Asian Stocks Advance on U.S. Employment, Manufacturing (Bloomberg)
Asian stocks rose after reports on U.S. employment and manufacturing topped estimates and consumer confidence in the world’s largest economy climbed last month to a more than four-year high. BHP Billiton Ltd. (BHP), the world’s largest mining company, climbed 1.9 percent. Komatsu Ltd. (6301), the second-biggest maker of construction and mining equipment, rose 2.8 percent. Sharp Corp. (6753) slumped 4.1 percent after the TV maker forecast a record loss and said there was “material doubt” about its survival. The MSCI Asia Pacific Index (MXAP) gained 0.5 percent to 122.46 as of 9:08 a.m. in Tokyo before markets the open of markets in China and Hong Kong. The gauge climbed 7 percent this year through yesterday as central banks around the world boosted stimulus to support economic growth. The measure has risen 0.8 percent this week.
“Global indicators are starting to show an improvement in momentum, particularly in the U.S.,” said Nader Naeimi, Sydney- based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages almost $100 billion. “This can be sustained if central banks keep supporting growth.” Japan’s Nikkei 225 Stock Average (NKY) gained 1.2 percent, Australia’s S&P/ASX 200 Index rose 0.4 percent and South Korea’s Kospi climbed 1.1 percent.
Japanese Stock Futures Climb on U.S. Jobs, Manufacturing Data (Bloomberg)
Japanese stock futures and Australian equities rose after reports on U.S. employment and manufacturing topped estimates and consumer confidence in the world’s largest economy climbed last month to a more than four-year high. BHP Billiton Ltd. (BHP), the world’s largest mining company, climbed 1.8 percent to lead gains among companies whose earnings are most tied to economic swings. American Depositary Receipts of Komatsu Ltd. (6301), the second-biggest maker of construction and mining equipment, rose 1.7 percent. ADRs of Sharp Corp. (6753) slumped 11 percent after the TV maker forecast a record loss and said there was “material doubt” about its survival. Futures on Japan’s Nikkei 225 Stock Average expiring in December closed at 9,055 in Chicago yesterday, up from 8,950 in Osaka. They were bid in the pre-market at 9,050 in Osaka, at 8:05 a.m. local time. Australia’s S&P/ASX 200 Index (AS51) advanced 0.3 percent today, while New Zealand’s NZX 50 Index retreated 0.3 percent in Wellington.
“Global indicators are starting to show an improvement in momentum, particularly in the U.S.,” said Nader Naeimi, Sydney- based head of dynamic asset allocation at AMP Capital Investors Ltd., which manages almost $100 billion. “This can be sustained if central banks keep supporting growth.” Futures on the Standard & Poor’s 500 Index were little changed today. The gauge yesterday gained 1.1 percent, its biggest advance in seven weeks.
U.S. Stocks Rally Most in 7 Weeks Amid Economic Optimism (Bloomberg)
U.S. stocks rose, giving benchmark indexes their biggest advance in seven weeks, as reports on employment and manufacturing topped estimates while consumer confidence climbed in October to a more than four-year high. Eight of 10 groups in the Standard & Poor’s 500 Index advanced. Caterpillar Inc., Microsoft Corp. and Bank of America Corp. (BAC) climbed more than 3.4 percent to lead gains in the Dow Jones Industrial Average. Visa Inc. (V) rose 3.7 percent after reporting fourth-quarter profit that beat analysts’ estimates. Macy’s Inc. (M) climbed 6.4 percent after raising its sales forecast. Pfizer (PFE) Inc. lost 1.3 percent after the world’s largest drugmaker narrowed its forecast for 2012. The S&P 500 (SPX) gained 1.1 percent to 1,427.59 in New York. The Dow advanced 136.16 points, or 1 percent, to 13,232.62. Both gauges posted their biggest advance since Sept. 13. Volume for exchange-listed stocks in the U.S. was about 6.8 billion shares, or 14 percent above the three-month average.
“One of the major concerns of the market is a deceleration of growth,” Mark Freeman, who oversees about $14 billion as chief investment officer at Westwood Holdings Group Inc. in Dallas, said in a phone interview. “The data is actually saying that deceleration has basically stopped and the growth rate has stabilized. When we look at fundamentals, the economy still supports earnings growth going into next year.”
Recap Stock Index Market Report (CME)
The December S&P 500 trended higher throughout the US trading session and broke out of recent congestion in the process. Stocks drafted support during the initial morning hours following a round of upbeat economic readings. Further upside action above 1420.00 came from data that showed a greater than expected rate of expansion in US manufacturing, as well as a jump in Consumer Confidence to a new four year high. Some traders noted strong gains in the shares of Allstate and Visa following yesterday's better than expected earnings reports as another source of support. It also seemed that this morning's US favorable labor market data bolstered the case for a positive October Non-Farm Payroll report tomorrow. Upside leadership during the session came from solid gains in industrial and material-related shares. The market receives the latest earnings from Starbucks after the close.
European Stocks Rise Most in Two Weeks on U.S. Reports (Bloomberg)
European (SXXP) stocks advanced the most in two weeks amid better-than-forecast U.S. economic reports and a rebound in Chinese manufacturing. Etablissements Maurel & Prom led the rally, surging 8.3 percent after three people familiar with the matter said China Petrochemical Corp. is considering a takeover offer for the French oil explorer. British Sky Broadcasting Group Plc climbed 7.1 percent after first-quarter operating profit beat analyst estimates. Croda International Plc (CRDA), the world’s second-largest maker of cosmetic ingredients, dropped 1.3 percent. The Stoxx Europe 600 Index rose 1.3 percent to 273.7 at the close in London, its biggest gain since Oct. 16. The benchmark completed its fifth monthly rally yesterday and has surged 17 percent from this year’s low on June 4 as European Central Bank policy makers agreed on an unlimited asset-purchase program and the Federal Reserve announced a third round of quantitative easing.
“October is behind us and as the new month begins, market sentiment may get more positive again in terms of price action,” said Serge Berger, a Zurich-based trader at Blue Oak Advisors LLC. “With the U.S. earnings season mostly behind us, any news here such as today’s decent economic data should help support prices.” Labor Department data showed fewer Americans than forecast filed first-time claims for unemployment insurance last week, while a private report based on payrolls showed U.S companies expanded payrolls in October by the most in eight months.
Most Emerging Stocks Rise After China PMI Data (Bloomberg)
Emerging-market stocks rose the most in a week as data showed manufacturing in China and the U.S. expanded, boosting the outlook for the world’s largest economies. Petrochemicals maker Braskem SA led Brazilian producers higher amid a rally in global commodities prices. Titan Industries Ltd. (TTAN), India’s largest branded-jewelry maker, surged to a record high after second-quarter profit beat estimates. Zoomlion Heavy Industry Science & Technology Co., China’s second-biggest maker of construction equipment, gained 3.4 percent in Hong Kong. Hyundai Motor Co. (005380) slid to the lowest in almost eight months on speculation it may need to recall some vehicles in the U.S.
The MSCI Emerging Markets Index gained 0.4 percent to 999.63 at the close of trading in New York. A purchasing managers’ index in China signaled that manufacturing expanded for the first time in three months, adding to signs the economy is rebounding after a seven-quarter slowdown. The Institute for Supply Management’s U.S. factory index rose to 51.7 in October from 51.5 a month earlier, surpassing a median estimate of 51 by 88 economists surveyed by Bloomberg. “The Chinese PMI was better than expected, above 50, which is the threshold between contraction and expansion. The market is looking to China, and the PMI came in handy,” said Darwin Dib, the chief strategist at CM Capital Markets Asset Management in Sao Paulo. The U.S. PMI and jobs numbers were also “slightly above forecast,” Dib said. Fewer Americans than forecast filed for jobless claims last week, and companies expanded payrolls in October by the most in eight months, data from the Labor Department and the ADP Research Institute showed today.
ETF Surges as Manufacturing Index Propels Gains (Bloomberg)
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed to a six-month high as expanding factory output added to signs the economy is awakening from a seven-quarter slowdown. The iShares FTSE China ETF rallied 2.6 percent to $37.75 yesterday, the strongest since May 3. Qihoo 360 Technology Co. (QIHU) drove a 2.1 percent surge in the Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese stocks in New York. AsiaInfo-Linkage Inc. (ASIA), a software developer mulling a buyout proposal, soared 6.5 percent after issuing a fourth-quarter forecast that beat analysts’ estimates. China Petroleum and Chemical Corp. traded at the widest premium to its Hong Kong shares since September.
Chinese manufacturing expanded for the first time in three months in October as output rose and new orders came in, a purchasing managers’ index released yesterday by the government and the China Federation of Logistics and Purchasing showed. Coupled with reports last month showing industrial production rebounded and retail sales rose the most in six months, the data bolsters the outlook for the world’s largest exporter. “Investors were looking for some signs of stabilization in the growth, and the purchasing managers’ index is one of those signs,” Audrey Kaplan, lead manager of the $532 million Federated InterContinental Fund at Federated Global Investment Management, said by phone in New York yesterday. “People’s confidence in Chinese equities is picking up. It looks like the beginning of a rally.”
Dollar Climbs as Data Support Economic Outlook (Bloomberg)
The dollar gained against the yen and euro as U.S. initial jobless claims declined to the fewest in three weeks and a measure of manufacturing activity rose more than forecast, adding to evidence the economy is recovering. The pound climbed to the highest level in two weeks versus the dollar as a report showed U.K. house prices rebounded in October and Britain’s biggest business lobby raised its economic forecasts for this year and next. The Japanese currency earlier weakened for a third day against the euro before the Bank of Japan (8301) releases tomorrow the minutes of the central bank’s Oct. 4-5 meeting. “Better data means the Federal Reserve isn’t going to buy forever,” Michael Gapen, senior U.S. economist at Barclays Plc in New York, said of the central bank’s asset-purchasing efforts in an interview on Bloomberg Television’s “Lunch Money” with Sara Eisen. “That is how the dollar can outperform lower- yielding currencies like the yen.”
The dollar gained 0.4 percent to 80.12 yen per dollar at 5 p.m. in New York. It gained 0.1 percent to $1.2943 per euro. The yen declined 0.3 percent to 103.71 per euro. The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, climbed 0.1 percent to 80.022.
Aussie Climbs to Highest Since September Before U.S. Jobs Report (Bloomberg)
Australia’s dollar climbed to the highest level in more than a month on speculation U.S. employment data today will boost demand for riskier assets. The so-called Aussie headed for a fourth weekly advance, the longest winning streak since August, as signs of a recovery in the world’s largest economy spurred a global rally in stocks. Gains in the Australian and New Zealand currencies were limited as Greek lawmakers squabbled over austerity measures needed to secure a bailout and keep the nation in the euro. “Investors are getting more optimistic about the outlook for the U.S. economy,” said Marito Ueda, senior managing director in Tokyo at FX Prime Corp. (8711), a currency-margin company. “The risk-on tone across the market is supporting the Aussie.”
The Australian dollar touched $1.0420, the highest since Sept. 28, before trading at $1.0410 as of 10:50 a.m. in Sydney from $1.0401 at the close yesterday. It was set for a 0.4 percent advance this week. The Aussie rose 0.2 percent to 83.48 yen, after reaching 83.53, the strongest since Aug. 21. The New Zealand dollar bought 82.76 U.S. cents from 82.70, having appreciated 0.6 percent since Oct. 26. The Standard & Poor’s 500 Index (SPX) of U.S. shares climbed 1.1 percent yesterday, while the Stoxx Europe 600 Index rallied 1.3 percent. Australian bonds declined today for the first time this week, pushing the yield on the 10-year note up by five basis points, or 0.05 percentage point, to 3.17 percent. In the U.S., data yesterday showed manufacturing expanded more than forecast, consumer confidence rose to a four-year high and fewer Americans filed claims for unemployment benefits, pointing to resilience in the U.S. economy.
Figures from the U.S. Labor Department today are likely to show nonfarm payrolls increased by 125,000 workers in October and the jobless rate rose to 7.9 percent, according to the median projections of economists surveyed by Bloomberg.
Aussie Strength Allows Economy to Run Lower Rates, Swan Says (Bloomberg)
Australia’s economy can operate with lower interest rates than it has in the past as overseas investors buttress the local currency that is helping contain inflation, Treasurer Wayne Swan said. “Australia is now seen as a necessary part of any portfolio, whether it be private or public investors -- and these investment flows have propped up our sustained high dollar,” Swan said in a speech in Melbourne yesterday. “This, combined with our fiscal consolidation and contained inflation, has all meant that our economy has more room to run lower rates than we have in the past.” By highlighting the benefits of an elevated local dollar, Swan is pivoting from his past concern about the impact of its strength on industries including manufacturing and tourism. The change of focus coincides with a rebound in the government’s ratings in opinion polls and follows the steepest rate cuts among major developed economies in the past year.
Swan and other ministers have pressed the central bank to lower borrowing costs and stimulate the economy as the government bids for a A$44 billion ($46 billion) swing back to the black in time for an election due by late next year. There has been “a rebalancing in monetary and fiscal policy, which has not been widely remarked upon,” Swan said in the speech to the 2012 Economic and Social Outlook conference before he heads to a Group of 20 meeting in Mexico.
Dollar Set for Weekly Gain Versus Yen Before U.S. Jobs (Bloomberg)
The dollar was set for a third weekly advance versus the yen, the longest streak in more than seven months, before U.S. data that may signal the job market is improving in the world’s biggest economy. The greenback is 0.3 percent from a four-month high against the Japanese currency after U.S. initial jobless claims declined to the fewest in three weeks. The euro remained lower following a slide yesterday before a report that economists say will confirm the region’s manufacturing contracted for a 15th month in October. “The dollar-yen is edging up because of improved risk sentiment and relatively good U.S. economic indicators,” said Yuki Sakasai, a currency strategist at Barclays Plc in New York. “As for the direction of the dollar-yen, much depends on the U.S. employment report.”
The dollar fetched 80.16 yen as of 7:35 a.m. in Tokyo after climbing 0.4 percent to 80.12 yesterday. It reached 80.38 on Oct. 26, the highest since June 25. The yen was little changed at 103.73 per euro. The 17-nation currency traded at $1.2941 following a 0.1 percent drop to $1.2943. The Standard & Poor’s 500 Index climbed 1.1 percent, while the Stoxx Europe 600 Index advanced 1.3 percent.
Greek Stocks Tumble Amid Concerns on Government Stability (Bloomberg)
Greek stocks are headed for the biggest weekly retreat in four years as coalition government lawmakers squabble over austerity that a Bundesbank official warned must be enforced to keep bailout funds flowing. The country’s benchmark ASE Index (ASE) dropped 5 percent yesterday, taking its decline so far this week to 13 percent after the government unveiled debt forecasts falling further behind its targets. Shares extended declines after a Greek court ruled that planned pension cuts may be unconstitutional. Prime Minister Antonis Samaras’s bid to please lenders from the European Union and International Monetary Fund with a 13.5 billion-euro ($17.5 billion) austerity package and unlock vital funds ran into renewed obstacles this week from coalition partners. A law on state asset sales that is key to reducing debt scraped through Parliament this week, raising concerns on whether Samaras’s coalition will be able to muster requisite support to pass the measures.
“Politicians and the EU are willing to assist Greece, but Greece must, first and foremost, help itself,” Andreas Dombret, a board member at the German central bank, said in New York late yesterday. Greece is “way behind the program goals due to the standstill in consolidation and basic structural reforms.” The yield on Greece’s benchmark 10-year bond increased 40 basis points to 18.17 percent yesterday, widening the spread on similar-maturity German bunds to 16.7 percentage points. On the stock exchange, National Bank of Greece SA (ETE), the Mediterranean nation’s largest lender, plummeted 12 percent. Public Power Corp. tumbled 11 percent and Opap SA (OPAP) fell 6.9 percent.
Initial U.S. Jobless Claims Decrease by 9,000 to 363,000 (Bloomberg)
Fewer Americans than forecast filed first-time claims for unemployment insurance last week, an indication demand is strong enough to maintain current staff levels. Applications for jobless benefits fell 9,000 to 363,000 in the week ended Oct. 27, the fewest in three weeks, the Labor Department reported today in Washington. Economists forecast 370,000 claims, according to the median estimate in a Bloomberg survey. Data for New Jersey and the District of Columbia were estimated because those offices were closed due to Hurricane Sandy, a spokesman said as the figures were released. Fewer firings may mean companies are poised to boost hiring should the economy avert damage from the package of tax increases and spending cuts that will take effect next year if lawmakers fail to act. A Labor Department report tomorrow may show employers took on 125,000 workers in October, not enough to keep the jobless rate from rising to 7.9 percent from 7.8 percent, according to the Bloomberg survey median.
“Claims have been on a mildly improving trajectory,” said Gennadiy Goldberg, a U.S. strategist at TD Securities Inc. in New York who forecast the number of applications would drop to 365,000. “We’re definitely getting fewer firings, but hirings are picking up very gradually, and that’s why you’re only seeing gradual improvement in the labor market.”
Manufacturing in U.S. Expands at Faster Pace in October (Bloomberg)
Manufacturing expanded more than forecast, consumer confidence rose to a four-year high and fewer Americans filed claims for unemployment benefits, pointing to resilience in the U.S. economy heading into the fourth quarter. The Institute for Supply Management’s factory index rose to a five-month high of 51.7 in October from 51.5, the Tempe, Arizona, group reported today. The Conference Board’s sentiment index increased to 72.2, the highest since February 2008. Applications for jobless benefits fell by 9,000 to 363,000 in the week ended Oct. 27, the Labor Department said in Washington. “We’re getting a sense of stabilization, we’re no longer slipping,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “This should ease concerns that we were feeling two or three months ago about the state of the economy.”
Stocks rose on optimism the world’s largest economy is weathering a global slowdown and the prospect of $607 billion in federal spending cuts and tax increases set to kick in early next year unless Congress acts. At the same time, a report tomorrow on the labor market, the last before the presidential election, may show employers are keeping a tight rein on hiring. The Standard & Poor’s 500 Index gained 1 percent to 1,425.70 12:46 p.m. in New York. The yield on the 10-year Treasury note rose to 1.72 percent from 1.69 percent late yesterday. Elsewhere, indexes from Britain to Sweden showed manufacturing contracted in October, while factory output expanded in China for the first time in three months, underscoring the diverging speeds of the global recovery.
Consumer Confidence in U.S. Rises to Highest Since 2008 (Bloomberg)
Confidence among American consumers climbed in October to a more than four-year high, which may help drive bigger gains in the largest part of the economy. The Conference Board’s sentiment index increased to 72.2, the highest since February 2008, from a revised 68.4 in September, figures from the New York-based private research group showed today. The figure was projected to rise to 73, according to the median estimate of economists surveyed by Bloomberg. The percent of respondents who say jobs are currently plentiful rose to the highest level since September 2008, indicating that a decline in joblessness is brightening Americans’ moods. Lower gasoline prices and a budding housing recovery are also contributing to the improvement in confidence.
“The lower unemployment rate and firming of housing prices has made consumers feel a little bit more confident,” Richard Moody, chief economist at Regions Financial Corp. in Birmingham, Alabama, said before the report. “Household net worth is slowly but surely rebounding, particularly with house prices starting to go up. So that may be making consumers feel a little bit more confident about taking on bigger ticket expenditures.” Stocks rose as reports today showed that initial claims for unemployment benefits declined more than forecast last week, companies expanded payrolls in October by the most in eight months and manufacturing expanded more than forecast. The Standard & Poor’s 500 Index rallied 1 percent to 1,426.62 at 12:21 p.m. in New York. The yield on the 10-year Treasury note rose to 1.72 percent from 1.69 percent late yesterday.
Consumer Comfort in U.S. Held Close to Six-Month High Last Week (Bloomberg)
Consumer confidence last week held close to a six-month high as U.S. households became less pessimistic about the state of the economy. The Bloomberg Consumer Comfort Index was minus 34.7 in the period ended Oct. 28 after improving the previous week to minus 34.6, the highest since mid-April. The measure has been above minus 40, a level associated with recessions and their aftermath, for the past six weeks. Cheaper fuel and a budding housing recovery are underpinning confidence, with less than a week before the presidential election. While superstorm Sandy may darken spirits this week following widespread power outages, flooding and at least 50 deaths along the East Coast, the drop will probably prove temporary as Americans’ views of the economy become less downbeat.
“Stabilization of the home prices, a strong equity market and falling gasoline prices has bolstered consumer sentiment over the past several weeks,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “While the impact of Hurricane Sandy may temporarily derail that improvement in coming weeks, the underlying trend in overall sentiment should reassert itself shortly.” In a separate report today, the Labor Department said the number of Americans filing first-time applications for unemployment benefits fell last week. Jobless claims dropped by 9,000 to 363,000, the department reported. The agency is scheduled to issue its monthly report on employment tomorrow. Payrolls rose by 125,000 in October, while the jobless rate climbed to 7.9 percent from 7.8 percent, according to the median forecasts of economists surveyed by Bloomberg.
Companies in U.S. Sustain Productivity to Cut Labor Costs (Bloomberg)
The productivity of U.S. workers held up in the third quarter as companies focused on cutting labor expenses to preserve profits as sales cool. The measure of employee output per hour climbed at a 1.9 percent annual rate, the same as in the prior three months, a Labor Department report showed today in Washington. The median forecast in a Bloomberg survey of 60 economists called for a 1.8 percent rise. Costs per worker unexpectedly dropped at a 0.1 percent rate. The decrease in expenses reflects concern about cooling overseas markets and the so-called fiscal cliff of tax increases and government spending cuts that may take effect next year if lawmakers fail to act. Lower labor costs mean companies can hold the line on prices, giving Federal Reserve policy makers scope to keep pumping money into the economy to spur growth.
“Companies are just very uncertain about the future,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, who projected labor costs would drop 0.2 percent. “Demand isn’t particularly strong, so companies aren’t eager to raise prices. Since you can’t raise prices, you better be careful about costs.” Economists’ productivity estimates ranged from 0.5 percent to 3 percent. The increase in efficiency for the second quarter was revised down from a previously reported 2.2 percent gain.
ADP Says U.S. Companies Add Most Workers in Eight Months (Bloomberg)
Companies expanded payrolls in October by the most in eight months, an indication the U.S. labor market was on the upswing at the start of the fourth quarter, according to a private report based on payrolls. The 158,000 increase followed a revised 114,000 gain in September, data from the Roseland, New Jersey-based ADP Research Institute showed today. This is the first ADP report derived using a larger sample and new methodology. Quicker job creation suggests confidence among businesses is holding up in the face of the so-called fiscal cliff, an onslaught of tax increases and spending cuts in place for next year should Congress fail to act. A Labor Department report tomorrow may show private payrolls increased by 124,000 in October while the unemployment rate rose to 7.9 percent, according to the median estimate in a Bloomberg survey.
“Businesses are adding consistently to their payrolls,” Mark Zandi, chief economist at Moody’s Analytics Inc., said in a statement accompanying the report, which he helped produce. “Businesses have turned more cautious in recent months, but that has yet to impact their hiring and firing decisions.” Fewer Americans than forecast filed first-time claims for unemployment insurance last week, a Labor Department report showed today. Applications for jobless benefits fell 9,000 to 363,000 in the week ended Oct. 27, the fewest in three weeks.
Bernanke Depression Guru Seeks Roosevelt Well-Being (Bloomberg)
Ben S. Bernanke argued for 15 years that the Federal Reserve should announce a numerical inflation target. When he finally got his way in January, the victory allowed the central bank to elevate its other mandate: full employment. By adopting a 2 percent inflation goal, the Fed chairman sought to cement the central bank’s hard-earned credibility for keeping prices low after a 30-year fight against inflation. Bernanke calculated that doing so would anchor expectations for price changes, giving policy makers greater freedom to unleash new stimulus targeted at creating jobs. So far, the move has worked: The Fed embarked on a third round of quantitative easing in September without unhinging inflation expectations.
Bernanke’s shift to emphasizing employment goals is one of the hallmarks in a grueling two-term chairmanship that spanned the worst financial crisis and recession since the Great Depression and a slow labor-market recovery that pinned joblessness above 8 percent for 43 months. The presidential campaign has put the Fed in transition as Republican candidate Mitt Romney said he’d replace Bernanke, though former colleagues doubt he will stay on, no matter who wins. Bernanke has explicitly returned the U.S. central bank to the broader, more balanced goal that Franklin Roosevelt described in 1937 as seeking “the greatest attainable measure of economic well-being, the largest degree of economic security and stability” when the then-president inaugurated the Fed’s Beaux Arts-inspired Washington headquarters.
Rosengren Calls for QE3 Until Unemployment Falls to 7.25% (Bloomberg)
Federal Reserve Bank of Boston President Eric Rosengren said the Fed should buy mortgage bonds until the jobless rate falls to 7.25 percent and hold the target interest rate near zero until hitting 6.5 percent unemployment. “As long as inflation and inflation expectations are expected to remain well-behaved in the medium term, we should continue to forcefully pursue asset purchases,” Rosengren said today in a speech in Wellesley, Massachusetts. The Boston Fed chief’s proposal would set “a threshold, not a trigger,” he said at Babson College. Once achieved, “the assessment of continued asset purchases would commence.”
Rosengren joined fellow Fed regional bank presidents Charles Evans of Chicago and Narayana Kocherlakota of Minneapolis in proposing numerical thresholds the Fed should reach before beginning to reverse record accommodation. Many Fed officials advocate similar policy objectives focused on inflation and the labor market, according to minutes of a Sept. 12-13 policy meeting. They haven’t agreed on such thresholds. Kocherlakota has said interest rates should stay low until unemployment falls below 5.5 percent, so long as the outlook for inflation does not breach 2.25 percent. Evans has said the central bank should promise to keep rates low until the unemployment rate falls to 7 percent, so long as inflation doesn’t exceed 3 percent.
Sandy Damage Estimate Raised to as Much as $50 Billion (Bloomberg)
Superstorm Sandy caused as much as $50 billion in economic damage, with about $10 billion to $20 billion of insured losses, more than double previous estimates, said Eqecat Inc., a provider of catastrophic risk models. Major failures of electric and utility systems, which caused business interruptions, spurred the company to increase its estimate for insured losses, it said today in a statement. Subway and tunnel outages also led to “higher expectations of loss amplifications,” the report said. Eqecat, which has offices in Hackensack, New Jersey, and Oakland, California, had estimated damages of as much as $20 billion, including $5 billion to $10 billion of insured losses, in an Oct. 30 report. The company later today will release additional details, including state-by-state damage calculations, Charlene Goodwin, an Eqecat vice president, said in an e-mail. Some of the analysis will be based on news footage of the Jersey Shore, Eqecat President Bill Keogh said in an interview yesterday.
“You can see in several neighborhoods, the first block has basically been destroyed by the storm surge,” Keogh said in a telephone interview from his vacation home in Litchfield, Connecticut, where he had taken refuge because power was off in the company’s Hackensack office. “Storm surge is extremely violent and water is a very heavy thing. You get 10-, 12-feet of storm surge, and it changes the shoreline really.” Reis Inc. (REIS), a real estate research firm, gave a preliminary estimate of total damage of $30 billion to $40 billion from Sandy. In its Oct. 30 estimate, the New York-based company valued reconstruction efforts at $25 billion to $30 billion. That would result in a $10 billion to $15 billion economic loss, Reis said.
China Poised for Growth Rebound as Luggage Maker Puts Lid on ’12 (Bloomberg)
Months before China closes the lid on the Year of the Dragon, Guangzhou Aoking Leather Co. is ramping up luggage production, adding to signs that the slowdown in the world’s second-largest economy is poised to ease. “People’s sentiment and confidence in the economy and in their income prospects are improving,” says Song Chunhong, a deputy marketing manager at the company in coastal Guangdong. Sheng Laiyun at the National Bureau of Statistics sees broader signs of recovery in the more-developed seaboard provinces that are usually first to register shifts in the economy’s prospects. “The duck knows first when the river becomes warm in spring,” he said last month, quoting an 11th-century Chinese poem.
While China’s years of 10 percent growth may be behind, a stabilization around 8 percent would help counter what the International Monetary Fund last month called an “alarmingly high” risk of a steeper drop in global expansion. Overseas firms from computer-maker Dell Inc. (DELL) to Hong Kong jewelry makers see sales in China improving in coming months, and domestic manufacturers are more confident, a release showed yesterday. “We have seen an increasing amount of evidence for green shoots” in China, said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong who this week raised his fourth-quarter forecast for economic growth to 7.8 percent from 7.5 percent. The nation’s gross domestic product will rise 8.1 percent in 2013, up from 7.7 percent in 2012, he said.
Hong Kong Taxing Homebuyers in Bubble Fight: Mortgages (Bloomberg)
The Hong Kong government’s toughest efforts yet to curb a growing asset bubble in the city’s property market probably won’t be the last as record-low mortgage rates drive demand for the world’s priciest homes. Policy makers last month imposed an extra 15 percent tax on all home purchases by companies and non-permanent residents, adding to steps to boost the supply of housing and tighten lending as an influx of buyers from other parts of China underpin soaring prices. Untouched is the major stimulant fuelling prices: borrowing costs tied to the U.S. because of the Hong Kong dollar peg and growth linked to China.
Pledges by Hong Kong Chief Executive Leung Chun-ying and his predecessor to rein in the property market have so far done little to stem a three-year surge that almost doubled prices in the city with Asia’s biggest wealth gap. Leung has imposed three rounds of curbs, including accelerating new home sale approvals and tightening banks’ mortgage lending, since taking over in July. His government in the past week has signaled it won’t rule out additional measures. “These are all buy-time policies,” said Vincent Cheung, national director for valuation and advisory at property broker Cushman & Wakefield Inc. “The government’s doing this because new housing supply won’t come in for another two, three years. And between now and then, the forces that push prices up will always be here because the Hong Kong dollar stays cheap.”
Hong Kong’s banks, including HSBC Holdings Plc and Standard Chartered Plc, are charging homebuyers an average 2.15 percent for loans, less than half of its level six years ago, according to Hong Kong-based mReferral Mortgage Brokerage Services. The city’s consumer prices rose 3.8 percent in September from a year earlier, according to the government.
Indonesian Growth Seen Exceeding 6% Reduces Need for Rate Cut (Bloomberg)
Indonesia’s economic growth probably held above 6 percent last quarter, as domestic spending and rising investment countered falling exports, giving the central bank room to refrain from cutting interest rates. Gross domestic product probably grew 6.2 percent in the three months through September from a year earlier, according to the median estimate of 12 economists surveyed by Bloomberg News ahead of a government report due Nov. 5. The economy expanded 6.37 percent in the previous quarter. Bank Indonesia will probably keep its benchmark rate at 5.75 percent on Nov. 8, according to all 11 economists in a separate survey. Policy makers in Southeast Asia’s biggest economy have avoided adding to a February rate cut even as neighbors from Thailand to the Philippines extended monetary easing to counter faltering global growth. The rupiah is Asia’s worst-performing currency this year, boosting import costs and pushing inflation to a 13-month high in October.
“There’s less need to ease because the domestic economy is running quite hot,” said Eugene Low, a Singapore-based economist at DBS Group Holdings Ltd. “Indonesia will be resilient and all the indicators so far in terms of consumption have been supportive,” said Leow, who expects a 75 basis-point increase in interest rates by the end of 2013. The rupiah has fallen almost 6 percent against the dollar this year, the biggest decline among 11 widely-traded Asian currencies tracked by Bloomberg. The benchmark Jakarta Composite index has gained about 13 percent.
