Asian Stocks Outside Japan Swing From Loss to Gain
Asian stocks outside Japan swung between gains and losses as Lynas Corp. advanced and LG Electronics Inc. fell. Lynas, builder of the largest rare-earth refinery in Malaysia, climbed 5.2 percent in Sydney as it prepares to start production in the Southeast Asian country. Ivanhoe Australia Ltd. dropped 9.7 percent after the mining company controlled by Rio Tinto Group sold shares at a discount. LG Electronics Inc., a South Korean electronics maker that gets about 16 percent of its sales in Europe, slipped 2.5 percent in Seoul before talks on a Greek bailout package continue next week. The MSCI Asia Pacific Excluding Japan Index (MXAPJ) rose 0.1 percent to 440.53 as of 9:20 a.m. in Hong Kong, erasing losses of 0.1 percent. The gauge is heading for its first weekly advance in three weeks as data on China manufacturing, U.S. jobs and housing added to signs the world’s two largest economies are on the mend.
“It is looking like a fairly subdued day,” said Cameron Peacock, Melbourne-based analyst at IG Markets Ltd., a provider of trading services for equities, bonds and currencies. “European leaders will be tied up with Greece and European budget discussions for the next few days.” Taiwan’s Taiex Index (TWSE) advanced 1.6 percent, while Singapore’s Straits Times Index added 0.1 percent. South Korea’s Kospi Index lost 0.1 percent and Australia’s S&P/ASX 200 Index dropped 0.2 percent. Japanese markets are shut today, while those in the U.S. were closed yesterday for holidays. Markets in China and Hong Kong have yet to open.
Hong Kong’s Hang Seng Index Headed for Best Week Since September
Hong Kong stocks rose, with the Hang Seng Index (HSI) heading for its biggest weekly gain since September. China Rare Earth Holdings Ltd. jumped after a report that the nation will extend subsidies to the industry. China Rare Earth rose 4.7 percent. China Resources Enterprise Ltd., the government-backed partner of SABMiller Plc., gained 1.8 percent after reporting an increase in sales. Citic Pacific Ltd. (267), building the world’s largest magnetite iron- ore mine, advanced 1.3 percent after it was granted an injunction to stop Mineralogy Pty Ltd. from terminating mining rights and site lease agreements in Australia. China “will be able to avoid a hard landing; we’ve seen a much further-than-expected rebound in manufacturing and exports,” Norman Chan, head of investment at Calibre Asset Management Ltd., a unit of National Australia Bank Ltd., said in a Bloomberg television interview in Hong Kong. “China is a very momentum-driven market and sometimes it takes a lot of government policies to drive a situation.” The Hang Seng Index rose 0.3 percent to 21,818.10 as of 10:25 a.m. local time, with almost six stocks gaining for each that fell in the 49-member gauge. It is headed for a 3 percent increase this week. The Hang Seng China Enterprises Index (HSCEI) of mainland companies listed in the city increased 0.7 percent to 10,569.58. Trading volume on the Hang Seng Index was about 38 percent below the 30-day intraday average for the time of the day, according to data compiled by Bloomberg. The gauge advanced 20 percent through yesterday from this year’s low on June 4 as economic data showed China’s slowdown may be bottoming and central banks around the globe added stimulus to spur growth.
China’s Stocks Gain as Shanghai Index Heads for Weekly Advance
China stocks gained, with the benchmark index poised for its first weekly gain in three weeks, as material and consumer-staple companies advanced. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. climbed 2.5 percent after the Financial Times reported China will offer rare-earth producers subsidies. Baoshan Iron & Steel Co. advanced 1.1 percent after buying back shares. Wuliangye Yibin Co. rallied following a six-day slump amid concerns over the quality of Chinese liquor products. JiuGuiJiu Co. (000799) slumped 10 percent after a four-day trading halt as it apologized for excessive levels of plasticizer in its drinks. The Shanghai Composite Index gained 0.7 percent to 2,029.09 as of 10:13 a.m. local time, taking its increase this week to 0.7 percent. The CSI 300 Index (SHSZ300) climbed 0.9 percent to 2,196.53. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong added 0.8 percent.
Shanghai Composite trading volumes were 15 percent lower than the 30-day average for this time of day, according to data compiled by Bloomberg. Thirty-day volatility on the index was at 13.3, compared with this year’s average of 17.4. Vice Premier Li Keqiang, who will become premier in March, vowed to deepen reforms to promote scientific development and transform the pattern of economic development, the official Xinhua News Agency reported. The nation needs to break all “systematic” obstacles that hinder scientific development, the report cited Li as saying. The provincial government of eastern Zhejiang introduced 12 detailed policies for financial reform in Wenzhou city, Xinhua reported, citing the city’s government. It’s possible the nation may widen the yuan’s trading band in the first quarter, Xinhua reported separately, without citing anyone. The Bloomberg China-US 55 Index (CH55BN), the measure of the most- traded U.S.-listed Chinese companies, did not trade as U.S. markets were closed for a holiday.
European Stocks Advance on China Manufacturing Expansion
European (SXXP) stocks advanced for a fourth day, posting the longest winning streak in five weeks, after a report signaled Chinese manufacturing expanded for the first time in 13 months. SABMiller Plc (SAB), the world’s second-largest brewer, jumped the most in 13 months after reporting first-half profit that beat estimates. Daily Mail & General Trust Plc (DMGO), publisher of Britain’s Daily Mail newspaper, surged the most in 3 1/2 years after announcing a share buyback. Alcatel-Lucent SA soared 16 percent after the company was said be in financing talks with Goldman Sachs Group Inc. The Stoxx Europe 600 Index rose 0.6 percent to 271.7, a two-week high, at the close in London. The benchmark gauge has rallied 16 percent from its 2012 on June 4 as the European Central Bank and the Federal Reserve expanded their asset- purchase plans. The U.S. markets are closed today for the Thanksgiving holiday.
“Everyone is waiting for the brakes to be eased a bit after the new formation of the government,” said Christian Zogg, who manages about $540 million as head of equity and fixed income at LLB Asset Management AG in Vaduz, Liechtenstein. “If the Chinese economy wants to grow about 8 percent, it needs a purchasing managers’ index that’s over 50.” A PMI released today by HSBC Holdings Plc and Markit Economics showed a preliminary reading of 50.4 for November, adding to signs that growth in the world’s second-largest economy is rebounding after a seven-quarter slowdown. That compared with a final level of 49.5 in October. A reading above 50 indicates expansion.
Emerging Stocks Rise as Volatility Hits 2004 Low on China
Emerging-market stocks advanced for a fourth day, with price swings in the benchmark index falling to an eight-year low, as a gauge of Chinese manufacturing climbed and Israel agreed to a cease-fire with Hamas. MRV Engenharia e Participacoes SA led homebuilders higher in Sao Paulo after an inflation report spurred speculation Brazil will be able to keep borrowing costs at a record low. Samsung Electronics Co. (005930), the world’s largest maker of televisions and mobile phones, pushed a gauge of technology companies to a two-week high. OAO RusHydro had the biggest gain in more than two months as Russian President Vladimir Putin approved a cash injection for the country’s largest renewable energy producer. Israel’s shekel climbed versus the dollar.
The MSCI Emerging Markets Index (MXEF) rose 0.5 percent to 985.72 in New York, its highest close since Nov. 12. The index’s 50-day volatility fell to 9.11, the lowest since Sept. 2004. A Chinese manufacturing index signaled the first expansion in 13 months, a survey of purchasing managers showed. Israel and the Palestinian militant group Hamas agreed to a cease-fire yesterday after talks brokered by Egypt’s Islamist leaders and the U.S. The China report “was better than expected and indicates the economy has possibly begun expanding again,” Christopher Palmer, who helps manage $2.5 billion of assets as a London- based director of global emerging markets for Henderson Global Investors Ltd., said by e-mail. “For most investors China remains the main show.” The preliminary reading was 50.4 for the Chinese purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics. That compares with a final level of 49.5 for October. A reading above 50 indicates expansion.
Bovespa Index Advances After China Manufacturing Report
The Bovespa (IBOV) index rose for the second time in three days as homebuilders rallied after a report showing inflation slowed in November spurred speculation Brazil will be able to keep borrowing costs at a record low. MRV Engenharia e Participacoes SA was the best performer on the BM&FBovespa Real Estate Index (IMOBBV), which climbed to a one-week high. Banco Bradesco SA rose to the highest level since Sept. 24 after it announced a partnership with cellular phone operator Claro for mobile payments. Brazil’s benchmark equity index added 0.3 percent to 56,436.97 at the close of trading in Sao Paulo. Thirty-six stocks rose on the Bovespa while 31 declined. The real was little changed at 2.0989 per U.S. dollar after weakening yesterday to a three-year low. Brazil’s swap rates fell on most contracts after a report showed consumer prices increased at a slower pace in the month through mid-November.
“Inflation seem to be coming in more or less in line with what the central bank expects, which supports the idea that interest rates won’t rise in the near future,” Alvaro Bandeira, a partner at Orama Asset Management, said by phone from Rio de Janeiro. The IPCA-15 price index gained 0.54 percent, the national statistics agency reported today. While it exceeded the 0.51 percent median estimate of analysts surveyed by Bloomberg, it was lower than the previous reading of 0.65 percent. Brazil’s central bank President Alexandre Tombini said in a congressional hearing today inflation will converge to the bank’s 4.5 percent target in the third quarter of 2013. MRV gained 2.8 percent to 10.60 reais. PDG Realty SA rose 1.4 percent to 2.85 reais while Cyrela Brazil Realty SA Empreendimentos e Participacoes added 1.9 percent to 17.48 reais.
Korean Won Falls as Intervention Concerns Counter China Optimism
South Korea’s won weakened for a third day as concerns that the government will act to stem currency gains offset optimism the Chinese economy is set for recovery. Government bonds were steady. South Korea’s Deputy Finance Minister Choi Jong Ku said yesterday there is “herd behavior” in currency market and that the government will take action to curb excessive fluctuations. The won is the best-performer among 11 most-traded Asian currencies since end of June. A preliminary reading released yesterday signaled China’s manufacturing may expand in November for the first time in 13 months. “There’s risk appetite in the market with data from China, but caution against government intervention will restrict won gains,” said Kim Dong Young, a Seoul-based currency dealer for Industrial Bank of Korea. The won dropped 0.1 percent to 1,086.68 per dollar as of 10:04 a.m. in Seoul, according to data compiled by Bloomberg. It touched 1,080.05 yesterday, the strongest level since Sept. 9, 2011. The currency appreciated 0.6 percent this week.
One-month implied volatility, a measure of exchange-rate swings used to price options, fell 18 basis points, or 0.18 percentage point, to 5.72 percent. The U.S. told Japan and South Korea it detected North Korean preparations to launch a long- range ballistic missiles, the Asahi newspaper reported, without saying where it got the information.
The yield on the government’s 2.75 percent bonds due September 2017 was unchanged at 2.90 percent, Korea Exchange Inc. prices show. The rate rose six basis points this week. The one-year interest-rate swap was steady at 2.79 percent today and climbed two basis points this week.
Yen Gains Versus Peers on Bets Recent Losses Overdone
The yen climbed versus most of its 16 major peers as technical indicators signaled its recent drop may have been too rapid and as a contraction in euro-area manufacturing and services damped global growth prospects. Japan’s currency pared a weekly decline that comes as opposition leader Shinzo Abe, who is favored to become the country’s next prime minister after elections on Dec. 16, increased pressure on the Bank of Japan (8301) to add to stimulus measures that tend to weaken the yen. The euro traded near its highest level in three weeks on prospects finance ministers will agree on an aid package for Greece next week, even after a report showed the region slipped back into a recession. “Some investors may think the recent rally in dollar-yen has been a bit over-extended and it’s time for a bit of a correction,” said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. “We’ve recently got confirmation of a technical recession in the euro zone, so going ahead things are still pretty uncertain.”
The yen rose 0.1 percent to 82.37 per dollar as of 9:30 a.m. in Singapore after touching 82.84 yesterday, the weakest since April 4. It added 0.2 percent to 106.09 per euro. Europe’s shared currency bought $1.2880 from $1.2884 yesterday, when it climbed to $1.2899, the highest since Nov. 2. The yen is set for a 1.3 percent drop versus its U.S. counterpart this week. The euro advanced 1.1 percent against the greenback since Nov. 16.
A Chinese manufacturing index signaled the first expansion in 13 months, adding to signs that economic growth is rebounding after a seven-quarter slowdown.
The preliminary reading was 50.4 for a purchasing managers’ index released today by HSBC Holdings Plc (HSBA) and Markit Economics. It compares with a final level of 49.5 for October. A reading above 50 indicates expansion. Gains in manufacturing bolster prospects for a sustained pickup in economic growth that slowed last quarter to the weakest pace in more than three years. A rebound may smooth a once-a-decade leadership transition for the ruling Communist Party, set to install Li Keqiang as premier in March, and reduce the likelihood of additional monetary stimulus. “The economic recovery continues to gain momentum,” Qu Hongbin, chief China economist at HSBC in Hong Kong, said in a statement. “However, it is still the early stage of recovery and global economic growth remains fragile.”
The MSCI Asia Pacific Index climbed 0.8 percent as of 6:37 p.m. in Tokyo, headed for its highest close in two weeks. The Shanghai Composite Index closed 0.7 percent lower after the biggest gain in three weeks yesterday, as waning speculation of lower bank reserve requirements overshadowed an increase in the PMI.
Cure for Economic Slumps Seen in Raising Rates: Cutting Research
The solution to weak economic growth may be higher interest rates. That seemingly paradoxical remedy can apply if the cause of the slump is a confidence shock that cheap borrowing costs are failing to reverse, two Columbia University economists said in a report published this week. In such a situation, ultra-easy monetary policy risks making fears of deflation a self- fulfilling prophecy as spenders sit tight. If low interest rates can’t motivate jittery consumers, then the answer may be the opposite: an increase in borrowing costs. Such a shift “can boost inflationary expectations and therefore foster employment,” said Stephanie Schmitt-Grohe and Martin Uribe in the study published Nov. 19 by the National Bureau of Economic Research in Cambridge, Mass. “By its effect on real wages, future inflation stimulates employment, thereby lifting the economy out of the slump,” they said.
The academics said sagging confidence among households and companies has played a part in the recent economic slowdown. Evidence from the U.S. as well as Japan during the last two decades “seems to suggest that zero nominal interest rates are not doing much to push inflation higher.” At the moment, the Federal Reserve pledges to keep its benchmark interest rate near zero through mid-2015.
Debt Burden Adds to Won Gains in Crimping Korea Rebound
South Korean consumers faced with falling home prices and elevated household debt are cutting spending, dragging on demand just as export growth is restrained by gains in the won. Borrowing and credit purchases rose to a record 937.5 trillion won ($864 billion) in the third quarter, the Bank of Korea said yesterday. At the same time, an index of household consumption fell to a record low, according to a Statistics Korea report last week. Candidates campaigning for a Dec. 19 presidential election have highlighted household debt as a weakness that remains in South Korea’s economy even after three credit-rating companies upgraded the nation this year. The ruling party’s Park Geun Hye, who leads in polls, proposes an 18 trillion won fund to help avoid defaults by the indebted poor.
“The candidates are all throwing out policy pledges to reduce household debt because it is the biggest risk in the Korean economy,” said Kim Hyeon Wook, an economist at the Seoul-based SK Research Institute and a former Bank of Korea adviser. “The data show the debt is keeping people from spending and that they are saving as a precautionary measure.” Household debt reached a record 164 percent of disposable income last year, which compares with 138 percent in the U.S. at the start of the housing crisis, according to Royal Bank of Scotland Group Plc.
EU Spars Over Budget as Chiefs See Possible Deadlock
Divisions between rich and poor countries flared over the European Union’s next seven-year budget, leading German Chancellor Angela Merkel to rule out an accord until the new year. France defended farm subsidies, Britain clung to a rebate and Denmark demanded its own refund, while countries in eastern and southern Europe said reduced financing for public-works projects would condemn their economies to lag behind the wealthier north. “Positions remain too far apart,” Merkel told reporters early today after the first session of a summit in Brussels. “Probably there will be no result at the end of this summit. There may be some progress but it is probable that we will need to meet again at a second stage.” The political stakes dwarf the economic significance of spending equal to 1 percent of European gross domestic product, offering a glimpse of where the power lies in the 27-nation European Union and whether the euro-area crisis is bringing the bloc closer together or driving it apart.
The stalemate came two days after finance ministers argued in vain for more than 11 hours over how to dig debt-stricken Greece out of its fiscal hole, in another reflection of the rich-poor divide that scars the European economy. In the budget debate, the numbers have been whittled down since the first proposal came out in mid-2011. The latest draft foresaw spending of 973 billion euros ($1.3 trillion) for the 2014-2020 period, down 6 percent from the original European Commission proposal and 2 percent from the 994 billion euros for the current seven-year period.
German Business Confidence May Decline to Near 3-Year Low
German business confidence probably fell to the lowest in almost three years in November as a recession in the euro area damped growth in Europe’s largest economy. The Ifo institute’s business climate index, based on a survey of 7,000 executives, will fall to 99.5 from 100 in October, according to the median forecast of 48 economists in a Bloomberg News survey. That would be the seventh straight decline and the lowest reading since January 2010. Ifo releases the report at 10 a.m. in Munich today. While German growth slowed less than forecast in the third quarter, the euro area, Germany’s largest trading partner, slipped into recession and the outlook for the global economy has dimmed. That’s making companies more cautious, even after the European Central Bank’s announcement of a new bond-purchase program eased financial-market concerns about the sovereign debt crisis and a potential break-up of the monetary union.
“While financial markets have calmed down, German companies don’t fully trust the lull and are holding back on investment,” said Christian Schulz, an economist at Berenberg Bank in London. “Because of the general global economic weakness, there’s also a risk that the German economy will stagnate or even shrink in the fourth quarter.” Ifo’s measure of executives’ expectations probably fell to 93, the lowest since May 2009, from 93.2 in October, while a gauge of the current situation may have slipped to 106.3 from 107.3, the survey shows.
Hollande Risks Squandering French Bonds’ Sweet Spot
President Francois Hollande risks squandering an opportunity to rekindle France’s stalled economy after the nation’s latest credit rating downgrade did little to push up yields. French 10-year bond yields have barely budged since Moody’s Investors Service Inc. on Nov. 19 followed Standard & Poor’s January decision to strip France of its top rating, rising about 10 basis points to 2.18 percent. Borrowing costs have declined since Hollande’s May election, prompting him to boast last week that 10-year yields near their Aug. 3 record low of 2.002 percent validate his policies. Far from it, say strategists such as Michael Quach at Smith & Williamson Investment Management in London, who sees French bonds benefiting from European Central Bank actions and pledges. Also, being higher rated than Italy and offering better returns than German debt, France is in a bond market sweet spot that belies its woes of almost no growth, unemployment at a 13-year high and an Hollande revival plan that Moody’s calls inadequate.
“Moody’s doesn’t necessarily provide new information about France but its move did put a spotlight on the country,” Quach said. “French yields are historically low because of the global backdrop and what the ECB has done. France should use this opportunity to get reform through because we don’t know how long the market will be in this condition and when investors will lose their patience.” Investors are demanding 73 basis points more to hold French 10-year bonds than comparable German bunds, down from 200 points a year ago and 143 basis points when Hollande took office.
Euro-Area Slump Persists as Chinese Factories Recover
Euro-area services and manufacturing output shrank for a 10th month in November as the debt crisis hurt confidence, underscoring divergences in the global economy as China’s factories showed the first growth in more than a year. A composite index based on a survey of purchasing managers in both industries in the euro zone was little changed at 45.8 compared with 45.7 in October, London-based Markit Economics said today. A Chinese manufacturing index climbed to 50.4 from 49.5 last month, HSBC Holdings Plc and Markit said in a separate report. A reading above 50 indicates expansion. The economy of the 17 euro nations has slipped back into a recession and the European Commission cut its 2013 growth forecast this month. Sentiment is being undermined by a deadlock over Greek aid and tensions over European Union budget talks that start today in Brussels. Gains in Chinese manufacturing, meanwhile, bolster prospects for a sustained pickup in the world’s second-largest economy.
“Unfortunately, this time around Europe won’t be able to bank on the Chinese recovery to lift its economy out of the quagmire,” saidJulian Callow, chief international economist at Barclays Capital in London. “The composition of growth in China is moving to consumption, away from investment which has traditionally been where Europe’s exporters would have benefited.”
