Asia FX (CME/www.lucafxta.com)
The appetite for risk was essentially neutral on Wednesday, when that Fed's Beige Book confirmed that fiscal uncertainty was having an impact on hiring and the economy. The statement hardly uncovered anything new, but sanctioned the status quo; no news is good news. All foreign currencies but the pound and Canadian dollar made little progress. The latter fell. The US stock markets closed mixed. The gold/oil spread closed down. The short-term outlook for the foreign currencies is sideways. The medium-term outlook for most of the foreign currencies is sideways. The LGR short-term model is long euro, yen, and the commodity currencies, and short pound and franc. Good luck!
Overnight
US: The CPI was unchanged in December after declining 0.3% in November. The core CPI increased 0.1% in December, the same as in November.
US: The total net TIC flows rose to $27.8 billion in November from -$56.7 billion in October and the net long-term TIC flows jumped to $52.3 billion from $1.3 billion.
US: Industrial production rose 0.3% in December, less than 1% in November, while capacity utilization improved marginally to 78.8% in December from 78.7% in November.
US: The NAHB/Wells Fargo Housing Market Index was unchanged at 47 in January.
Today's economic calendar
Japan: Tertiary Industry Index for November
Australia: Consumer inflation expectation for January
Australia: Unemployment rate for December
Asian Stocks Rebound as Yen Snaps Two-Day Gain; Aussie Falls (Bloomberg)
Asian stocks rebounded from the biggest drop in two months as the yen snapped a two-day gain against the dollar. Australia’s dollar slid after a report showed employers unexpectedly cut jobs.
The MSCI Asia Pacific Index (MXAP) of regional shares rose 0.4 percent as of 9:51 a.m. in Tokyo. Standard & Poor’s 500 Index futures were little changed. The yen weakened 0.3 percent to 88.60 per dollar after gaining 1.2 percent over the previous two days. The so-called Aussie slid 0.2 percent to $1.0550.
Asia’s stocks benchmark has risen more than 10 percent in the last two months as a slide in the yen boosted Japanese shares amid speculation a new government would add economic stimulus. Jobs in Australia fell by 5,500 in December, the statistics bureau said today. China’s economic growth probably accelerated for the first time in eight quarters, data from the National Bureau of Statistics are forecast to show tomorrow.
“There’s justifiable optimism out there,” said Andrew Pease, Sydney-based chief investment strategist at Russell Investment Group, which manages about $150 billion. “There’s tremendous upside in the Japanese share market as we’re seeing a significant shift in Japanese policy.”
The Japanese currency resumed declines amid bets Bank of Japan Governor Masaaki Shirakawa and his fellow board members will raise a 1 percent inflation goal at a meeting on Jan. 21-22. Prime Minister Shinzo Abe has called for the target’s doubling.
China’s National Bureau of Statistics will report tomorrow that gross domestic product expanded 7.8 percent in the fourth quarter from a year earlier, according to the median estimate of economists surveyed by Bloomberg News. That’s up from a three- year low of 7.4 percent in the previous period.
Japanese Stocks Swing From Gains, Losses on Yen, GS Yuasa (Bloomberg)
Jan. 17 (Bloomberg) -- Japanese stocks swung between gains and losses as the yen’s decline lifted the outlook for exporters while GS Yuasa Corp. (6674) led losses on the Nikkei 225 (NKY) Stock Average.
Toyota Motor Corp. (7203), Asia’s biggest carmaker by market value, rose 1.8 percent as the yen dropped against all its major counterparts. GS Yuasa, a supplier of batteries to Boeing Corp., dropped 4.4 percent after U.S. regulators grounded 787 Dreamliner aircraft after an emergency landing in Japan. Sharp Corp. (6753) led gains on the Nikkei 225 on a report it may sell a television factory in China to Lenovo Group Ltd.
The Nikkei 225 gained 0.6 percent to 10,665.41 as of 9:57 a.m. in Tokyo after falling 2.6 percent yesterday, the biggest drop since May 18. The broader Topix Index advanced 0.7 percent to 894.26.
“Stocks are moving in a lockstep with the yen as the market’s theme is monetary easing and inflation bets add to downward pressure on the yen,” said Ichiro Yamada, general manager of equities who helps manages about 300 billion yen ($3.4 billion) at Fukoku Mutual Life Insurance. “Common sense tells you that the yen’s drop up to about 100 against the dollar won’t have any negative impact on the Japanese economy.”
Most U.S. Stocks Fall as World Bank Offsets Apple Rally (Bloomberg)
Most U.S. stocks fell, following yesterday’s gain, as a cut in the World Bank’s growth forecasts offset a rally in Apple Inc. as investors watched earnings.
Boeing Co. (BA) slumped 3.4 percent as All Nippon Airways Co. and Japan Airlines Co., the world’s largest users of the 787 jets, grounded their entire fleet of Dreamliners. Custody banks Bank of New York Mellon Corp. and Northern Trust Corp. (NTRS) dropped at least 2.7 percent. Apple, which slid below $500 a share yesterday for the first time in 11 months, rallied 4.2 percent to halt a three-day decline. Goldman Sachs Group Inc. added 4.1 percent after the bank’s profit almost tripled.
Three stocks retreated for every two rising on U.S. exchanges at 4 p.m. New York time. The Standard & Poor’s 500 Index advanced less than 0.1 percent to 1,472.63. The Dow Jones Industrial Average declined 23.66 points, or 0.2 percent, to 13,511.23. About 5.6 billion shares changed hands on U.S. exchanges, or 8.6 percent below the three-month average.
“The cuts in growth forecasts are reminders that there’s still work to be done,” said Brad Sorensen, director of market and sector analysis at San Francisco-based Charles Schwab Corp. His firm has $1.92 trillion in client assets. “In the U.S., it’s early to talk about the earnings season, but so far we’re relatively pleased with what we’ve seen. We’ve had a good start to the year in stocks. There’s very little doubt that there’s quite a bit of money on the sidelines that could provide a nice boost higher.”
European Stocks Are Little Changed; TUI Travel Gains (Bloomberg)
European stocks were little changed, erasing an earlier retreat for the region’s benchmark Stoxx Europe 600 Index, as U.S. industrial production climbed and Goldman Sachs Group Inc.’s earnings topped estimates.
TUI Travel Plc (TT/) gained 3.9 percent after Europe’s largest tour operator said it received an approach from its German majority owner. Anglo American Plc (AAL) dropped 3.1 percent as the African National Congress said South Africa’s government should withdraw the company’s platinum licenses. Societe Generale SA (GLE) lost 2.8 percent as CA Cheuvreux downgraded the French lender.
The Stoxx 600 rose less than 0.1 percent to 286.03 at the close of trading, after earlier falling as much as 0.4 percent. The gauge has advanced 2.3 percent since the start of the year after U.S. lawmakers agreed on a budget, avoiding tax increases and spending cuts.
“Things have improved, compared to last year the world looks better,” Sebastian Paris-Horvitz, chief market strategist at HSBC Private Bank, told Francine Lacqua in an interview on Bloomberg Television today. “I do believe in the rotation towards equities, it looks better value for the future and is the reason we have been advocating the move toward riskier assets.”
The volume of shares changing hands in companies listed on Europe’s Stoxx 600 (SXXP) was 20 percent higher than the 30-day average today, according to data compiled by Bloomberg.
Emerging Stocks at One-Week Low on Slower Growth Forecast (Bloomberg)
Emerging-market stocks fell to a one-week low and currencies weakened after the World Bank and Germany cut economic growth forecasts and India’s central bank chief tempered expectations for monetary stimulus.
Tata Motors Ltd. (TTMT) sank by the most since Oct. 30 after sales of its Jaguar and Land Rover units dropped below estimates. OAO Gazprom and OAO Novatek, Russian natural-gas producers, dropped the most in at least a month, while Brazilian port operator LLX Logistica SA tumbled. Anglo American Platinum Ltd. (AMS), South Africa’s largest producer of the metal, slumped as employees at three of its mines refused to go to work. The Hungarian forint and Brazilian real led currency losses among emerging markets.
The MSCI Emerging Markets Index (MXEF) lost 0.2 percent to 1,071.21 in New York, the lowest close in eight days. The World Bank projected the global economy will expand 2.4 percent this year, down from a June forecast of 3 percent, and Germany cut its growth outlook to 0.4 percent from 1 percent. While India’s inflation rate remains “quite high,” the scope for monetary and fiscal stimulus is limited, Reserve Bank of India Governor Duvvuri Subbarao said yesterday.
“Risk assets in emerging markets are more vulnerable to the swing in the global economy,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Slower growth will hurt profitability in emerging-nation companies more than those in developed countries given the proportion of exports in their economies.”
Yen Snaps Two-Day Gain Versus Dollar, Euro on BOJ Stimulus Bets (Bloomberg)
The yen snapped a two-day gain against the dollar and euro as investors weighed the likelihood of new monetary easing measures by the Bank of Japan (8301) next week.
Demand for the Japanese currency was limited after a government report today showed a measure of demand for services declined, adding to the case for more central bank stimulus. Australia’s dollar slid versus most major counterparts after data showed the nation lost jobs in December.
“There is no doubt that the BOJ will act at the next meeting,” said Yuki Sakasai, a foreign-exchange strategist in New York at Barclays Plc. “Otherwise, the yen wouldn’t stay at the 88 level against the dollar.”
The yen fell 0.2 percent to 88.58 per dollar at 9:32 a.m. in Tokyo, after gaining 1.2 percent over the previous two days. It sank to 89.67 on Jan. 14, the lowest since June 2010. The yen dropped 0.2 percent to 117.67 per euro, after rising 0.6 percent yesterday. The euro was little changed at $1.3288.
The so-called Aussie slid 0.3 percent to $1.0538. It touched $1.0599 on Jan. 10, the strongest since Sept. 14.
BOJ Governor Masaaki Shirakawa, who’s due to step down in April, and his fellow board members will review the central bank’s inflation goal at their Jan. 21-22 meeting. Prime Minister Shinzo Abe has called for the target to be doubled and said on Jan. 13 that he wants a BOJ chief “who can push through bold monetary policy.”
Asian Development Bank President Haruhiko Kuroda is the “No. 1 candidate” for governor, according to a research note today by Masaaki Kanno, the chief economist in Tokyo at JPMorgan Securities Japan Co. Kuroda advocated unlimited monetary easing in a seminar in Tokyo on Jan. 11.
Japan’s tertiary index fell 0.3 percent in November from a month earlier, when it decreased 0.1 percent, the Ministry of Economy, Trade and Industry said today.
Aussie Drops Versus Peers as Payrolls Unexpectedly Fell (Bloomberg)
Australia’s dollar slid versus most of its 16 major counterparts after a report today showed employers in the country unexpectedly cut payrolls last month, adding to concern the domestic economy is slowing.
The so-called Aussie weakened versus the dollar after the jobless rate rose. New Zealand’s currency, known as the kiwi, remained higher against the dollar after milk powder prices increased to a two-month high at an auction.
“Domestically, the economy does not look that strong,” said Thomas Harr, head of Asia local markets strategy at Standard Chartered Plc in Singapore. “In the very, very short term, there’s a risk to the downside for the Aussie.”
The Australian dollar lost 0.3 percent to $1.0546 at 11:43 a.m. in Sydney. It bought 93.42 yen after falling 1.2 percent in the previous two days to close at 93.44 in New York. New Zealand’s currency added 0.1 percent to 84.19 U.S. cents after rising 0.2 percent yesterday. It gained 0.4 percent to 74.59 yen.
Ten-year yields in Australia dropped to as low as 3.32 percent, the least since Jan. 2. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates which is sensitive to rate expectations, was unchanged at 2.79 percent.
Australia’s statistics bureau said the number of people employed in the country fell in December by 5,500 after a revised 17,100 gain in the previous month. The jobless rate rose to 5.4 percent from 5.3 percent in November.
In New Zealand, whole-milk powder for March delivery rose 2.4 percent, according to a trade-weighted index on Fonterra Cooperative Group Ltd. (FCG)’s GlobalDairyTrade website. The near-term contract for New Zealand product rose to $3,261 a metric ton, the highest price since Nov. 20. Fonterra accounts for about 40 percent of the global trade in dairy products.
Treasuries Most Expensive in Two Weeks on Debt Concern (Bloomberg)
Treasuries were the most expensive in two weeks on speculation the U.S. debt-ceiling debate will curb economic growth, driving demand for the safest assets.
The 10-year term premium, a model created by economists at the Federal Reserve that includes expectations for interest rates, growth and inflation, was minus 0.77 percent yesterday in New York, the least since Jan. 1. A negative reading indicates investors are willing to accept yields below what’s considered fair value. Housing starts rose to a four-year high, a report today will show, based on a Bloomberg News survey of economists.
“Yields can fall,” said Tomohisa Fujiki, an interest-rate strategist in Tokyo at BNP Paribas SA, whose New York unit is one of the 21 primary dealers that are obligated to bid at U.S. debt sales. “The uncertainty on the debt-ceiling talks will support demand for Treasuries in coming months.”
The 10-year rate was little changed at 1.82 percent as of 9:53 a.m. in Tokyo, according to Bloomberg Bond Trader data. The 1.625 percent security due November 2022 traded at 98 1/4. The yield will fall to 1.75 percent within a month, Fujiki said.
Housing starts probably rose 3.36 percent to an 890,000 annual rate in December from November, reaching the fastest pace since July 2008, based on responses from economists ahead of the Commerce Department report at 8:30 a.m. New York time today.
With as little as a month until the U.S. runs out of money to pay its bills, President Barack Obama and Republicans in Congress are at odds on raising the debt ceiling.
The U.S. government makes about 80 million payments each month, including for Social Security, veterans’ benefits, defense contractors, law enforcement and income tax refunds.
The Treasury uses emergency measures to delay a default as the total value of debt nears the ceiling. Exhausting the extraordinary steps without raising the limit would require the Treasury to fund the government with cash on hand, which wouldn’t be adequate “for any meaningful length of time,” according to Treasury Secretary Timothy F. Geithner.
Congress has increased or revised the limit 79 times.
U.S. Industrial Production Rises 0.3% on Equipment Demand (Bloomberg)
Production at U.S. factories climbed more than forecast in December and the cost of living was little changed, showing the economy gained momentum entering 2013 while inflation remained at bay.
Manufacturing output advanced 0.8 percent after jumping 1.3 percent in November, the strongest back-to-back reading in almost a year, Federal Reserve figures showed today. The Labor Department said its consumer-price index was unchanged last month, capping the third-smallest annual gain in a decade.
Rebounds in housing, the auto industry and business investment combined with stabilization in global growth will probably support gains in manufacturing into this year. The lack of inflation and an improving job market are also helping boost Americans’ buying power, easing the risk that household spending will slump as the budget battles in Washington shake confidence.
“We’re likely to start this year on much firmer footing than we did last year,” said Millan Mulraine, an economist at TD Securities LLC in New York. “We’re moving in a positive direction.”
The Fed said today in its Beige Book business survey that the economy picked up across much of the nation last month, boosted by sales of cars and homes.
“Economic activity has expanded since the previous Beige Book report, with all 12 districts characterizing the pace of growth as either modest or moderate,” the central bank said in its survey, which is based on reports from the Fed’s district banks.
Fed Sees Economy Picking Up Across U.S. in Beige Book Survey (Bloomberg)
The U.S. economy picked up across much of the country last month, boosted by auto and home sales, even as the outlook for unemployment showed few signs of improvement, the Federal Reserve said.
“Economic activity has expanded since the previous Beige Book report, with all 12 districts characterizing the pace of growth as either modest or moderate,” the central bank said today in its Beige Book business survey, which is based on reports from the Fed’s district banks.
The report, prepared for discussion at the Federal Open Market Committee’s Jan. 29-30 meeting, may strengthen the resolve of policy makers who want to press on with the Fed’s $85 billion in monthly bond purchases until the labor market improves substantially.
“There’s still plenty of potential headwinds” for the economy, said Terry Sheehan, an economic analyst at Stone & McCarthy Research in Princeton, New Jersey. Policy makers “have not seen the recovery in labor markets that they had hoped for yet.”
The New York and Philadelphia districts “rebounded from the immediate impact of Hurricane Sandy,” while Boston, Richmond and Atlanta reported that growth increased slightly in their districts. Still, the report said that “labor market conditions remained mostly unchanged in all districts.”
The Beige Book provides anecdotal evidence on the health of the economy. In the previous report on Nov. 28, the Fed said the economy expanded at a “measured pace” and “consumer spending grew at a moderate pace in most districts, while manufacturing weakened.”
Foreign Demand for U.S. Assets Rises on Global Slowdown (Bloomberg)
International purchases of U.S. stocks, bonds and other financial assets were more than twice as much as forecast in November as investors sought shelter from a global economic slowdown.
Net buying of long-term financial assets totaled $52.3 billion during the month, swinging from net sales of $1 billion in October, the Treasury Department said today in Washington. Economists surveyed by Bloomberg projected net buying of $25 billion of long-term assets, according to the median estimate.
“The global economic slowdown and renewed uncertainty in the U.S. about the impact of the fiscal cliff following the general election motivated the flight to safety,” Millan Mulraine, senior U.S. strategist for TD Securities Inc. in New York, said after the report was released. “With intensification of these concerns in December we are likely to see further increase in flows.”
President Barack Obama vowed he won’t negotiate over raising the government’s debt ceiling even as he offered to deal on a separate track with the deficit reduction demanded by Republicans. Senate Republican leader Mitch McConnell of Kentucky said the debt-ceiling debate is the “perfect time” to address spending, while House Speaker John Boehner, an Ohio Republican, brushed off Obama’s insistence on keeping the two separate.
China Set to Exit Slowdown by Boosting Infrastructure (Bloomberg)
China’s economy is set to exit a seven-quarter slowdown as the government rolls out infrastructure projects and limited inflation lets officials hold off from tightening monetary policy.
The National Bureau of Statistics will report tomorrow that gross domestic product expanded 7.8 percent in the fourth quarter from a year earlier, according to the median estimate of 53 economists surveyed by Bloomberg News. That’s up from a three-year low of 7.4 percent in the previous period.
The risk is that the rebound may fade in the second half as the boost from railways and road projects ebbs and the government grapples with rising inflation and the expansion of shadow banking. While the nation is set to reverse its slide in economic growth, the pace remains short of the 10 percent average of the past two decades as higher wages and weakness in global demand limit export gains.
“The current recovery is being driven mostly by monetary and fiscal policy easing,” said Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong. “Once the momentum of policy easing slows, growth may trend down again.”
Tomorrow’s report will also include the latest monthly data. Factory output probably rose 10.2 percent in December from a year earlier, up from 10.1 percent in November, while retail sales advanced 15.1 percent after a 14.9 percent gain the prior month, according to median analyst estimates.
Japan Opposition Party Won’t Back BOJ Officials for Governor (Bloomberg)
Japanese Prime Minister Shinzo Abe must not pick a Bank of Japan (8301) bureaucrat to be the next central bank governor and should consider former economy minister Heizo Takenaka for the post, an opposition party leader said.
Yoshimi Watanabe said his Your Party won’t support a BOJ insider to succeed Masaaki Shirakawa when his term ends in April or for two deputy governors who will step down in March. Abe has said he is seeking candidates who support his 2 percent inflation target and will enact “bold” monetary easing to overcome more than a decade of falling prices.
“If someone is chosen from within the BOJ, there will be no change in thinking,” Watanabe, 60, said yesterday in an interview. “It’s in the BOJ’s DNA to combat inflation but not deflation, so to change that we need to pick someone from outside.”
Abe needs votes from smaller opposition groups to win backing for his central bank chief in the upper house of parliament, where his Liberal Democratic Party and coalition ally New Komeito hold 102 of 242 seats. Watanabe’s party has 11 lawmakers in the chamber.
Chief Cabinet Secretary Yoshihide Suga yesterday said the ruling coalition “must show consideration to opposition parties” in regards to BOJ appointments.
“We can’t do this without their cooperation,” he told reporters in Tokyo. “It’s a very delicate issue.”
The next governor should be an economics PhD with fluent English and management skills, and while Takenaka “isn’t our only recommendation,” the former Cabinet minister would be a good fit, Watanabe said.
Abe Stimulus Risks Fizzling as Citigroup Sees Japan Job Gap (Bloomberg)
Japan’s 10.3 trillion yen ($117 billion) fiscal stimulus may add less than a quarter of the jobs the government predicts, casting doubt on Prime Minister Shinzo Abe engineering a sustained recovery.
Even with more central bank easing, most of the impact of Abe’s spending won’t spread far beyond public works projects, Citigroup Inc. (C) says. It estimates that 100,000 jobs will be created, compared with the government’s figure of 600,000. BNP Paribas SA (BNP) says 150,000.
Abe is returning to a strategy that failed to end Japan’s stagnation over the last two decades even as the nation’s debt burden nearly tripled and extra stimulus spending totaled 80 trillion yen, according to BNP Paribas. Another failure may deepen voter apathy in a political system that has produced seven prime ministers in six years, while adding to the risk of a surge in bond yields.
“Fiscal stimulus is like morphine, because if you want to maintain the same level of effect you have to keep upping the dose,” said Azusa Kato, an economist at BNP Paribas in Tokyo. “Japan has failed to achieve a sustainable economic expansion, and the country’s record proves the strategy is wrong.”
The yen snapped a two-day gain against the dollar and euro as investors weighed the likelihood of more easing by the Bank of Japan (8301) next week. The currency was at 88.68 per dollar as of 9:20 a.m. The Nikkei 225 Stock Average (NKY) rose 0.5 percent after sliding yesterday by the most in eight months.
Russia May Overtake Germany as No. 5 Economy by 2020: PWC (Bloomberg)
Russian gross domestic product may overtake Germany’s by 2020, making the Russian economy the world’s fifth largest, PricewaterhouseCoopers LLP said in a report today.
“Russia has strong potential in the short to medium term,” PWC’s chief economist, John Hawksworth, said in a phone interview from London today. “It has strength in natural- resource sectors, which are much in demand.”
Russia, the world’s biggest energy exporter, will face declining growth in about a decade because of an aging population and shrinking workforce, Hawksworth said. By 2050, Russia’s economy is projected to fall back to sixth place in purchasing power parity terms, behind Japan, Brazil, India, the U.S. and China, PWC said in the report on its website.
Russia Says World Is Nearing Currency War as Europe Joins (Bloomberg)
The world is on the brink of a fresh “currency war,” Russia warned, as European policy makers joined Japan in bemoaning the economic cost of rising exchange rates.
“Japan is weakening the yen and other countries may follow,” Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said at a conference today in Moscow.
The alert from the country that chairs the Group of 20 came as Luxembourg Prime Minister Jean-Claude Juncker complained of a “dangerously high” euro and officials in Norway and Sweden expressed exchange-rate concern.
The push for weaker currencies is being driven by a need to find new sources of economic growth as monetary and fiscal policies run out of room. The risk is as each country tries to boost exports, it hurts the competitiveness of other economies and provokes retaliation.
Yesterday “will go down as the first day European policy makers fired a shot in the 2013 currency war,” said Chris Turner, head of foreign-exchange strategy at ING Groep NV in London.
Brazil Holds Rate Steady as Inflation Rises Amid Slow Growth (Bloomberg)
Brazil’s central bank kept its benchmark interest rate at a record low for the second straight meeting, as inflation accelerates amid faltering growth.
The central bank, which ended the steepest rate-cutting cycle among Group of 20 nations in November, held the Selic at 7.25 percent today, as forecast by all 56 economists surveyed by Bloomberg.
The bank, in a statement, acknowledged that the balance of risks for inflation worsened in the short term at the same time that a domestic recovery was “less intense” than expected. Given those concerns, and continued “complexity” in the global economy, policy makers reiterated their view that the best strategy is to keep rates stable for a “prolonged period.”
Latin America’s biggest economy is struggling to emerge from two years of slowing growth as the government cuts taxes, lowers lending rates and boosts investment. At the same time that growth trails all major emerging markets, inflation in December accelerated faster than economists’ estimates for the sixth straight month and ended 2012 at 5.84 percent, higher than the bank’s 4.5 percent target for the third straight year.
“Brazil is in a horrible place where you have very low growth and very high inflation,” Gustavo Rangel, chief Latin America economist for ING Bank NV in London, said in a phone interview before today’s decision. “Activity data has been disappointing, but room for rate cuts doesn’t exist.”
After the government last week reported that consumer prices in December rose 0.79 percent, the fastest since March 2011, central bank President Alexandre Tombini said that inflation has proved “resilient” in the short term due to agricultural price shocks.
IMF Approves 3.2 Billion-Euro Disbursement for Greece (Bloomberg)
The International Monetary Fund agreed to disburse 3.2 billion euros ($4.3 billion) to Greece after the country made new budget cuts, received more favorable aid terms from European nations and conducted a bond buyback.
The IMF board made the decision during a meeting today, it said in a press statement. The funds are part of a joint 130 billion-euro package with European nations, which unblocked their share last month.
“The situation on the Greek front is improving,” Thomas Costerg, an economist at Standard Chartered in London, said in an e-mail. “This said, the situation remains fragile, and despite the buyback Greece’s huge debt is still an issue.”
The loan had been frozen since June as a recession and domestic opposition to the program drove Greece away from measures agreed to just three months earlier.
While European policy makers now turn their attention to reviving growth in the 17-country monetary zone and to bailing out Cyprus, Greece may yet again creep back on their agenda. The government has to deliver on its commitments to earn each future payout and European finance ministers committed to “additional measures” if the country’s debt reduction veers off track.
European Dividends Tumble to Four-Year Low as CEOs Hoard (Bloomberg)
Companies in the euro area are poised to cut dividends to the lowest level in four years as chief executive officers stockpile cash to weather the region’s sovereign-debt crisis.
Payouts to shareholders in the Euro Stoxx 50 Index (SX5E) will fall by 3.3 percent to a combined 115.48 euros a share this year, according to more than 500 analyst estimates compiled by Bloomberg. Reducing them by that much would cut the dividend yield to 4.3 percent from 6.3 percent in September 2011, even after cash on balance sheets climbed to the highest since 2008, the data show.
The forecasts suggest more companies will follow Royal KPN NV and Enel SpA (ENEL) in reducing payouts as the debt crisis pushes unemployment in Spain and Greece to more than 25 percent and China’s economy cools. Analysts are cutting estimates amid a rally that has sent the Euro Stoxx 50 to a 17-month high as central-bank measures hold down bond yields.
“Within Europe, it’s excess cash on balance sheets” that attracts investors, said Bank of America Corp.’s John Bilton, European investment strategist at Bank of America’s Merrill Lynch unit in London. “The current levels of dividend yield are not sustainable.”
Holdings of cash and equivalents at companies in the Euro Stoxx 50 climbed 9.3 percent to a combined 1,834.44 euros a share in 2012, according to data compiled by Bloomberg. While the gauge’s estimated dividend yield fell over the past year, projections for the Standard & Poor’s 500 Index increased to 2.3 percent from 2.2 percent, Bloomberg data show.
