October 3, 2012
Chega de Austeridade!
September 18, 2012
(BN) Iron-Ore Ships Rebounding as China Spends $158 Billion: Freight
Iron-ore ships are poised to earn more than operating costs for the first time this year as rates rally on speculation Chinese steel mills will accelerate imports because of a 1 trillion-yuan ($158 billion) building program.
Capesizes, each carrying 160,000 metric tons of ore, will earn $12,500 a day in the fourth quarter, according to the median of eight analyst estimates compiled by Bloomberg, compared with $4,459 on average since the end of June as assessed by the Baltic Exchange. Investors may profit by buying forward freight agreements, traded by brokers and used to bet on future costs, which anticipate $8,385. Ship owners need $7,437 to pay overheads including crew and repairs, a London-based unit of Moore Stephens LLP advising the industry estimates.
China, accounting for 65 percent of seaborne demand, bought the most ore in three months in August and stockpiles at ports fell for the first time since March, government and Shanghai Steelhome Information data show. Ore prices that neared a three- year low on Sept. 5 have since rallied 21 percent as the state announced spending on everything from subways to roads to warehouses. Increasing demand for the commodity, the second- biggest cargo after oil, will help diminish a glut in shipping.
"The 1 trillion-yuan package should provide a lifeline to struggling Capesize owners," said Frode Moerkedal, an analyst at RS Platou Markets AS in Oslo whose recommendations on the shares of shipping companies returned 21 percent in the past two years. "Capesizes should benefit from the investment, as they're the main vessel class to ship iron ore."
Commodity Cargoes
Rates tumbled as much as 89 percent to $2,644 this year as fleet expansion outpaced growth in demand, according to the London-based exchange, whose data are used as benchmarks for about 75 percent of commodity cargoes. While Capesizes rallied 43 percent to $3,779 since Aug. 21, this quarter's average would be the lowest for data going back to 1999. Earnings may rise as high as $25,000 in the next several months, said Omar Nokta, an analyst at Dahlman Rose & Co. in New York.
Ore at the Chinese port of Tianjin, a global benchmark, last traded at $105.10 a so-called dry ton, down from as much as $149.40 in April, according to The Steel Index Ltd., a unit of McGraw-Hill Cos. Prices, which retreated as China's economy slowed for six consecutive quarters, rebounded after the government announced building plans on Sept. 5 and 6 that Nomura Holdings Inc. (8604) estimates are worth $158 billion.
Investors can profit from the rally in rates by buying shares of shipping companies with a higher proportion of their fleets operating in the spot market rather than on long-term charters, Nokta said. That includes Eagle Bulk Shipping Inc., Genco Shipping & Trading Ltd. and Baltic Trading Ltd. (BALT), all based in New York, he wrote in a Sept. 10 report.
Morgan Stanley
Seaborne iron-ore exports will expand 14 percent next year, the most since at least 2005 and three times faster than in 2012, Morgan Stanley estimates. The Capesize fleet's 8.6 percent expansion will be the smallest since 2009 and compares with 12 percent this year, according to the bank.
While the projected fourth-quarter Capesize rate would cover owners' operating expenses, it wouldn't be enough to also meet the cost of their debt. Once interest and loan repayments are included, the break-even level rises to $15,000 a day on average, according to Platou. Earnings last exceeded that in the final three months of 2011.
The combined market value of the 14-member Bloomberg Pure Play Dry Bulk Shipping Index has fallen to $5.92 billion from $36.2 billion in May 2008, data compiled by Bloomberg show. D/S Norden A/S, located in Hellerup, Denmark, Seoul-based STX Pan Ocean Co. and Antwerp, Belgium-based Cie. Maritime Belge SA are the largest members of the gauge.
Shipbrokers' Association
Capacity gluts exist across most of the merchant shipping fleet. Rates for the largest oil tankers slumped 62 percent this year, according to Clarkson Research Services Ltd., a unit of the world's largest shipbroker. An index reflecting charges for six types of containers fell 29 percent in the past year, a gauge from the Hamburg Shipbrokers' Association shows. Moore Stephens estimates operating costs every September and its 2012 review has yet to be published. Daily expenses for Capesizes rose 1.7 percent to $7,437, it said in a report a year ago.
The rally in Capesizes and iron-ore prices may not last because growth is slowing around the world. The International Monetary Fund cut its 2013 global forecast to 3.9 percent from 4.1 percent in July. The 17-nation euro area contracted in the second quarter and won't expand again for another year, based on the median of 22 economist estimates compiled by Bloomberg. China's economy will expand 7.9 percent in 2012, the least since 1999, according to 34 economist estimates compiled by Bloomberg.
Investment Model
"It's clearly slowing down fast," Jim Chanos, the founder and president of hedge fund Kynikos Associates Ltd., said in an interview on Sept. 11 at Bloomberg's headquarters in New York. "Will there be rallies in iron ore and other industrial commodities, from time to time? Of course. But I think structurally, until China really addresses this credit-driven infrastructure and fixed-asset investment model, the surprises are going to be on the downside."
Shares of Baltic Trading, which operates nine bulk- commodity carriers, fell 29 percent to $3.39 in New York trading this year. The stock will rally to $5.38 in the next 12 months, according to the average of four analyst estimates compiled by Bloomberg. Genco declined 44 percent since the start of January and Eagle Bulk retreated 12 percent.
Producing a ton of crude steel in a blast furnace requires about 1,400 kilograms (3,086 pounds) of iron ore, 770 kilos of coal and 270 kilos of limestone and scrap steel, according to the World Steel Association. Global crude-steel output rose 0.8 percent to 895.4 million tons in the first seven months from a year earlier, the Brussels-based WSA estimates. Production will reach an all-time high of 1.56 billion tons in 2012 and 1.62 billion in 2013, according to MEPS (International) Ltd., a Sheffield, England-based industry consultant.
Ore Cargoes
Increasing iron-ore shipments mean the Capesize fleet will work at about 80 percent of capacity in the next 12 months, from 77 percent, Platou estimates.
China imported 62.45 million tons of ore in August, 7.9 percent more than the previous month, customs data show.
Inventories held at ports retreated 1.2 percent to 98.5 million tons, according to Shanghai Steelhome Information, a research company based in the city. The nation has imported more in the second half of every year relative to the first six months in all but one of the past 20 years, based on data compiled by Bloomberg.
"There should be more iron-ore and coal imports into China to satisfy the increased steel demand resulting from the new infrastructure projects," said Doug Mavrinac, a Houston-based analyst at Jefferies & Co. "The dry-bulk shipping market could finally make the cyclical turn toward sustainable profitability for 2013 and beyond."
To contact the reporter on this story: Rob Sheridan in London at rsheridan6@bloomberg.net
To contact the editor responsible for this story: Alaric Nightingale at anightingal1@bloomberg.net
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August 22, 2012
(BN) Commodities Enter Bull Market After Drought Damages Crops
Bloomberg News, sent from my Android phone
Commodities entered a bull market, gaining 21 percent from a June low, as grain prices surged following the most-severe U.S. drought in half a century.
The Standard & Poor's GSCI Spot Index of 24 raw materials rose 0.9 percent to settle at 675.55 yesterday in New York. The gauge has jumped from this year's lowest close of 559 on June 21. A gain of more than 20 percent is the common definition of a bull market.
Soybean futures rose to a record yesterday in Chicago, and corn soared 66 percent since mid-June. The U.S. Department of Agriculture has declared almost 1,600 counties in 32 states as natural-disaster areas after the drought seared millions of acres of pasture and cropland.
"There have been weather-related supply disruptions, and as long as you have any type of global growth, you're going to have increased demand for grains," Walter "Bucky" Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama, said in a telephone interview. "Given that the U.S. is the bread basket for grains, that's going to have a significant impact."
Soybeans and grains have led advances this year in the GSCI measure. As of yesterday, the oilseed jumped 43 percent in 2012, wheat in Chicago climbed 41 percent, and corn was up 30 percent.
Through yesterday, the commodity gauge gained 4.8 percent in 2012. The MSCI All-Country World Index of equities climbed 9 percent, and the dollar was up 2.1 percent against a basket of major currencies. Treasuries returned 1.3 percent, a Bank of America Corp. index shows.
U.S., China Economies
Commodities have rallied on speculation that the economies in China and the U.S. will rebound.
Chinese Premier Wen Jiabao said there's "growing room for monetary policy operation" amid easing inflation, state television reported on Aug. 15. Confidence among U.S. consumers unexpectedly improved in August, and an index of leading indicators climbed more than forecast in July, separate reports showed on Aug. 17.
China is the world's biggest consumer of everything from copper to pork to soybeans, and the U.S. is the largest user of crude oil and corn.
The jump in grains and oilseeds sent world food prices up 6.2 percent in July, the biggest increase since November 2009, the United Nations Food & Agriculture Organization said on Aug. 9. The gauge, which tracks 55 food items, slid 7 percent in the previous three months on the outlook for bumper world harvests and ample dairy and meat supplies.
Goldman Outlook
In mid-June, Goldman Sachs Group Inc. moved to a "near- term overweight" recommendation in commodities. On Aug. 10, the bank maintained forecasts for a rally in corn to $9 a bushel in three months, adding that soybeans may climb to $20 a bushel, while wheat may reach $9.80 a bushel.
Yesterday, soybean futures for November delivery rose 2.9 percent to settle at $17.325 on the Chicago Board of Trade, after reaching an all-time high of $17.34.
Corn futures for December delivery jumped 1.8 percent to $8.3875 in Chicago. The price earlier reached $8.40, the highest since rallying to a record $8.49 on Aug. 10.
Wheat futures for December delivery advanced 2.1 percent to $9.22 in Chicago. The price increased for five straight sessions and was up 47 percent since June 15.
"We expect soybean prices to outperform to ration resilient export demand in the face of critically low U.S. supplies, corn prices to rally to secure sufficient ethanol demand destruction, and wheat prices to underperform corn prices on relatively higher supplies," Goldman analyst Damien Courvalin wrote in the Aug. 10 report.
USDA Outlook
U.S. corn production may drop to 10.78 billion bushels, a six-year low, while the soybean harvest at 2.69 billion bushels would be the smallest since 2007, the USDA said on Aug. 10. Crops are in the worst condition since 1988, a year when the corn harvest tumbled by 31 percent because of drought.
"The grains have been the strongest-performing subsector in commodities the past few months, and that has purely been driven by supply-side considerations and the U.S. drought in particular," said Sudakshina Unnikrishnan, a London-based analyst at Barclays Plc.
In the week ended Aug. 14, hedge funds held wagers on a rally across 18 U.S. futures and options contracts near the highest in 11 months, according to the most-recent U.S. Commodity Futures Trading Commission data. A measure of 11 U.S. farm goods showed speculators' bullish bets in agricultural commodities rose 0.6 percent.
Crude oil has rallied since mid-June as a European Union embargo on purchases of Iranian oil took effect July 1. Yesterday, futures in New York climbed to a three-month high on speculation that euro-area leaders will make progress in resolving the region's debt crisis this week.
Cocoa, gasoline, silver, gold and cattle also have posted gains this year.
To contact the reporters on this story: Whitney McFerron in London at wmcferron1@bloomberg.net; Joe Richter in New York at jrichter1@bloomberg.net
To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net
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June 21, 2012
EURGBP trading idea
EURUSD trading idea
June 14, 2012
FRANCOIS HOLLANDE FAIL
I read today that:
After the meeting with the government, the three potential Chancellor candidates of the SPD, Sigmar Gabriel, Peer Steinbrueck and Frank-Walter Steinmeier travelled to Paris to meet President Francois Hollande.
But just few weeks ago, the french president refused to meet with alexis tsipras, syriza's greek leader, with the excuse that he will not meet with candidates, but only with persons already in charge...
One man, two faces?
Netherlexit: Will Netherlands exit euro before Spain and Italy?
After several months of rumors about a possible Grexit, last days were rich in some comments regarding a possible foreseeable Spaxit, like this here reproduced: “Grexit may or may not increase the chance of Spaxit. But Spaxit almost certainly means Netherlexit, Fraxit, and even Gerxit. (Although hopefully those ‘words’ will never again see print)”. Sorry, I printed them again.
But, yesterday defeat of the Dutch by the Germans seems to indicate that Netherlands will be among the first countries to leave the euro, probably at same time than Greece. Meanwhile Portugal, Spain and Italy may succeed to the next stage. Obviously I’m talking of the euro, the European soccer championship.
If you want to read about my view of a possible orderly greek exit from the euro currency, please read it here.You may also be interested in these posts:
June 13, 2012
Spanish bailout secrets
Last weekend we received the news that Spain was ready to receive help from EU to recapitalize their banks.
Interestingly, very few details were unveiled at that time, and until now, no official has been able to present the exact conditions and architecture of these bailout plan. All that have been said is that Spain will receive up to 100 euro billions, that we be used by their bank bailout bund (FROB) to recapitalize banks. The sovereign will be responsible for the repayment of this credit to the EU, which is increasing pressure over the Spanish bonds yields, and increasing the risk that the country may be in its way to apply also for a rescue of the government. This was a bad move, as it was better to have the ESM/EFSF to recapitalize directly the banking sector, leaving the Spanish government without that surcharge. Maybe this alternative will be adopted when the final agreement is signed between Spain and EU.
So, why all the details of the program are still unknown? The main reason is that the final value of the program is still open, while the audit firms do their jobs evaluating the capital needs of the Spanish banking sector. But, my main guess is that EU doesn’t want to reveal the final conditions before the Greek elections that are due this weekend, on 17th of June.
I believe that Spain will be able to receive some softer conditions than the other members of the PIGS (Portugal, Ireland, Greece and Spain, the acronym is finally complete… or will we have the PIIGS version?!) euro zone sub area. These conditions will quickly become demands from the others PIGS to renegotiate their own terms. As new Greek government will also seek better conditions after reelected, EU could not give up some negotiation margin away. In other words, if UE announced that Spain will pay a interest rate of 3%, Greece (and others) will instantly demand the same treatment. After elections, with the 3% already granted, new demands would emerge. Hiding Spain’s special conditions will give EU scope to have still those cards in the pocket to give them again to Greek as if they are really new Greek conquests.
So, I believe that all those news referring to very favorable conditions to the Spanish deal will be officially announced for all PIGS, after the final deal (if any) with Greeks is also known, hopefully at the European summit, on 28th and 29th of June. As a final remark, I saw in some news that spain will pay an interest rate of 3% while charging their banks a 8.5% interest rate. This will give some boost to Spain’s Fiscal Budget. This effect is even greater if Spain can have 3 years without interest payments as announced in the same media. With a cash accounting methodology, this will contribute to a reduction of the budget deficit in 80 bps. Similar benefits will be very welcome to Portugal, Ireland and Greece.
You may also be interested in these posts:
Netherlexit: Will Netherlands exit euro before Spaxit
June 12, 2012
PLAN B: an orderly grexit
Next weekend we will see if eurozone will turn to be the largest poker table of the world. If Syriza wins the greek elections and gets enough support to form a govern, the poker game will start. As Alexis Tsipras Syriza’s leader said recently, both Greek and Germans have the nuclear button, but none of them shall push the button. Much has been said about the terrific consequences for both parts is a Grexit in fact materializes.
Here I will present a different approach. One may wonder way a currency union cannot breakup orderly? In fact, one of the main motivations from one country to leave is to be able to devaluate strongly its currency and be able to adjust its external balances, turning its economy more competitive. The disorderly way is, as usual, make things happen by surprise, overnight (or more frequently, over weekend). In this way, all the economic agents don’t have the chance to prevent themselves to the devaluation of the local currency. But in the case of the Eurozone this may not be the most appropriate solution, because economic agents from other fragile economies will sooner than latter start to prepare themselves for a similar scenario in their domestic economies and will create a chain of the events that will stop only with the complete breakup of the Eurozone.
So, this time ,the approach need to be different. How? Eurozone need to negotiate with Greece an orderly Grexit, in such a way that economic agents don’t get rewarded by start bank runs and opening bank accounts abroad. One orderly process must be created that allow any country to leave the Eurozone, step by step, along several years, allowing economy and agents to adapt smoothly to the new conditions. One kind of the process a country may follow in order to join the Eurozone shall be put in place for any country that wants or needs to exit from Eurozone.
The features of such a roadmap to a Grexit are not easy to design, but I think that one of the most important issues should be to peg the new currency to the euro. This peg should be agreed by Greek authorities but guaranteed by the ECB, because it is the only entity able to secure the value of the new drachma against the euro. Off course, this would come as a additional cost to the ECB, but a little cost in order to save the Eurozone. Off course, a peg doesn’t imply that the currency will not devaluate. It’s necessary that the devaluation occurs, but not overnight but along a multi-year period, let say 8% each year during 3 years. The capital flight could be stopped if the new national currency offers an interest rate of 8%, so local depositors will get paid for the devaluations. If this can be done, with wages moderation in the economy, it will become more competitive each year, and local agents will not face huge purchasing power losses overnight. Although, inflation would also next to the level of 8%, and wages shall be maintained frozen. That is the adjustment that is necessary to the economy. Some people may want to emigrate, but that is healthy for the domestic economy. And most importantly, there is not a major will to take capitals out of the country, and this environment of programmed currency devaluations are not a problem for economic agents, as the uncertainty is removed from the picture.
Most importantly, economic agents from other fragile economies would be less nervous because they would know that if the country where they do business will have one day to leave the Eurozone, the process will be conducted in an orderly way and they will not feel need to take capitals out of their countries sooner than latter anymore.
You may also be interested in these posts:
Netherlexit: Will Netherlands exit euro before Spaxit
December 29, 2011
Italian debt dynamics
The debt dinamics of an economy follow mathmatic rules, were one can show that the debt to gdp ratio falls anytime the economy grows in nominal terms faster than the growth rate of the debt, i.e., the amount of new net debt plus interest.
the important lesson here is that growth used to evaluate the evolution of the debt to gdp is the nominal gdp growth, i.e. real growth + inflation.
that's the reason one economy can monetise and escape from a debt trap by inflating. using this method will penalize all the creditors, because they will receive their money at a later moment, when that money worth less, because its value was lowered by the inflation.
so, is this 7% yield on italian bonds suatentable? is it comparable with similar yields paid by italy in the pre euro area crisis?
The answer for the second question is easy and fast: no! when italy paid 7% (oe more) in the past, during the 90's and before the euro, italy had an inflation rate of more than 5%. So, the italian nominal GDP grew every year more than 5%, only because of the effect of prices (inflation). Even a small real growth was enougth to sustain the debt to gdp at the same level.
So, now one can see that the answer for the first question is more tricky.
if italy pays 7% for its debt, italy will only be able to reduce its debt to gdp ratio (currently at aroun 120%) with nominal gdp growth larger than 7%*120% = 8.4%
but italy has primary surplus, and in the past had ability to hold on budget surplus of around 4% for many years in a row. so the nominal growth rate necessary to achieve a debt to gdp stabilization would be around 4.4%.
with inflation expected to be near, but bellow 2%, italy needs to grow more than 2% in real terms for the next years to avoid the debt trap. That's not easy! but there is still some room for hope: not all the debt italy issued pays 7%. actually, to date only a very small fraction of it is paying that amount (7% which represents about 5% in real terms!!!), so if markets start soon to revert and finance italy at lower rates, there is still hope for italy... or italy may need to adopt any kind of help to stay away from markets (like imf support) or the most probable, the use of the insurrance mechanism of the EFSF that may allow italy to finance itself at slightly lower rates. Italy may also try to roll most of its debt issuing shorter term debt, which seem to have more demand, supported by the ecb ilimited lending facilities, up to 3 years.
You may also be interested in these posts:
Netherlexit: Will Netherlands exit euro before Spaxit
December 22, 2011
December 21, 2011
Is ECB sterilizing those 489 Billion Euros?
as soon as the full amount lended was known, yields in the periphery start rising. as now banks have more money to buy... who is taking the opportunity to sell?
my main guess is that ECB is taking the opportunity to deleverage its balance sheet and started to sell. this leaves the game unchanged, althought shifts the risk back again to the banking sector.
December 14, 2011
Once Upon a Time there was a currency called euro
The costs of war would be so high for industrialized countries, so that war would not occur.
The first world war began five years later!
Any parallels with the current situation and the possible break-up of the euro zone is entirely coincidental. :)
Still, the man won the Nobel Peace Prize in 1933!
---- from wikipedia:
The Great Illusion is a book by Norman Angell, first published in Britain in 1909 under the title Europe's Optical Illusion and republished in 1910 and subsequently in various enlarged and revised editions under the title The Great Illusion.
According to John Keegan "Europe in the summer of 1914 enjoyed a peaceful productivity so dependent on international exchange and co-operation that a belief in the impossibility of a general war seemed the most conventional of wisdoms. In 1910 an analysis of prevailing economic interdependence, The Great Illusion, had become a best-seller; its author Norman Angell had demonstrated, to the satisfaction of almost all informed opinion, that the disruption of international credit inevitably to be caused by war would either deter its outbreak or bring it speedily to an end."
December 13, 2011
Once upon a time
Os custos da guerra seriam tão elevados para os países industrializados, pelo que essa guerra não iria ocorrer.
A primeira guerra mundial começou 5 anos mais tarde!
Qualquer paralelismo com a situação actual e o possível break-up da zona euro é mera coincidência.
Ainda assim, o homem ganhou o prémio Nobel da paz em 1933!
The Great Illusion is a book by Norman Angell, first published in Britain in 1909 under the title Europe's Optical Illusion and republished in 1910 and subsequently in various enlarged and revised editions under the title The Great Illusion.
According to John Keegan "Europe in the summer of 1914 enjoyed a peaceful productivity so dependent on international exchange and co-operation that a belief in the impossibility of a general war seemed the most conventional of wisdoms. In 1910 an analysis of prevailing economic interdependence, The Great Illusion, had become a best-seller; its author Norman Angell had demonstrated, to the satisfaction of almost all informed opinion, that the disruption of international credit inevitably to be caused by war would either deter its outbreak or bring it speedily to an end."
July 2, 2010
Winning PKR
By Special Correspondent.
PKR NEWS - Professor1x2 fought a field of 10 tough competitors to take 1st place in the PKR 10 Cent Giveaway Tournament and $0.06. "It was an incredible display", said one observer, "everyone was on the edge of their seats".
The result marks another big step in Professor1x2 's meteoric rise to poker stardom. "I predict big things from Professor1x2", said a poker insider, "all the ingredients are there; skill, determination, guts - and a slightly funny haircut."
March 11, 2010
(BN) Top Stories: Stocks
2010-03-11 08:36:47.153 GMT
March 11 (Bloomberg) -- The following are the day's top stories on stocks:
European Stocks, U.S. Index Futures Drop; BHP Billiton, Lagardere Slide
European stocks declined from a seven-week high, led by basic-resource producers as growing Chinese inflation increased speculation the government will pare back stimulus measures.
U.S. futures fell and Asian shares rose. BHP Billiton Ltd., the world's largest mining company, dropped 1.3 percent in London as China's inflation reached a 16- month high. Lagardere SCA slumped the most in 10 months after France's biggest publisher reported earnings that missed analysts' estimates. The Stoxx Europe 600 Index slipped 0.2 percent to 257.77 at 8:27 a.m. in London. The gauge has soared 8.6 percent since Feb. 5 on speculation the European Union will support Greece if needed as it struggles to reduce the region's biggest budget deficit.
Mohamed A. El-Erian, whose company runs the world's biggest mutual fund, said deteriorating public finances may affect the global economy more than is currently realized. ``The importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood,''
El-Erian, co-chief investment officer at Pacific Investment Management Co., wrote in an article on the Financial Times Web site. The potential damage from increased government borrowings is ``at present being viewed primarily -- and excessively -- through the narrow prism of Greece.''
Asian Stocks Rise on Outlook for Japanese Economy; BHP Billiton Declines
Asian stocks rose, sending the MSCI Asia Pacific Index toward a seven-week high, as speculation Japan's economy is recovering outweighed concern China will pare back measures that spurred growth. Mizuho Financial Group Inc., Japan's third-largest bank by market value, and Aeon Co., the country's No. 1 supermarket operator, climbed more than 1 percent in Tokyo after the Nikkei newspaper said the government will boost its economic outlook. BHP Billiton Ltd., the world's biggest mining company, lost 0.5 percent in Sydney, and Jiangxi Copper Co. dropped 1.1 percent after China said inflation in February reached a 16-month high. ``The economy is undoubtedly in the midst of mild recovery'' in Japan, said Mitsushige Akino, who oversees the equivalent of $450 million at Tokyo-based Ichiyoshi Investment Management Co. The MSCI Asia Pacific Index rose 0.3 percent to 122.94 as of 5:05 p.m. in Tokyo, with five stocks advancing for every four that dropped. The index, on course for its highest closing level since Jan. 21, fell after China reported its inflation figures, and then rebounded.
China Stock-Futures Market to Dwarf Cash Trade, History Says: Chart of Day
South Korea and Taiwan's sevenfold increases in stock-futures trading after they were introduced show the potential for China's market, expected to begin trading next month, according to China International Capital Corp. The CHART OF THE DAY shows that within a decade, stock- index trading volumes for South Korea's Kospi 200 index had grown to 757 percent more than that of the cash market by November 2009. The Taiwan Stock Exchange's futures trade was seven times larger than that of the cash market by the end of last year, data compiled by CICC show. ``The potential for Chinese stocks is substantial,'' Hao Hong, a Beijing-based equity strategist for CICC, said in a report. ``Judging from the international experiences in Taiwan and Korea, the futures markets may grow several times over the physical market.'' The first stock-index contracts, based on China's CSI 300 Index, may begin trading in mid or late April, Shang Fulin, chairman of the China Securities Regulatory Commission, said this month. The regulator said index traders will have to keep at least 500,000 yuan ($73,239) in their brokerage accounts.
Peru Left Behind as Latin America Stocks Rise to Records: Chart of the Day
Peru will be the only stock market in Latin America that fails to rise to a record this year because it has the closest relationship to metals prices that remain below all-time highs, according to Banco BTG Pactual SA. The CHART OF THE DAY shows the correlation between the Lima General Index and the Bloomberg Base Metals 3-Month Price Commodity Index climbed to
0.83 yesterday, based on percentage changes in the past 30 days. That's the second-most ever and the strongest relationship between commodities and stocks in the region, data compiled by Bloomberg show. A reading of 1 means two assets move in tandem, while zero means no relationship. Peru is the world's second-biggest producer of copper and zinc, according to Sociedad Nacional de Mineria Petroleo y Energia, and the only Latin American stock market besides Brazil that hasn't climbed to a record in 2010. The Bovespa needs to rally 5.1 percent to surpass its prior peak, less than 66 percent for Peru's measure and 32 percent for the metals gauge. ``I don't think Peru will reach record highs this year,'' said Alonso Aramburu, an equity analyst with Pactual in New York.
``Commodity prices are still well below 2007 levels.''
Baltic Trading IPO Raises $228 Million at Low End of Forecast Price Range
Baltic Trading Ltd., the New York- based shipping company formed to operate dry-bulk cargo vessels, raised $228 million in its initial public offering after selling shares at the low end of its price range. Baltic Trading, established in October by Genco Shipping & Trading Ltd. of New York, sold 16.3 million shares for $14 each yesterday, according to a filing with the Securities and Exchange Commission and Bloomberg data. The company, which asked for as much as $16, will use the proceeds to buy six ships that will transport iron ore, coal, grain and steel products. The IPO is the first of three U.S. offerings this week and comes after seven companies postponed or delayed initial sales this year. While buyers have extracted concessions in almost every deal, Baltic Trading became the second company in 2010 to price shares within its forecast range as the Standard & Poor's 500 Index rebounded from a three-month low. ``With markets being much stronger across the board, that's good momentum building for the IPO market,'' said Josef Schuster, the Chicago-based founder of IPOX Capital Management LLC and manager of the Direxion Long/Short Global IPO Fund, which started this month. ``If these companies don't price reasonably well in the market, that would absolutely be disappointing.''
Tech Stocks Pushed by Analysts a Decade After Bubble Burst: Chart of Day
Ten years after bullish analyst recommendations helped push the Nasdaq Composite Index to a record, technology stocks are the highest-rated industry group. The CHART OF THE DAY's bottom panel shows the Nasdaq peak of 5,048.62 on March 10, 2000, and its 78 percent plunge over the next two and a half years. The top panel shows analysts giving technology companies the highest average rating among nine industries, according to data compiled by Bloomberg. Stock pickers project a 14 percent gain for the group during the next 12 months, the data show. ``As value investors, 10 years ago we were finding virtually nothing in technology,'' Mark Donovan, co-chief executive officer of Robeco Investment Management, a unit of Robeco Group, which oversees about $194 billion, said in a Bloomberg Television interview from Amsterdam. ``Today there are a lot of high-quality global players in the tech area that are trading at very sensible multiples. There are hidden values that are plentiful in the group.'' Cisco Systems Inc., the world's biggest network-equipment maker, had a price-to-earnings ratio of 160 a decade ago. Now the company is trading at 23 times reported profits. IPod maker Apple Inc.'s PE ratio has dropped to 22 from 45, while the ratio for Microsoft Corp., the biggest software company, has declined to 15 from 63, according to Bloomberg data.
Swiss Market Index Falls; Zurich Financial, UBS, ABB Lead Declining Shares
Switzerland's benchmark stock index, the Swiss Market Index, fell 0.18 percent at 9:05 a.m. The index of 20 stocks traded on the Electronic Bourse System fell 12.39 to 6,861.20.
Among the stocks in the index, 6 rose, 12 fell and 2 were unchanged. Declines in the Swiss Market Index were led by Ubs, Abb and Zurich Fin. Services. About 1.70 million shares traded in the Swiss Market Index. --Editor: David Merritt.
Japan's Stocks Rise on Outlook for Economy, Iron-Ore Demand; Mitsui Climbs
Japanese stocks rose, sending the Nikkei 225 Stock Average to its highest close since Jan. 21, on speculation increased demand will boost earnings at iron-ore producers and that the nation's economy is recovering. Mitsui & Co., which owns a 15 percent stake in Vale SA's major shareholder, climbed 2.7 percent after the Nikkei newspaper reported Brazil-based Vale is seeking to increase iron-ore prices. Mitsui O.S.K. Lines Ltd., Japan's largest operator of iron-ore ships, rose 1.3 percent. Electric device retailer Yamada Denki Co. climbed 4 percent after the Nikkei said the government may lift its outlook on the nation's economy. ``The economy is undoubtedly in the midst of mild recovery,'' said Mitsushige Akino, who oversees the equivalent of $450 million at Tokyo-based Ichiyoshi Investment Management Co. ``Iron-ore producers don't think of raising prices unless demand is very strong. That could be further evidence that the global economy is improving.'' The Nikkei 225 climbed 1 percent to 10,664.95 in Tokyo, the highest close since Jan. 21. The broader Topix index rose 0.9 percent to 930.38, with almost five times as many shares advancing as falling. The gauges briefly pared gains after a Chinese government report on rising consumer prices spurred concern the country will raise interest rates to curb inflation.
Most China Stocks Drop as CPI Climbs to 16-Month High; Automakers Decline
Most Chinese stocks fell, led by automakers and developers, after inflation accelerated and new loans exceeded forecasts, boosting the prospect for higher interest rates. SAIC Motor Corp., the country's largest carmaker, lost 2.9 percent and Gemdale Corp. dropped 1.2 percent. Consumer prices climbed in February to a 16-month high and lenders extended 700.1 billion yuan ($103 billion), government reports showed today. Shanghai Pudong Development Bank Co. rose 2.7 percent after selling shares to China Mobile Ltd. ``The market's reading of the economic data points to overheating and a lot of investors believe an interest-rate increase will come soon,'' said Yan Ji, who helps oversee about $1.2 billion at HSBC Jintrust Fund Management Co. in Shanghai. More than two stocks fell for each one that rose on the Shanghai Composite Index, which gained 2.36, or 0.1 percent, to 3,051.28 at the close. The gauge has lost 6.9 percent this year on concern measures to curb property price gains and rein in lending growth will slow the economy.
The CSI 300 Index slipped 0.1 percent to 3,276.71.
Buy Asian Equities to Gain Before `Lights Turn Green,' Goldman Sachs Says
Investors should buy Asian stocks outside Japan after valuations dropped and before sentiment strengthens further, Goldman Sachs Group Inc. said. ``By the time all the lights turn green, the race will already be well under way,'' Goldman Sachs analysts led by Timothy Moe wrote today. ``Sentiment and valuation will improve as the year progresses, and we would prefer to be early.'' The MSCI Asia-Pacific excluding Japan Index remains 0.5 percent lower this year, having rebounded from year-to-date losses of as much as 9.7 percent. Stocks slid earlier this year on concern that China will tighten lending to combat faster inflation and that Greece's debt crisis will spread. Analysts' earnings growth estimates for this year have climbed to 26 percent on average, near Goldman Sachs's 30 percent forecast, according to the report. The most profitable securities firm in Wall Street history is predicting a 21 percent increase in Asian corporate earnings in 2011.
For the complete stories summarized here, and for more of the day's top news, see TOP
-0- Mar/11/2010 8:36 GMT
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(BN) Top Stories: Bonds
Top Stories: Bonds
2010-03-11 08:29:46.274 GMT
March 11 (Bloomberg) -- The following are the day's top stories on bonds:
Treasury Two- to 30-Year Spread Near Record High Before Long Bond Auction
Treasury 30-year yields were near the highest on record compared with two-year rates as the U.S. prepared to sell $13 billion of long bonds amid signs the global recovery is gaining momentum. Investors are seeking higher interest rates on long-term loans to the government as President Barack Obama borrows record amounts to sustain the U.S. economic revival.
Yields show investors added to bets on inflation for a seventh session yesterday, the longest run in a year. ``We're facing an unprecedented level of government borrowing,'' said Satoshi Okumoto, a general manager in Tokyo at Fukoku Mutual Life Insurance Co., which has the equivalent of $60.8 billion in assets. ``Investors are demanding a premium for that. Yields are going to rise a bit more.'' The 30-year bond yielded 4.69 percent as of 7:34 a.m. in London, according to data compiled by Bloomberg. The 4.625 percent security due February 2040 declined 2/32, or 63 cents per $1,000 face amount to 98 27/32.
The rate was 3.78 percentage points more than two-year yields, after increasing to 3.85 percentage points on Feb. 17, the steepest slope to the so- called yield curve since Bloomberg data tracking the figures started in 1980.
El-Erian Says World Economy Faces Threat of Deepening Sovereign Debt Shock
Mohamed A. El-Erian, whose company runs the world's biggest mutual fund, said deteriorating public finances may affect the global economy more than is currently realized. ``The importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood,''
El-Erian, co-chief investment officer at Pacific Investment Management Co., wrote in an article on the Financial Times Web site. The potential damage from increased government borrowings is ``at present being viewed primarily -- and excessively -- through the narrow prism of Greece.'' Governments may have to raise taxes and slash spending to cope with swelling deficits after borrowing unprecedented amounts to stave off the global financial crisis, said El-Erian, 51, who shares his job title with Bill Gross. A failure to carry out fiscal measures in time would raise the possibility of governments seeking to eliminate excessive debt through inflation or default, he said. Pimco has said debt strains in Greece, Portugal and Spain underscore its view that 2010 will be a year of slower-than- average growth, and predicts there will be a shrinking global role for the U.S.
economy.
Company Bond Spreads at the Narrowest This Year Lure GMAC: Credit Markets
Corporate bond yields fell to the lowest this year relative to benchmark government securities, luring GMAC Inc. to sell its longest-maturity notes since 2004. GMAC, the Detroit-based auto and home lender bailed out by the U.S. after credit markets froze in 2007, sold $1.5 billion of 10-year, 8 percent notes, according to data compiled by Bloomberg. Its second offering in a month was priced to yield 4.532 percentage points more than similar-maturity Treasuries. The extra yield investors demand to own corporate bonds rather than government debt fell yesterday to 159 basis points, or 1.59 percentage point, the lowest this year, from as much as 174 basis points Jan. 4, the Bank of America Merrill Lynch Global Broad Market Corporate Index shows. Yields averaged 4.035 percent. The GMAC sale shows growing optimism that Greece's budget crisis will be contained and won't spread to corporate borrowers. ``The stars are aligning for a company like GMAC, which has a bit of a storied history, to do a big, longer-termed deal,'' said Sabur Moini, who helps manage $1.3 billion at Payden & Rygel Investment Management in Los Angeles. ``The market is looking past the volatility we saw in early to mid-February now that it looks like Greece is not going to default.''
Trade Deficit in U.S. Probably Widened for Third Month as Imports Climbed
The U.S. trade deficit probably widened in January for a third month as imports grew faster than exports, pointing to a rebound in global economic growth, economists said before a report today. The gap increased to $41 billion from $40.2 billion the prior month, according to the median forecast of 73 economists surveyed by Bloomberg News. Another report may show initial claims for jobless benefits fell for a second week.
Imports may keep growing as the world's largest economy improves and companies replenish depleted inventories. Emerging countries are leading a worldwide recovery that, together with a weaker dollar, is helping lift sales at companies including Cisco Systems Inc., which may prevent the deficit from deteriorating much more in coming months. ``Global trade is definitely coming back,'' said David Semmens, an economist at Standard Chartered Bank in New York. ``The U.S. will benefit from rising exports. We can expect overseas economies to improve faster than domestic growth.''
Emerging-Market Reserves Buildup Risks Return of `Imbalance': Chart of Day
Developing nations' foreign reserves are approaching levels reached two years ago, risking a return of the ``imbalances''
that helped spark the global financial crisis, Goldman Sachs Group Inc. said. The Chart of the Day shows the five largest foreign reserves holders in emerging markets excluding China boosted their stockpile by 17 percent in the past year to $1.3 trillion, while the U.S. trade deficit swelled to its widest level in a year in December. The lower panel shows China, the world's largest reserves holder, increased its stock to a record $2.4 trillion in 2009. The trend signals a return to the last global economic expansion when U.S. consumers relied on borrowing from abroad to finance their purchases, contributing to an export boom from Asia. As China and other Asian nations accumulated dollars from trade surpluses, they bought U.S.
Treasury debt and depressed global yields. Lower borrowing costs helped fuel the U.S. housing and credit booms that turned to bust in 2007. ``There's a risk the world could lapse back into a regime in which emerging markets return to export-led growth coupled with an accumulation of reserves,'' Goldman Sachs economists led by London-based Jim O'Neill wrote in a research note yesterday. ``To the extent that global imbalances are making a comeback, they need to be taken seriously. The bottom line is that the accumulation of reserves may have helped create the problem that they ultimately helped to solve.''
Senate Negotiations Said to Advance on Consumer Division Powers, Oversight
Senate negotiators closed in on a deal for strengthening consumer financial protections, giving bank regulators a role in rule-making and enforcement, two Democratic Senate aides briefed on the talks said. The talks have advanced on key sticking points, including how much control prudential regulators -- those responsible for insuring banks are financially sound -- would have over a new consumer division at the Federal Reserve, said the aides, who declined to be identified because the talks are private. ``There will be a mechanism whereby the prudential side has the ability to weigh in to ensure we don't do anything to destabilize the safety and soundness of our financial institutions,'' Senator Bob Corker, a Tennessee Republican working on the legislation, told reporters yesterday after a panel discussion at a Washington conference. Corker and Senate Banking Committee Chairman Christopher Dodd, in meetings over the past week, resolved some differences over the unit's autonomy, although no final decisions have been made. Corker said yesterday the legislation will be introduced ``very soon'' and that the goal is to get the measure through the banking committee by March 29, when the Easter recess begins.
Ex-Bank of America Executives Win Dismissal of Some SEC Claims on Appeal
Two former Bank of America Corp. executives won dismissal of claims by securities regulators that they could be held liable for allegedly false statements made to clients of the bank's Columbia Management Group unit. The U.S. Court of Appeals in Boston yesterday upheld a lower court's ruling throwing out the claims against James Tambone, former co-president of fund distribution at the bank's Columbia unit, and Robert Hussey, a former sales executive. The U.S.
Securities and Exchange Commission sued the men in 2006, claiming they gave clients literature saying Columbia's mutual funds avoided rapid mutual-fund trades, a practice known as market timing. The SEC said Tambone and Hussey knew the funds engaged in the practice, which can hurt long-term shareholders.
The panel rejected the SEC's argument that the two were liable even if the false statements were created by others because, by directing the fund sales, they implied the prospectus documents were truthful.
Naked Credit-Default Swaps Crackdown in Europe Rings Hollow Without U.S.
European politicians and regulators could initiate a continent-wide ban on speculative trading of sovereign credit-default swaps tomorrow. Making it stick without the Americans won't work. New York and London dominate swaps trading, and both have resisted greater regulation. Last year, U.S. regulators and Congress rejected a proposed ban on buying credit-default swaps without owning the underlying debt. Adair Turner, chairman of the U.K. Financial Services Authority, said yesterday that these so-called naked swaps weren't the ``key driver'' of the Greek debt crisis and it would be wrong to rush to ban them. ``You need to get the U.S. on board, otherwise the effect will be minimal because trading will simply move elsewhere,'' said Jan Hagen, head of the financial services group at the European School of Management and Technology in Berlin. ``A ban would allow European politicians to tell voters at least they're doing something.'' The European Union's top regulatory official, European Commission President Jose Barroso, said March 9 that the 27- nation bloc will consider banning ``purely speculative naked'' credit-default swaps after German Chancellor Angela Merkel and French President Nicolas Sarkozy called for a crackdown on derivatives trading to prevent a rerun of the Greek crisis.
Union Investment Favors Lebanon, South Africa Bonds on Local Bank Support
Union Investment Privatfonds, Germany's third-largest money manager, favors bonds sold by developing nations with active local investors in foreign debt on concern the global new-issues market will be ``overcrowded.'' The company with $250 billion in assets will consider purchasing notes due to be offered by Israel, Egypt and Mongolia in the coming weeks or months, said Sergey Dergachev. The Frankfurt-based investor, who helps oversee $6 billion of emerging-market debt, bought securities sold by Lebanon and South Africa this month, he said in an interview late yesterday. ``The pipeline risks being overcrowded,'' Dergachev said. ``Sovereigns with solid macroeconomic metrics, solid support from the local investor base and which aren't frequently traded, limit the sell-off risk,'' he said. Developing nations have raised $24.5 billion from overseas debt sales this year as of yesterday, according to data compiled by Bloomberg. That's the busiest start to a year since emerging- market sovereign issuers borrowed $34 billion over the same period in 2005. Iran and Poland are among at least 10 countries seeking about $7.6 billion of funding in the coming months.
Shun Spain's Bonds on `Death by 1,000 Cuts,' Invesco, Merrill Lynch Say
Investors should avoid Spain's bonds as the euro region's highest levels of joblessness stifle the country's ability to cut its budget deficit, according to Invesco Ltd. and Bank of America Corp.'s Merrill Lynch unit. Spanish debt isn't yielding enough to compensate investors for buying the bonds of a country with the euro region's third- largest budget deficit, according to Axel Blase, a fund manager in Frankfurt at Invesco. Investors receive a 70 basis-point yield premium for holding Spanish 10-year bonds rather than German bunds, compared with 310 basis points for Greek debt. ``It's not a time to increase exposure to Spain,'' said Blase, who helps oversee the company's $423 billion in assets. ``The country is in rather serious difficulties and the risk premium on Spanish bonds isn't that attractive.'' Concern that Europe's most recession-battered nations aren't doing enough to contain their deficits sent Greek bond yields to the highest in more than a decade, and helped push the euro 4.7 percent lower against the dollar this year. While attention focused initially on Greece, Spain may take years to recover from the recession, according to Johan Jooste, a strategist at Merrill Lynch Wealth Management in London.
Latvia Elections May Hamper Austerity, Weigh On Credit Rating, Fitch Says
Latvian elections this autumn threaten to hamper government efforts to push through austerity measures vital to its international bailout, burdening the country's credit rating, Fitch Ratings said. A parliamentary election scheduled for October ``weighs on the rating, the uncertainty that comes with the election, and I think there might be resistance to removing the negative outlook because of that risk,'' Eral Yilmaz, a credit analyst at Fitch, which ranks Latvian debt as junk, said in an interview. Prime Minister Valdis Dombrovskis, who came to office a year ago amid the former Soviet state's worst economic crisis since it abandoned communism two decades ago, has pushed through the toughest austerity package in the European Union to comply with the terms of an International Monetary Fund-led rescue. Fitch, which rates Latvia's debt BB+, wants to see sustained signs of recovery before considering an upgrade, Yilmaz said. ``Cuts may become politically more difficult from now on as the public may want to see the results of the fiscal
belt- tightening in an economic recovery that results in job creation,'' she said.
Japan's 10-Year Bonds Fall, End Two-Day Gain, as Rising Stocks Sap Demand
Japan's 10-year bonds declined, snapping two days of gains, as rising stocks sapped demand for the refuge of government debt. Ten-year yields also climbed from the lowest level in more than a week after Nikkei English News reported the Japanese government is expected to upgrade its overall view of the economy for the first time since July 2009. The government sold 2.4 trillion yen ($26.5 billion) in five-year notes today.
``Market participants had a short bias because of the strong stocks,'' said Takafumi Yamawaki, a senior strategist in Tokyo at BNP Paribas Securities Japan Ltd., a unit of France's largest bank. The yield on the 1.4 percent security maturing in March 2020 increased two basis points, or 0.02 percentage point, to 1.32 percent as of 4:57 p.m. in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price fell 0.178 yen to 100.706 yen.
Japanese Bond Risk Index May Decline on Kawasaki Kisen's Exit, Mizuho Says
The Markit iTraxx Japan index of credit-default swaps, a benchmark for corporate bond risk, may fall March 23 if Kawasaki Kisen Kaisha Ltd. and Shimizu Corp. cease to be members, according to Mizuho Securities Co. Markit Group Ltd.
published a provisional list for its Series 13 of the Japanese iTraxx today, which shows companies that may join or leave the London-based data company's index. Kawasaki Kisen, the country's third-biggest shipping line by market value, and Shimizu, the biggest general contractor, may be removed, the list shows. The index may decline by ``around 8 basis points on a theoretical value basis,'' Mizuho credit analyst Seiichiro Matsumoto said in a telephone interview from Tokyo. A basis point is 0.01 percentage point. Credit-default swap indexes are benchmarks for protecting bonds against default and traders use them to speculate on credit quality. The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements, and a drop shows improvement in perceptions of creditworthiness.
For the complete stories summarized here, and for more of the day's top news, see TOP
-0- Mar/11/2010 8:29 GMT
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(BN) Top Stories: Currencies
2010-03-11 08:15:45.721 GMT
March 11 (Bloomberg) -- The following are the day's top stories on currencies:
Yen, Dollar Strengthen as China Inflation at 16-Month High; Kiwi Weakens
The yen and dollar rose versus their major counterparts after Chinese reports on inflation, factories and loans fueled concern the government will act to damp growth, boosting demand for the lowest-yielding currencies. Japan's currency strengthened from a two-week low against the euro after Chinese inflation reached a 16-month high and on speculation exporters brought funds home before the fiscal year ends this month. New Zealand's dollar fell for a second day versus the greenback as the central bank signaled a slower exit from stimulus measures.
South Korea's won slid on a media report the nation's largest power company purchased dollars. ``Strong inflation data should enhance pressure for tightening in China,'' said Minoru Shioiri, chief manager of foreign-exchange trading in Tokyo at Mitsubishi UFJ Securities Co., unit of Japan's largest publicly traded bank by market value. ``The bias is for the yen to rise.'' The yen rose to 123.26 per euro as of 6:58 a.m. in London from 123.62 in New York yesterday, when it fell to 124.00, the weakest since Feb. 23. Japan's currency advanced to
90.38 per dollar from 90.52. The dollar climbed to $1.3636 per euro from $1.3657, and advanced to $1.4961 per pound from $1.4978.
Dollar to Keep Reserve Role If Markets Stay Sound, Standard & Poor's Says
The dollar will retain its status as the world's reserve currency as long as U.S. financial markets are sound and government spending is sustainable, Standard & Poor's said. The greenback is ``the world's most accepted currency,'' even after the global recession that began in the U.S., John Chambers, chairman of the S&P sovereign ratings committee, wrote in a report released today. The dollar supports the nation's top AAA credit ranking, improves the government's access to external financing and helps lower borrowing costs, he wrote. ``The dollar's widespread acceptance stems from the U.S. economy's fundamental strength, which in our view comes from the economy's size and the flexibility of labor and product markets,'' New York-based Chambers wrote with David Beers, global head of sovereign ratings at S&P in London. ``We view U.S. banking and capital markets to be dynamic and unfettered relative to their peers.'' Pacific Investment Management Co., the world's biggest manager of bond funds, said in its August
2009 Emerging Markets Watch report the dollar's reserve status was endangered as the government pumped ``massive'' amounts of money into the economy to stimulate growth.
Trade Deficit in U.S. Probably Widened for Third Month as Imports Climbed
The U.S. trade deficit probably widened in January for a third month as imports grew faster than exports, pointing to a rebound in global economic growth, economists said before a report today. The gap increased to $41 billion from $40.2 billion the prior month, according to the median forecast of 73 economists surveyed by Bloomberg News. Another report may show initial claims for jobless benefits fell for a second week.
Imports may keep growing as the world's largest economy improves and companies replenish depleted inventories. Emerging countries are leading a worldwide recovery that, together with a weaker dollar, is helping lift sales at companies including Cisco Systems Inc., which may prevent the deficit from deteriorating much more in coming months. ``Global trade is definitely coming back,'' said David Semmens, an economist at Standard Chartered Bank in New York. ``The U.S. will benefit from rising exports. We can expect overseas economies to improve faster than domestic growth.''
El-Erian Says World Economy May Face Disruptive Sovereign Debt Imbalances
Mohamed A. El-Erian, whose company runs the world's biggest mutual fund, said deteriorating public finances may affect the global economy more than is currently realized. ``The importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood,''
El-Erian, co-chief investment officer at Pacific Investment Management Co., wrote in an article on the Financial Times Web site. The potential damage from increased government borrowings is ``at present being viewed primarily -- and excessively -- through the narrow prism of Greece.'' Governments may have to raise taxes and slash spending to cope with swelling deficits after borrowing unprecedented amounts to stave off the global financial crisis, said El-Erian, 51, who shares his job title with Bill Gross. A failure to carry out fiscal measures in time would raise the possibility of governments seeking to eliminate excessive debt through inflation or default, he said. Pimco has said debt strains in Greece, Portugal and Spain underscore its view that 2010 will be a year of slower-than- average growth, and predicts there will be a shrinking global role for the U.S.
economy.
Emerging-Market Reserves Buildup Risks Return of `Imbalance': Chart of Day
Developing nations' foreign reserves are approaching levels reached two years ago, risking a return of the ``imbalances''
that helped spark the global financial crisis, Goldman Sachs Group Inc. said. The Chart of the Day shows the five largest foreign reserves holders in emerging markets excluding China boosted their stockpile by 17 percent in the past year to $1.3 trillion, while the U.S. trade deficit swelled to its widest level in a year in December. The lower panel shows China, the world's largest reserves holder, increased its stock to a record $2.4 trillion in 2009. The trend signals a return to the last global economic expansion when U.S. consumers relied on borrowing from abroad to finance their purchases, contributing to an export boom from Asia. As China and other Asian nations accumulated dollars from trade surpluses, they bought U.S.
Treasury debt and depressed global yields. Lower borrowing costs helped fuel the U.S. housing and credit booms that turned to bust in 2007. ``There's a risk the world could lapse back into a regime in which emerging markets return to export-led growth coupled with an accumulation of reserves,'' Goldman Sachs economists led by London-based Jim O'Neill wrote in a research note yesterday. ``To the extent that global imbalances are making a comeback, they need to be taken seriously. The bottom line is that the accumulation of reserves may have helped create the problem that they ultimately helped to solve.''
Senate Negotiations Said to Advance on Consumer Division Powers, Oversight
Senate negotiators closed in on a deal for strengthening consumer financial protections, giving bank regulators a role in rule-making and enforcement, two Democratic Senate aides briefed on the talks said. The talks have advanced on key sticking points, including how much control prudential regulators -- those responsible for insuring banks are financially sound -- would have over a new consumer division at the Federal Reserve, said the aides, who declined to be identified because the talks are private. ``There will be a mechanism whereby the prudential side has the ability to weigh in to ensure we don't do anything to destabilize the safety and soundness of our financial institutions,'' Senator Bob Corker, a Tennessee Republican working on the legislation, told reporters yesterday after a panel discussion at a Washington conference. Corker and Senate Banking Committee Chairman Christopher Dodd, in meetings over the past week, resolved some differences over the unit's autonomy, although no final decisions have been made. Corker said yesterday the legislation will be introduced ``very soon'' and that the goal is to get the measure through the banking committee by March 29, when the Easter recess begins.
Brown Tries to `Perversely' Benefit From U.K. Relapse Risk Before Election
Gordon Brown is trying to turn the threat of a double-dip U.K. recession into an advantage. The British prime minister, whose Labour Party is narrowing the gap in opinion polls with the opposition Conservatives, is arguing that the economic recovery is too ``fragile'' to justify cutting the U.K.'s record budget deficit right away. Brown is seeking a fourth term for Labour as Britain struggles to recover from its worst slump in six decades. While jobless claims are at the highest since the party came to power in 1997, opinion polls show that Brown has made up so much ground that David Cameron's Conservatives will fail to gain a majority in the election, which must happen by June. ``A weak economy might perversely be good for Labour,'' Jonathan Loynes, an economist at Capital Economics Ltd. in London, said in a telephone interview. ``To a degree it would support the government's position that it shouldn't try to tackle the budget deficit too quickly, and at the same time undermines the Conservatives' position.''
Swiss Central Bank May Keep Key Rate Unchanged As Economy Gains Strength
The Swiss central bank may leave its benchmark interest rate near zero today to bolster a recovery from the worst recession in more than three decades. The Swiss National Bank, led by Philipp Hildebrand, will leave the three-month Libor target rate at 0.25 percent at its quarterly monetary assessment, according to all 19 economists in a Bloomberg News survey. The central bank announces the decision at 2 p.m. in Zurich. The SNB has held its main rate close to zero for a year and sold Swiss francs to keep a lid on the currency and counter the threat of deflation. While SNB board member Thomas Jordan said last month that it's too early to start raising borrowing costs, the central bank has already softened its tone on currency interventions as the economy gathers strength. ``They will continue pointing to the risks to the economy, but the statement will be on a more positive note,'' said Fabian Heller, an economist at Credit Suisse Group AG in Zurich, who sees the SNB rate unchanged until ``at least'' September.
``They will maintain their language on the currency'' though policy makers may become ``more tolerant'' of a further appreciation over time, he said.
Shun Spain's Bonds on `Death by 1,000 Cuts,' Invesco, Merrill Lynch Say
Investors should avoid Spain's bonds as the euro region's highest levels of joblessness stifle the country's ability to cut its budget deficit, according to Invesco Ltd. and Bank of America Corp.'s Merrill Lynch unit. Spanish debt isn't yielding enough to compensate investors for buying the bonds of a country with the euro region's third- largest budget deficit, according to Axel Blase, a fund manager in Frankfurt at Invesco. Investors receive a 70 basis-point yield premium for holding Spanish 10-year bonds rather than German bunds, compared with 310 basis points for Greek debt. ``It's not a time to increase exposure to Spain,'' said Blase, who helps oversee the company's $423 billion in assets. ``The country is in rather serious difficulties and the risk premium on Spanish bonds isn't that attractive.'' Concern that Europe's most recession-battered nations aren't doing enough to contain their deficits sent Greek bond yields to the highest in more than a decade, and helped push the euro 4.7 percent lower against the dollar this year. While attention focused initially on Greece, Spain may take years to recover from the recession, according to Johan Jooste, a strategist at Merrill Lynch Wealth Management in London.
Latvia Elections May Hamper Austerity, Weigh On Credit Rating, Fitch Says
Latvian elections this autumn threaten to hamper government efforts to push through austerity measures vital to its international bailout, burdening the country's credit rating, Fitch Ratings said. A parliamentary election scheduled for October ``weighs on the rating, the uncertainty that comes with the election, and I think there might be resistance to removing the negative outlook because of that risk,'' Eral Yilmaz, a credit analyst at Fitch, which ranks Latvian debt as junk, said in an interview. Prime Minister Valdis Dombrovskis, who came to office a year ago amid the former Soviet state's worst economic crisis since it abandoned communism two decades ago, has pushed through the toughest austerity package in the European Union to comply with the terms of an International Monetary Fund-led rescue. Fitch, which rates Latvia's debt BB+, wants to see sustained signs of recovery before considering an upgrade, Yilmaz said. ``Cuts may become politically more difficult from now on as the public may want to see the results of the fiscal
belt- tightening in an economic recovery that results in job creation,'' she said.
Kiwi Slides as Bollard Signals Rate Rises; Aussie Is Near Seven-Week High
The New Zealand dollar fell against its 16 major counterparts as the central bank signaled a slower exit from stimulus measures. Australia's currency traded near a seven-month high as full-time jobs grew for a sixth month. The kiwi dropped as Reserve Bank Governor Alan Bollard kept the benchmark interest rate at a record low and said weak business spending and higher bank-funding costs may slow the pace of future rate advances. Australian employers added 11,400 full-time workers in February in the longest stretch of monthly gains since 2006, raising prospects of a rate increase in April. ``Market expectations prior to the decision had been for a 25 basis point hike in June and every meeting thereafter until the end of the year,'' said Mike Jones, a currency strategist at Bank of New Zealand Ltd. in Wellington. ``One of those tightenings may now be priced out of the curve, weighing on the New Zealand dollar.'' New Zealand's dollar dropped 0.4 percent to 69.93 U.S. cents as of 5:08 p.m. in Sydney from
70.21 cents yesterday in New York. It slid 0.5 percent to 63.19 yen.
For the complete stories summarized here, and for more of the day's top news, see TOP
-0- Mar/11/2010 8:15 GMT
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