Asia Stocks Fall on Concern Greece May Default; Cochlear Tumbles (Source: Bloomberg)
Asian stocks fell, with the benchmark index heading to its lowest level in more than three weeks, amid speculation Greece may be nearing a default on its sovereign debt, bolstering concern that the crisis will spread to the banking system. Commonwealth Bank of Australia, the nation’s largest lender by market value, retreated 3.3 percent. Toyota Motor Corp., the world’s biggest carmaker, dropped 2.4 percent in Tokyo. HSBC Holdings Plc, Europe’s largest lender by market value, lost 4.4 percent in Hong Kong. BHP Billiton Ltd. (BHP), the world’s largest mining company, sank 2.9 percent in Sydney after oil and metal prices dropped. Cochlear Ltd. tumbled 22 percent after the company announced a product recall.
The MSCI Asia Pacific Index fell 1.7 percent to 118.68 at 10:40 a.m. in Tokyo, headed to its lowest close since Aug. 22. The gauge slumped 8.6 percent last month, the most since May 2010, amid concern global economic growth is slowing as Europe’s sovereign-debt crisis spreads and after Standard & Poor’s cut the U.S. credit rating.
G-7 Finance Chiefs Vow to Support Banks as Euro-Zone Crisis Roils Markets (Source: Bloomberg)
Group of Seven finance chiefs vowed to support banks and buoy slowing economic growth as Europe’s debt crisis roiled financial markets and threatened a global recession. “We will take all necessary actions to ensure the resilience of banking systems and financial markets,” G-7 finance ministers and central bankers said in a statement released during weekend talks in Marseille, France. “Concerns over the pace and future of the recovery underscore the need for a concerted effort at a global level in support of strong, sustainable and balanced growth.” Renewed fears that European policy makers are failing to prevent a Greek default and contain their debt woes last week prompted investors to sell stocks and push the euro to a six- month low against the dollar. European bank and sovereign credit risk reached all-time highs as 10-year Treasury and German bund yields fell to record lows on demand for a haven.
Retail Sales in U.S. Probably Slowed on Limited Growth for Jobs, Incomes (Source: Bloomberg)
U.S. retail sales rose in August at the slowest pace in three months, tempered by limited job and income growth, economists said before a report this week. The projected 0.2 percent gain would follow a 0.5 percent increase in July, according to the median forecast in a Bloomberg News survey ahead of Commerce Department figures on Sept. 14. Production slowed in August and inflation cooled from the previous month, other reports may show. Retailers J.C. Penney Co. and Target Corp. (TGT) say sales gains are more difficult because of a stagnant labor market that’s battered confidence. The risk of a broader pullback in spending, which accounts for about 70 percent of the economy, increases pressure on the Federal Reserve, Obama administration and Congress to craft a plan to ensure the recovery is sustained.
U.S. Stock-Index Futures Fall Amid Speculation Greece Approaching Default (Source: Bloomberg)
U.S. stock futures fell, indicating the Standard & Poor’s 500 Index will extend last week’s loss, as speculation Germany is preparing for a Greek default spurred turmoil in financial markets worldwide. S&P 500 futures expiring in December lost 0.9 percent to 1,141.70 at 10:55 a.m. in Tokyo. The benchmark measure of U.S. equities slumped 1.7 percent last week, wiping out its rally since Sept. 2 on the final day amid concern the debt crisis is worsening. The MSCI Asia Pacific Index lost 1.7 percent today.
Officials in Chancellor Angela Merkel’s government are debating how to shore up German banks in the event that Greece fails to meet the budget-cutting terms of its aid package and is unable to get a bailout-loan payment, three coalition officials said Sept. 9. BNP Paribas SA, Societe Generale SA and Credit Agricole SA, France’s largest banks by market value, may have their credit ratings cut by Moody’s Investors Service as soon as this week because of Greek holdings, two people with knowledge of the matter said on Sept. 10.
U.S. Stocks Drop as Greece Concern Outweighs Obama’s Growth Plan (Source: Bloomberg)
U.S. stocks fell, driving the Standard & Poor’s 500 Index to the sixth drop in the past seven weeks, as concern Greece’s finances are deteriorating overshadowed President Barack Obama’s $447 billion plan to stimulate growth. JPMorgan Chase & Co. (JPM) and Hewlett-Packard Co. decreased more than 6.9 percent on concern about a global financial crisis as 27 of 30 Dow Jones Industrial Average companies retreated. McDonald’s Corp. (MCD) slumped 4.6 percent as August sales trailed analysts’ estimates. Financial and materials companies in the S&P 500 fell 2.4 percent or more, the most among 10 industries. Yahoo! Inc. added 13 percent after the most-visited U.S. Web portal ousted Chief Executive Officer Carol Bartz. The S&P 500 fell 1.7 percent to 1,154.23 this week, the second straight weekly loss and the lowest level since Aug. 22. The Dow retreated 248.13 points, or 2.2 percent, to 10,992.13.
McDonald's Sales Growth Comes Up Short (Source: CME)
McDonald's Corp.'s said its global same-store sales grew a slower-than-expected 3.5% in August, hurt in part by weaker results for Japan. The fast-food chain has consistently outperformed its competitors during and since the recession with its increasingly diverse menu, ranging from value offerings to higher-margin products like blended-ice drinks. Competitive pricing helped McDonald's growth during the economic downturn, but the company has been increasing some menu prices of late in order to mitigate higher commodity costs. For August, McDonald's pointed to strength among its McCafe beverages, breakfast offerings and new premium chicken sandwiches. Sales at U.S. outlets open at least 13 months rose 3.9%, missing the analysts' growth estimate of 4.4%. Piper Jaffray on Wednesday said it expected Hurricane Irene to cut into McDonald's sales for the month.
In Europe, same-store sales grew 2.7%, though short of the analysts' forecast for a 5.57% increase. The Asia/Pacific, Middle East and Africa region posted a 0.3% decrease as growth in China, Australia and other markets was offset by Japan. Systemwide sales rose 11% in August, or 5.4% excluding currency fluctuations. McDonald's reported in July its second-quarter income rose 15%, as the burger chain continued to build sales momentum with its new menu choices, despite the economic head winds challenging the fast-food industry.
China Trade Surplus Narrows More Than Estimated as Imports Climb to Record (Source: Bloomberg)
China’s imports climbed to a record and exports grew more than expected last month, indicating resilience in the world’s second-biggest economy as the U.S. and European recoveries falter. Inbound shipments jumped 30.2 percent from a year earlier to $155.6 billion, the customs bureau said on its website yesterday. That pace exceeded the estimates of all 29 economists in a Bloomberg News survey. Exports climbed a more-than-expected 24.5 percent, leaving a trade surplus of $17.76 billion. The data suggest the world’s biggest exporter is weathering Europe’s debt crisis and weakening U.S. consumer sentiment. Group of Seven finance chiefs yesterday vowed to buoy slowing economic growth after global stocks slumped on concern that Greece may default and the risk that Congress may block President Barack Obama’s measures to create jobs.
China Strength Defies Hard Landing Scenario (Source: Bloomberg)
China’s record imports and a rebound in lending signaled strength in demand that offers a bright spot in a global economy contending with Europe’s debt crisis and weakening U.S. job gains. Shipments from abroad jumped 30 percent and new local- currency loans were a more-than-forecast 548.5 billion yuan ($86 billion), government reports in the past two days showed. At the same time, August figures released Sept. 9 indicated that policy makers have made progress in stemming inflation, which eased from a three year high, to a 6.2 percent year-on-year pace. The data may bolster confidence that the world’s second- largest economy is weathering both Premier Wen Jiabao’s campaign to defuse price pressures and financial turmoil abroad. Group of Seven finance chiefs vowed “a concerted effort” to support expansion on Sept. 9 as Europe’s debt woes and zero jobs growth in the U.S. increase the risks of a renewed recession.
Japanese Stocks Decline Second Day on Speculation Greece Nearing Default (Source: Bloomberg)
Japanese stocks fell for a second day, with the Topix index set for its biggest decline in more than three weeks, as exporters and banks tumbled amid speculation Greece may be nearing default. Sony Corp. (6758), an exporter of consumer electronics that gets 21 percent of its sales in Europe, fell 3.2 percent as the yen’s advance to a 10-year high against the euro dimmed the outlook for earnings. Toyota Motor Corp. (7203) and Honda Motor Corp. dropped at least 2.7 percent. Mitsubishi UFJ Financial Group Inc., Japan’s biggest lender by market value, declined 2.7 percent. The Topix slid 2 percent to 740.67, the biggest decline since Aug. 19. The benchmark Nikkei 225 (NKY) Stock Average fell 2.2 percent to 8,549.85 as of 10 a.m. in Tokyo.
Papandreou OKs Taxes, Cuts to Dodge Default (Source: Bloomberg)
Prime Minister George Papandreou, vowing to avoid a default and keep Greece in the euro, approved new measures to help plug a yawning budget gap as resistance builds at home and in Europe to extending more aid to the European Union’s most-indebted nation. The Cabinet yesterday voted to cut one month’s wages from all elected officials and impose an annual charge on all property for two years, to be levied through electricity bills to ensure rapid collection, Finance Minister Evangelos Venizelos told reporters in the northern Greek city of Thessaloniki. The measures will help the country meet deficit targets of 17.1 billion euros ($23.6 billion) in 2011 and 14.9 billion euros in 2012, covering a 2 billion-euro shortfall for this year that has been exacerbated by a deepening recession, he said.
Germany Readies Surrender in Fight to Save Greece (Source: Bloomberg)
Germany may be getting ready to give up on Greece, as measures in the credit markets signal growing concern about the smaller nation’s ability to repay investors. Yields on Greek two-year notes rose 1.93 percentage points to 57 percent on Sept. 9, according to data compiled by Bloomberg. Credit-default swaps to insure the country’s five- year bonds and to speculate on government securities jumped 475 basis points to a record 3,500 basis points, according to CMA. The contracts are the highest in the world and more than three times the 1,134 basis points on Portugal’s debt. After almost two years of fighting to contain the region’s debt crisis and providing the biggest share of three European bailouts, German Chancellor Angela Merkel is laying the groundwork for what markets say is almost a sure thing: a Greek default.
Draghi’s Hands May Be Tied on ECB Stimulus (Source: Bloomberg)
Mario Draghi may find it harder to keep the European Central Bank in the vanguard of the battle against the euro region’s debt crisis after Juergen Stark resigned in protest at the bank’s bond purchases. With speculation of a Greek default heaping pressure on the ECB to step up its bond buying and reverse interest-rate increases to ease market tensions, Stark’s shock move has publicly exposed a rift among policy makers that may undermine its ability to act quickly, economists said. German opposition to further ECB stimulus may also make Draghi less inclined to ease policy when he takes over from ECB President Jean-Claude Trichet on Nov. 1, said Marco Valli, chief euro-area economist at UniCredit Group in Milan. “It would be very easy for Germans to say here comes the Italian, he’ll cut rates and buy government bonds in massive amounts,” Valli said. Draghi “will probably prefer to err on the side of hawkishness on standard measures, which means he may be reluctant to go for a rate cut.”
Europe Banks Valued at Post-Lehman Low (Source: Bloomberg)
Investors are valuing European banks at levels not seen since the depths of the credit crunch that followed the collapse of Lehman Brothers Holdings Inc. (LEHMQ) as concern over a Greek default and debt contagion escalates. A Bloomberg index shows 46 lenders trading at 0.58 times book value, the cheapest since the post-Lehman lows of March 2009, signaling investors estimate their assets are worth just over half what the companies claim. Valuations reflect the impact of a potential sovereign default for some banks, according to Barclays Capital analysts led by Jeremy Sigee. Group of Seven finance chiefs meeting in Marseille, France, over the weekend vowed to support banks amid growing concern that the debt crisis is morphing into a banking crisis. As doubts linger about the ability of some European lenders to withstand a Greek default and its ripple effects, the cost of insuring their debt rose to records, while a measure of their reluctance to lend to each other climbed to a 2 1/2-year high.
Euro May Weaken Against Dollar as German Exports Decline: Chart of the Day (Source: Bloomberg)
The euro is poised to weaken against the dollar as falling German exports add to evidence that the region’s largest economy is losing momentum, according to FxPro Financial Services Ltd. The CHART OF THE DAY shows seasonally adjusted German exports grew 16 percent in the year through April, while the euro gained 11 percent. They slid 1.8 percent in July from June, when they dropped 1.2, according to the Federal Statistics Office in Wiesbaden on Sept. 8. The 17-nation currency was little changed against the dollar in the period. The decline in exports increases the likelihood that the euro will decline, FxPro said.
“Should the German export machine continue to lose traction, then this is likely to place further pressure on the euro,” Michael Derks, chief strategist at FxPro in London, said by telephone on Sept. 9. “Germany relies on foreign demand to prosper, so with the rest of Europe and the U.S. hunkering down, it will suffer. A weakened Germany cannot be good for the euro at such an incredibly uncertain time.”
Europe May Need to Bail Out, Nationalize Some Banks, Westpac’s Jones Says (Source: Bloomberg)
European officials may have to bail out and nationalize some private banks to avoid another global recession, said Russell Jones, global head of fixed-income strategy at Australia’s second-biggest lender. “The last thing really the global economy needs now is a major banking crisis in the euro zone,” Jones, of Sydney-based Westpac Banking Corp., said in an interview yesterday on the Australian Broadcasting Corp.’s “Inside Business” program. “The governments are going to have to put their hands in their pockets.” Group of Seven finance chiefs and central bankers vowed in recent days to support banks and buoy slowing economic growth. “We will take all necessary actions to ensure the resilience of banking systems and financial markets,” they said in a statement released during weekend talks in Marseille, France.
Europe Banks Valued at Post-Lehman Low (Source: Bloomberg)
Investors are valuing European banks at levels not seen since the depths of the credit crunch that followed the collapse of Lehman Brothers Holdings Inc. (LEHMQ) as concern over a Greek default and debt contagion escalates. A Bloomberg index shows 46 lenders trading at 0.58 times book value, the cheapest since the post-Lehman lows of March 2009, signaling investors estimate their assets are worth just over half what the companies claim. Valuations reflect the impact of a potential sovereign default for some banks, according to Barclays Capital analysts led by Jeremy Sigee. Group of Seven finance chiefs meeting in Marseille, France, over the weekend vowed to support banks amid growing concern that the debt crisis is morphing into a banking crisis. As doubts linger about the ability of some European lenders to withstand a Greek default and its ripple effects, the cost of insuring their debt rose to records, while a measure of their reluctance to lend to each other climbed to a 2 1/2-year high.
European Stocks Drop for First Week in Three as Banks Sink on Debt Concern (Source: Bloomberg)
European stocks fell for the first week in three amid concern policy makers won’t be able to stop the region’s sovereign debt crisis from growing and damaging the economic recovery. Societe Generale SA and Banco Comercial Portugues SA (BCP) led a measure of European bank shares to the lowest since March 2009. Royal Bank of Scotland Group Plc (RBS) and Barclays Plc (BARC) each sank 13 percent as 17 lenders were sued by the U.S. over the sale of mortgage-backed securities and interbank lending rates climbed.
The Stoxx Europe 600 Index dropped 3.7 percent to 224.59 this past week as 18 of 19 industry groups declined. The gauge has plunged 23 percent since this year’s peak on Feb. 17 as economic data from the U.S. and Europe trailed forecasts and Standard & Poor’s downgraded America’s AAA sovereign-debt rating, citing political failure to reduce record deficits. The index is trading at 9.4 times the estimated earnings of its constituent companies, near the lowest valuation since March 2009, according to data compiled by Bloomberg.
Germany’s Benchmark DAX Index Falls; Deutsche Telekom, Siemens, BASF Drop (Source: Bloomberg)
German stocks slumped to a two-year low as three coalition officials said Angela Merkel’s government is preparing plans to shore up the nation’s banks in the event that Greece defaults. Deutsche Bank AG and Commerzbank AG tumbled more than 7 percent, tracking a slide in financial shares across Europe. Porsche SE retreated 14 percent as Volkswagen AG (VOW) said its merger with the sports-car maker can no longer be completed by the end of the year. The DAX Index (DAX) slid 4 percent to 5,189.93 at the 5:30 p.m. close in Frankfurt, the lowest since July 2009. The gauge fell 6.3 percent this week, extending the drop since the 2011 high on May 2 to 31 percent amid growing concern that growth in the global economy is slowing as Europe’s debt crisis spreads.
Australia Jobs Data Underestimate Demand for Nation’s Workers, Swan Says (Source: Bloomberg)
Australia’s rise in unemployment last month doesn’t fully reflect the demand for workers in an economy that “continues to outperform” the U.S. and Europe, Treasurer Wayne Swan said. “Recent jobs data has underestimated the strength of demand for labor in our economy given an increase in working hours,” Swan said yesterday in his weekly economic note. Australia’s jobless rate jumped to a 10-month high of 5.3 percent in August, the second straight monthly rise, according to a government report Sept. 8. Prime Minister Julia Gillard’s administration is trying to counter declines in consumer and business sentiment that last month helped lift the ranks of the jobless to 636,800, the most since October. Many part-time workers have been picking up a few extra hours each week,” Swan said. “Had employers met the increase in labor demand by hiring new workers, we would have seen an additional 110,000 jobs created since the start of the year.”
Australia’s Dollar Tumbles to Three-Week Low on Greek Concern; Kiwi Drops (Source: Bloomberg)
The Australian dollar dropped to the lowest in almost three weeks against its U.S. counterpart as concern Greece may default prompted investors to sell higher- yielding assets. The New Zealand dollar declined to near a one-month low before German Chancellor Angela Merkel holds talks on the debt crisis with European Commission President Jose Manuel Barroso today in Berlin. The so-called Aussie and kiwi fell for a third day as Asian stocks extended a global slump. Demand for Australia’s currency was also curbed after data showed the nation’s trade surplus narrowed in July by more than economists had forecast. “Unless there’s some major statements from the European authorities about resolving the debt situation, I think the euro, Aussie and kiwi will all fall this week,” said Joseph Capurso, a currency strategist in Sydney at Commonwealth Bank of Australia, the nation’s biggest lender.
Hedge Funds Weather August Financial Market Rout Trading Gold at a Record (Source: Bloomberg)
Hedge funds run by Orix Investment Corp., Superfund and Four Elements Capital Management Pte benefited from the surge in gold last month, weathering the U.S. sovereign downgrade and Europe’s deepening debt crisis. The Orix Commodities Fund, which uses computer programs to search for price signals in futures markets, gained 3.5 percent in August, while Superfund Blue Gold, which invests in global equities and tracks the bullion price, jumped 13.45 percent, the firms said. Gold investments in the Earth Element Fund, run by former commodity traders at BNP Paribas (BNP) and JPMorgan Chase & Co. (JPM), returned 1 percent, helping trim losses in the fund. Gold surpassed $1,900 an ounce for the first time in August as investors sought protection for their wealth on concerns that global economic growth is slowing. The Eurekahedge Hedge Fund Index lost 1.9 percent in August and the MSCI World Index slid 7.3 percent, their worst month since May 2010.
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