asset purchases. The broader HDAX Index also soared 1.6 percent today.
“Banking and technology stocks have been the strongest today,” said Raimund Saxinger, a fund manager at Frankfurt- Trust Investment GmbH, which oversees about $22 billion. “With banks, there has been a continuation of the normalization since August after the announcement from the ECB put a floor underneath banks, removing extreme downside risk.” The ZEW Center for European Economic Research in Mannheim said its index of German investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to minus 11.5 this month from minus 18.2 in September. Economists forecast an increase to minus 14.9, according to the median of 36 estimates in a Bloomberg survey.
U.K. Stocks Rally on Spain Funding Talk; Lloyds, Rio Rise (Bloomberg)
U.K. stocks rallied, led by banks and mining companies, as two German lawmakers said the country is open to Spain’s seeking a credit line and as U.S. industrial- production data topped economists forecasts. Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc (RBS) led a gauge of British lenders to the highest in more than a year. Rio Tinto Group rose 2.7 percent after reporting an increase in iron-ore output and as base metals climbed in London. Bellway (BWY) Plc surged to the highest since 2007 after posting a 58 percent jump in annual profit. The FTSE 100 (UKX) Index advanced 68.37 points, or 1.2 percent, to 5,873.98 at 3:59 p.m. in London, on track for the biggest two-day gain in a month. The gauge added 0.2 percent yesterday after better-than-forecast U.S. retail-sales data. The broader FTSE All-Share Index increased 1.2 percent today and Ireland’s ISEQ Index climbed 0.4 percent.
Bank stocks rallied in Europe after two German lawmakers said Germany is open to Spain’s seeking a precautionary credit line from the euro-area rescue fund, signaling a reversal of German Finance Minister Wolfgang Schaeuble’s public position. The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain. Schaeuble cautioned Spain against seeking aid on top of its bank bailout as recently as last month.
Europe Stocks Rise as Germany Open to Spanish Credit Line (Bloomberg)
European (SXXP) stocks rose as two German lawmakers said the country is open to Spain seeking a precautionary credit line from Europe’s rescue fund, and German investor confidence advanced more than expected in October. BNP Paribas SA and Deutsche Bank AG (DBK) paced gains among banking shares. Rio Tinto Group rose 2.9 percent after the mining company posted third-quarter iron-ore output that beat analyst projections. GKN Plc fell 3.4 percent after forecasting weaker demand in Europe. The Stoxx Europe 600 Index climbed 1.3 percent to 274.38 at the close of trading, the first time the benchmark gauge has risen for two straight days since Sept. 12. It has rallied 17 percent from a June 4 low as European Central Bank policy makers agreed on an unlimited bond-buying plan and the Federal Reserve announced a third round of quantitative easing.
European stocks will “stay positive for the rest of the year, with a limited upside of 5-6 percent,” Benoit Peloille, equity market strategist at Natixis, told Maryam Nemazee in a Bloomberg Television interview. “As the political risk premium will be corrected in a few weeks, the markets can re-focus on the growth issue.” Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, two senior coalition lawmakers said. The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, signal a reversal of Finance Minister Wolfgang Schaeuble’s position that Germany is opposed to a full sovereign bailout for Spain.
Stimulus Bets Stoke Longest Advance Since March: China Overnight (Bloomberg)
Chinese equities in the U.S. climbed for a fifth day, the longest stretch of gains since March, on prospects slowing inflation will allow policy makers to take further steps to stimulate the economy. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese companies in New York climbed 0.7 percent to 95.39 yesterday, the highest close since May 14. Spreadtrum Communications Inc. (SPRD) rose to a one-month high after Credit Suisse Group AG said the mobile chipmaker was a good buy, and Youku Tudou Inc. (YOKU) had the strongest gain in three months. Huaneng (902) Power International Inc. traded at the highest premium to the Hong Kong share in two months as BNP Paribas SA upgraded the stock.
Chinese consumer prices rose 1.9 percent from a year earlier in September, an Oct. 15 government report showed, 10 basis points off the slowest pace in two years. The Bloomberg China-US gauge added 4.6 percent in September, the biggest monthly advance since February, on speculation China’s new leaders to be announced on Nov. 8 will build on this year’s reductions in interest rates and bank reserve ratios with further measures to stoke growth. “Falling inflation will allow the government to take more stimulus measures,” Sam Mahtani, who oversees about $5 billion as director of emerging markets at F&C Asset Management Plc (FCAM), said by phone from London yesterday. “We expect stimulus will mainly come from cuts in reserve requirement ratios. Emerging- market stocks, including the Chinese, will see an uptrend in the next 12 months.”
Treasuries Fall After Moody’s Affirms Spain Rating (Bloomberg)
Treasuries fell for a third day as Spain kept its investment grade debt rating from Moody’s Investors Service, curbing demand for the safest assets. U.S. government debt tumbled the most in a week yesterday as Germany signaled it may be open to a bailout for Spain. Benchmark 10-year yields increased two basis points, or 0.02 percentage point, to 1.74 percent as of 9:19 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 1.625 percent security due in August 2022 fell 6/32, or $1.88 per $1,000 face amount, to 98 30/32. Moody’s assigned a negative outlook on Spain’s Baa3 sovereign debt, one step above junk, the New York-based company said in a statement yesterday.
Euro Touches Month-High on Spain Optimism Before Summit (Bloomberg)
The euro advanced to a one-month high on speculation Spain will move toward seeking financial assistance, helping contain Europe’s debt crisis. The 17-nation currency rose versus all of its 16 major counterparts after Moody’s Investors Service said yesterday it held the nation’s investment grade credit rating. European Union leaders will hold a summit in Brussels this week. The yen was 0.1 percent from its lowest level in a month after an advance in equities worldwide curbed appetite for haven assets. “The euro is rising amid speculation Spain will request a precautionary credit line,” said Masato Yanagiya, head of currency and money trading in New York at Sumitomo Mitsui Banking Corp. “Expectations are rising before the EU summit.”
The euro gained 0.5 percent to $1.3115 at 8:34 a.m. in Tokyo after touching $1.3124, the highest since Sept. 17. It reached 103.52 yen, the most since Sept. 19, before trading at 103.45. Japan’s currency was at 78.88 per U.S. dollar from 78.89 yesterday, when it slid to 78.97, the least since Sept. 19. The Standard & Poor’s 500 Index of shares added 1 percent yesterday. The Stoxx Europe 600 Index gained 1.3 percent. Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, two senior coalition lawmakers said yesterday. The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain and signaled a reversal of Finance Minister Wolfgang Schaeuble’s public position.
Moody’s said in a statement yesterday it assigned a negative outlook on Spain’s Baa3 sovereign debt as it concluded the review for possible further downgrade of the country’s rating that it had initiated in June. Spain will sell bonds due in 2022, 2016 and 2015 tomorrow. The nation’s 10-year yield fell one basis point to 5.81 percent yesterday after an auction of bills beat the maximum target.
Aussie Climbs to 2-Week High as Spain Bailout Bets Boosts Risk (Bloomberg)
The Australian dollar climbed to its highest level in two weeks and government bonds fell as speculation Spain is closer to requesting a sovereign bailout spurred appetite for riskier assets. New Zealand’s currency rebounded from the biggest drop in two weeks after the debt-saddled European nation yesterday retained its investment-grade credit rating from Moody’s Investors Service, easing concern that the region’s debt crisis will worsen. Demand for the so-called Aussie and kiwi dollars was also supported as Asian stocks joined a global rally amid signs the U.S. economy is gaining momentum. The Australian dollar rose 0.3 percent to $1.0309 as of 11:46 a.m. in Sydney. It earlier touched $1.0315, the strongest since Oct. 2. The Aussie gained 0.2 percent to 81.22 yen. The New Zealand dollar climbed 0.4 percent to 81.75 U.S. cents, after dropping 0.5 percent to 81.41 yesterday. It rose 0.3 percent to 64.40 yen.
“There certainly has been a lot of smoke around a Spanish bailout deal in recent trading sessions and I think there is a rising sense that that is coming soon,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. in Sydney. “That probably means we take the pressure off Aussie in the short term.” The MSCI Asia Pacific Index (MXAP) of shares advanced 0.9 percent after the Standard & Poor’s 500 Index of U.S. stocks added 1 percent yesterday and the Stoxx Europe 600 Index gained 1.3 percent. Australian bonds declined, pushing the yield on 10-year debt up by 12 basis points, or 0.12 percentage point, to 3.14 percent. It earlier reached 3.16 percent, the highest since Sept. 25.
U.S. Industrial Production Rises in Stabilization Sign (Bloomberg)
American manufacturers churned out more appliances, clothing and construction supplies in September, indicating a mainstay of the early part of the economic expansion is regaining its footing. Output at factories, mines and utilities rose 0.4 percent, beating the median forecast of economists surveyed by Bloomberg, after a 1.4 percent drop in August that was the biggest since March 2009, according to data from the Federal Reserve issued today in Washington. Other reports showed there was little inflation outside of fuel costs and homebuilder confidence climbed to a six-year high. The biggest back-to-back gain in retail sales in almost two years points to a pickup in consumer spending that may help offset a pullback in business investment. At the same time, a global slowdown that is hurting exports represents a hurdle for manufacturing.
“The economy is regaining momentum it appeared to have lost in the spring,” said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh who correctly forecast the production gain. “I don’t think manufacturing is down for the count.” Shares climbed as corporate earnings topped estimates. The Standard & Poor’s 500 Index rose 1 percent to 1,454.92 at the close in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 1.72 percent from 1.66 percent late yesterday.
International Demand for U.S. Assets Rises on Europe (Bloomberg)
International purchases of U.S. financial assets rose in August as investors sought shelter from the debt crisis in Europe, boosted by purchases from France, the U.K. and China. Net buying of long-term equities, notes and bonds totaled $90 billion during the month, up from net purchases of $67.2 billion in July, the Treasury Department said today in Washington. Economists surveyed by Bloomberg projected net buying of $48 billion of long-term assets, according to the median estimate. “This report underscores the healthy demand for U.S. Treasury assets globally as the European uncertainty continues to weigh on investors’ sentiment,” Millan Mulraine, senior U.S. strategist for TD Securities in New York, said after the report was released.
U.S. assets have maintained their attraction as European leaders struggle to resolve differences on renewed aid for Greece and as Spain holds out on tapping a bailout. The International Monetary Fund’s decision this month to cut its forecast for world economic growth to 3.3 percent this year and 3.6 percent for 2013 may further increase the lure of U.S. assets as a safe-haven investment.
Confidence Among U.S. Homebuilders Climbs for a Sixth Month (Bloomberg)
Confidence among U.S. homebuilders climbed for a sixth straight month in October, adding to signs the real-estate market is healing. The National Association of Home Builders/Wells Fargo builder sentiment index increased to 41 this month, the highest since June 2006, from 40 in September, according to figures from the Washington-based group released today. The median forecast in a Bloomberg survey of economists called for an increase to 41. Readings below 50 mean more respondents said conditions were poor. Record-low borrowing costs are helping sustain sales for homebuilders such as Hovnanian Enterprises Inc. (HOV) Strict credit standards and slowing payroll growth remain obstacles for the industry that was at the center of the financial crisis. “Many builders are reporting increases in the number of serious buyers visiting their sales offices,” Barry Rutenberg, chairman of the NAHB and a builder from Gainesville, Florida, said in a statement.
Estimates of 49 economists in the Bloomberg survey ranged from 40 to 43. The gauge, which was first published in January 1985, averaged 54 in the five years leading to the recession that started in December 2007. It reached a record low of 8 in January 2009. An index of single-family home sales was unchanged at 42 this month. A measure of buyer traffic jumped five points to 35, its highest level since April 2006.
U.S. Consumer Prices Rose in September on Cost of Fuel (Bloomberg)
The cost of living in the U.S. rose in September for a second month, reflecting a jump in energy expenses that failed to trickle through to other goods and services. The consumer-price index increased 0.6 percent for a second month, the Labor Department reported today in Washington. Economists surveyed by Bloomberg had forecast a 0.5 percent advance. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.1 percent, less than projected. Companies such as Abercrombie & Fitch Co. (ANF) and Safeway Inc. (SWY) are among those saying price increases are difficult to achieve as 12.1 million Americans remain unemployed and rising fuel bills eat into workers’ paychecks. The lack of pricing power is one reason the Federal Reserve eased policy further to focus on jump-starting employment.
“There isn’t any meaningful risk of short-term core inflation,” said Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who correctly forecast the gain in core prices. “When it comes to everyday goods and services, the lack of demand just isn’t going to push prices higher.” Treasuries remained lower after the report. The benchmark 10-year yield climbed four basis points, or 0.04 percentage point, to 1.71 percent at 9:50 a.m. in New York, according to Bloomberg Bond Trader prices.
Shrinking China Job Needs Show Why GDP Slowdown May Be Tolerated (Bloomberg)
The slowdown in China’s economy isn’t making it any easier for Liu Fengling to hire 10 experienced welders this year for his heating-equipment maker. Liu has managed to find just three employees even with the economy in its deepest slowdown since the global financial crisis. “The scenario when migrant workers will throng around your desk after you hang the job poster is long gone,” said Liu, 46, whose company is in the southern city of Zhuhai. “It’s getting worse year by year.” The world’s second-biggest economy probably expanded 7.4 percent in the third quarter from a year earlier, according to the median estimate in a Bloomberg News survey of 43 economists before data due in Beijing tomorrow. That’s the slowest pace since the first quarter of 2009 and the seventh straight quarterly deceleration.
Liu’s story helps explain why the ruling Communist Party hasn’t rolled out a stronger monetary and fiscal policy response as officials watch for signs that the economy is stabilizing. While the government has this year described the labor market as “grim,” pressure for job creation is lessening as the one-child policy introduced in 1979 caps new entrants to the workforce. As recently as 2010, Premier Wen Jiabao said that an 8 percent expansion was necessary for “basic stability of employment,” and anything lower will create “problems,” according to the party’s Qiushi magazine.
Labor Resilience
“With China’s shifting demographics, that benchmark should shift as well,” said Louis Kuijs, chief China economist for Royal Bank of Scotland Plc in Hong Kong, who previously worked for the World Bank in Beijing. Labor market resilience “reduces the perceived urgency of a major policy response,” he said. The working age population is growing at 0.5 percent a year now, one-third the pace of 10 years ago, Kuijs estimates. That means the benchmark growth rate may be 7 percent, he said. China unleashed a 4 trillion yuan ($586 billion at the time) stimulus package and an unprecedented bank lending spree at the end of 2008 to shield the economy from the global financial crisis, as a collapse in exports led to about 20 million migrant workers losing their jobs. The central bank cut interest rates five times in four months and lowered lenders’ reserve requirements three times in the final quarter of 2008.
This time the response is more muted, with bank reserve requirements cut three times since November, interest rates reduced in June and July, and a speeding of investment approvals.
Chinese Show Deepening Concern at Officials’ Corruption (Bloomberg)
Chinese people are increasingly worried about growing income inequality and official corruption, according to a Pew Research Center survey released weeks before a once-a-decade leadership transition. Forty-eight percent of 3,177 adults surveyed said the gap between rich and poor in China is a “very big problem,” up seven percentage points from a 2008 survey, the Pew Global Attitudes Project found. Fifty percent said official corruption was a very big problem, compared with 39 percent four years ago. The poll had a margin of error of plus or minus 4.3 percentage points. The poll results reflect growing public disenchantment with a rich-poor divide that has widened as growth accelerated, averaging 10.1 percent since 1981. Even as China has succeeded in lifting hundreds of millions of people out of poverty, high- profile corruption cases among business and government leaders have exacerbated social tensions ahead of the leadership change.
“While the Chinese have consistently rated their national and personal economic situations positively over the last few years, they are now grappling with the concerns of a modern, increasingly wealthy society,” the survey said. “As China prepares for its once-in-a-decade change of leadership, their country faces serious and growing challenges.” The survey was conducted as the biggest political scandal in a generation was unfolding in China, the sacking of Bo Xilai from his post as a regional party boss and removal from the ruling Politburo. Chinese authorities allege that he was involved in the murder of a British businessman, accepted bribes and maintained improper sexual relations with other women.
Goldman Sachs’s O’Neill Sees Bank of BRICS Gathering Momentum (Bloomberg)
Leaders from the world’s biggest emerging markets are moving closer toward establishing a development bank of their own, according to Goldman Sachs Asset Management Chairman Jim O’Neill. The so-called BRICS nations of Brazil, Russia, India, China and South Africa have spent the year considering an Indian proposal for a multilateral bank that would be exclusively funded by those nations and finance projects in them. While the Chinese have been “scratching their head” about whether to support it, they may decide to if rich nations continue to prove slow in backing a shift in voting power toward emerging economies at the International Monetary Fund, O’Neill told Tom Keene at the Bloomberg Link FX Summit in London yesterday. “The Chinese could jump ship,” said O’Neill, who devised the BRIC term a decade ago. The U.S. has so far failed to ratify a 2010 agreement that would give more strength to emerging markets at the IMF and make China the third most powerful member.
Negotiations over a 2014 shift in voting rights are already subject to disagreement over how to calculate the reshuffle. O’Neill said China is shifting to a better “quality” of growth from a previous focus on “quantity,” and its economy will now expand between 6 percent and 8 percent. “China are telling us they’re happy to have less growth going forward,” said O’Neill, who added he expected more reform to the nation’s economy and financial system.
S&P Cuts Santander, BBVA Ratings on Spain Downgrade (Bloomberg)
Standard & Poor’s cut its credit ratings on Banco Santander SA (SAN) and Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s largest lenders. The shares surged on speculation the country is edging toward a bailout. Santander’s long-term counterparty credit rating was lowered two levels to BBB with a negative outlook, from A-, and BBVA’s rating was cut to BBB- from BBB+, S&P said in a statement today. The firm also cut the ratings of nine other banks and placed six on creditwatch negative. Last week’s reduction of Spain’s sovereign debt rating to BBB-/A-3 also affected the assessment of lenders ranked higher than the country and those whose ratings assumed government support, S&P said. Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, said Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, signaling a reversal of Finance Minister Wolfgang Schaeuble’s position.
Santander rose 4.3 percent to 6.06 euros at 5:30 p.m. in Madrid, the biggest gain since Sept. 6. BBVA advanced 6 percent to 6.31 euros. Bankinter SA (BKT) jumped 7.4 percent to 3.12 euros.
Germany Open to Spanish Precautionary Credit, Lawmakers Say (Bloomberg)
Germany is open to Spain seeking a precautionary credit line from Europe’s rescue fund, two senior coalition lawmakers said, signaling a reversal of Finance Minister Wolfgang Schaeuble’s public position. The comments by Michael Meister, a deputy caucus leader of Chancellor Angela Merkel’s Christian Democratic bloc, and Norbert Barthle, her party’s budget spokesman, indicate a rolling back of German resistance to a full sovereign bailout for Spain. Schaeuble cautioned Spain against seeking aid on top of its bank bailout as recently as last month. or Spain, where Prime Minister Mariano Rajoy’s government has said it won’t request aid until the terms are clearer, a precautionary credit line “would be a possible move,” Barthle said today in a text message. The 500 billion-euro ($650 billion) permanent rescue fund, the European Stability Mechanism, which came into force on Oct. 8, “envisages help for sectors in the economy with limited conditionality.”
The views of German lawmakers are critical because they would have to ratify any aid request under parliamentary rules. Spain has cited concern of German rejection for its reluctance so far to seek bailout funds, a condition for triggering European Central Bank help to lower borrowing costs.
German Investor Sentiment Rose in October on ECB Plan (Bloomberg)
German investor confidence gained for a second month in October as the European Central Bank’s plan to buy government bonds fueled speculation that the sovereign debt crisis can be contained. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, climbed to minus 11.5 from minus 18.2 in September. Economists forecast an increase to minus 14.9, according to the median of 36 estimates in a Bloomberg News survey. Germany’s benchmark DAX share index has rallied more than 10 percent since ECB President Mario Draghi pledged on July 26 to do whatever it takes to preserve the euro and unveiled an unlimited bond-purchase program. While the German economy, Europe’s largest, is also outperforming its euro-area counterparts, there are signs that the crisis is damping growth. Factory orders fell more than forecast in August and business confidence dropped to a 2 1/2 year low in September.
“The improvement was primarily driven by investor relief at the ECB’s unlimited bond-purchase program,” said Carsten Brzeski, senior European economist at ING Group in Brussels. “However, it also points to a soft landing for the German economy. The outlook is more subdued, but we won’t have a recession.”
Spain Retains Investment Grade Credit Rating From Moody’s (Bloomberg)
Spain kept its investment grade credit rating from Moody’s Investors Service, which cited a reduction in the risk of losing market access because of the European Central Bank’s willingness to buy the nation’s debt. Moody’s assigned a negative outlook on the Baa3 sovereign debt, one step above junk, as it concluded the review for a possible further downgrade of Spain’s rating that it had initiated in June, the New York-based company said in a statement yesterday. Spain avoided joining euro-region peers Cyprus, Portugal, Ireland and Greece as being rated below investment grade. Standard & Poor’s has a negative outlook on its BBB- rating, also one step above junk, and Fitch Ratings has Spain at BBB, two levels higher than junk. The willingness of the ECB to purchase Spain’s government bonds in the secondary market “is an important step” for Spain to maintain access to credit markets, Kathrin Muehlbronner, a Moody’s analyst in London, said in a telephone interview.
She said she expects Spain to request a precautionary credit line from the European Stability Mechanism, the region’s permanent rescue fund “to be able to activate the ECB purchases in the secondary market.”
