TradeTheNews.com Weekly Market Update: Markets rebound on hopes that Europe bailouts and Fiscal Cliff can find resolution (Source:CME/TradeTheNews.com)
After several straight weeks of political concerns exerting downward pressure on equity markets, they snapped back smartly this week. European bourses had their best week of the year, shaking off a Moody's downgrade of France's AAA rating and the EU's failure to agree on a long term budget. Risk on sentiment was attributable to the hopes that leaders in Europe and the US could finally get their houses in order before the New Year. Negotiations on finalizing the revised Greek bailout package continued to grind ahead, with final details expected to be negotiated this weekend ahead of another Eurogroup conclave this coming Monday. This timetable would still allow Greece to receive the anticipated aid tranches in early December. Politicians in Washington were on a holiday break, so optimism from last week's bipartisan Congressional press conference still lingered, though tough negotiations are still ahead. Economic data helped sentiment too, starting with China HSBC Flash Manufacturing PMI on Wednesday posting its first growth reading in 13 months, possibly signaling the slowdown in Chinese growth has bottomed out. The German IFO Business Climate index showed its first rise in seven months, and US saw some more signs of strength in the housing market, with the NAHB Housing Market Index hitting a 6-year high and monthly Housing Starts coming in well above expectations. Trading in crude futures calmed this week as Israel and Hamas agreed to terms of a ceasefire on Wednesday, and so far the truce has held. Gold gained some ground as it tested its 50-day moving average on Friday, to end the week up 2%. Early indications from retailers are that Thanksgiving Day and Black Friday sales have gotten the US holiday shopping season off to a good start. Equity markets erased most of the losses seen in the last two weeks and had their best week since June: the S&P500 rose 3.6%, the Nasdaq added 4%, and the DJIA gained 3.3%, to close above 13,000 for the first time since November 6.
Moody's became the second credit-rating agency to strip France of its AAA rating on Monday evening. Moody's warned that a sustained loss of competitiveness and the failure to tackle structural problems prompted the decision to downgrade France. French Finance Minister Moscovici found a silver lining to the downgrade, claiming it would force leaders to agree to pursue reforms, however the development will have repercussions even though yields on French debt barely wavered in the aftermath of the move. To begin with, Moody's said the downgrade would impact the rating of the ESM/EFSF bailout facilities, and the EFSF was forced to delay the auction of three-year notes on Tuesday.
Hewlett-Packard shares collapsed to near 10-year lows after reporting accounting irregularities at its recently acquired Autonomy unit. On an adjusted basis, HP more or less met expectations in its Q4 results, however revenue fell nearly 7% y/y and after charges the firm racked up a huge quarterly loss, and Q1 EPS guidance was well below expectations. The firm took an $8.8B 'kitchen sink' charge in the quarter, blaming $5B of that on "serious accounting improprieties and outright misrepresentations" at Autonomy Corporation, which it acquired last fall. CEO Whitman said the board's due diligence had relied on financials audited by Deloitte, and said management had brought the accounting issue to the attention of US and UK regulators. A spokesman for the former Autonomy CEO shot back, saying the allegations were totally false and the due diligence was intensive.
Best Buy also had a terrible quarter, missing earnings targets by a very wide margin in its Q3 report. Overall sales were down on y/y basis and comps were equally bad. Executives continue to blame the poor overall economic environment, competition from online sites and customers holding back on purchases ahead of new product launches. Investors were clearly disappointed with Deer & Co Q4 results as well. Shares slid 4% after coming up short of consensus estimates on the bottom line and offering conservative guidance for 2013.
Saleforce.com was a noticeable bright spot among the week's earnings reports. Shares rose 8% after reporting Q3 earnings and sales exceeded expectations and the CEO said that the strong response to next generation cloud technologies will enable the company to surpass a $4B annual revenue run rate next year.
Energy markets went for a bit of a ride as traders watched headlines out of the Mideast closely. On Monday, the violence escalated as Israel bombed strategic targets in Gaza city and Hamas continued to lob rockets toward major population centers. As Israel called up tens of thousands of reservists in what was seen as a prelude to a ground incursion into Gaza, the rhetoric on both sides did little to quell the speculation of a larger conflict and oil prices rose sharply. By mid-week reports began to surface that the new Egyptian President had brokered a cease fire and as a result energy prices backed off, despite US stockpile data from both the API and EIA that indicated large draw downs across all three categories. For the week WTI and Brent each finished up more than 1.5%, but well off the Monday highs.
US Treasury markets spent much of the week on the defensive. Some speculated traders were unwinding positions ahead of thinner holiday shortened trade, as well as potentially reacting to some of the more positive comments made by Fed Chairman Bernanke. On Tuesday the Chairman suggested the financial crisis lowered the potential of US GDP growth below 2.5% and reiterated that the Fed has no means of offsetting the fiscal cliff, so Washington needs to find a solution. He also noted that a resolution to the fiscal cliff would have a positive impact on growth and the housing market has seen clear signs of improvement.
In Forex markets, the week began with a rise in risk appetite as sentiment that negotiations on a deal to avoid the fiscal cliff were productive which weighed upon the USD and JPY currencies. The EUR/USD started the week with a move over 1.2780 level. The currency was able to shake-off the French sovereign downgrade with growing optimism that Eurogroup would soon reach an acceptable agreement on Greece debt sustainability in order to release the next tranche payment before the country goes bankrupt in mid-December. The FX market was betting on a Greek solution with the Greek 10-year yield falling below the 16% level for its best post debt restructuring reading and the EUR/USD found the momentum to sustain a move above its 200-day moving average at 1.2804. The pair hit a 3-week high at 1.2915 after Friday's German IFO Survey registered its first month over month improvement in seven months.
The USD/JPY pair hit fresh 7-month highs while EUR/JPY cross tested above the 106 handle for 6-month highs. A number of factors were cited for the weaker JPY currency including a wider than expected Japan merchandise deficit, Japanese LDP opposition election platform and dealer chatter of M&A flows with rumor that Softbank had started buying USD for acquisition of Sprint with cited. The JPY was off its worst levels by Friday after LDP opposition leader Abe changed his FX intervention rhetoric that he was not thinking of currency intervention to weaken the JPY currency and wanted the BOJ to address strong yen through monetary policy.
Asia Stocks Head for Longest Winning Streak in Two Months (Bloomberg)
Asian stocks rose, with the benchmark regional gauge heading for its longest streak of gains in two months, after U.S. consumer spending during the Thanksgiving weekend jumped and South Korean consumer confidence climbed. Toyota Motor Corp., Asia’s largest carmaker, advanced 3 percent as the yen’s decline to a seven-month low against the dollar boosted the earnings outlook for Japanese exporters. Kangwon Land Inc. (035250) surged 8.3 percent in Seoul after the government approved plans for the casino and hotel operator to expand. Samsung Electronics Co. (005930) lost 1.3 percent, after closing at a record high in Seoul on Nov. 23, as Apple Inc. sought to add infringement claims over six more Samsung products to its multi-billion-dollar patent lawsuit against the company.
The MSCI Asia Pacific Index advanced 0.5 percent to 123.54 as of 10:15 a.m. in Tokyo, before China and Hong Kong markets opened. The measure is poised to gain for a fourth day, the longest rising streak since the second week of September. The Asian benchmark gained 13 percent from this year’s low on June 4 through Nov. 23 as central banks added stimulus to spur economic growth and data showed a slowdown in China may be ending. “Conditions have improved,” said George Boubouras, Melbourne-based head of investment strategy at UBS AG’s Australian wealth management unit. The Swiss bank has about $1.5 trillion under management. “The U.S. consumer is in better shape. Equity valuations remain compelling on so many different measures.” Japan’s Nikkei 225 Stock Average (NKY) gained 1 percent, a third day of gains. South Korea’s Kospi advanced 0.1 percent and Australia’s S&P/ASX 200 Index rose 0.2 percent. Singapore’s Straits Times Index climbed 0.4 percent and Taiwen’s Taiex Index jumped 1 percent.
Japan Stocks Rise Third Day on Thanksgiving Spending, Weaker Yen (Bloomberg)
Nov. 26 (Bloomberg) -- Japanese stocks rose, with the benchmark equity gauge heading for a three-day gain, as an increase in U.S. consumer spending during the Thanksgiving weekend and the yen’s drop to a seven-month low against the dollar boosted the earnings outlook for exporters. Toyota Motor Corp. (7203), Asia’s biggest carmaker by market value that gets a quarter of its sales in North America, added 2.6 percent. Mitsubishi UFJ Financial Group Inc. (8306) paced gains among banks as minutes of the Bank of Japan’s policy meeting showed it will continue with powerful monetary easing. Nipro Corp. jumped 9.2 percent after the maker of medical products said it has developed an automatic incubator for mass production of induced pluripotent and embryonic stem cells.
The Nikkei 225 Stock Average (NKY) gained 0.9 percent to 9,446.62 as of 10:31 a.m. in Tokyo with about six stocks rising for each that fell. Trading volume was 48 percent above the 30-day average for the time of day after Japan’s market reopened after a three-day weekend. The broader Topix (TPX) Index advanced 1.2 percent to 785.54 with all but three of the 33 industry groups climbing. “The Nikkei is rising toward 9,500 yen after breaking above the range since June,” said Masaru Hamasaki, chief strategist at Toyota Asset Management Co., which oversees the equivalent of about 1.79 trillion yen ($21.7 billion). “The U.S. shopping season is starting on a positive note, but I’d like to see more data through at least the second week of December as you can’t grasp the whole trend yet.”
China’s Equity Futures Decline Before Industrial Profits Data (Bloomberg)
China’s stock-index futures declined, signaling losses for the benchmark index, before the release of industrial profits data tomorrow. Futures on the CSI 300 Index (SHSZ300) expiring in December, the most active contract, declined 0.2 percent to 2,193 as of 9:20 a.m. local time. Liquor maker JiuGuiJiu Co. (000799) may extend last week’s decline after its products were found to have excessive levels of plasticizer. Baoshan Iron & Steel Co. may gain among steelmakers after Xinhua News Agency said the industry may perform better this quarter. Air China Ltd. (601111) may advance after the controlling shareholder increased its stake. The Shanghai Composite Index (SHCOMP) climbed 0.6 percent to 2,027.38 on Nov. 23. The CSI 300 Index rose 0.7 percent to 2,192.68. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong gained 1.1 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 2.3 percent in New York.
The Shanghai Composite advanced 0.6 percent last week, the first gain in three weeks. It dropped below the 2,000 level during intraday trading twice last week and rallied to close above that level amid speculation of government support. The gauge has slumped 7.8 percent this year and trades at 9.7 times estimated profit for 2012, compared with the 17.8 average multiple since Bloomberg began compiling the data in 2006.
U.S. Stocks Have Best Weekly Rally Since June on Budget (Bloomberg)
U.S. stocks had their biggest weekly rally since June after President Barack Obama expressed confidence on a budget agreement with Congress and data from China to Germany bolstered optimism about global growth. All 10 groups except for utilities in the Standard & Poor’s 500 Index rose during the Thanksgiving-shortened week. An index of homebuilders climbed 5.4 percent amid better-than-estimated housing data. Bank of America Corp. (BAC) jumped 8.6 percent after an analyst said the lender may commit as much as $10 billion to dividends and share repurchases in 2013. Salesforce.com Inc. (CRM) surged 11 percent after revenue beat estimates. Apple Inc. (AAPL) gained 8.3 percent, ending a streak of eight weekly losses. The S&P 500 advanced 3.6 percent to 1,409.15 for the week, extending its 2012 gain to 12 percent. The Dow Jones Industrial Average rallied 421.37 points, or 3.4 percent, to 13,009.68. Both gauges had the best week since June 8.
“What you’re seeing out of Washington before the break is a very cooperative tone,” Bill Greiner, who oversees $14 billion as chief investment officer at Mariner Wealth Advisors in Kansas City, Missouri, said in a phone interview. “There is a gathering sense that the deceleration in economic growth in China seems to be bottoming right now. Both of those areas are adding to a little bit strength in the market.” The S&P 500 began the week with the biggest advance in two months after Obama met with senior Democrats and Republicans on Nov. 16 for talks to avoid a so-called fiscal cliff of $607 billion in automatic tax increases and spending cuts next year. The index continued to climb after Israel and the Palestinian militant group Hamas agreed to call a halt to more than a week of air strikes and missile attacks. Data showed the first expansion in China’s manufacturing industry in 13 months and an unexpected gain in German business confidence.
Recap Stock Index Market Report (CME)
The December S&P 500 registered its fifth consecutive higher close, lifted by ideas that Greece was closer to receiving aid and optimism over the US holiday shopping season. The market trended higher throughout a holiday-shortened session in light trading volume. One of the best performing sectors during the session was technology, helped by gains in Intel, Hewlett-Packard and Research In Motion. Material and resource-related shares were also higher, helped by weakness in the US dollar. The upside showing carried the December S&P 500 above 1400 and to the highest level since November 7th.
U.K. Stocks Rise For Fifth Day; Xstrata, Kingfisher Rise (Bloomberg)
U.K. stocks climbed for a fifth day, extending the benchmark FTSE 100 (UKX) Index’s biggest-weekly advance in almost a year, as business confidence rebounded in Europe’s two largest economies. Xstrata Plc rose to a two-month high as the company finished its first production line at its Koniambo nickel project. Kingfisher Plc (KGF) gained 1.3 percent before next week’s sales update. Thomas Cook Group Plc rallied 4.4 percent as Investec reiterated its buy recommendation for the shares. The FTSE 100 added 28.11 points, or 0.5 percent, to 5,819.14 at the close in London. The gauge has climbed 3.8 percent this week amid optimism U.S. policy makers will reach an agreement to avoid a budget deadlock and as a report signaled manufacturing expanded in China this month. The FTSE All-Share Index gained 0.5 percent today, while Ireland’s ISEQ Index increased 0.4 percent.
“Markets edged higher in afternoon trade, with encouraging German IFO survey and improving French business confidence data helping to lift spirits,” Ishaq Siddiqi, a market strategist at ETX Capital in London. The volume of shares changing hands in the gauge’s companies was 39 percent lower than the 30-day average, according to data compiled by Bloomberg, as the U.S. market reopened from yesterday’s Thanksgiving holiday. The German Ifo institute said its business climate index, based on a survey of 7,000 executives, climbed to 101.4 from 100 in October, the first gain in eight months. The median economist forecast was for a drop to 99.5. In France, sentiment among factory executives rose to 88 in November from the lowest level in more than three years, according to the national statistics office Insee. That followed a drop to 85 in October and beat the median economist forecast for a reading of 87.
Emerging Stocks Gain for Fifth Day as Taiwan Shares Rally (Bloomberg)
Emerging-market stocks rose for a fifth day, its longest stretch of gains in two months, as Taiwan’s shares rallied and data showed improvement in Germany’s business climate. South Africa’s benchmark stock index climbed to a record. The MSCI Emerging Markets Index (MXEF) gained 1 percent to 995.94 in New York, the highest since Sept. 14. The gauge increased 2.7 percent since on the week, the first advance since the five days ended Nov. 2. The FTSE/JSE Africa All Share Index (JALSH) rose to the highest level on record for a second day. Voting shares of Centrais Eletricas Brasileiras SA (ELET6) jumped in Sao Paulo, rebounding from a 17-year low. Taiwan’s Taiex Index (TWSE) surged 3.1 percent, the most this year, after the Cabinet said it’s studying measures to bolster the stock market. The Ifo institute said the index for business climate in Germany, Europe’s biggest economy, rose to 101.4 this month, beating the 99.5 median estimate of 48 economists surveyed by Bloomberg.
The 21 countries with companies in the MSCI emerging stocks index send 30 percent of their exports on average to the European Union, data from the World Trade Organization show. “Overall market sentiment has been improving, with more indicators showing some recovery in the world’s main economies,” Monthol Junchaya, chief investment officer at Bangkok-based One Asset Management Ltd., which manages about $2.3 billion of assets, said by phone today.
Treasuries Stay Lower After 13% Gain in Holiday Sales (Bloomberg)
Treasuries stayed lower following last week’s steepest decline in two months after an industry report showed spending increased 13 percent during the four-day U.S. Thanksgiving weekend versus 2011. Benchmark 10-year yields were two basis points away from the highest level in two weeks after the National Retail Federation said spending rose to $59.1 billion from Nov. 22 through yesterday from $52.4 billion last year. The increase occurred even as ShopperTrak, which also monitors spending data, observed a 1.8 percent decline in sales on Black Friday, the start to the shopping season. “Sales are much better than last year,” said Hiroki Shimazu, an economist in Tokyo at SMBC Nikko Securities Inc., a unit of Japan’s third-largest publicly traded bank by assets. “The U.S. economy continues to recover. I don’t recommend people buy Treasuries. Equities and commodities are a better place to invest.”
Ten-year notes yielded 1.68 percent as of 9:46 a.m. in Tokyo, according to Bloomberg Bond Trader prices. The 1.625 percent security due in November 2022 changed hands at 99 15/32. The U.S. market was shut Nov. 22 for Thanksgiving holiday. The yield was as high as 1.7 percent on Nov. 23, a level not seen since Nov. 7. It will rise to 2 percent by year-end, Shimazu said. Treasuries fell last week on speculation President Barack Obama and lawmakers will reach an agreement to avert the so- called fiscal cliff of scheduled tax increases and spending cuts. Ten-year yields increased 11 basis points, or 0.11 percentage point, the most since the period ended Sept. 14. Euro-area finance ministers will try today for the third time this month to clear an aid payment to Greece and produce a plan to keep the country a solvent member of the currency bloc. Progress at the meeting may damp demand for the relative safety of Treasuries, Shimazu said.
Yen Weakens After BOJ Minutes Signaled Need for Stimulus (Bloomberg)
The yen weakened against all 16 major peers after minutes of last month’s Bank of Japan (8301) policy meeting showed members calling for powerful monetary easing. The Japanese currency fell to an almost seven-month low against the euro before Prime Minister Yoshihiko Noda and opposition leader Shinzo Abe hold a Nov. 29 debate prior to next month’s lower-house elections. Demand for the 17-nation euro was supported amid speculation finance ministers from the currency bloc will agree today to keep aid flowing to Greece. Gains in Asian stocks also damped the yen’s allure. “While Japan’s political situation is provoking yen weakness, the BOJ continues to lean toward monetary easing,” said Kengo Suzuki, currency strategist in Tokyo at Mizuho Securities Co., a unit of Japan’s third-largest bank by market value. “It’s possible that the BOJ will announce additional stimulus before year-end. The yen may weaken further.”
The yen touched 107.14 per euro, the lowest level since April 27, before trading at 107.05 as of 9:48 a.m. in Tokyo, 0.1 percent below the close in New York on Nov. 23. The Japanese currency lost 0.2 percent to 82.58 per dollar from the end of last week, when it completed a 1.3 percent five-day decline. It touched 82.84 on Nov. 22, the weakest since April 4. The euro was little changed at $1.2962 from $1.2976 on Nov. 23, when it reached $1.2991, the strongest since Oct. 31. The MSCI Asia Pacific Index (MXAP) of stocks rose 0.5 percent, following a 1.1 percent advance in the MSCI World Index (MXWO) Nov. 23.
Shoppers Lift Thanksgiving Weekend Spending 13% to $59.1 Billion (Bloomberg)
Shoppers spent 13 percent more during the four-day U.S. Thanksgiving weekend, heading to stores and jumping online to push Black Friday beyond a one-day extravaganza. Spending rose to $59.1 billion from Nov. 22 through today from $52.4 billion last year, the National Retail Federation said in a statement. The jump occurred even as Chicago-based researcher ShopperTrak observed a 1.8 percent decline in sales on Black Friday, the traditional start to the shopping season. Retailers have turned Black Friday into a week’s worth of deals and discounts, with ever-earlier openings and online offers. Thanksgiving Day, once reserved for family gatherings, saw more than 35 million shoppers buying in stores and online, up from 29 million last year, the NRF said. Even tomorrow’s so- called Cyber Monday is losing its distinction, with Best Buy Inc. and J.C. Penney Co. starting some web-based deals today.
“Retailers have now integrated the entire shopping experience,” Matt Shay, president and chief executive officer of the NRF, said on a conference call today. “Every day is Cyber Monday. Every day is Black Friday.” Customers spent $423 on average this weekend, up 6.3 percent from last year, the Washington-based NRF said. The 13 percent jump in total spending suggests some sales may have been pulled ahead from December and that retailers will have to keep up the promotions to avoid a lull. “Retailers are going to have to get creative, such as price discounts or special events, to keep the customer engaged,” Patricia Edwards, chief investment officer for Bellevue, Washington-based Trutina Financial, said today by telephone. Her firm owns Wal-Mart Stores Inc. (WMT) and Starbucks Corp. among more than $300 million in assets.
Spending Probably Cooled, Investment Fell: U.S. Economy Preview (Bloomberg)
Consumer spending probably cooled in October and business investment dropped, showing how superstorm Sandy and the looming fiscal cliff are hindering U.S. growth at the end of 2012, economists said before reports this week. Household purchases rose 0.1 percent last month, the smallest advance since June, after increasing 0.8 percent in September, according to the median estimate from 52 economists surveyed by Bloomberg before Nov. 30 figures from the Commerce Department. Orders for durable goods fell 0.8 percent in October, economists forecast another report to show. Sandy shuttered some retailers in the Northeast, temporarily countering the benefits of gains in consumer sentiment that are brightening the holiday-shopping outlook. At the same time, the prospect that the economy will stumble should lawmakers not be able to ward off tax increases and government spending cuts scheduled for 2013 may be prompting companies to put off replacing outdated equipment.
“There’s a mixed picture,” said George Mokrzan, director of economics for Huntington National Bank in Columbus, Ohio. “Even though the consumer has shown some greater strength, business equipment spending has weakened. That may be a function of all this uncertainty that is primarily because of the fiscal cliff.” An earlier read on spending from the Commerce Department on Nov. 14 showed retail sales fell in October for the first time in four months. While the Commerce Department said it was able to collect information from the storm-affected area, it said it couldn’t quantify Sandy’s impact.
U.S. Yields Rise First Time in 5 Weeks on Fiscal-Cliff Optimism (Bloomberg)
Treasuries fell, pushing 10-year note yields higher for the first in five weeks, on optimism President Barack Obama and lawmakers will reach an agreement to avert the so-called fiscal cliff, damping refuge demand. The benchmark yield touched a two-week high yesterday as finance ministers from the euro area prepare to hold a meeting on Nov. 26 to discuss unlocking bailout funds for Greece, after failing to reach an agreement earlier this week. Federal Reserve Chairman Ben S. Bernanke said earlier this week an agreement to reduce long-term U.S. deficits may remove an impediment to economic growth next year. The U.S. will sell $99 billion in notes next week. “The key market focus will be how the negotiations are proceeding” on the fiscal cliff, said Priya Misra, head of U.S. rates strategy at Bank of America Corp. in New York, one of the 21 primary dealers that trade with the Fed. “The last thing we heard from Congress was positive.”
The benchmark 10-year yield rose 11 basis points, or 0.11 percentage point on the week, to 1.69 percent in New York, according to Bloomberg Bond Trader prices. The price of the 1.625 percent security due in November 2022 lost 1 point, or $10 per $1,000 face amount, to 99 13/32. The yield rose for the first five-day period since Oct. 19 and touched 1.70 percent yesterday, the highest since Nov. 7.
China Wage Gains Hurt by Weaker Profit Damp Consumption (Bloomberg)
China’s wage gains have moderated on weaker corporate profits, capping consumer demand as the government seeks to sustain a rebound after a seven-quarter economic slowdown. Average urban salaries rose 12 percent in the first nine months from a year earlier without adjusting for inflation, slowing from 14.4 percent for all of 2011 and 13.3 percent in 2010, government data show. Restaurant operator Yum Brands! Inc. reports smaller pay increases, and labor ministry data show the same for minimum wages. Deeper declines in wage growth would undermine efforts by China’s new leadership under Xi Jinping to boost consumer spending and shift the world’s second-biggest economy away from dependence on investment and exports. Overcapacity in manufacturing is weighing on profits, with the latest reading due tomorrow when the statistics bureau releases industrial companies’ net income for this year through October.
“Given the poor profit picture, wage growth is bound to slow down in the coming quarters and this is set to reduce the robustness of consumption,” said Louis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong, who formerly worked at the World Bank in Beijing. “The expected slowdown will impact the rebalancing in the sense that it will reduce the relative role of consumption in the short term.” Li Keqiang, the second-highest ranked official in the new Communist Party leadership and set to take over from Wen Jiabao as premier in March, said last week that household spending is key to boosting domestic demand.
Korean Consumer Confidence Rebounds From Nine-Month Low (Bloomberg)
South Korean consumer confidence rebounded from a nine-month low this month as the economy began to show signs of improvement. The sentiment index was at 99 from 98 in October, the Bank of Korea said in an e-mailed statement today. A reading below 100 indicates pessimists outnumber optimists. Unemployment fell to the lowest since 2008 last month as gains in exports and industrial output signaled growth may pick up from the weakest pace in three years in the third quarter. Risks for Asia’s fourth-largest economy include record household debt and strength in the won, which threatens to weigh on exporters’ sales. The Bank of Korea cut borrowing costs twice this year and the government boosted spending within its budget to support the economy. Today’s report showed that people expect inflation of 3.3 percent over the next year, within the range of between 2.5 percent and 3.5 percent that the central bank is targeting for the next three years.
The consumer confidence index is based on responses from 2,006 households in 56 cities, with the survey conducted by mail and telephone between Nov. 12 and Nov. 19.
S. Korea, Japan Finance Ministers Meet to Repair Ties (Bloomberg)
Japanese and South Korean finance ministers met to discuss boosting economic and financial ties as the two nations work to repair relations marred by a territorial dispute. “It was a very significant and meaningful financial discussion,” Koriki Jojima told reporters yesterday after talks with his South Korean counterpart Bahk Jae Wan in Gwacheon, south of Seoul. In a joint statement, the two reaffirmed the importance of resuming negotiations on a free trade agreement and resolved to work closely to strengthen collaboration on issues ranging from finance to the environment. The meeting, which was postponed from August, suggests Asia’s second- and fourth-largest economies are trying to improve relations after a territorial dispute damaged ties and led to the cancellation of an extension of a currency swap agreement. Japan is also involved in a row with China over the ownership of islands in the East China Sea.
“There are difficult issues,” Jojima said. “But on the other hand, especially on the economic front, Japan and Korea have a large influence on the regional economy and they should link up in the areas where that is possible.” Bahk said the talks were “aimed at deepening relations” and that “Jojima and I shared views on policy direction across tax, foreign exchange and fiscal soundness.” He declined to elaborate on the currency discussions.
India Pledges to Cut Deficit, Cap Debt to Avert Downgrade (Bloomberg)
Indian officials pledged to cut the widest budget deficit among the world’s largest emerging markets and curb public debt, as a report this week may show the economy grew at close to the slowest pace in three years. The government is “optimistic” it will rein in the shortfall for the year through March 31 to 5.3 percent of gross domestic product from the previous year’s 5.8 percent, and has no plan “at the moment” to increase its record borrowing program, Finance Minister Palaniappan Chidambaram said in Pune, India, on Nov. 24. The deficit will be cut 0.6 percent annually for the next five years, Chakravarthy Rangarajan, chief economic adviser to Prime Minister Manmohan Singh, said in Kolkata the same day.
Financial markets are pricing in an increasing likelihood that India’s credit rating will be cut to junk status, Credit Agricole CIB said last week. The threat of losing the nation’s investment-grade sovereign ranking prompted Singh to reduce fuel subsidies in mid-September to tackle the fiscal gap and to allow foreign investment in retailing and aviation. “I would like to, with all the conviction and command, reiterate that the government is fully committed to contain the fiscal deficit within 5.3 percent,” Economic Affairs Secretary Arvind Mayaram said at a conference in Mumbai on Nov. 24. “We have a clear program of disinvestment and we are confident of meeting our targets.” An auction of wireless spectrum this month helped raise 94 billion rupees ($1.7 billion), less than 25 percent of the target, straining state finances. The auction isn’t yet complete and the government is confident of meeting its goal of raising 400 billion rupees from the sale, said Chidambaram, the finance chief.
Vietnam Empty Office Towers Show Dreams Turned to Rubble (Bloomberg)
From afar, the gleaming metal and glass edifices of Hanoi’s EVN Tower illustrate Vietnam’s rapid economic development. Up close, the rubble-strewn entrance and missing windows tell another story: one of loose lending and property speculation that now hangs over the country’s banks. State-run monopoly Vietnam Electricity began construction of the 33- and 29- story dual-tower development in 2007, a year when 54 percent credit growth helped fuel the fastest economic expansion since 1996. Now, the economy has slowed, banks are struggling with an increase in bad debts, and unfinished property projects, empty offices and lower rents risk adding to the pile of non-performing loans.
“Banks were far too eager to lend and a lot of the projects that have been built haven’t been well-thought through,” said Stephen Wyatt, managing director for real estate broker Knight Frank Vietnam in Ho Chi Minh City. “A number of developments are on hold, purely because they have run out of funding. Banks are no longer willing to fund these massive developments.” Vietnam’s economy, which the communist government opened up in 1986, expanded at a 4.7 percent annual rate in the third quarter, after exceeding 7 percent from 2002 through to the first quarter of 2008. After a lending binge fueled the fastest inflation in Asia, policy makers raised interest rates in 2010 and 2011 and restricted lending. Among the casualties are many of the nation’s inefficient state-owned enterprises, which had diverted cash to property developments.
“When the developer is a state-owned enterprise and is using the money it should be using for say, power generation, airlines, shipping or banking, that’s where the oversupply has come,” said Marc Townsend, the Ho Chi Minh City-based managing director of CBRE Group Inc.’s Vietnam unit. “They all felt they could make easy money by being a property developer.”
Euro Ministers Take Third Swing at Clearing Greek Payment (Bloomberg)
Euro-area finance ministers try for the third time this month to clear an aid payment to Greece and forge a blueprint to keep the country a solvent member of the currency bloc. Finance chiefs from the 17-member single currency return to Brussels today, less than a week after an all-night meeting failed to yield agreement and days after a European Union summit broke up without a proposed seven-year budget. At stake at the euro meeting is the continuation of a three-year mission to return Greece to financial health. “It would be irresponsible not to reach an accord given all the efforts that have been made on all sides,” French Finance Minister Pierre Moscovici said late yesterday on BFM television. “I’m not going to guarantee that an accord will be reached, but I think the third time should be the charm.”
Efforts to resolve the European debt crisis have stumbled after the European Central Bank gave leaders more time with its September pledge to purchase sovereign debt. As officials put finishing touches on a bailout for Cyprus, divisions were on display in Spain. Voters in Catalonia took a step toward independence, risking the country’s fragmentation. Euro-area finance ministers held a conference call Nov. 24 to prepare for the Brussels meeting. A breakthrough hinges on coming up with 10 billion euros ($13 billion) to fill the financing gap that emerged when Greece this month got two more years to meet deficit-reduction targets. Measures on the table include reducing interest rates on rescue loans, arranging a debt buyback with bailout funds and applying central bank profits on Greek bond holdings to the effort.
Europe Turns Attention to Unlocking Greek Aid (Bloomberg)
European policy makers turned their attention to unlocking funds to keep Greece solvent after a summit failed to agree on a seven-year budget for the bloc. Euro-area finance ministers held a conference call today to prepare for their third meeting this month, on Nov. 26, on Greece’s rescue. As with the budget talks for the 27-nation European Union, euro finance chiefs have deadlocked on a plan to steer the country back to fiscal health. “There’s no time to waste” in finding a solution for Greece, German Chancellor Angela Merkel told reporters yesterday in Brussels. A plan “is being intensively worked on,” she said. An agreement, which would release an aid payout of at least 31 billion euros ($40 billion), may raise Greece’s debt target to 124 percent of gross domestic product in 2020 from a previous goal of 120 percent, a Greek official said Nov. 22. The cost of reaching the new target from a currently projected trajectory of 129 percent of GDP that year is about 10 billion euros, according to the official.
The main obstacle to clearing the loans for Greece is a plan to reduce the interest rates charged by euro-area creditors. A cut in interest rates would put them below the cost of funding for some of the 17 euro-area countries, the official told reporters in Brussels. The latest chapter in the Greek economic crisis that opened in 2009 was triggered by the ministers’ decision to extend by two years, to 2016, the deadline for Greece to cut its budget deficit to 2 percent of gross domestic product. The extra time drove its projected debt higher, stirring tensions with the International Monetary Fund. The IMF has provided about a third of 148.6 billion euros in loans funneled to Greece since 2010.
