By Timothy R. Homan - Mar 23, 2012 12:01 PM GMT+0800
Purchases of new homes in the U.S. probably rose in February to the highest level in more than a year, economists said before a report today.
Sales, tabulated when contracts are signed, climbed 1.3 percent to a 325,000 annual pace, the fastest since December 2010, according to the median estimate in a Bloomberg News survey of 78 economists. That would mark the fifth gain in six months.
Enlarge image Sales of New Houses in U.S. Probably Climbed
Affordability is increasing as hiring picks up, incomes grow, home prices steady and mortgage rates hold near record lows. At the same time, builders face increasing competition from foreclosures, which are hurting all property values.
“We’re in the early stages of a recovery in sales,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “We’ve seen builders saying things are improving, and the weather’s been pretty good.”
The Commerce Department report is due at 10 a.m. in Washington. Economists’ forecasts ranged from 310,000 to 350,000.
New-home sales have lost their ability to forecast the broader market as demand shifts to previously owned houses. Purchases of existing homes are calculated when a deal closes about a month or two later. New properties made up almost 7 percent of the market last year, down from a high of 15 percent during the last decade’s housing boom.
Existing-home purchases eased to a 4.59 million annual rate last month from a 4.63 million pace in January, the National Association of Realtors reported this week. Even with the decline, January and February sales marked the strongest start to a year since 2007.
Warmer Weather
Warmer weather may have may have encouraged more Americans to shop for new properties last month. The average temperature was 38.2 degrees Fahrenheit (3.4 Celsius), 3.6 degrees warmer than the 20th century average and the 17th warmest February in 118 years, according to the National Oceanic and Atmospheric Administration.
Among other signs that housing is improving, builders this year have broken ground on homes at the fastest pace since October-November 2008, according to Commerce Department figures released this week. Permits for construction climbed to the highest level since 2008, the same report showed.
The National Association of Home Builders/Wells Fargo sentiment index held in March at the highest level since June 2007. Sales expectations climbed for a sixth month, according to the March 19 report.
Investors also are upbeat about prospects for the industry. The S&P Supercomposite Homebuilding Index has advanced 25 percent this year through yesterday, compared with the 11 percent gain in the broader S&P 500.
Positive Outlook
Ryland Group Inc. (RYL), which builds homes with an average price of $255,000 in 13 states, said it has a positive outlook for 2012.
“We finished the year on a strong note, entered the year optimistic and still feel fairly optimistic today,” Larry Nicholson, president and chief executive officer at the Westlake Village, California-based company, said March 6 at an investor conference. “The good thing about the traffic we are seeing is it’s new traffic. We feel a lot better than we did a year ago.”
Nonetheless, foreclosures remain a concern. Filings fell 8 percent in February, the smallest year-over-year decrease since October 2010, as lenders began working through a backlog of seized properties, RealtyTrac Inc. said last week.
“February’s numbers point to a gradually rising foreclosure tide,” Brandon Moore, RealtyTrac’s chief executive officer, said in the statement. “That should result in more states posting annual increases in the coming months.”
To hold down borrowing costs like mortgage rates, Federal Reserve policy makers last week said they will continue to swap $400 billion in short-term securities with long-term debt to lengthen the average maturity of the central bank’s holdings, a move dubbed Operation Twist.
Bloomberg Survey
============================================
New Home New Home
Sales Sales
,000’s MOM%
============================================
Date of Release 03/23 03/23
Observation Period Feb. Feb.
-------------------------------------------
Median 325 1.3%
Average 326 1.5%
High Forecast 350 9.0%
Low Forecast 310 -3.4%
Number of Participants 78 78
Previous 321 -0.9%
-------------------------------------------
4CAST 320 -0.3%
ABN Amro 324 1.0%
Action Economics 328 2.2%
Aletti Gestielle 325 1.3%
Ameriprise Financial 325 1.3%
Analytical Synthesis 326 1.6%
Banca Aletti 325 1.3%
Banesto 326 1.6%
Barclays Capital 321 0.0%
BBVA 318 -0.9%
BMO Capital Markets 325 1.3%
BNP Paribas 330 2.8%
BofA Merrill Lynch 310 -3.4%
Briefing.com 320 -0.3%
Capital Economics 325 1.3%
CIBC World Markets 325 1.3%
Citi 320 -0.3%
Comerica 320 -0.3%
Commerzbank AG 325 1.3%
Credit Agricole CIB 324 0.9%
Credit Suisse 330 2.8%
Daiwa Securities America 338 5.3%
Danske Bank 322 0.3%
DekaBank 330 2.8%
Desjardins Group 330 2.8%
Deutsche Bank Securities 325 1.3%
DZ Bank 318 -0.9%
Exane 330 2.8%
Fact & Opinion Economics 327 1.9%
First Trust Advisors 325 1.3%
FTN Financial 325 1.3%
Goldman, Sachs & Co. 328 2.0%
Helaba 330 2.8%
High Frequency Economics 350 9.0%
HSBC Markets 321 0.0%
Hugh Johnson Advisors 325 1.3%
IDEAglobal 330 2.8%
IHS Global Insight 327 1.9%
Informa Global Markets 323 0.6%
ING Financial Markets 330 2.8%
Insight Economics 325 1.3%
Intesa Sanpaulo 330 2.8%
J.P. Morgan Chase 320 -0.3%
Janney Montgomery Scott 321 0.0%
Jefferies & Co. 325 1.3%
Landesbank Berlin 320 -0.3%
Landesbank BW 325 1.3%
Market Securities 316 -1.6%
MET Capital Advisors 315 -1.9%
Mizuho Securities 328 2.0%
Moody’s Analytics 332 3.4%
Morgan Keegan & Co. 326 1.6%
Morgan Stanley & Co. 335 4.4%
National Bank Financial 330 2.8%
Natixis 325 1.3%
Nomura Securities 322 0.3%
OSK Group/DMG 314 -2.2%
O’Sullivan 330 2.8%
Parthenon Group 320 -0.3%
Pierpont Securities 335 4.4%
PineBridge Investments 337 5.0%
PNC Bank 345 7.5%
Raymond James 330 2.8%
RBC Capital Markets 310 -3.4%
RBS Securities 315 -1.9%
Scotia Capital 330 2.8%
SMBC Nikko Securities 325 1.3%
Societe Generale 335 4.4%
Standard & Poor’s 328 2.2%
Standard Chartered 330 2.8%
Stone & McCarthy Research 325 1.3%
TD Securities 335 4.4%
UBS 330 2.8%
University of Maryland 329 2.5%
Wells Fargo & Co. 320 -0.3%
WestLB AG 325 1.3%
Westpac Banking Co. 328 2.0%
Wrightson ICAP 330 2.8%
============================================
Friday, March 23, 2012
Tuesday, March 20, 2012
Record China Bank Profits to Be Overshadowed by Bad Loans
By Bloomberg News - Mar 21, 2012 10:21 AM GMT+0800
China’s biggest banks, set to post record profits for a fifth year, may report 2011 results marred by an increase in bad loans as an economic slowdown and faltering property market trigger defaults by borrowers.
Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, and its four biggest local rivals may post a 15 percent increase in combined fourth-quarter net income when they report this month, according to analyst estimates compiled by Bloomberg. Their non-performing loans rose for the first time since the third quarter of 2008, the banking regulator said last month.
Enlarge image Record Profits at Chinese Banks
China’s efforts to bolster banks’ risk buffers and curb inflation following a two-year, $2.7 trillion credit boom have pushed up funding costs, slowed the economy and triggered defaults, prompting Standard & Poor’s to warn March 12 that a jump in bad loans may curb profitability. Fresh evidence of mounting defaults may clip the average 42 percent rally in shares of the banks in Hong Kong over the past five months.
“It’s time to take profits off the table,” said May Yan, a Hong Kong-based analyst at Barclays Capital Inc., who cut her rating on the industry to “neutral” last month, citing weakness in the economy and banking sector. “The rebound of NPLs is not temporary. It’s the beginning of a worrisome trend.”
Rising Bad Loans
Non-performing loans at Hong Kong-listed Chinese banks, which include Beijing-based ICBC, China Construction Bank Corp. and Agricultural Bank of China Ltd. (1288), may rise an average 40 percent in 2012, Yan forecast. The bad-loan ratio at the five biggest banks could climb to about 1.9 percent in 2013 from 1.1 percent in 2011, she said.
The economy expanded 8.9 percent last quarter, or at the slowest pace in 2 1/2 years, as Europe’s debt crisis curbed export demand and the property market weakened. The slowdown has extended into this year, with factory output in the first two months rising the least since 2009, while home prices posted the worst performance in a year, data showed this month.
Still, China’s 3,800 banks had fourth-quarter net income of $35.4 billion, a third more than the total earnings of 7,357 U.S. lenders including Bank of America Corp. and JPMorgan (JPM) Chase & Co., data from the China Banking Regulatory Commission and the Federal Deposit Insurance Corp. showed. The five largest Chinese banks accounted for 139.5 billion yuan ($22 billion) of profit, according to the analysts’ estimates.
Roads, Bridges
The earnings have been driven by accelerated loan growth after China’s government unveiled a 4 trillion-yuan stimulus package to bolster the economy following a slump in global equity and credit markets in 2008. That triggered an explosion in credit to local governments and property developers, and a surge in investments in infrastructure such as roads and bridges.
A year after the boom ended in 2010, defaults began to climb. Bad loans at China’s five largest banks rose to 299.6 billion yuan as of Dec. 31, from 287.9 billion yuan at the end of September, according to data from the regulator in February. The non-performing loan ratio remained at 1.1 percent, it said.
The actual increase in defaults is probably higher than the official data because lenders write off the worst assets at the end of the year, China International Capital Corp. analysts Mao Junhua and Luo Jing wrote in a note last month.
Missed Repayments
Mountain China Resorts Holdings Ltd., a partner of Club Mediterranee SA in China, said last week that it failed to repay 30 million yuan of bank loans on time. Shandong Helon Co., the fiber maker that in December became China’s first company to lose its investment-grade credit rating, missed 397 million yuan in loan payments in January.
Publicly traded Chinese banks’ bad loans may jump 26 percent this year as the economy slows, while profit growth will be cut by almost half, to 15 percent, and the average net interest margin may shrink 4 basis points from last year’s 2.7 percent, CICC forecast. A basis point is 0.01 percentage point.
“We are monitoring the NPL trend very, very closely, but it’s far from the stage of sending everybody into a panic,” said Yang Jianxun, a Shenzhen-based fund manager at Dacheng Fund Management Co., which oversees the equivalent of $12.7 billion. “The problem will be contained and banks’ valuations are still attractive from a long-term perspective.”
Shenzhen Development Bank Co. (000001), the first Chinese lender to report full-year earnings, posted a 26 percent increase in fourth-quarter non-performing loans following increased lending to smaller businesses, which have higher default rates, President Richard Jackson said on March 8.
Bankruptcies, Suicides
Among its branches, the ratio is the highest in Wenzhou, reflecting the difficulties faced by entrepreneurs in the coastal city, the bank said. More than 80 indebted businessmen in the small exporters’ hub disappeared, committed suicide or declared bankruptcy from April through September because of loans due to informal lenders, the official Xinhua News Agency said in October.
Property companies listed in China and Hong Kong face a worse cash shortage this year than in 2008, when China’s house prices fell for the first time since people were allowed to own homes, CEBM Group Ltd., a Shanghai-based investment advisory firm, said in January.
Residential prices will need to see a “meaningful correction” by falling 20 percent to 30 percent from last year’s peak before the government relaxes property rules, Qu Hongbin, an economist at HSBC Holdings Plc, said on March 19.
May Avert Crash
Prices may post a “single-digit” decline this year, billionaire developer Vincent Lo, chairman of Shui On Land Ltd., said in an interview in Beijing on March 8. The market won’t see a crash, he said.
Premier Wen Jiabao, who this month pared the 2012 economic growth target to 7.5 percent, said home prices remain far from a reasonable level and relaxing restrictions on sales could cause market “chaos.”
While Chinese banks’ bad debt have increased, total lending is growing faster. The ratio of non-performing loans to total credit should be “stable” after lending grew 15.8 percent last year, Morgan Stanley predicted in a March 7 note.
Agricultural Bank, the nation’s third-largest lender, may report tomorrow that fourth-quarter profit rose 16.6 percent to 28.84 billion yuan, according to a Bloomberg survey of analysts.
Construction Bank, the second-largest, is set to report a 29 percent gain on March 25. ICBC may say on March 29 that earnings rose 14 percent while Bank of China Ltd. (3988), ranked No. 4, will probably post a 2 percent increase in profit. The four banks are all based in Beijing.
Lower Valuations
Shanghai-based Bank of Communications Co., the fifth- largest lender, may post a 6.9 percent increase in net income on March 28.
The five banks are trading at an average 6.1 times their estimated earnings in 2012, compared with 9.5 times at New York- based JPMorgan and 13.8 times at Charlotte, North Carolina-based Bank of America, according to data compiled by Bloomberg.
Standard & Poor’s warned last week that China’s banks could face a slump in earnings growth in 2012 due to a slowing economy, falling property prices and the challenges of refinancing “sizable” local government debt.
The banks’ reported bad-debt ratio tied to local government financing vehicles is “not possible” unless they’re rolling over debt, said Liao Qiang, a Beijing-based S&P analyst. He estimated last year that as much as 30 percent of loans to such entities may sour without central-government support, and will probably be the biggest source of non-performing assets for the industry.
Local Governments
Yunnan Highway Development & Investment Co., a financing vehicle of the southwestern province, in April told creditors including Construction Bank (939) and ICBC that it wouldn’t be able to make principal payments on about 100 billion yuan of loans, Caixin Online reported in June. The provincial government later promised to assume payment.
In northern Liaoning province, about 85 percent of local government financial vehicles didn’t have sufficient income to pay principal and interest payments on debt due in 2010, Caixin said in September, citing a speech by the head of the provincial audit office.
China’s first audit of local-government borrowing showed 80 percent of their 10.7 trillion yuan of debt at the end of 2010 was bank loans and more than half will mature in 2011- 2013. More than 35 billion yuan of money borrowed for local development went into the stock and property markets or prohibited projects, the audit showed.
The credit boom also sapped lenders’ finances. BoCom said last week it plans to raise 56.6 billion yuan in a private placement to boost its core capital adequacy ratio above the 9.5 percent minimum required under the new capital rules. Agricultural Bank’s core capital ratio at 9.36 percent as of Sept. 30 was also below the mandatory minimum.
China’s biggest banks, set to post record profits for a fifth year, may report 2011 results marred by an increase in bad loans as an economic slowdown and faltering property market trigger defaults by borrowers.
Industrial & Commercial Bank of China Ltd., the world’s most profitable lender, and its four biggest local rivals may post a 15 percent increase in combined fourth-quarter net income when they report this month, according to analyst estimates compiled by Bloomberg. Their non-performing loans rose for the first time since the third quarter of 2008, the banking regulator said last month.
Enlarge image Record Profits at Chinese Banks
China’s efforts to bolster banks’ risk buffers and curb inflation following a two-year, $2.7 trillion credit boom have pushed up funding costs, slowed the economy and triggered defaults, prompting Standard & Poor’s to warn March 12 that a jump in bad loans may curb profitability. Fresh evidence of mounting defaults may clip the average 42 percent rally in shares of the banks in Hong Kong over the past five months.
“It’s time to take profits off the table,” said May Yan, a Hong Kong-based analyst at Barclays Capital Inc., who cut her rating on the industry to “neutral” last month, citing weakness in the economy and banking sector. “The rebound of NPLs is not temporary. It’s the beginning of a worrisome trend.”
Rising Bad Loans
Non-performing loans at Hong Kong-listed Chinese banks, which include Beijing-based ICBC, China Construction Bank Corp. and Agricultural Bank of China Ltd. (1288), may rise an average 40 percent in 2012, Yan forecast. The bad-loan ratio at the five biggest banks could climb to about 1.9 percent in 2013 from 1.1 percent in 2011, she said.
The economy expanded 8.9 percent last quarter, or at the slowest pace in 2 1/2 years, as Europe’s debt crisis curbed export demand and the property market weakened. The slowdown has extended into this year, with factory output in the first two months rising the least since 2009, while home prices posted the worst performance in a year, data showed this month.
Still, China’s 3,800 banks had fourth-quarter net income of $35.4 billion, a third more than the total earnings of 7,357 U.S. lenders including Bank of America Corp. and JPMorgan (JPM) Chase & Co., data from the China Banking Regulatory Commission and the Federal Deposit Insurance Corp. showed. The five largest Chinese banks accounted for 139.5 billion yuan ($22 billion) of profit, according to the analysts’ estimates.
Roads, Bridges
The earnings have been driven by accelerated loan growth after China’s government unveiled a 4 trillion-yuan stimulus package to bolster the economy following a slump in global equity and credit markets in 2008. That triggered an explosion in credit to local governments and property developers, and a surge in investments in infrastructure such as roads and bridges.
A year after the boom ended in 2010, defaults began to climb. Bad loans at China’s five largest banks rose to 299.6 billion yuan as of Dec. 31, from 287.9 billion yuan at the end of September, according to data from the regulator in February. The non-performing loan ratio remained at 1.1 percent, it said.
The actual increase in defaults is probably higher than the official data because lenders write off the worst assets at the end of the year, China International Capital Corp. analysts Mao Junhua and Luo Jing wrote in a note last month.
Missed Repayments
Mountain China Resorts Holdings Ltd., a partner of Club Mediterranee SA in China, said last week that it failed to repay 30 million yuan of bank loans on time. Shandong Helon Co., the fiber maker that in December became China’s first company to lose its investment-grade credit rating, missed 397 million yuan in loan payments in January.
Publicly traded Chinese banks’ bad loans may jump 26 percent this year as the economy slows, while profit growth will be cut by almost half, to 15 percent, and the average net interest margin may shrink 4 basis points from last year’s 2.7 percent, CICC forecast. A basis point is 0.01 percentage point.
“We are monitoring the NPL trend very, very closely, but it’s far from the stage of sending everybody into a panic,” said Yang Jianxun, a Shenzhen-based fund manager at Dacheng Fund Management Co., which oversees the equivalent of $12.7 billion. “The problem will be contained and banks’ valuations are still attractive from a long-term perspective.”
Shenzhen Development Bank Co. (000001), the first Chinese lender to report full-year earnings, posted a 26 percent increase in fourth-quarter non-performing loans following increased lending to smaller businesses, which have higher default rates, President Richard Jackson said on March 8.
Bankruptcies, Suicides
Among its branches, the ratio is the highest in Wenzhou, reflecting the difficulties faced by entrepreneurs in the coastal city, the bank said. More than 80 indebted businessmen in the small exporters’ hub disappeared, committed suicide or declared bankruptcy from April through September because of loans due to informal lenders, the official Xinhua News Agency said in October.
Property companies listed in China and Hong Kong face a worse cash shortage this year than in 2008, when China’s house prices fell for the first time since people were allowed to own homes, CEBM Group Ltd., a Shanghai-based investment advisory firm, said in January.
Residential prices will need to see a “meaningful correction” by falling 20 percent to 30 percent from last year’s peak before the government relaxes property rules, Qu Hongbin, an economist at HSBC Holdings Plc, said on March 19.
May Avert Crash
Prices may post a “single-digit” decline this year, billionaire developer Vincent Lo, chairman of Shui On Land Ltd., said in an interview in Beijing on March 8. The market won’t see a crash, he said.
Premier Wen Jiabao, who this month pared the 2012 economic growth target to 7.5 percent, said home prices remain far from a reasonable level and relaxing restrictions on sales could cause market “chaos.”
While Chinese banks’ bad debt have increased, total lending is growing faster. The ratio of non-performing loans to total credit should be “stable” after lending grew 15.8 percent last year, Morgan Stanley predicted in a March 7 note.
Agricultural Bank, the nation’s third-largest lender, may report tomorrow that fourth-quarter profit rose 16.6 percent to 28.84 billion yuan, according to a Bloomberg survey of analysts.
Construction Bank, the second-largest, is set to report a 29 percent gain on March 25. ICBC may say on March 29 that earnings rose 14 percent while Bank of China Ltd. (3988), ranked No. 4, will probably post a 2 percent increase in profit. The four banks are all based in Beijing.
Lower Valuations
Shanghai-based Bank of Communications Co., the fifth- largest lender, may post a 6.9 percent increase in net income on March 28.
The five banks are trading at an average 6.1 times their estimated earnings in 2012, compared with 9.5 times at New York- based JPMorgan and 13.8 times at Charlotte, North Carolina-based Bank of America, according to data compiled by Bloomberg.
Standard & Poor’s warned last week that China’s banks could face a slump in earnings growth in 2012 due to a slowing economy, falling property prices and the challenges of refinancing “sizable” local government debt.
The banks’ reported bad-debt ratio tied to local government financing vehicles is “not possible” unless they’re rolling over debt, said Liao Qiang, a Beijing-based S&P analyst. He estimated last year that as much as 30 percent of loans to such entities may sour without central-government support, and will probably be the biggest source of non-performing assets for the industry.
Local Governments
Yunnan Highway Development & Investment Co., a financing vehicle of the southwestern province, in April told creditors including Construction Bank (939) and ICBC that it wouldn’t be able to make principal payments on about 100 billion yuan of loans, Caixin Online reported in June. The provincial government later promised to assume payment.
In northern Liaoning province, about 85 percent of local government financial vehicles didn’t have sufficient income to pay principal and interest payments on debt due in 2010, Caixin said in September, citing a speech by the head of the provincial audit office.
China’s first audit of local-government borrowing showed 80 percent of their 10.7 trillion yuan of debt at the end of 2010 was bank loans and more than half will mature in 2011- 2013. More than 35 billion yuan of money borrowed for local development went into the stock and property markets or prohibited projects, the audit showed.
The credit boom also sapped lenders’ finances. BoCom said last week it plans to raise 56.6 billion yuan in a private placement to boost its core capital adequacy ratio above the 9.5 percent minimum required under the new capital rules. Agricultural Bank’s core capital ratio at 9.36 percent as of Sept. 30 was also below the mandatory minimum.
Thursday, March 8, 2012
European Stocks Gain Before Greek Debt Swap
By Peter Levring - Mar 8, 2012 5:46 PM GMT+0800
European stocks rose for a second day as Japan’s economy shrank less than the government initially estimated and a deadline on Greece’s debt swap approached. Asian shares and U.S. index futures gained.
European Aeronautic, Defence & Space Co. rallied to a five- year high after doubling its dividend and predicting earnings will climb. Aviva Plc added 2.3 percent as the U.K.’s second- biggest insurer by market value reported operating profit that exceeded estimates. Enel SpA (ENEL), Italy’s biggest energy company, sank 5.9 percent after cutting its dividend.
Enlarge image A Pedestrian Passes The Aviva Plc Headquarters
The Stoxx Europe 600 Index (SXXP) advanced 1.3 percent to 263.44 at 9:44 a.m. in London. The benchmark gauge has surged 7.7 percent this year as the European Central Bank lent more than 1 trillion euros ($1.3 trillion) for three years to the region’s banks to ease liquidity.
“European equity markets are set to open higher as traders begin to turn optimistic over the Greek bond swap deal and the U.S. continues the string of strong economic data,” Jonathan Sudaria, a trader at Capital Spreads in London, wrote in e- mailed comments.
Standard & Poor’s 500 Index futures added 0.7 percent before a report at 8:30 a.m. in Washington that economists in a Bloomberg survey forecast may show initial claims for U.S. jobless benefits held at 351,000 last week. The MSCI Asia Pacific Index (MXAP) advanced 1.3 percent.
Japanese Economy
Japan’s economy contracted less than initially estimated last quarter, improving prospects for the recovery from last year’s earthquake. Gross domestic product shrank an annualized 0.7 percent in the three months ended Dec. 31, the Cabinet Office said, compared with a preliminary estimate of a 2.3 percent contraction. The median forecast of 21 economists surveyed by Bloomberg was for a 0.6 percent contraction.
Investors with about 60 percent of the Greek bonds eligible for the nation’s debt swap have so far indicated they’ll participate, putting the country on the verge of the biggest sovereign restructuring in history. The offer, which ends at 10 p.m. Athens time today, aims to reduce the 206 billion euros of privately held Greek debt by 53.5 percent.
ECB policy makers will keep the benchmark rate at a record low of 1 percent today, 55 of 58 economists in a Bloomberg News survey predict. The decision is due at 1:45 p.m. Frankfurt time and ECB President Mario Draghi will unveil the bank’s new economic projections at a 2:30 p.m. press conference.
ECB Forecasts
The bank is also expected to lift its 2012 inflation forecast above the 2 percent price-stability threshold today, limiting its ability to cut interest rates further even as it lowers the outlook for growth, economists said.
The Bank of England will today hold its key rate at 0.5 percent and maintain its commitment to buy an additional 50 billion pounds ($79 billion) of bonds by May after lifting its target for asset purchases to 325 billion pounds last month, according to economists. That decision is due at noon in London.
EADS rallied 9 percent to 29.25 euros, the highest price since May 2006. The maker of Airbus passenger jets agreed to pay a dividend of 45 cents a share, more than doubling the payout from last year and exceeding analyst estimates of a 30-cent dividend. Earnings before interest, taxes and one-time items will increase to more than 2.5 billion euros in 2012, from 1.8 billion euros last year, EADS said.
Aviva (AV/) increased 2.3 percent to 359.2 pence. The insurer reported operating profit that fell 2 percent to 2.5 billion pounds ($4 billion), surpassing the 2.45 billion-pound median estimate of analysts in a Bloomberg survey.
Gemalto, Klepierre
Gemalto NV (GTO) jumped 5.5 percent to 45.57 euros as the inventor of the smart chip used in bank and phone cards forecast revenue and operating profit will increase this year.
Klepierre (LI) SA, France’s second-largest publicly traded owner of shopping centers, climbed 5.6 percent to 24.70 euros. Simon Property Group Inc., the biggest U.S. mall owner, agreed to pay BNP Paribas SA 28 euros a share for 28.7 percent of Klepierre in a deal worth about 1.52 billion euros.
Deutsche Post AG (DPW) advanced 3.3 percent to 13.34 euros. Europe’s largest postal service said profit in 2012 will rise as much as 6.6 percent as growth in global trade helps the company’s DHL express and freight business.
Enel retreated 5.9 percent to 2.86 euros. The utility cut its dividend payout by a third to 40 percent of ordinary net income as it seeks to raise funds to cut debt.
Annual net income fell to 4.15 billion euros from 4.4 billion euros a year earlier, hurt by a windfall-profit tax imposed in Italy, the company said. That missed the 4.3 billion- euro average estimate of 17 analysts surveyed by Bloomberg.
Wirecard AG (WDI) sank 4.3 percent to 13.79 euros. The German provider of software and systems for online payments said it plans to sell 10.2 million new shares to fund acquisitions in the payment processing sector.
European stocks rose for a second day as Japan’s economy shrank less than the government initially estimated and a deadline on Greece’s debt swap approached. Asian shares and U.S. index futures gained.
European Aeronautic, Defence & Space Co. rallied to a five- year high after doubling its dividend and predicting earnings will climb. Aviva Plc added 2.3 percent as the U.K.’s second- biggest insurer by market value reported operating profit that exceeded estimates. Enel SpA (ENEL), Italy’s biggest energy company, sank 5.9 percent after cutting its dividend.
Enlarge image A Pedestrian Passes The Aviva Plc Headquarters
The Stoxx Europe 600 Index (SXXP) advanced 1.3 percent to 263.44 at 9:44 a.m. in London. The benchmark gauge has surged 7.7 percent this year as the European Central Bank lent more than 1 trillion euros ($1.3 trillion) for three years to the region’s banks to ease liquidity.
“European equity markets are set to open higher as traders begin to turn optimistic over the Greek bond swap deal and the U.S. continues the string of strong economic data,” Jonathan Sudaria, a trader at Capital Spreads in London, wrote in e- mailed comments.
Standard & Poor’s 500 Index futures added 0.7 percent before a report at 8:30 a.m. in Washington that economists in a Bloomberg survey forecast may show initial claims for U.S. jobless benefits held at 351,000 last week. The MSCI Asia Pacific Index (MXAP) advanced 1.3 percent.
Japanese Economy
Japan’s economy contracted less than initially estimated last quarter, improving prospects for the recovery from last year’s earthquake. Gross domestic product shrank an annualized 0.7 percent in the three months ended Dec. 31, the Cabinet Office said, compared with a preliminary estimate of a 2.3 percent contraction. The median forecast of 21 economists surveyed by Bloomberg was for a 0.6 percent contraction.
Investors with about 60 percent of the Greek bonds eligible for the nation’s debt swap have so far indicated they’ll participate, putting the country on the verge of the biggest sovereign restructuring in history. The offer, which ends at 10 p.m. Athens time today, aims to reduce the 206 billion euros of privately held Greek debt by 53.5 percent.
ECB policy makers will keep the benchmark rate at a record low of 1 percent today, 55 of 58 economists in a Bloomberg News survey predict. The decision is due at 1:45 p.m. Frankfurt time and ECB President Mario Draghi will unveil the bank’s new economic projections at a 2:30 p.m. press conference.
ECB Forecasts
The bank is also expected to lift its 2012 inflation forecast above the 2 percent price-stability threshold today, limiting its ability to cut interest rates further even as it lowers the outlook for growth, economists said.
The Bank of England will today hold its key rate at 0.5 percent and maintain its commitment to buy an additional 50 billion pounds ($79 billion) of bonds by May after lifting its target for asset purchases to 325 billion pounds last month, according to economists. That decision is due at noon in London.
EADS rallied 9 percent to 29.25 euros, the highest price since May 2006. The maker of Airbus passenger jets agreed to pay a dividend of 45 cents a share, more than doubling the payout from last year and exceeding analyst estimates of a 30-cent dividend. Earnings before interest, taxes and one-time items will increase to more than 2.5 billion euros in 2012, from 1.8 billion euros last year, EADS said.
Aviva (AV/) increased 2.3 percent to 359.2 pence. The insurer reported operating profit that fell 2 percent to 2.5 billion pounds ($4 billion), surpassing the 2.45 billion-pound median estimate of analysts in a Bloomberg survey.
Gemalto, Klepierre
Gemalto NV (GTO) jumped 5.5 percent to 45.57 euros as the inventor of the smart chip used in bank and phone cards forecast revenue and operating profit will increase this year.
Klepierre (LI) SA, France’s second-largest publicly traded owner of shopping centers, climbed 5.6 percent to 24.70 euros. Simon Property Group Inc., the biggest U.S. mall owner, agreed to pay BNP Paribas SA 28 euros a share for 28.7 percent of Klepierre in a deal worth about 1.52 billion euros.
Deutsche Post AG (DPW) advanced 3.3 percent to 13.34 euros. Europe’s largest postal service said profit in 2012 will rise as much as 6.6 percent as growth in global trade helps the company’s DHL express and freight business.
Enel retreated 5.9 percent to 2.86 euros. The utility cut its dividend payout by a third to 40 percent of ordinary net income as it seeks to raise funds to cut debt.
Annual net income fell to 4.15 billion euros from 4.4 billion euros a year earlier, hurt by a windfall-profit tax imposed in Italy, the company said. That missed the 4.3 billion- euro average estimate of 17 analysts surveyed by Bloomberg.
Wirecard AG (WDI) sank 4.3 percent to 13.79 euros. The German provider of software and systems for online payments said it plans to sell 10.2 million new shares to fund acquisitions in the payment processing sector.
Thursday, February 23, 2012
Opening Statement to House of Representatives Standing Committee on Economics
Glenn Stevens
Governor
Sydney - 24 February 2012
When we last met with the Committee in August, we had entered a period of heightened uncertainty about the global economy and financial system. The investment community was focusing increasingly on the high levels of public debt in major countries, and especially on the situation in the euro area, where budgetary pressures, banking pressures and competitiveness issues within the single currency area make for a very difficult set of problems. There was considerable instability in markets. But our view at that time – tentatively – was that we were not witnessing a repeat of the events of late 2008.
Admittedly, the second half of 2011 saw some very anxious moments. There was a flight from risk that pushed up borrowing costs for major countries like Spain and Italy, but pushed them down for countries like Germany and the United States to the lowest levels for more than 50 years in spite of the fiscal challenges the US itself faces. Funding markets for European banks in particular effectively closed for a few months, and for other banks became much more difficult and certainly more expensive.
The palpable fear before Christmas that Europe was on the brink of some sort of very bad financial event has lessened over our summer. The anxiety has not gone entirely away, and nor will it for some time. But the worst has not happened. Financial markets, while hardly brimming with confidence, have recovered somewhat over the past couple of months. Banks are able to access term funding markets again, albeit at higher cost. High-frequency gauges of business conditions and confidence have stabilised over the past couple of months in Asia and North America, and even in Europe. We have not seen the very steep fall that we saw in all these indicators in late 2008.
The actions of the European Central Bank contributed greatly to the stabilisation of financing conditions, essentially by removing, for a time, questions over the funding of European banks. The efforts of European leaders to craft a stronger framework for euro-wide governance on the fiscal side have also continued. A great deal more needs to be done to place European banks and sovereigns onto a stable footing, and to boost potential growth in Europe. But progress is being made.
Forecasts for the global economy in 2012 have been marked lower, mainly due to the effects of the problems in the euro area. Revisions to the IMF's forecasts in particular have been given great prominence. Our own forecasts have come down too, though they had already been a bit weaker than the IMF's. On these forecasts, global GDP will grow by about 3¼ per cent in 2012. That is down from about 3¾ per cent in 2011, which was about the average rate of growth over the past 15 years. On its face, this performance, should it occur, would be no disaster. After all, growth is going to be below average some of the time.
If we look for things to worry about, we will certainly find them. The global outlook has a very uneven composition: some countries, particularly in Europe, will record very weak outcomes. Moreover it is unlikely that a moment will come any time soon when we will be able to say the problems in Europe are behind us. Progress will be slow and there will be periodic setbacks and bouts of heightened anxiety – that is the nature of these things.
But equally, we should recognise that things have not been uniformly bad recently. The US economy has not experienced the ‘double dip’ some had feared six months ago, but instead has continued growing. The US corporate sector is in very strong shape, is cashed up and will at some point be able to start moving ahead more quickly. It appears American corporations have stepped up the pace of hiring in the past few months.
In China, the slowing in growth we have seen seems to have been roughly what the policymakers were looking for, and they appear to be getting on top of their inflation and housing boom problems. Around the rest of Asia, activity has also slowed, in part reflecting trade links with Europe. But it has not slumped and as inflation comes down, policymakers have increased room to respond. The pressure on European banks to shed assets has led to some tightening of trade credit in the Asian region, but at this stage the system seems to be adjusting to that without major drama. We have not, to date, seen the collapse of trade credit and trade flows we saw in late 2008.
Commodity prices, which had declined noticeably from their peaks in the first half of 2011, have actually moved sideways, or in some cases picked up a bit, for a few months now. They remain high by historical standards. That seems roughly consistent with the group of countries that makes up Australia's main trading partners expanding at a reasonable pace – expected by the IMF to be over 4 per cent this year, not very different from last year. Again, we do not, at this point, see the signs of the rapid collapse in global demand we saw three years ago.
At home, most of the information coming in suggests the economy has grown at close to an average pace over the past year. This outcome was weaker than we had expected a year ago. It was partly due to the effects of flooding on resource production but also due to softer outcomes in the non-resource side of the economy. CPI inflation has come down, as expected, as the impact of last summer's floods on food prices reverse. In underlying terms, inflation was about 2½ per cent over 2011, also a slightly lower outcome than we had, at one point, thought might occur. The labour market was generally softer in 2011 after a year of unusual strength in 2010 (though the unemployment rate at its latest reading was virtually unchanged from a year earlier).
These changes to the macroeconomic picture, against a backdrop of a period of intensified international turmoil, saw the Board lower the cash rate by 50 basis points in the closing months of 2011. Perhaps surprisingly in the face of developments in wholesale funding costs, this was initially fully reflected in a reduction in most lending rates, though there has been a partial reversal of that recently. We have repeatedly made clear that the shifting relationship between the cash rate and other rates in the economy is a factor the Board takes into consideration in setting the cash rate. That will remain the case. Recent developments do not materially affect the capacity of monetary policy to achieve its goals.
Looking ahead, the Bank's central expectation is for growth to be close to trend, and inflation close to the target, over the coming one to two years. There are, naturally, risks surrounding this central view. Those are spelled out in the latest Statement on Monetary Policy.
Perhaps what is most noteworthy about the Australian economy is the way in which the drivers of growth have changed in recent times. The Bank has spoken at length before about the terms of trade, and the resulting resource investment boom, which is still building and which will take the share of business investment in GDP to its highest level for 50 years. We have spoken also about how, on the other side, household behaviour has
changed – people are saving more and borrowing less. Spending is growing in line with income, but people are spending their money differently. The retail sector is finding it has to adapt to this changed environment. Some other industries are struggling with the high exchange rate. Meanwhile certain service sectors are growing quite smartly. Hence, while the economy overall has recorded ‘average’ growth, few sectors are in fact experiencing ‘average’ performance themselves – some are clearly quite weak relative to average, while some others are much stronger.
The Bank is quite aware of these differences and the pressures they bring to businesses and individuals. But we also know that monetary policy cannot remove the forces generating different paces of growth in our economy. We have to keep our eye on the overall performance of demand and prices. We are acutely conscious that history may offer limited guidance in assessing the net impact of the disparate and very powerful forces that are at work. Nonetheless, that is the assessment we must try to make.
Our most recent assessment was that, with growth near trend, inflation consistent with the target, interest rates about average and an outlook suggesting more of the same, the setting of policy was about right for the moment. Of course, we continue to reassess things each month.
My colleagues and I are here to respond to your questions.
Governor
Sydney - 24 February 2012
When we last met with the Committee in August, we had entered a period of heightened uncertainty about the global economy and financial system. The investment community was focusing increasingly on the high levels of public debt in major countries, and especially on the situation in the euro area, where budgetary pressures, banking pressures and competitiveness issues within the single currency area make for a very difficult set of problems. There was considerable instability in markets. But our view at that time – tentatively – was that we were not witnessing a repeat of the events of late 2008.
Admittedly, the second half of 2011 saw some very anxious moments. There was a flight from risk that pushed up borrowing costs for major countries like Spain and Italy, but pushed them down for countries like Germany and the United States to the lowest levels for more than 50 years in spite of the fiscal challenges the US itself faces. Funding markets for European banks in particular effectively closed for a few months, and for other banks became much more difficult and certainly more expensive.
The palpable fear before Christmas that Europe was on the brink of some sort of very bad financial event has lessened over our summer. The anxiety has not gone entirely away, and nor will it for some time. But the worst has not happened. Financial markets, while hardly brimming with confidence, have recovered somewhat over the past couple of months. Banks are able to access term funding markets again, albeit at higher cost. High-frequency gauges of business conditions and confidence have stabilised over the past couple of months in Asia and North America, and even in Europe. We have not seen the very steep fall that we saw in all these indicators in late 2008.
The actions of the European Central Bank contributed greatly to the stabilisation of financing conditions, essentially by removing, for a time, questions over the funding of European banks. The efforts of European leaders to craft a stronger framework for euro-wide governance on the fiscal side have also continued. A great deal more needs to be done to place European banks and sovereigns onto a stable footing, and to boost potential growth in Europe. But progress is being made.
Forecasts for the global economy in 2012 have been marked lower, mainly due to the effects of the problems in the euro area. Revisions to the IMF's forecasts in particular have been given great prominence. Our own forecasts have come down too, though they had already been a bit weaker than the IMF's. On these forecasts, global GDP will grow by about 3¼ per cent in 2012. That is down from about 3¾ per cent in 2011, which was about the average rate of growth over the past 15 years. On its face, this performance, should it occur, would be no disaster. After all, growth is going to be below average some of the time.
If we look for things to worry about, we will certainly find them. The global outlook has a very uneven composition: some countries, particularly in Europe, will record very weak outcomes. Moreover it is unlikely that a moment will come any time soon when we will be able to say the problems in Europe are behind us. Progress will be slow and there will be periodic setbacks and bouts of heightened anxiety – that is the nature of these things.
But equally, we should recognise that things have not been uniformly bad recently. The US economy has not experienced the ‘double dip’ some had feared six months ago, but instead has continued growing. The US corporate sector is in very strong shape, is cashed up and will at some point be able to start moving ahead more quickly. It appears American corporations have stepped up the pace of hiring in the past few months.
In China, the slowing in growth we have seen seems to have been roughly what the policymakers were looking for, and they appear to be getting on top of their inflation and housing boom problems. Around the rest of Asia, activity has also slowed, in part reflecting trade links with Europe. But it has not slumped and as inflation comes down, policymakers have increased room to respond. The pressure on European banks to shed assets has led to some tightening of trade credit in the Asian region, but at this stage the system seems to be adjusting to that without major drama. We have not, to date, seen the collapse of trade credit and trade flows we saw in late 2008.
Commodity prices, which had declined noticeably from their peaks in the first half of 2011, have actually moved sideways, or in some cases picked up a bit, for a few months now. They remain high by historical standards. That seems roughly consistent with the group of countries that makes up Australia's main trading partners expanding at a reasonable pace – expected by the IMF to be over 4 per cent this year, not very different from last year. Again, we do not, at this point, see the signs of the rapid collapse in global demand we saw three years ago.
At home, most of the information coming in suggests the economy has grown at close to an average pace over the past year. This outcome was weaker than we had expected a year ago. It was partly due to the effects of flooding on resource production but also due to softer outcomes in the non-resource side of the economy. CPI inflation has come down, as expected, as the impact of last summer's floods on food prices reverse. In underlying terms, inflation was about 2½ per cent over 2011, also a slightly lower outcome than we had, at one point, thought might occur. The labour market was generally softer in 2011 after a year of unusual strength in 2010 (though the unemployment rate at its latest reading was virtually unchanged from a year earlier).
These changes to the macroeconomic picture, against a backdrop of a period of intensified international turmoil, saw the Board lower the cash rate by 50 basis points in the closing months of 2011. Perhaps surprisingly in the face of developments in wholesale funding costs, this was initially fully reflected in a reduction in most lending rates, though there has been a partial reversal of that recently. We have repeatedly made clear that the shifting relationship between the cash rate and other rates in the economy is a factor the Board takes into consideration in setting the cash rate. That will remain the case. Recent developments do not materially affect the capacity of monetary policy to achieve its goals.
Looking ahead, the Bank's central expectation is for growth to be close to trend, and inflation close to the target, over the coming one to two years. There are, naturally, risks surrounding this central view. Those are spelled out in the latest Statement on Monetary Policy.
Perhaps what is most noteworthy about the Australian economy is the way in which the drivers of growth have changed in recent times. The Bank has spoken at length before about the terms of trade, and the resulting resource investment boom, which is still building and which will take the share of business investment in GDP to its highest level for 50 years. We have spoken also about how, on the other side, household behaviour has
changed – people are saving more and borrowing less. Spending is growing in line with income, but people are spending their money differently. The retail sector is finding it has to adapt to this changed environment. Some other industries are struggling with the high exchange rate. Meanwhile certain service sectors are growing quite smartly. Hence, while the economy overall has recorded ‘average’ growth, few sectors are in fact experiencing ‘average’ performance themselves – some are clearly quite weak relative to average, while some others are much stronger.
The Bank is quite aware of these differences and the pressures they bring to businesses and individuals. But we also know that monetary policy cannot remove the forces generating different paces of growth in our economy. We have to keep our eye on the overall performance of demand and prices. We are acutely conscious that history may offer limited guidance in assessing the net impact of the disparate and very powerful forces that are at work. Nonetheless, that is the assessment we must try to make.
Our most recent assessment was that, with growth near trend, inflation consistent with the target, interest rates about average and an outlook suggesting more of the same, the setting of policy was about right for the moment. Of course, we continue to reassess things each month.
My colleagues and I are here to respond to your questions.
Euro jumps vs dollar and yen, but may top soon
By Gertrude Chavez-Dreyfuss
NEW YORK | Thu Feb 23, 2012 4:45pm EST
(Reuters) - The euro jumped to a 2-1/2-month high against the dollar and a multi-month high versus the yen on Thursday as solid data on Germany, Europe's biggest economy, offset a bleak economic forecast from the European Commission.
The euro traded above its 100-day moving average on Thursday for the first time since late October after the Ifo think-tank reported that business sentiment in Germany rose for a fourth straight month in February, boosting optimism on the country's economy.
The euro, however, retreated from the highs after the European Commission said the euro zone economy was heading into its second recession in just three years.
The commission, the executive arm of the European Union, said growth in the wider EU will stagnate, warning that the 17-nation single currency area has yet to break its vicious cycle of debt.
"The move higher in the euro today is valid and reasonable, partly triggered by the German Ifo data and partly due to the Greek bailout agreement early this week," said Nick Bennenbroek, head of FX strategy at Wells Fargo in New York. "That deal essentially removed a tail risk for the euro zone.
"But how long can the euro's gains last?" he added. "My sense is that it will top out between $1.34-$1.35 because the European Central Bank is still expanding its balance sheet, which is good for risk appetite but not for the euro."
In late afternoon New York trading, the euro was up 0.9 percent at $1.33654. It soared to a session high of $1.33747, which was its strongest level since December 12 on trading platform EBS, as it took out stops above $1.3350.
The data on German business sentiment from the Munich-based Ifo think-tank was the key trigger for the euro, raising hopes that the German economy is improving and will avoid recession despite the problems facing indebted euro zone countries.
The euro broke above a key 100-day moving average around $1.33093 for the first time in 3-1/2 months.
The next target would be $1.3435, the 50 percent retracement of the decline from the late October peak to the mid-January trough.
One-month implied volatility on euro/dollar dropped to 9.76 percent on Thursday, the lowest since April 22, seemingly suggesting diminishing anxiety about the euro zone debt crisis.
Mark McCormick, currency strategist at Brown Brothers Harriman in New York, said next week's long-term refinancing operation by the ECB should further support the euro.
The European Central Bank next week is expected to lend nearly 500 billion euros to banks, although some forecasts go as high as 1 trillion euros.
A potential fly in the ointment could be Greece once again. Athens may vote on a private sector involvement bill that includes a provision to retroactively write down some of its debt on bond holders not participating in the debt swap.
McCormick said uncertainty stemming from the implementation of the private sector involvement and Greek elections should temper euro gains coming from the ECB's financing operation, keeping the euro confined to its recent trading range.
Andrew Wilkinson, chief economist at Miller & Tabak Co in New York, said the euro is destined for "bearish euphoria that is bound to feel the pull of gravity," although he said the currency "still appears to have $1.3500 engraved on its front."
Against the yen, the single currency rose to 106.999 yen, its strongest level since November 9 on trading platform EBS. The yen remained under pressure after recent monetary easing. The euro was last at 106.910 yen, up 0.4 percent on the day.
The dollar fell 0.4 percent against the yen to 79.950, off a seven-month high of 80.406 yen hit on Wednesday.
Analysts said there are no signs of hitting a peak in dollar/yen just yet, and a further rally is expected. The next target would be around 81.63 yen, which is the 61.8 percent retracement of the decline from the April 2011 peak of 85.530 to the record low hit on October 31.
The dollar, meanwhile, fell to a 3-1/2-month low versus the Swiss franc of 0.90120 franc. Traders said stop-loss sell orders were triggered on breaks below 0.9066 and 0.9050 franc.
The euro also fell against the franc to 1.20460 francs after breaking through a reported options barrier at 1.2050 francs. The pair edged nearer to the 1.20 franc floor the Swiss National Bank has pledged to defend.
NEW YORK | Thu Feb 23, 2012 4:45pm EST
(Reuters) - The euro jumped to a 2-1/2-month high against the dollar and a multi-month high versus the yen on Thursday as solid data on Germany, Europe's biggest economy, offset a bleak economic forecast from the European Commission.
The euro traded above its 100-day moving average on Thursday for the first time since late October after the Ifo think-tank reported that business sentiment in Germany rose for a fourth straight month in February, boosting optimism on the country's economy.
The euro, however, retreated from the highs after the European Commission said the euro zone economy was heading into its second recession in just three years.
The commission, the executive arm of the European Union, said growth in the wider EU will stagnate, warning that the 17-nation single currency area has yet to break its vicious cycle of debt.
"The move higher in the euro today is valid and reasonable, partly triggered by the German Ifo data and partly due to the Greek bailout agreement early this week," said Nick Bennenbroek, head of FX strategy at Wells Fargo in New York. "That deal essentially removed a tail risk for the euro zone.
"But how long can the euro's gains last?" he added. "My sense is that it will top out between $1.34-$1.35 because the European Central Bank is still expanding its balance sheet, which is good for risk appetite but not for the euro."
In late afternoon New York trading, the euro was up 0.9 percent at $1.33654. It soared to a session high of $1.33747, which was its strongest level since December 12 on trading platform EBS, as it took out stops above $1.3350.
The data on German business sentiment from the Munich-based Ifo think-tank was the key trigger for the euro, raising hopes that the German economy is improving and will avoid recession despite the problems facing indebted euro zone countries.
The euro broke above a key 100-day moving average around $1.33093 for the first time in 3-1/2 months.
The next target would be $1.3435, the 50 percent retracement of the decline from the late October peak to the mid-January trough.
One-month implied volatility on euro/dollar dropped to 9.76 percent on Thursday, the lowest since April 22, seemingly suggesting diminishing anxiety about the euro zone debt crisis.
Mark McCormick, currency strategist at Brown Brothers Harriman in New York, said next week's long-term refinancing operation by the ECB should further support the euro.
The European Central Bank next week is expected to lend nearly 500 billion euros to banks, although some forecasts go as high as 1 trillion euros.
A potential fly in the ointment could be Greece once again. Athens may vote on a private sector involvement bill that includes a provision to retroactively write down some of its debt on bond holders not participating in the debt swap.
McCormick said uncertainty stemming from the implementation of the private sector involvement and Greek elections should temper euro gains coming from the ECB's financing operation, keeping the euro confined to its recent trading range.
Andrew Wilkinson, chief economist at Miller & Tabak Co in New York, said the euro is destined for "bearish euphoria that is bound to feel the pull of gravity," although he said the currency "still appears to have $1.3500 engraved on its front."
Against the yen, the single currency rose to 106.999 yen, its strongest level since November 9 on trading platform EBS. The yen remained under pressure after recent monetary easing. The euro was last at 106.910 yen, up 0.4 percent on the day.
The dollar fell 0.4 percent against the yen to 79.950, off a seven-month high of 80.406 yen hit on Wednesday.
Analysts said there are no signs of hitting a peak in dollar/yen just yet, and a further rally is expected. The next target would be around 81.63 yen, which is the 61.8 percent retracement of the decline from the April 2011 peak of 85.530 to the record low hit on October 31.
The dollar, meanwhile, fell to a 3-1/2-month low versus the Swiss franc of 0.90120 franc. Traders said stop-loss sell orders were triggered on breaks below 0.9066 and 0.9050 franc.
The euro also fell against the franc to 1.20460 francs after breaking through a reported options barrier at 1.2050 francs. The pair edged nearer to the 1.20 franc floor the Swiss National Bank has pledged to defend.
Tuesday, February 7, 2012
U.S. Consumer Credit Climbed by $19.3B in Dec.
By Meera Louis - Feb 8, 2012 4:26 AM GMT+0800
Consumer borrowing in the U.S. rose more than forecast in December, driven by demand for auto and student loans.
Credit increased by $19.3 billion to $2.5 trillion, Federal Reserve figures showed today in Washington. The gain topped the $7 billion median forecast of economists surveyed by Bloomberg News and followed a $20.4 billion advance the prior month.
Consumers “are willing to take on this debt because there is some increasing degree of confidence in the economy,” said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, who projected credit would climb by $15 billion, the highest in the Bloomberg survey. “Consumers over the past several years have done a pretty good job of repairing their balance sheets.”
An improving job market may be giving households the courage to take on more debt in order to sustain spending, which accounts for about 70 percent of the economy. At the same time, increasing dependence on credit may be an indication the gains in employment have yet to push wages high enough to single- handedly give consumers the means to keep shopping.
The median forecast was based on a survey of 37 economists. Estimates ranged from a decrease of $8 billion to an increase of $15 billion.
The back-to-back increase at the end of 2011 was the biggest since October-November 2001.
Auto, School Lending
Non-revolving debt, including educational and auto loans increased by $16.6 billion in December, the biggest gain since November 2001, today’s report showed. The Fed’s report doesn’t track debt secured by real estate, such as home equity lines of credit.
Industrywide sales of cars and light trucks totaled 12.8 million for all of 2011, a 10 percent increase from 2010, according to researcher Autodata Corp.
Demand for credit may keep growing as demand keeps improving. Auto sales climbed to a 14.1 million annual rate last month, according to industry data. Excluding a surge in August 2009 that reflected the government’s “cash-for-clunkers” program, it was the strongest month since May 2008.
General Motors Co. (GM) and Ford Motor Co. (F), the largest automakers by U.S. sales, forecast industrywide deliveries will rise to as much as 14 million in 2012, including medium- and heavy-duty trucks.
Revolving debt, which includes credit cards, climbed by $2.76 billion, according to the Fed’s statistics.
Credit Cards
MasterCard Inc., the world’s second-biggest payments network, last week said fourth-quarter profit climbed 24 percent as spending with credit and debit cards increased. Debit-card purchases increased 18 percent from the same time a year earlier, while those on credit cards rose 6.6 percent. Shares of the Purchase, New York-based company surged 66 percent in 2011, the fourth-best performer in the Standard & Poor’s 500 Index.
Employers added 243,000 workers to payrolls in January, exceeding all forecasts of economist surveyed by Bloomberg, and the jobless rate unexpectedly dropped to a three-year low of 8.3 percent, figures from the Labor Department showed last week.
A report from the Labor Department today showed there were almost four unemployed Americans vying for each job vacancy in December, more than twice the number before the recession began in December 2007. That may explain why wages have yet to pick up, prompting households to borrow.
Hourly earnings were up 1.9 percent in January from the same month in 2011 on average, the smallest year-over-year gain since April, the Labor Department reported last week. For production workers, the 1.5 percent increase was the smallest in records going back to 1965.
Consumer borrowing in the U.S. rose more than forecast in December, driven by demand for auto and student loans.
Credit increased by $19.3 billion to $2.5 trillion, Federal Reserve figures showed today in Washington. The gain topped the $7 billion median forecast of economists surveyed by Bloomberg News and followed a $20.4 billion advance the prior month.
Consumers “are willing to take on this debt because there is some increasing degree of confidence in the economy,” said Ken Mayland, president of ClearView Economics LLC in Pepper Pike, Ohio, who projected credit would climb by $15 billion, the highest in the Bloomberg survey. “Consumers over the past several years have done a pretty good job of repairing their balance sheets.”
An improving job market may be giving households the courage to take on more debt in order to sustain spending, which accounts for about 70 percent of the economy. At the same time, increasing dependence on credit may be an indication the gains in employment have yet to push wages high enough to single- handedly give consumers the means to keep shopping.
The median forecast was based on a survey of 37 economists. Estimates ranged from a decrease of $8 billion to an increase of $15 billion.
The back-to-back increase at the end of 2011 was the biggest since October-November 2001.
Auto, School Lending
Non-revolving debt, including educational and auto loans increased by $16.6 billion in December, the biggest gain since November 2001, today’s report showed. The Fed’s report doesn’t track debt secured by real estate, such as home equity lines of credit.
Industrywide sales of cars and light trucks totaled 12.8 million for all of 2011, a 10 percent increase from 2010, according to researcher Autodata Corp.
Demand for credit may keep growing as demand keeps improving. Auto sales climbed to a 14.1 million annual rate last month, according to industry data. Excluding a surge in August 2009 that reflected the government’s “cash-for-clunkers” program, it was the strongest month since May 2008.
General Motors Co. (GM) and Ford Motor Co. (F), the largest automakers by U.S. sales, forecast industrywide deliveries will rise to as much as 14 million in 2012, including medium- and heavy-duty trucks.
Revolving debt, which includes credit cards, climbed by $2.76 billion, according to the Fed’s statistics.
Credit Cards
MasterCard Inc., the world’s second-biggest payments network, last week said fourth-quarter profit climbed 24 percent as spending with credit and debit cards increased. Debit-card purchases increased 18 percent from the same time a year earlier, while those on credit cards rose 6.6 percent. Shares of the Purchase, New York-based company surged 66 percent in 2011, the fourth-best performer in the Standard & Poor’s 500 Index.
Employers added 243,000 workers to payrolls in January, exceeding all forecasts of economist surveyed by Bloomberg, and the jobless rate unexpectedly dropped to a three-year low of 8.3 percent, figures from the Labor Department showed last week.
A report from the Labor Department today showed there were almost four unemployed Americans vying for each job vacancy in December, more than twice the number before the recession began in December 2007. That may explain why wages have yet to pick up, prompting households to borrow.
Hourly earnings were up 1.9 percent in January from the same month in 2011 on average, the smallest year-over-year gain since April, the Labor Department reported last week. For production workers, the 1.5 percent increase was the smallest in records going back to 1965.
Greece, Troika Work on Final Rescue Draft
By Maria Petrakis, Natalie Weeks and Marcus Bensasson - Feb 8, 2012 4:59 AM GMT+0800
Greek Prime Minister Lucas Papademos postponed a meeting with heads of the political parties supporting his caretaker government a second time in as many days as the government and international creditors haggled over terms to secure a second aid package.
Papademos will meet with the leaders in Athens tomorrow, instead of tonight as previously scheduled, a spokeswoman for his office said. Instead, he will meet tonight with the so- called troika, comprising the European Commission, the European Central Bank and the International Monetary Fund, to put the final touches to terms required for a 130 billion-euro ($172 billion) rescue package, the spokeswoman said.
The delay is yet another hitch in completing a package that’s been on the table since July as the government struggles to wind up financing to avert a collapse of the economy, risking a new round of contagion in the euro area. With the country facing a 14.5 billion-euro bond payment on March 20, German Chancellor Angela Merkel warned yesterday that “time is running out” to reach an accord.
A Greek official said earlier the government and international creditors were close to a final draft of an agreement on budget and structural measures needed to extend the financial lifeline.
Further Cuts
While the prime minister and party chiefs have agreed to make further cuts this year equal to 1.5 percent of gross domestic product, they have yet to close gaps over measures demanded by creditors for the rescue. Unions, which struck today, have derided the conditions as “blackmail.”
“It is clear we are going into another drama for Greece with many questions unanswered,” Patrick Legland, head of research at Societe Generale SA, told Bloomberg Television today. “It’s kind of a catch-22 where they have to reduce their deficit but there is no growth. It’s very tricky.”
At stake is whether Greece wins the bailout, secures a debt write-off with private creditors and remains in the euro region. Finance Minister Evangelos Venizelos told reporters late yesterday that “failure of these talks, failure of the plan, the country’s bankruptcy, means even greater sacrifice.”
The euro rose 0.9 percent to $1.3254 at 10:16 p.m. Athens time after touching $1.3270, the highest level since Dec. 12. The Stoxx Europe 600 Index slipped 0.3 percent.
Elections Due
With elections due as early as April, Greek political leaders are arguing over demands such ensuring the viability of pension funds and reducing wage- and non-wage costs to boost competitiveness. Greece still needs to agree on 600 million euros of fiscal measures for 2012, a government official told reporters in Athens today.
Efforts to win a second bailout from the troika have hung in the balance over the past five days as negotiations in Athens failed to clinch an agreement on measures demanded by lenders, which may include a cut in the minimum wage, lower pensions and immediate layoffs for as many as 15,000 state employees.
Citigroup Inc. raised the probability that Greece will be forced to leave the euro area in the next 18 months to 50 percent from 25 percent to 30 percent previously.
Merkel said today that the impact of a Greek exit from the euro would be “incalculable,” and restated her determination to keep Greece in the single currency region.
“I don’t want Greece to leave the euro and therefore the question doesn’t arise,” Merkel said in a speech in Berlin. “I won’t take part in any effort to push Greece out of the euro. It would have incalculable consequences.”
Even so, Merkel said that there is “no way around” Greece carrying out reforms. Greece is in a “very complicated situation”, she said.
Museums Shut
Adding to pressure on Papademos and political leaders jostling ahead of the elections, about 10,000 people marched through the capital after the biggest public-sector and private- sector union groups, ADEDY and GSEE, held a 24-hour general strike. The walkout shut down government services, courts, schools, museums and ferry services. Dockworkers and bank employees also walked off the job.
The troika argues that lower wage costs and pension cuts are among reforms necessary to boost competitiveness in the country. Those opposed say the cuts would deepen the country’s recession, now in its fifth year.
New Democracy
Antonis Samaras, the head of the second-biggest party, New Democracy, has indicated he will oppose measures that will deepen the country’s downturn. George Karatzaferis, the head of Laos, one of the three supporting Papademos, said he would seek assurances that the measures would lead the country out of the crisis and said the “aggressive humiliation” of Greece is unacceptable.
Guarantees from Greek political leaders such as Samaras, who leads in opinion polls, are key to securing the funds from the EU and IMF. International lenders want assurances that whoever wins the next election will stick to pledges made now to receive financing.
Samaras’s party has 31 percent support from voters, according to a Public Issue poll released today, compared with 8 percent for the socialist Pasok party, which is the biggest party in the current parliament. The survey of 1,002 Greeks showed a growing number of Greeks wanting elections immediately and waning support both for Papademos and the three parties that back him.
Rescue Blueprint
The rescue blueprint includes a loss of more than 70 percent for bondholders in a voluntary debt exchange that will slice 100 billion euros off 200 billion euros of privately-held Greek debt and loans that will probably exceed the 130 billion euros now on the table.
Papademos met tonight for “constructive” talks with Charles Dallara, managing director of the International Institute of Finance, which has negotiated the terms of the swap and Deutsche Bank AG Chairman Joseph Ackermann, according to an IIF statement.
A formal offer for the debt swap must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due. Parliament may be called to vote on the terms of the writedown on Feb. 12, state-runs Athens News Agency reported, without saying how it got the information.
Creditors are prepared to accept an average coupon of as low as 3.6 percent on new 30-year bonds in the exchange, said a person familiar with the talks, who declined to be identified because a final deal hasn’t been struck yet.
Greek Prime Minister Lucas Papademos postponed a meeting with heads of the political parties supporting his caretaker government a second time in as many days as the government and international creditors haggled over terms to secure a second aid package.
Papademos will meet with the leaders in Athens tomorrow, instead of tonight as previously scheduled, a spokeswoman for his office said. Instead, he will meet tonight with the so- called troika, comprising the European Commission, the European Central Bank and the International Monetary Fund, to put the final touches to terms required for a 130 billion-euro ($172 billion) rescue package, the spokeswoman said.
The delay is yet another hitch in completing a package that’s been on the table since July as the government struggles to wind up financing to avert a collapse of the economy, risking a new round of contagion in the euro area. With the country facing a 14.5 billion-euro bond payment on March 20, German Chancellor Angela Merkel warned yesterday that “time is running out” to reach an accord.
A Greek official said earlier the government and international creditors were close to a final draft of an agreement on budget and structural measures needed to extend the financial lifeline.
Further Cuts
While the prime minister and party chiefs have agreed to make further cuts this year equal to 1.5 percent of gross domestic product, they have yet to close gaps over measures demanded by creditors for the rescue. Unions, which struck today, have derided the conditions as “blackmail.”
“It is clear we are going into another drama for Greece with many questions unanswered,” Patrick Legland, head of research at Societe Generale SA, told Bloomberg Television today. “It’s kind of a catch-22 where they have to reduce their deficit but there is no growth. It’s very tricky.”
At stake is whether Greece wins the bailout, secures a debt write-off with private creditors and remains in the euro region. Finance Minister Evangelos Venizelos told reporters late yesterday that “failure of these talks, failure of the plan, the country’s bankruptcy, means even greater sacrifice.”
The euro rose 0.9 percent to $1.3254 at 10:16 p.m. Athens time after touching $1.3270, the highest level since Dec. 12. The Stoxx Europe 600 Index slipped 0.3 percent.
Elections Due
With elections due as early as April, Greek political leaders are arguing over demands such ensuring the viability of pension funds and reducing wage- and non-wage costs to boost competitiveness. Greece still needs to agree on 600 million euros of fiscal measures for 2012, a government official told reporters in Athens today.
Efforts to win a second bailout from the troika have hung in the balance over the past five days as negotiations in Athens failed to clinch an agreement on measures demanded by lenders, which may include a cut in the minimum wage, lower pensions and immediate layoffs for as many as 15,000 state employees.
Citigroup Inc. raised the probability that Greece will be forced to leave the euro area in the next 18 months to 50 percent from 25 percent to 30 percent previously.
Merkel said today that the impact of a Greek exit from the euro would be “incalculable,” and restated her determination to keep Greece in the single currency region.
“I don’t want Greece to leave the euro and therefore the question doesn’t arise,” Merkel said in a speech in Berlin. “I won’t take part in any effort to push Greece out of the euro. It would have incalculable consequences.”
Even so, Merkel said that there is “no way around” Greece carrying out reforms. Greece is in a “very complicated situation”, she said.
Museums Shut
Adding to pressure on Papademos and political leaders jostling ahead of the elections, about 10,000 people marched through the capital after the biggest public-sector and private- sector union groups, ADEDY and GSEE, held a 24-hour general strike. The walkout shut down government services, courts, schools, museums and ferry services. Dockworkers and bank employees also walked off the job.
The troika argues that lower wage costs and pension cuts are among reforms necessary to boost competitiveness in the country. Those opposed say the cuts would deepen the country’s recession, now in its fifth year.
New Democracy
Antonis Samaras, the head of the second-biggest party, New Democracy, has indicated he will oppose measures that will deepen the country’s downturn. George Karatzaferis, the head of Laos, one of the three supporting Papademos, said he would seek assurances that the measures would lead the country out of the crisis and said the “aggressive humiliation” of Greece is unacceptable.
Guarantees from Greek political leaders such as Samaras, who leads in opinion polls, are key to securing the funds from the EU and IMF. International lenders want assurances that whoever wins the next election will stick to pledges made now to receive financing.
Samaras’s party has 31 percent support from voters, according to a Public Issue poll released today, compared with 8 percent for the socialist Pasok party, which is the biggest party in the current parliament. The survey of 1,002 Greeks showed a growing number of Greeks wanting elections immediately and waning support both for Papademos and the three parties that back him.
Rescue Blueprint
The rescue blueprint includes a loss of more than 70 percent for bondholders in a voluntary debt exchange that will slice 100 billion euros off 200 billion euros of privately-held Greek debt and loans that will probably exceed the 130 billion euros now on the table.
Papademos met tonight for “constructive” talks with Charles Dallara, managing director of the International Institute of Finance, which has negotiated the terms of the swap and Deutsche Bank AG Chairman Joseph Ackermann, according to an IIF statement.
A formal offer for the debt swap must be made by Feb. 13 to allow all procedures to be completed before the March 20 bond comes due. Parliament may be called to vote on the terms of the writedown on Feb. 12, state-runs Athens News Agency reported, without saying how it got the information.
Creditors are prepared to accept an average coupon of as low as 3.6 percent on new 30-year bonds in the exchange, said a person familiar with the talks, who declined to be identified because a final deal hasn’t been struck yet.
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