WASHINGTON (Reuters) - Republican presidential candidate Mitt Romney demanded President Barack Obama apologize on Friday for his campaign's assault over Romney's time at a private equity firm that outsourced U.S. jobs, as he tried to recover from a week-long pounding on the issue.
Romney went on a coordinated campaign, appearing on all U.S. television networks, to respond to charges from the Obama team that have again put the Republican in a defensive posture and kept him from focusing on Obama's handling of the U.S. economy and high 8.2 percent unemployment.
The presumptive Republican presidential nominee has appeared flatfooted in responding to the Democrats' accusations, so much so that some Republicans have said publicly Romney needs to move more quickly to avoid damaging his bid to oust Obama in the November 6 election.
What drew Romney's ire in particular was a charge from Obama deputy campaign manager Stephanie Cutter that Romney might have committed a felony by misrepresenting his position at the private equity firm Bain to the Securities and Exchange Commission.
'It's ridiculous,' Romney told Fox News in response to the charge. 'And of course it's beneath the dignity of the presidency and of his campaign.'
The Boston Globe reported that Romney did not quit running Bain Capital until 2002, three years after he has said he left the company.
Timing matters because Romney has said he left Bain in 1999 and thus was not responsible for bankruptcies and layoffs at Bain-owned businesses after that time, which Obama's re-election campaign have used to question the Republican's track record.
White House spokesman Josh Earnest, traveling with Obama in Virginia, declined comment on Romney's demand for an apology.
Romney told ABC News that Obama 'needs to rein in these people who are running out of control.'
'He (Obama) sure as heck ought to say that he's sorry for the kinds of attacks that are coming from his team,' Romney said.
Obama himself got into the act on Friday, saying Romney should answer questions about whether he worked for Bain longer than previously described.
Romney has said he left the firm in 1999, when he was tapped to lead the 2002 Salt Lake City Olympics. But the Boston Globe reported on Thursday that public records indicate he was still registered as a top manager at Bain for three more years.
Romney has used his time at Bain to argue that as a businessman he is best equipped to help trigger job growth in the United States.
'Ultimately Mr. Romney, I think, is going to have to answer those questions, because if he aspires to being president one of the things you learn is, you are ultimately responsible for the conduct of your operations,' Obama told ABC television affiliate WJLA in an interview.
Citing SEC documents, the newspaper said Romney remained Bain's 'sole stockholder, chairman of the board, chief executive officer and president' until 2002, when he and the firm finalized a severance deal.
(Editing by Alistair Bell and Lisa Shumaker)
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Friday, July 13, 2012
JPMorgan, Wells results boosted by mortgage business
(Reuters) - JPMorgan Chase & Co and Wells Fargo & Co reported strong growth in their mortgage lending businesses and lower loan losses on Friday, offering signs of improvement in the U.S. economy.
The banking giants cited increases in mortgage originations and a strong pipeline of applications, spurred by low interest rates and a government program intended to spur refinancing.
Wells, the largest U.S. mortgage lender, and JPMorgan, the largest U.S. bank, also said charge-offs for bad loans declined while demand for new debt, ranging from auto loans to commercial loans, increased. But the mortgage business was a particularly bright spot for both banks.
'We've seen increases in sales and pricing in markets throughout the country, even in some of the hardest-hit areas during the downturn,' said Wells Fargo Chief Executive John Stumpf.
Wells reported a 17 percent increase in quarterly profit, as mortgage originations more than doubled from a year ago, to $131 billion. The bank also cited record quarterly applications, and said it had 29 percent more unclosed loans in its pipeline than at the end of the previous quarter.
'The standout I'm seeing with Wells Fargo is the mortgage banking,' said Shannon Stemm, a banking analyst with Edward Jones. 'That has been such a driver for them over the long term, and refinancing is really pumping things up.'
The San Francisco-based bank posted mortgage banking income of $2.9 billion, up from $1.6 billion a year ago and up slightly from the first quarter.
The gains came in spite of higher loss provisions for bad mortgages Wells Fargo repurchased from investors. The bank also set aside $175 million to resolve Justice Department allegations that it charged African-Americans and Hispanics higher rates and fees on mortgages during the housing boom.
JPMorgan's overall profits declined because of huge losses on risky derivatives trades in its investment division. But net income from the bank's retail financial services business, which includes mortgages, nearly quintupled to $2.3 billion.
JPMorgan's mortgage banking originations rose 29 percent, with its mortgage production and servicing business reporting net income of $604 million, compared with a net loss of $649 million a year earlier. Other indicators of loan demand, including credit card sales volumes, commercial banking loan growth and loan charge-offs, also showed improvement.
JPMorgan set aside $214 million for credit losses, compared with $1.8 billion a year ago.
Asked by an analyst about the 'disconnect' between JPMorgan's underlying loan growth trends and negative economic news, CEO Jamie Dimon said U.S. companies are faring relatively well.
'The fact is the underpinning(s) of the American economy aren't that bad,' Dimon said. 'Corporate America, Middle Market companies, small business are OK, a lot of liquidity. There's not a huge order book so sales aren't growing dramatically. We have slow, modest growth.'
Wells Fargo said it would not meet a previously stated cost-cutting target for the fourth quarter because it must pay more compensation than expected due to higher revenues, particularly in its mortgage business. The bank added more than 2,000 employees during the quarter as it scrambled to capture more loans.
'We will not pass up revenue opportunities in order to meet a specific expense target number,' said Chief Financial Officer Tim Sloan.
The bank previously said it expected expenses to fall to $11.25 billion by the fourth quarter as part of an efficiency push. On Friday, Wells said it would miss that target even though expenses would continue to trend down.
Overall, Wells Fargo said second-quarter net income was $4.6 billion, or 82 cents a share, compared with $3.9 billion, or 70 cents a share, a year earlier.
Analysts' average estimate was 81 cents a share, according to Thomson Reuters I/B/E/S.
Earnings benefited from the release of $400 million in reserves previously set aside for loan losses.
Revenue was $21.3 billion, up from $20.4 billion a year ago. Expenses totaled $12.4 billion, down slightly from a year earlier.
Operating losses, including litigation expenses, increased 22 percent to $524 million, including the settlement with the Justice Department.
The bank also set aside more reserves to handle requests by government-backed entities that Wells Fargo buy back soured mortgage loans sold off during the housing boom. That expense, primarily for loans sold between 2006 and 2008, climbed to $669 million in the second quarter from $430 million in the first quarter.
Wells Fargo's total loans increased by $8.7 billion from the first quarter to $775.2 billion, boosted mostly by $6.9 billion in business and foreign loans acquired from BNP Paribas and WestLB. In the past year, the bank has been active in buying portfolios from retrenching banks that are selling assets to boost capital.
JPMorgan reported net income of $4.96 billion, or $1.21 a share, including a $4.4 billion trading loss. That compared with $5.43 billion, or $1.27 a share, a year earlier.
Even as JPMorgan executives briefed analysts and reporters on the trading losses, they emphasized the strength in more traditional lending and deposit-taking, which Dimon attributed to modest economic growth and market share gains.
The bank reported its eight consecutive quarter of commercial loan growth, as well as the jump in mortgage originations and a 12 percent rise in credit-card sales volume.
JPMorgan's total loans rose by $6.6 billion in the quarter, to $727.6 billion. Consumer loan balances declined overall due to charge-offs, but that decline was offset by strong growth in wholesale loans.
(Reporting By Rick Rothacker in Charlotte, North Carolina, and Lauren Tara LaCapra in New York; editing by John Wallace)
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The banking giants cited increases in mortgage originations and a strong pipeline of applications, spurred by low interest rates and a government program intended to spur refinancing.
Wells, the largest U.S. mortgage lender, and JPMorgan, the largest U.S. bank, also said charge-offs for bad loans declined while demand for new debt, ranging from auto loans to commercial loans, increased. But the mortgage business was a particularly bright spot for both banks.
'We've seen increases in sales and pricing in markets throughout the country, even in some of the hardest-hit areas during the downturn,' said Wells Fargo Chief Executive John Stumpf.
Wells reported a 17 percent increase in quarterly profit, as mortgage originations more than doubled from a year ago, to $131 billion. The bank also cited record quarterly applications, and said it had 29 percent more unclosed loans in its pipeline than at the end of the previous quarter.
'The standout I'm seeing with Wells Fargo is the mortgage banking,' said Shannon Stemm, a banking analyst with Edward Jones. 'That has been such a driver for them over the long term, and refinancing is really pumping things up.'
The San Francisco-based bank posted mortgage banking income of $2.9 billion, up from $1.6 billion a year ago and up slightly from the first quarter.
The gains came in spite of higher loss provisions for bad mortgages Wells Fargo repurchased from investors. The bank also set aside $175 million to resolve Justice Department allegations that it charged African-Americans and Hispanics higher rates and fees on mortgages during the housing boom.
JPMorgan's overall profits declined because of huge losses on risky derivatives trades in its investment division. But net income from the bank's retail financial services business, which includes mortgages, nearly quintupled to $2.3 billion.
JPMorgan's mortgage banking originations rose 29 percent, with its mortgage production and servicing business reporting net income of $604 million, compared with a net loss of $649 million a year earlier. Other indicators of loan demand, including credit card sales volumes, commercial banking loan growth and loan charge-offs, also showed improvement.
JPMorgan set aside $214 million for credit losses, compared with $1.8 billion a year ago.
Asked by an analyst about the 'disconnect' between JPMorgan's underlying loan growth trends and negative economic news, CEO Jamie Dimon said U.S. companies are faring relatively well.
'The fact is the underpinning(s) of the American economy aren't that bad,' Dimon said. 'Corporate America, Middle Market companies, small business are OK, a lot of liquidity. There's not a huge order book so sales aren't growing dramatically. We have slow, modest growth.'
Wells Fargo said it would not meet a previously stated cost-cutting target for the fourth quarter because it must pay more compensation than expected due to higher revenues, particularly in its mortgage business. The bank added more than 2,000 employees during the quarter as it scrambled to capture more loans.
'We will not pass up revenue opportunities in order to meet a specific expense target number,' said Chief Financial Officer Tim Sloan.
The bank previously said it expected expenses to fall to $11.25 billion by the fourth quarter as part of an efficiency push. On Friday, Wells said it would miss that target even though expenses would continue to trend down.
Overall, Wells Fargo said second-quarter net income was $4.6 billion, or 82 cents a share, compared with $3.9 billion, or 70 cents a share, a year earlier.
Analysts' average estimate was 81 cents a share, according to Thomson Reuters I/B/E/S.
Earnings benefited from the release of $400 million in reserves previously set aside for loan losses.
Revenue was $21.3 billion, up from $20.4 billion a year ago. Expenses totaled $12.4 billion, down slightly from a year earlier.
Operating losses, including litigation expenses, increased 22 percent to $524 million, including the settlement with the Justice Department.
The bank also set aside more reserves to handle requests by government-backed entities that Wells Fargo buy back soured mortgage loans sold off during the housing boom. That expense, primarily for loans sold between 2006 and 2008, climbed to $669 million in the second quarter from $430 million in the first quarter.
Wells Fargo's total loans increased by $8.7 billion from the first quarter to $775.2 billion, boosted mostly by $6.9 billion in business and foreign loans acquired from BNP Paribas and WestLB. In the past year, the bank has been active in buying portfolios from retrenching banks that are selling assets to boost capital.
JPMorgan reported net income of $4.96 billion, or $1.21 a share, including a $4.4 billion trading loss. That compared with $5.43 billion, or $1.27 a share, a year earlier.
Even as JPMorgan executives briefed analysts and reporters on the trading losses, they emphasized the strength in more traditional lending and deposit-taking, which Dimon attributed to modest economic growth and market share gains.
The bank reported its eight consecutive quarter of commercial loan growth, as well as the jump in mortgage originations and a 12 percent rise in credit-card sales volume.
JPMorgan's total loans rose by $6.6 billion in the quarter, to $727.6 billion. Consumer loan balances declined overall due to charge-offs, but that decline was offset by strong growth in wholesale loans.
(Reporting By Rick Rothacker in Charlotte, North Carolina, and Lauren Tara LaCapra in New York; editing by John Wallace)
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Obama takes Romney's economic credentials to task
President Barack Obama has defended taking Mitt Romney's economic record to task, suggesting his Republican rival's success in business does not necessarily mean he would create jobs if elected, according to comments released Friday.
Romney, a former entrepreneur who made a fortune at his firm Bain Capital, has played up his experience in the private sector in a bid to oust Obama on November 6, arguing it makes him qualified to put more Americans back to work at a time when US unemployment is at 8.2 percent.
Obama, however, said close scrutiny of Romney's overall record was merited because his opponent was using his business background and ability to become 'Mr Fix-It on the economy,' as 'his main calling card.'
'I do not think at all it disqualifies him,' Obama told broadcaster CBS in an interview taped Thursday, justifying his jabs at Romney's career.
'I think it is entirely appropriate to look at that record and see whether, in fact, his focus was creating jobs and he successfully did that. And when you look at the record, there are questions there that have to be asked.'
Obama's comments came after his campaign launched a fierce attack on Romney Thursday, accusing the former governor of Massachusetts of lying about how long he remained head of Bain Capital.
His team seized on a Boston Globe report citing government records that appear to show he stayed in control of the private equity firm for three years beyond the 1999 date during which he said he had stepped down.
What followed was a withering assault on Romney, with his campaign warning the challenger may have committed a felony if he misrepresented his position at Bain to federal regulators.
The 1999 date could be important, as Bain Capital is alleged to have invested in firms that moved workers overseas after that year and Obama supporters are attempting to paint Romney as a destroyer of jobs.
'The point I've made there in the past is, if you're head of a large private equity firm or a hedge fund, your job is to make money,' Obama said in the same CBS interview, again addressing Romney's tenure at Bain Capital.
'It's not even to create a successful business. It's to make sure that you are maximizing returns for your investor.'
The latest attacks by Democrats follow others lashing out at the multimillionaire for only releasing his tax returns for 2010 -- in addition to an estimate for 2011 -- amid speculation about his offshore accounts.
Former president Bill Clinton, a big-hitter in the Obama camp, weighed in on the issue Friday, telling broadcaster NBC he was 'a little surprised' that Romney had not released more returns.
'That kind of perplexed me because this is the first time in, I don't know, more than 30 years that anybody running for president has only done that,' he said.
Romney's wealth, estimated to be around $250 million, has repeatedly surfaced as an issue during the campaign as Obama tries to paint his rival as out of touch with ordinary Americans.
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Romney, a former entrepreneur who made a fortune at his firm Bain Capital, has played up his experience in the private sector in a bid to oust Obama on November 6, arguing it makes him qualified to put more Americans back to work at a time when US unemployment is at 8.2 percent.
Obama, however, said close scrutiny of Romney's overall record was merited because his opponent was using his business background and ability to become 'Mr Fix-It on the economy,' as 'his main calling card.'
'I do not think at all it disqualifies him,' Obama told broadcaster CBS in an interview taped Thursday, justifying his jabs at Romney's career.
'I think it is entirely appropriate to look at that record and see whether, in fact, his focus was creating jobs and he successfully did that. And when you look at the record, there are questions there that have to be asked.'
Obama's comments came after his campaign launched a fierce attack on Romney Thursday, accusing the former governor of Massachusetts of lying about how long he remained head of Bain Capital.
His team seized on a Boston Globe report citing government records that appear to show he stayed in control of the private equity firm for three years beyond the 1999 date during which he said he had stepped down.
What followed was a withering assault on Romney, with his campaign warning the challenger may have committed a felony if he misrepresented his position at Bain to federal regulators.
The 1999 date could be important, as Bain Capital is alleged to have invested in firms that moved workers overseas after that year and Obama supporters are attempting to paint Romney as a destroyer of jobs.
'The point I've made there in the past is, if you're head of a large private equity firm or a hedge fund, your job is to make money,' Obama said in the same CBS interview, again addressing Romney's tenure at Bain Capital.
'It's not even to create a successful business. It's to make sure that you are maximizing returns for your investor.'
The latest attacks by Democrats follow others lashing out at the multimillionaire for only releasing his tax returns for 2010 -- in addition to an estimate for 2011 -- amid speculation about his offshore accounts.
Former president Bill Clinton, a big-hitter in the Obama camp, weighed in on the issue Friday, telling broadcaster NBC he was 'a little surprised' that Romney had not released more returns.
'That kind of perplexed me because this is the first time in, I don't know, more than 30 years that anybody running for president has only done that,' he said.
Romney's wealth, estimated to be around $250 million, has repeatedly surfaced as an issue during the campaign as Obama tries to paint his rival as out of touch with ordinary Americans.
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China data buoys stocks, euro under pressure
LONDON (Reuters) - World stocks and oil rose on Friday after China GDP data soothed worries of a drastic hit to the world's No. 2 economy, while the euro hovered near two-year lows against the dollar after Moody's downgrade of Italy added to pressure on the single currency.
Brent crude oil futures rose $1 to above $102 a barrel after second-quarter Chinese GDP data came in line with expectations, offsetting concerns that a bigger slowdown could undermine fragile global growth.
Fresh attempts by the United States to crack down on Iranian crude exports also helped support Brent.
While the 7.6 percent annual increase data confirms China is growing at the slowest pace in three years, it increases hopes for more stimulus policies.
'China has enough room for stimulation now and that is important for equity markets,' Achim Matzke, European stock indexes analyst at Commerzbank, said. 'China's CPI and PPI is coming down so that gives room for interest rate reduction and that is more important for equity markets going forward.'
Analysts and traders said market sentiment had improved across the commodities complex after Chinese GDP came in. On metal markets, copper, seen as a key growth barometer, saw 3-month futures rallying to a one-week high.
That helped the main world equity index <.MIWD00000PUS> recoup some of the previous session's 1 percent losses, gaining 0.32 percent. The index nevertheless looked set to end the week 1.7 percent down.
On European equities, markets opened stronger with the FTSE Eurofirst 300 index of top shares <.FTEU3> up 0.65 percent at 1030 GMT. Emerging market equities <.MSCIEF> rose 0.82 percent. The China growth data also boosted the Australian dollar, which benefits from growth in its biggest export market.
Wall Street also looked set to a higher open on Friday.
Focus is shifting now to the big U.S. corporate results for the second quarter, with JP Morgan, Wells Fargo and Google reporting results on Friday.
U.S. corporate outlooks are at their most negative in nearly four years and companies that have already reported so far this season have shown lacklustre growth, many of them citing Europe's woes as a prime concern.
ITALY CUT
Despite the surprise two-notch downgrade by Moody's, Italy managed to auction three-year debt at lower borrowing costs, helping the euro hold steady on the day at $1.2202.
The single currency stayed within sight of a two-year trough of $1.2166 hit on trading platform EBS the previous day and was on track for its second straight week of losses. It fell to $1.2181 in the Asian session after Moody's cut.
'The auction was not too bad but the bigger news is the double notch downgrade rather than an auction that has gone okay,' said Derek Halpenny, European head of FX research at Bank of Tokyo Mitsubishi.
'Disappointing economic growth, coupled with fragile investor confidence and high peripheral yields remain ahead for the rest of the year. Our target is for the euro to drift to $1.15 in three to six months time.
The downgrade serves as a potent reminder that despite recent efforts by euro zone policymakers, the single currency bloc and especially its periphery, remain mired in debt. The yield difference between 10-year Italian government bonds and their German equivalent remained at around 480 basis points.
Ten-year Italian government bond yields rose 9 basis points to 6.001 percent.
The Moody's downgrade also boosted appetite for safe-haven German Bunds, with bund futures up 23 ticks to 145.07 compared with 144.84 at Thursday's settlement. Italian BTP futures slipped 64 ticks to 99.24.
(Additional reporting by Sujata Rao, Emelia Sithole-Matarise and Anirban Nag; editing by Philippa Fletcher)
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Brent crude oil futures rose $1 to above $102 a barrel after second-quarter Chinese GDP data came in line with expectations, offsetting concerns that a bigger slowdown could undermine fragile global growth.
Fresh attempts by the United States to crack down on Iranian crude exports also helped support Brent.
While the 7.6 percent annual increase data confirms China is growing at the slowest pace in three years, it increases hopes for more stimulus policies.
'China has enough room for stimulation now and that is important for equity markets,' Achim Matzke, European stock indexes analyst at Commerzbank, said. 'China's CPI and PPI is coming down so that gives room for interest rate reduction and that is more important for equity markets going forward.'
Analysts and traders said market sentiment had improved across the commodities complex after Chinese GDP came in. On metal markets, copper, seen as a key growth barometer, saw 3-month futures rallying to a one-week high.
That helped the main world equity index <.MIWD00000PUS> recoup some of the previous session's 1 percent losses, gaining 0.32 percent. The index nevertheless looked set to end the week 1.7 percent down.
On European equities, markets opened stronger with the FTSE Eurofirst 300 index of top shares <.FTEU3> up 0.65 percent at 1030 GMT. Emerging market equities <.MSCIEF> rose 0.82 percent. The China growth data also boosted the Australian dollar, which benefits from growth in its biggest export market.
Wall Street also looked set to a higher open on Friday.
Focus is shifting now to the big U.S. corporate results for the second quarter, with JP Morgan, Wells Fargo and Google reporting results on Friday.
U.S. corporate outlooks are at their most negative in nearly four years and companies that have already reported so far this season have shown lacklustre growth, many of them citing Europe's woes as a prime concern.
ITALY CUT
Despite the surprise two-notch downgrade by Moody's, Italy managed to auction three-year debt at lower borrowing costs, helping the euro hold steady on the day at $1.2202.
The single currency stayed within sight of a two-year trough of $1.2166 hit on trading platform EBS the previous day and was on track for its second straight week of losses. It fell to $1.2181 in the Asian session after Moody's cut.
'The auction was not too bad but the bigger news is the double notch downgrade rather than an auction that has gone okay,' said Derek Halpenny, European head of FX research at Bank of Tokyo Mitsubishi.
'Disappointing economic growth, coupled with fragile investor confidence and high peripheral yields remain ahead for the rest of the year. Our target is for the euro to drift to $1.15 in three to six months time.
The downgrade serves as a potent reminder that despite recent efforts by euro zone policymakers, the single currency bloc and especially its periphery, remain mired in debt. The yield difference between 10-year Italian government bonds and their German equivalent remained at around 480 basis points.
Ten-year Italian government bond yields rose 9 basis points to 6.001 percent.
The Moody's downgrade also boosted appetite for safe-haven German Bunds, with bund futures up 23 ticks to 145.07 compared with 144.84 at Thursday's settlement. Italian BTP futures slipped 64 ticks to 99.24.
(Additional reporting by Sujata Rao, Emelia Sithole-Matarise and Anirban Nag; editing by Philippa Fletcher)
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Thursday, July 12, 2012
Asia stocks rise as China growth slows as expected
SINGAPORE (AP) - Asian stock markets were mostly higher Friday after China said its economy grew in the second quarter at its slowest pace since 2009, numbers in line with analyst expectations.
China's gross domestic product expanded 7.6 percent in the April to June period from the same period a year earlier, down from 8.1 percent growth in the first quarter. China also reported that retail sales and factory output growth slowed in June.
Equities in Asia had mostly fallen the previous few days amid speculation that China's growth may have slowed more than the consensus 7.6 percent forecast. Some analysts say expected interest rate cuts and fiscal stimulus spending by China should spur lending, investment and stronger economic growth in the second half of the year.
'All this should be positive for GDP growth in the next few quarters,' said Mark Williams, chief Asian economist with Capital Economics. 'Much of the impact of stronger lending over the next few months will be felt in 2013.'
Williams said he expects China's economy to grow 8 percent this year and next.
Japan's Nikkei 225 index was down 0.1 percent to 8,715.79 while Hong Kong's Hang Seng rose 0.2 percent at 19,068.54.
South Korea's Kospi gained 0.5 percent to 1,794.67. Australia's S&P/ASX 200 advanced 0.6 percent to 4,090.70 and China's Shanghai Composite slid 0.1 percent to 2,182.82.
Other analysts expect Chinese growth to continue to slow as consumer demand fails to keep up with industrial production capacity. China's GDP will likely average about 6 percent growth a year during the next five to 10 years, said Anil Gupta, a professor at the Smith School of Business at the University of Maryland.
'The days of 8 percent GDP growth in China are over,' said Gupta, who is a visiting professor at the INSEAD business school in Singapore. 'There is massive overcapacity in a lot of industries such as cement, steel and autos because the government kept providing cheap capital and everybody assumed that the 8 plus percent growth rate will go on forever.'
On Thursday, the Dow Jones industrial average closed down 0.3 percent at 12,573.27. The Standard & Poor's 500 fell 0.5 percent at 1,334.76. The Nasdaq composite was down 0.8 percent at 2,866.19.
Benchmark oil for August delivery was down 12 cents at $85.96 a barrel in electronic trading on the New York Mercantile Exchange. Crude rose 27 cents to settle at $86.08 on Thursday in New York.
In currencies, the euro was little changed at $1.2200 from $1.2195 late Thursday in New York. The dollar was steady at 79.34 yen from 79.31 yen.
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China's gross domestic product expanded 7.6 percent in the April to June period from the same period a year earlier, down from 8.1 percent growth in the first quarter. China also reported that retail sales and factory output growth slowed in June.
Equities in Asia had mostly fallen the previous few days amid speculation that China's growth may have slowed more than the consensus 7.6 percent forecast. Some analysts say expected interest rate cuts and fiscal stimulus spending by China should spur lending, investment and stronger economic growth in the second half of the year.
'All this should be positive for GDP growth in the next few quarters,' said Mark Williams, chief Asian economist with Capital Economics. 'Much of the impact of stronger lending over the next few months will be felt in 2013.'
Williams said he expects China's economy to grow 8 percent this year and next.
Japan's Nikkei 225 index was down 0.1 percent to 8,715.79 while Hong Kong's Hang Seng rose 0.2 percent at 19,068.54.
South Korea's Kospi gained 0.5 percent to 1,794.67. Australia's S&P/ASX 200 advanced 0.6 percent to 4,090.70 and China's Shanghai Composite slid 0.1 percent to 2,182.82.
Other analysts expect Chinese growth to continue to slow as consumer demand fails to keep up with industrial production capacity. China's GDP will likely average about 6 percent growth a year during the next five to 10 years, said Anil Gupta, a professor at the Smith School of Business at the University of Maryland.
'The days of 8 percent GDP growth in China are over,' said Gupta, who is a visiting professor at the INSEAD business school in Singapore. 'There is massive overcapacity in a lot of industries such as cement, steel and autos because the government kept providing cheap capital and everybody assumed that the 8 plus percent growth rate will go on forever.'
On Thursday, the Dow Jones industrial average closed down 0.3 percent at 12,573.27. The Standard & Poor's 500 fell 0.5 percent at 1,334.76. The Nasdaq composite was down 0.8 percent at 2,866.19.
Benchmark oil for August delivery was down 12 cents at $85.96 a barrel in electronic trading on the New York Mercantile Exchange. Crude rose 27 cents to settle at $86.08 on Thursday in New York.
In currencies, the euro was little changed at $1.2200 from $1.2195 late Thursday in New York. The dollar was steady at 79.34 yen from 79.31 yen.
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Wednesday, July 11, 2012
Asian stocks fall amid China's slowing economy
Japan's Nikkei 225 index was down 1 percent to 8,765.38 while Hong Kong's Hang Seng plunged 1.8 percent at 19,065.66.
South Korea's Kospi slipped 0.7 percent to 1,813.76. Australia's S&P/ASX 200 dropped 0.5 percent at 4,075.70 and China's Shanghai Composite slid 0.9 percent to 2,155.43.
Europe's debt crisis and signs of weak growth in the United States are undermining demand for Chinese exports and have investors concerned that a slowdown in the world's second-largest economy could be worsening.
China is scheduled to announce GDP results for the April to June period Friday, and growth likely slowed to 7.9 percent, the worst reading since the aftermath of the 2008 global financial crisis, Singapore's DBS Bank said. China's economy grew 8.1 percent in the first quarter.
'Growth momentum in China has been clearly decelerating in the second quarter,' DBS said in a report. 'Lingering woes in Europe and downward revisions in U.S. growth projections of late point to more challenges ahead for exports.'
Equity markets in Asia also fell because the U.S. central bank gave no indication it plans to soon implement another round of Treasury bond purchases known as quantitative easing. The Federal Reserve released the minutes from its last meeting Wednesday, and investors were looking for signs that the Fed will take action to boost flagging economic growth.
Traders will be closely watching for any changes to Japan's monetary policy after its central bank ends a two-day meeting later Thursday. Bank of America Merrill Lynch said it expects the Bank of Japan to leave its benchmark lending rates unchanged as it waits for the Fed to decide about more quantitative easing.
On Wednesday, the Dow Jones industrial average closed down 0.4 percent at 12,604.53. The Standard & Poor's 500 was steady at 1,341.45. The Nasdaq composite was down 0.5 percent at 2,887.98.
Benchmark oil for August delivery was down 18 cents at $85.63 a barrel in electronic trading on the New York Mercantile Exchange. Crude rose $1.90 to settle at $85.81 on Wednesday in New York.
In currencies, the euro rose to $1.2237 from $1.2228 late Wednesday in New York. The dollar dropped to 79.53 yen from 79.67 yen.
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Japan Azumi: hope BOJ's 1 percent inflation target hit soon
TOKYO (Reuters) - Japanese Finance Minister Jun Azumi expressed hope on Thursday that the Bank of Japan will take measures to achieve its 1 percent inflation target at an early date.
'Japan will draw closer to exiting deflation if the BOJ offers financial support (to the economy) and tries to achieve its 1 percent inflation goal at an early date,' Azumi told a parliamentary committee meeting.
The central bank is expected to keep monetary policy on hold at a policy meeting ending on Thursday, convinced that robust domestic demand will help the country's economy resume a recovery.
(Reporting by Leika Kihara; Editing by Michael Watson)
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'Japan will draw closer to exiting deflation if the BOJ offers financial support (to the economy) and tries to achieve its 1 percent inflation goal at an early date,' Azumi told a parliamentary committee meeting.
The central bank is expected to keep monetary policy on hold at a policy meeting ending on Thursday, convinced that robust domestic demand will help the country's economy resume a recovery.
(Reporting by Leika Kihara; Editing by Michael Watson)
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BOJ seen holding policy steady, may cut inflation forecast
The central bank may slightly cut its consumer price forecast for this fiscal year to reflect recent declines in commodities markets, but is seen maintaining its view that Japan is gradually heading for 1 percent inflation.
Some market players had expected the BOJ to follow up on last week's stimulus measures by the central banks of Europe, Britain and China with its own monetary expansion in a coordinated move to ease the pain from the global slowdown.
But with no clear signs that Japan's recovery prospects are under threat and the yen off record highs, the central bank sees little need to tap its depleted arsenal now.
'Developments in Europe have stabilized, and I don't expect any major change to the BOJ's growth forecasts. The central bank may pause for a while,' said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo.
'It may face renewed pressure to act around autumn, when the government starts fretting about keeping the economy afloat so it can weather the pain from planned sales tax hikes.'
The BOJ is expected to keep its policy rate at a range of zero to 0.1 percent, and hold off on a further increase in its 40 trillion yen ($503 billion) asset buying programme.
Japan's economy is expected to outperform most of its G7 peers this year with growth of around 2 percent, helped by reconstruction spending following last year's earthquake.
BOJ officials have stressed that any further easing will come only if risks to Japan's economy heighten enough to force the central bank to abandon its forecast of a moderate recovery.
While worried about slowing Chinese growth and the fallout from Europe's debt crisis, they expect global demand to soon pick up.
In a quarterly review of its forecast, the BOJ is expected to make only minor tweaks to its current projection that the economy will expand 2.3 percent in the year to March 2013 and 1.7 percent the following year, sources say.
Lower commodity prices may prompt the BOJ to cut its core consumer inflation forecast of 0.3 percent for the current fiscal year but probably just by around 0.1 or 0.2 percentage points, not enough to alter its view that Japan will gradually head toward 1 percent inflation.
Its forecast of 0.7 percent consumer inflation in the following year will likely remain roughly unchanged.
The central bank set the 1 percent inflation target and eased policy in February, and followed up with additional stimulus in April, to show its determination to reinflate an economy beset with more than a decade of grinding deflation.
It has stood pat since then and, already struggling to force-feed money to markets awash with cash, is reluctant to boost its asset buying and lending programme too hastily.
The BOJ may fine-tune its fixed-rate market operations, under which it offers three- and six-month funds against collateral, after failing to meet its target recently for some of its market operations. ($1 = 79.4700 Japanese yen) (Editing by Kim Coghill)
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Mexico's president-elect calls on rivals to back reform push
Pena Nieto's election win on July 1 will bring the Institutional Revolutionary Party, or PRI, which ruled Mexico for most of the 20th century, back to power after more than a decade on the sidelines.
The youthful former governor ran on a platform of ambitious, market-friendly tax, labor and energy reforms, but his plans could hit snags after the PRI failed to win a majority in either the Senate or the lower house of Congress.
'We will have a diverse Congress where no party has an absolute majority and as a result, all the parties will be responsible for coming to agreements,' Pena Nieto told a news conference.
'It is time to agree, not impose,' he said. 'Time to build, not obstruct.'
The new Congress convenes in September and PRI lawmakers have said there is a window of opportunity to push through some reforms before Pena Nieto takes office in December.
'We will start promoting these issues at the start of the next legislature,' said Luis Videgaray, Pena Nieto's campaign manager, who was named on Wednesday to coordinate reform initiatives for the new government.
During the administration of outgoing President Felipe Calderon, the PRI helped block many similar market-friendly reforms. Pena Nieto now says the changes are necessary to transform the country and insists his party is behind him.
Pena Nieto shied away from naming an official transition team before the electoral tribunal formally declares a winner, a decision that could take two more months.
The runner-up in the race, leftist Andres Manuel Lopez Obrador, rejected the election results, accusing the PRI of widespread vote buying and could ask the tribunal to annul the election. Lopez Obrador also contested his much narrower loss to Calderon in 2006, launching protests that choked Mexico's capital city for weeks. The PRI denies the allegations.
TARGETING INCREASED ECONOMIC GROWTH
Pena Nieto said Jesus Murillo, a lawyer and former governor of the central state of Hidalgo, would head up his defense in front of electoral authorities.
Murillo will work with Videgaray and another former Hidalgo governor, Miguel Angel Osorio Chong, to plot strategy in the interim.
On the campaign trail, Pena Nieto said Mexico could reach growth rates of 6 percent a year with more job creation and improved tax collection. He promised to lure more private investment to state-run oil monopoly Pemex to turn around a slide in oil production. Mexico is currently projecting growth between 3.25 and 4.25 percent for 2012.
'We will be working with experts to craft the economic reform proposals that will without a doubt form the basis of increased economic growth,' Pena Nieto said.
Calderon's conservative National Action Party, or PAN, finished third in the race, as voters tired of lackluster economic growth and more than 55,000 drug war deaths during his six-year term.
(Reporting by Anahi Rama; Writing by Mica Rosenberg; Editing by Peter Cooney)
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Euro hits 2-year low vs dollar after Fed minutes
NEW YORK (AP) - The euro plummeted to a two-year low against the dollar Wednesday after minutes from the Federal Reserve's last meeting suggested that policymakers are not considering any immediate plans for more bond purchases to help the economy.
The euro sank as low as $1.2211 after the minutes were released, its lowest point against the dollar since July 1, 2010. By late Wednesday, the euro was trading at $1.2228. It was worth $1.2254 late Tuesday.
According to the minutes, several Fed policymakers said during their June meeting that they would consider more stimulus, but only if the economy worsens. Traders interpreted that to mean that the Fed won't announce any bond buying next month.
The Fed has launched two rounds of bond purchases, most recently in August 2010, to lower long-term interest rates and make stocks more attractive to investors.
Lower interest rates can weigh on a currency by reducing the returns investors get from holding it. With a third round of bond-buying off the table for now, traders bought dollars.
Europe's debt crisis is also weighed on the euro. The euro has fallen about 6 percent so far this year against the dollar as the region's financial crisis spread to Spain. Boris Schlossberg, a currency strategist at BK Asset Management, said the euro could fall as low as $1.20 by the end of the month if more isn't done to ease Europe's debt crisis.
The dollar strengthened against most other currencies. The British pound fell to $1.5493 from $1.5509.
The dollar rose to 79.67 Japanese yen from 79.45 Japanese yen and to 0.9822 Swiss franc from 0.9801 Swiss franc.
The dollar fell to 1.0211 Canadian dollar from 1.0227 Canadian dollar.
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The euro sank as low as $1.2211 after the minutes were released, its lowest point against the dollar since July 1, 2010. By late Wednesday, the euro was trading at $1.2228. It was worth $1.2254 late Tuesday.
According to the minutes, several Fed policymakers said during their June meeting that they would consider more stimulus, but only if the economy worsens. Traders interpreted that to mean that the Fed won't announce any bond buying next month.
The Fed has launched two rounds of bond purchases, most recently in August 2010, to lower long-term interest rates and make stocks more attractive to investors.
Lower interest rates can weigh on a currency by reducing the returns investors get from holding it. With a third round of bond-buying off the table for now, traders bought dollars.
Europe's debt crisis is also weighed on the euro. The euro has fallen about 6 percent so far this year against the dollar as the region's financial crisis spread to Spain. Boris Schlossberg, a currency strategist at BK Asset Management, said the euro could fall as low as $1.20 by the end of the month if more isn't done to ease Europe's debt crisis.
The dollar strengthened against most other currencies. The British pound fell to $1.5493 from $1.5509.
The dollar rose to 79.67 Japanese yen from 79.45 Japanese yen and to 0.9822 Swiss franc from 0.9801 Swiss franc.
The dollar fell to 1.0211 Canadian dollar from 1.0227 Canadian dollar.
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Spanish police clash with protesting miners
MADRID (Reuters) - Police fired rubber bullets at protesting miners on Wednesday, injuring several people, during a demonstration against slashes in coal subsidies aimed at trimming the budget deficit of the euro zone's fourth largest economy.
Spain is cutting costs and raising taxes in an effort to hit strict European budget targets. Prime Minister Mariano Rajoy on Wednesday outlined a package of measures aimed at saving a further 65 billion euros ($79.66 billion).
The miners, joined by public sector workers and unions, rallied noisily in central Madrid at the climax of a 44-day protest against a 60 percent cut in coal subsidies, which they say will force mines to close and put many out of work.
'We're only asking that they cut 10 percent instead of 60,' said Carlos Marcos, 41, who has worked in the mines for more than half his life. 'If they don't pay attention to us, we'll be back - with dynamite.'
Tens of thousands of protesters, chanting and throwing firecrackers, marched through the capital to the Industry Ministry, where some threw stones, fruit, bottles and firecrackers at waiting riot police.
Police charged at protesters and fired unleashed several rounds of rubber bullets after demonstrators knocked down fences to contain the protest.
Some of the miners on the 'black march' had walked 400 km (250 miles) from the north of Spain where mining has been a part of life since the 18th century. Many waved wooden walking sticks.
'We have to take to the streets to fight because the time is coming when we won't have enough to eat,' said 38-year-old miner Jose Ramon Pelaz.
Miners from all over Spain traveled in 600 buses to the capital on Tuesday.
They gathered in Madrid's Puerta del Sol, the center point of Spain and switched on the lights on their helmets in the early hours of Wednesday, and were met by thousands of Spaniards who turned out in sympathy.
The protesters marched down the city's main business strip, Paseo de la Castellana, singing rowdy songs and waving banners with slogans like, 'Rajoy, your future is darker than our coal.'
Official figures on the number of arrests were not available, but a Reuters witness saw several people detained at the protest.
($1 = 0.8160 euros)
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Spain is cutting costs and raising taxes in an effort to hit strict European budget targets. Prime Minister Mariano Rajoy on Wednesday outlined a package of measures aimed at saving a further 65 billion euros ($79.66 billion).
The miners, joined by public sector workers and unions, rallied noisily in central Madrid at the climax of a 44-day protest against a 60 percent cut in coal subsidies, which they say will force mines to close and put many out of work.
'We're only asking that they cut 10 percent instead of 60,' said Carlos Marcos, 41, who has worked in the mines for more than half his life. 'If they don't pay attention to us, we'll be back - with dynamite.'
Tens of thousands of protesters, chanting and throwing firecrackers, marched through the capital to the Industry Ministry, where some threw stones, fruit, bottles and firecrackers at waiting riot police.
Police charged at protesters and fired unleashed several rounds of rubber bullets after demonstrators knocked down fences to contain the protest.
Some of the miners on the 'black march' had walked 400 km (250 miles) from the north of Spain where mining has been a part of life since the 18th century. Many waved wooden walking sticks.
'We have to take to the streets to fight because the time is coming when we won't have enough to eat,' said 38-year-old miner Jose Ramon Pelaz.
Miners from all over Spain traveled in 600 buses to the capital on Tuesday.
They gathered in Madrid's Puerta del Sol, the center point of Spain and switched on the lights on their helmets in the early hours of Wednesday, and were met by thousands of Spaniards who turned out in sympathy.
The protesters marched down the city's main business strip, Paseo de la Castellana, singing rowdy songs and waving banners with slogans like, 'Rajoy, your future is darker than our coal.'
Official figures on the number of arrests were not available, but a Reuters witness saw several people detained at the protest.
($1 = 0.8160 euros)
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Tuesday, July 10, 2012
Analysis: From a credit swamp, recovery horizons lengthen
LONDON (Reuters) - If it feels as though efforts to revive the world economy are continually running into the mire, that's partly because policymakers are still trying to map the extent of the credit swamp.
Five years to the month since the credit bubble popped, one of the striking aspects of the recurrent gloom invading households, businesses and investors is how the horizon for sustainable recovery is being pushed years into the distance.
Bank of England governor Mervyn King, who last month said the world was barely half way through this crisis, now speaks with almost biblical foreboding of the big 'black cloud' of uncertainty hanging over the world.
And King's is not the darkest voice out there. Hedge fund manager Jamil Baz from GLG Partners claims the western world's deleveraging, or debt reduction, process could take another 15 to 20 years if the ratio of economy-wide debts to gross domestic product (GDP) in the United States and Europe is to be cut to anything like sustainable levels.
True or not, this is fast becoming mainstream for many crisis-weary companies and money managers.
For many investors, the timeline may be somewhere in between King and Baz but they are already shaping up for years in which investment opportunities will either be brief, on the back of periodic lifelines from policymakers, or one-off corporate successes such as Apple, or long hard slog in search of relative safety in top-rated bonds or high-dividend blue chips.
'The overriding way we look at the world is it's in a multi-year deleveraging environment and it's really only just begun,' said Alex Godwin, head of asset allocation at Citi Private Bank.
'If you look at the private sector debt to GDP ratio in the United States, we've seen a little bit of a reduction but this has got a long, long way to go,' he added. 'If you take a simple extrapolation of what's been happening so far, then we're probably looking at a five, maybe 10-year process.'
SHIFTING HORIZON
This stifling deleveraging has already driven a sharp reduction of lending by banks since 2007 peaks, catalyzed by interbank mistrust, falling credit quality and new regulation aimed at stabilizing previously bloated bank balance sheets.
As the credit shortfall drains money needed to lubricate the underlying economy, central banks have printed more. The big four central banks in the United States, euro zone, Japan and Britain have created more than $6 trillion since 2008 but are barely filling the hole - as spluttering economies attest.
The question on many minds is why it's been so difficult to calibrate the size of the problem and gauge a recovery horizon.
There are myriad answers to the latter -- from the political minefield in Europe preventing a lasting solution to the euro crisis to divisive U.S. and British debates on government debt sustainability and central bank independence in printing money.
But the scale and nature of the original credit bubble too is only now really becoming apparent and, with that, just how broken the private-sector credit generator remains.
A study currently grabbing the attention of economists focuses on the scale of pre-crisis money creation between banks and investment funds -- the largely unregulated 'shadow banking system' that supercharged credit independently of central banks.
The paper, by International Monetary Fund economist Manmohan Singh and consultant Peter Stella, detail how multiple repledging of collateral between institutions unlocked vast stores of 'new' cash and how subsequent interbank mistrust and a shrinkage of what's acceptable as collateral drained the pool.
The complex process with an appropriately impenetrable name, 'rehypothecation', describes how a hedge fund in Asia or mutual fund in Boston borrows cash from a bank by posting a bond as collateral and then how that bank subsequently repledges that same bond as collateral for its own purposes.
At 2007 peaks, the paper estimates the re-use rate of primary collateral from funds and custodians by the largest banks was about 3 times -- creating a total web of intricate collateral chains in excess of $10 trillion. That compares with a U.S. M2 money supply back then of some $7 trillion.
But by 2011, this re-use rate was already down to 2.4, involving almost a halving of the total collateral pool.
'The loss in collateral flow is estimated at $4-5 trillion, stemming from both shorter collateral chains and increased 'idle' collateral due to institutional ring-fencing; the knock-on impact is higher credit costs for the economy,' Singh and Stella wrote.
New central bank money via bond buying doesn't solve this problem because 'quantitative easing' to date just gives new cash to banks and removes ever more high-quality collateral from the system. And nervous banks are still hoarding much of the new cash bank at central banks anyway.
Yet refilling reusable collateral pools may require even more, not less, government debt in the short run. This goes to the heart of the political debate about sovereign debt in the United States or even joint government debt in the euro zone.
And if that's too politically thorny, the question is whether a return to 2007 is even desirable and whether the credit system needs to be taken down a peg for the sake of long-term financial stability.
If going back is deemed unwise, then it's easier to understand those resigned to a hard slog for years to come.
(Additional reporting by Laurence Fletcher; Editing by Ruth Pitchford)
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Five years to the month since the credit bubble popped, one of the striking aspects of the recurrent gloom invading households, businesses and investors is how the horizon for sustainable recovery is being pushed years into the distance.
Bank of England governor Mervyn King, who last month said the world was barely half way through this crisis, now speaks with almost biblical foreboding of the big 'black cloud' of uncertainty hanging over the world.
And King's is not the darkest voice out there. Hedge fund manager Jamil Baz from GLG Partners claims the western world's deleveraging, or debt reduction, process could take another 15 to 20 years if the ratio of economy-wide debts to gross domestic product (GDP) in the United States and Europe is to be cut to anything like sustainable levels.
True or not, this is fast becoming mainstream for many crisis-weary companies and money managers.
For many investors, the timeline may be somewhere in between King and Baz but they are already shaping up for years in which investment opportunities will either be brief, on the back of periodic lifelines from policymakers, or one-off corporate successes such as Apple, or long hard slog in search of relative safety in top-rated bonds or high-dividend blue chips.
'The overriding way we look at the world is it's in a multi-year deleveraging environment and it's really only just begun,' said Alex Godwin, head of asset allocation at Citi Private Bank.
'If you look at the private sector debt to GDP ratio in the United States, we've seen a little bit of a reduction but this has got a long, long way to go,' he added. 'If you take a simple extrapolation of what's been happening so far, then we're probably looking at a five, maybe 10-year process.'
SHIFTING HORIZON
This stifling deleveraging has already driven a sharp reduction of lending by banks since 2007 peaks, catalyzed by interbank mistrust, falling credit quality and new regulation aimed at stabilizing previously bloated bank balance sheets.
As the credit shortfall drains money needed to lubricate the underlying economy, central banks have printed more. The big four central banks in the United States, euro zone, Japan and Britain have created more than $6 trillion since 2008 but are barely filling the hole - as spluttering economies attest.
The question on many minds is why it's been so difficult to calibrate the size of the problem and gauge a recovery horizon.
There are myriad answers to the latter -- from the political minefield in Europe preventing a lasting solution to the euro crisis to divisive U.S. and British debates on government debt sustainability and central bank independence in printing money.
But the scale and nature of the original credit bubble too is only now really becoming apparent and, with that, just how broken the private-sector credit generator remains.
A study currently grabbing the attention of economists focuses on the scale of pre-crisis money creation between banks and investment funds -- the largely unregulated 'shadow banking system' that supercharged credit independently of central banks.
The paper, by International Monetary Fund economist Manmohan Singh and consultant Peter Stella, detail how multiple repledging of collateral between institutions unlocked vast stores of 'new' cash and how subsequent interbank mistrust and a shrinkage of what's acceptable as collateral drained the pool.
The complex process with an appropriately impenetrable name, 'rehypothecation', describes how a hedge fund in Asia or mutual fund in Boston borrows cash from a bank by posting a bond as collateral and then how that bank subsequently repledges that same bond as collateral for its own purposes.
At 2007 peaks, the paper estimates the re-use rate of primary collateral from funds and custodians by the largest banks was about 3 times -- creating a total web of intricate collateral chains in excess of $10 trillion. That compares with a U.S. M2 money supply back then of some $7 trillion.
But by 2011, this re-use rate was already down to 2.4, involving almost a halving of the total collateral pool.
'The loss in collateral flow is estimated at $4-5 trillion, stemming from both shorter collateral chains and increased 'idle' collateral due to institutional ring-fencing; the knock-on impact is higher credit costs for the economy,' Singh and Stella wrote.
New central bank money via bond buying doesn't solve this problem because 'quantitative easing' to date just gives new cash to banks and removes ever more high-quality collateral from the system. And nervous banks are still hoarding much of the new cash bank at central banks anyway.
Yet refilling reusable collateral pools may require even more, not less, government debt in the short run. This goes to the heart of the political debate about sovereign debt in the United States or even joint government debt in the euro zone.
And if that's too politically thorny, the question is whether a return to 2007 is even desirable and whether the credit system needs to be taken down a peg for the sake of long-term financial stability.
If going back is deemed unwise, then it's easier to understand those resigned to a hard slog for years to come.
(Additional reporting by Laurence Fletcher; Editing by Ruth Pitchford)
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Shares fall as growth downturn fuels earnings worries
MSCI's broadest index of Asia-Pacific shares outside Japan <.MIAPJ0000PUS> was down 0.1 percent, after slipping to a new low for the month in the wake of a four-day losing streak in U.S. stocks. Japan's Nikkei average <.N225> shed 0.4 percent. <.T>
'There is a sore lack of momentum in the market,' said Chung Seung-jae, an analyst at Mirae Asset Securities, citing a 0.4 percent drop in the Korean equities market <.KS11>.
'In addition to pressure stemming from global growth worries, we have disappointing corporate earnings.'
European equities rose, however, and Spanish and Italian debt yields eased on Tuesday on the notion that Europe was moving towards putting its rescue fund into action and as euro zone finance ministers agreed to give the first batch of aid to Spain's troubled banks by the end of July.
Traders were far less upbeat about the euro, which last traded at $1.2266, pinned near a two-year low of $1.2225 hit in early Monday Asian trade.
The latest source of uncertainty for the currency was a hearing by the German Constitutional Court into whether the euro zone's bailout fund, known as the European Stability Mechanism, and planned changes to the region's budget rules are compatible with German law.
The ESM is a crucial tool in helping to bring down borrowing costs of indebted nations and breaking the link between the sovereign debt problem and the banking sector stress in Europe.
'Investors have grown skeptical about the decision-making process in Europe and this has hurt euro sentiment,' said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
The euro zone's three-year debt crisis, which began with its peripheral members, has engulfed the region's larger economies Spain and Italy. Rome said on Tuesday that it may want to tap euro zone aid to ease its borrowing costs as euro zone finance ministers struggled to soothe market jitters.
JGBS DRAW INTEREST
With risk aversion deeply rooted in the markets, investors were pouring money into safer assets such as bonds issued by sturdier euro zone economies, including the Netherlands and France, as well as by Japan and international organizations, said a portfolio manager at a Japanese insurance company.
'Money, seeking places to park, is finding its way into sovereign debt, especially Japanese government bonds,' he said.
'JGBs are not cheap in absolute terms but still look valuable relative to U.S. Treasuries or German Bunds, given Japan's low inflation rate,' he said, adding that the European Central Bank's cut in the deposit rate to zero could prompt euro zone banks to shift into safe haven bonds part of the 800 billion euros ($980 billion) they have parked at the ECB overnight.
Some money market traders have also said a probe into an interest rate-fixing scandal for Libor, or London interbank offered rate, could affect Tibor, the Tokyo interbank lending rate, which has traditionally been set high.
An easier interbank lending rate would push down rates on loans and provide incentives for banks to put their money to work in higher-yielding bonds, traders said.
The yield of 30-year JGBs slid to 1.820 percent, its lowest since June 12, while the 20-year bond yield fell to 1.605 percent, matching a five-week low hit on Tuesday.
Commodities and oil, which have recently been hurt by weak data from the United States and China, the world's biggest and second-biggest economies, regained their footing on Wednesday after sharp drops in the previous session.
China's benign inflation and weak imports pointed to softening domestic demand as well as uncertainties over the external economic downturn, keeping intact expectations that its second-quarter gross domestic product report due on Friday will show the slowest growth in at least three years.
Brent crude rose 0.5 percent to $98.47 a barrel and U.S. crude added 0.6 percent to $84.39 a barrel.
Spot gold gained 0.4 percent to $1,574.49 an ounce but stayed firmly capped below $1,600, after posting its biggest one-day decline since late June on Tuesday as investors liquidated assets across the markets.
Gold holdings in the world's eight major exchange-traded products fell by the largest one-day amount since late May, shrinking by 116,427 ounces by the close on Monday to 70.529 million ounces, reflecting some of the investor wariness towards bullion.
Falling Spanish yields helped to improve sentiment in Asian credit markets, where the spread on the iTraxx Asia ex-Japan investment-grade index was 5 basis points narrower.
($1 = 0.8160 euros)
(Additional reporting by Lisa Twaronite in Tokyo and Joonhee Yu in Seoul; Editing by Edmund Klamann)
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China seeks closer defense ties with Australia
CANBERRA, Australia (AP) - A Chinese official called Tuesday for closer defense and economic ties with Australia and warned against what he said was a growing 'Cold War mentality' in the United States.
Chinese Vice Foreign Minister Cui Tiankai made a veiled criticism of Australia's deepening military ties with Washington after attending annual talks on human rights in the Australian capital of Canberra.
Beijing has condemned a plan announced by President Barack Obama in November to send U.S. military aircraft and up to 2,500 Marines to the Australian city of Darwin to create a training hub to help allies and protect American interests across Asia, calling it a throwback to the Cold War.
'China and Australia need to work together with other countries in this region to promote common security, peace and stability in this region; in particular, we should guard against the resurgence of a Cold War mentality,' Cui told reporters.
China is Australia's most important trading partner. Its demand for Australian iron ore and coal helped keep Australia out of recession during the recent global economic crisis. But Australia's 61-year-old defense treaty with the United States is a source of tensions between Canberra and Beijing.
China has accused the U.S. of attempting to contain its rise as an economic, political and military power. The U.S. says it has no intent to contain China, while affirming its determination to remain a Pacific power. Washington has been forging closer military ties with other Asian countries and has announced that 60 percent of the U.S. Navy's fleet will be deployed to the Pacific by 2020, up from about 50 percent now.
Indonesia, a neighbor of Australia, has shared Chinese concerns about the new U.S. military configuration in the region.
While not specifically naming China, Indonesian Foreign Minister Marty Natalegawa said in March that 'the management or the containment of a rising country, we believe, would see the return of old-style Cold War power politics.'
The Australian government has rejected claims that the increased U.S. military presence on Australian soil is aimed at containing China and says it remains open to Chinese participation in joint exercises in Darwin in the future.
This news article is brought to you by CASTODY OF A CHILD - where latest news are our top priority.
Chinese Vice Foreign Minister Cui Tiankai made a veiled criticism of Australia's deepening military ties with Washington after attending annual talks on human rights in the Australian capital of Canberra.
Beijing has condemned a plan announced by President Barack Obama in November to send U.S. military aircraft and up to 2,500 Marines to the Australian city of Darwin to create a training hub to help allies and protect American interests across Asia, calling it a throwback to the Cold War.
'China and Australia need to work together with other countries in this region to promote common security, peace and stability in this region; in particular, we should guard against the resurgence of a Cold War mentality,' Cui told reporters.
China is Australia's most important trading partner. Its demand for Australian iron ore and coal helped keep Australia out of recession during the recent global economic crisis. But Australia's 61-year-old defense treaty with the United States is a source of tensions between Canberra and Beijing.
China has accused the U.S. of attempting to contain its rise as an economic, political and military power. The U.S. says it has no intent to contain China, while affirming its determination to remain a Pacific power. Washington has been forging closer military ties with other Asian countries and has announced that 60 percent of the U.S. Navy's fleet will be deployed to the Pacific by 2020, up from about 50 percent now.
Indonesia, a neighbor of Australia, has shared Chinese concerns about the new U.S. military configuration in the region.
While not specifically naming China, Indonesian Foreign Minister Marty Natalegawa said in March that 'the management or the containment of a rising country, we believe, would see the return of old-style Cold War power politics.'
The Australian government has rejected claims that the increased U.S. military presence on Australian soil is aimed at containing China and says it remains open to Chinese participation in joint exercises in Darwin in the future.
This news article is brought to you by CASTODY OF A CHILD - where latest news are our top priority.
Britain outlines water industry shake-up
LONDON (Reuters) - The government on Tuesday outlined plans to make it easier for water companies in England and Wales to merge, new players to enter the market and businesses to switch suppliers.
The draft bill reinforced changes to the water sector proposed last December aimed at improving the industry's ability to cope with increasing demand and the effects of climate change like floods and droughts.
The government said reforming the water industry could save the economy 2 billion pounds ($3 billion) over the next 30 years.
Scotland has already made similar reforms to its water market and its public sector alone is set to save around 20 million pounds over the next three years.
'This draft bill will create a modern, customer-focused water industry and for the first time all businesses and other organisations will be able to shop around for their water and sewerage suppliers,' said the Secretary of State for Environment Caroline Spelman.
'By slashing red tape we will also stimulate a market for new water resources and incentivise more water recycling.'
The draft bill will be scrutinised by parliament and industry and a realistic target date for opening the retail water market is April 2017, the Department for Environment, Food and Rural Affairs (Defra) said.
The proposals come as heavy rainfall continues to threaten large parts of Britain, forcing the environment agency to enforce seven flood warnings and 36 flood alerts in England on Monday.
REFORM
The draft bill proposed removing regulations acting as a barrier to new entrants to the water and sewerage markets.
New entrants currently must negotiate with up to 21 water and sewerage companies in England and Wales. Instead, water industry regulator Ofwat will set out conditions for firms to follow.
The draft bill also proposed reforms to a special merger regime which limits companies' ability to merge or be taken over by more efficient competitors.
Currently, a merger proposal has to be referred to the Competition Commission if the turnover of the buying or target company is 10 million pounds a year or more.
Under the changes, the Office of Fair Trading and Ofwat will consider whether a merger could harm competitiveness instead of making an automatic referral to the Competition Commission.
At 1338 GMT, shares in listed UK water firms made very slight gains.
Shares in Pennon were up 0.72 percent to 773 pence per share and United Utilities inched up 0.37 percent to 679 pence, while Severn Trent was up 0.12 percent to 1,693 pence.
WaterUK, a body which represents the UK water industry, said it supported the planned reforms.
'Expanding the market and offering greater choice for business customers is the right reform at the right time,' said Pamela Taylor, WaterUK's chief executive.
Defra said the reforms will also make it easier for businesses and public sector bodies to switch water and sewerage supplies, allowing them to get more competitive prices and improve their efficiency.
It will also introduce regulatory incentives to help make water trading more attractive. ($1 = 0.6442 pound)
(Editing by David Cowell)
This news article is brought to you by DOMESTIC-VIOLENCE - where latest news are our top priority.
The draft bill reinforced changes to the water sector proposed last December aimed at improving the industry's ability to cope with increasing demand and the effects of climate change like floods and droughts.
The government said reforming the water industry could save the economy 2 billion pounds ($3 billion) over the next 30 years.
Scotland has already made similar reforms to its water market and its public sector alone is set to save around 20 million pounds over the next three years.
'This draft bill will create a modern, customer-focused water industry and for the first time all businesses and other organisations will be able to shop around for their water and sewerage suppliers,' said the Secretary of State for Environment Caroline Spelman.
'By slashing red tape we will also stimulate a market for new water resources and incentivise more water recycling.'
The draft bill will be scrutinised by parliament and industry and a realistic target date for opening the retail water market is April 2017, the Department for Environment, Food and Rural Affairs (Defra) said.
The proposals come as heavy rainfall continues to threaten large parts of Britain, forcing the environment agency to enforce seven flood warnings and 36 flood alerts in England on Monday.
REFORM
The draft bill proposed removing regulations acting as a barrier to new entrants to the water and sewerage markets.
New entrants currently must negotiate with up to 21 water and sewerage companies in England and Wales. Instead, water industry regulator Ofwat will set out conditions for firms to follow.
The draft bill also proposed reforms to a special merger regime which limits companies' ability to merge or be taken over by more efficient competitors.
Currently, a merger proposal has to be referred to the Competition Commission if the turnover of the buying or target company is 10 million pounds a year or more.
Under the changes, the Office of Fair Trading and Ofwat will consider whether a merger could harm competitiveness instead of making an automatic referral to the Competition Commission.
At 1338 GMT, shares in listed UK water firms made very slight gains.
Shares in Pennon were up 0.72 percent to 773 pence per share and United Utilities inched up 0.37 percent to 679 pence, while Severn Trent was up 0.12 percent to 1,693 pence.
WaterUK, a body which represents the UK water industry, said it supported the planned reforms.
'Expanding the market and offering greater choice for business customers is the right reform at the right time,' said Pamela Taylor, WaterUK's chief executive.
Defra said the reforms will also make it easier for businesses and public sector bodies to switch water and sewerage supplies, allowing them to get more competitive prices and improve their efficiency.
It will also introduce regulatory incentives to help make water trading more attractive. ($1 = 0.6442 pound)
(Editing by David Cowell)
This news article is brought to you by DOMESTIC-VIOLENCE - where latest news are our top priority.
Britain plans more competition in water industry
LONDON (Reuters) - Britain's government set out plans to reform the water industry, which it said could save the UK economy 2 billion pounds ($3.10 billion) over the next 30 years.
The government said on Tuesday it wants to make it easier for companies in England and Wales to merge, for new players to enter the market and for businesses to switch their water suppliers.
Scotland has already made similar reforms to its water market and its public sector alone is set to save around 20 million pounds over the next three years.
'This draft bill will create a modern, customer-focused water industry and for the first time all businesses and other organisations will be able to shop around for their water and sewerage suppliers,' said Secretary of State for Environment Caroline Spelman.
'By slashing red tape we will also stimulate a market for new water resources and incentivise more water recycling.'
The draft bill will be scrutinised by Parliament and industry and a realistic target date for opening the retail water market is April 2017, the Department for Environment, Food and Rural Affairs (Defra) said.
The proposals come as heavy rainfall continues to threaten large parts of Britain, forcing the UK environment agency to enforce seven flood warnings and 36 flood alerts in England late on Monday.
REFORM
In the draft bill, the government proposed the removal of regulations that act as a barrier to new entrants wishing to enter water and sewerage markets.
New entrants currently have to negotiate with up to 21 water and sewerage companies in England and Wales before entering the market but under the reform, water industry regulator Ofwat will set out conditions for firms to follow instead.
The draft bill also proposed reforms to a special merger regime imposed on the sector, which limits companies' ability to merge or be taken over by more efficient competitors.
Under current rules, a merger proposal in the sector has to be referred to the Competition Commission if the turnover of the company buying or being bought out has a turnover of 10 million pounds a year or more.
If reforms are passed, the Office of Fair Trading and Ofwat will consider whether a merger is likely to harm competitiveness in the sector instead of making an automatic referral to the Competition Commission.
At 1128 GMT, shares in Pennon were up 0.2 percent to 770 pence per share and United Utilities was flat at 676 pence, while Severn Trent shares fell 0.5 percent to 1,682 pence.
Several water firms contacted by Reuters declined to give an immediate comment.
Defra said the reforms will also make it easier for businesses and public sector bodies to switch their water and sewerage supplies, allowing them to get more competitive prices and improve their efficiency.
It will also introduce regulatory incentives to help make water trading more attractive. ($1 = 0.6442 British pounds)
(Editing by Elaine Hardcastle)
This news article is brought to you by MOVIES - where latest news are our top priority.
The government said on Tuesday it wants to make it easier for companies in England and Wales to merge, for new players to enter the market and for businesses to switch their water suppliers.
Scotland has already made similar reforms to its water market and its public sector alone is set to save around 20 million pounds over the next three years.
'This draft bill will create a modern, customer-focused water industry and for the first time all businesses and other organisations will be able to shop around for their water and sewerage suppliers,' said Secretary of State for Environment Caroline Spelman.
'By slashing red tape we will also stimulate a market for new water resources and incentivise more water recycling.'
The draft bill will be scrutinised by Parliament and industry and a realistic target date for opening the retail water market is April 2017, the Department for Environment, Food and Rural Affairs (Defra) said.
The proposals come as heavy rainfall continues to threaten large parts of Britain, forcing the UK environment agency to enforce seven flood warnings and 36 flood alerts in England late on Monday.
REFORM
In the draft bill, the government proposed the removal of regulations that act as a barrier to new entrants wishing to enter water and sewerage markets.
New entrants currently have to negotiate with up to 21 water and sewerage companies in England and Wales before entering the market but under the reform, water industry regulator Ofwat will set out conditions for firms to follow instead.
The draft bill also proposed reforms to a special merger regime imposed on the sector, which limits companies' ability to merge or be taken over by more efficient competitors.
Under current rules, a merger proposal in the sector has to be referred to the Competition Commission if the turnover of the company buying or being bought out has a turnover of 10 million pounds a year or more.
If reforms are passed, the Office of Fair Trading and Ofwat will consider whether a merger is likely to harm competitiveness in the sector instead of making an automatic referral to the Competition Commission.
At 1128 GMT, shares in Pennon were up 0.2 percent to 770 pence per share and United Utilities was flat at 676 pence, while Severn Trent shares fell 0.5 percent to 1,682 pence.
Several water firms contacted by Reuters declined to give an immediate comment.
Defra said the reforms will also make it easier for businesses and public sector bodies to switch their water and sewerage supplies, allowing them to get more competitive prices and improve their efficiency.
It will also introduce regulatory incentives to help make water trading more attractive. ($1 = 0.6442 British pounds)
(Editing by Elaine Hardcastle)
This news article is brought to you by MOVIES - where latest news are our top priority.
Kenya remittances up 47 pct yr/yr in May: cenbank
Remittances are one of the main sources of foreign exchange for east Africa's biggest economy alongside tea, horticulture and tourism. The country got a record $891.1 million in remittances in 2011.
The May inflows rose 4.6 percent from April, when Kenya received $95.6 million from its citizens abroad.
The central bank said North America remained the top source of remittances, accounting for 51.2 percent of the inflows in May, followed by Europe at 27.9 percent. Those from the rest of the world, however, dipped by 2.9 percent in May.
The central bank attributed the increase in inflows to reduced transaction charges for money transfer services due to increased competition, and the convenience of sending money by mobile phones.
Typically, Kenyans living abroad send money home to help their families and for investment in various sectors, including real estate.
In recent years, the central bank says they have also started investing in government securities targeted at them, such as infrastructure bonds and the Savings Development Bond.
Cumulatively in the first five months of 2012, Kenyans in the diaspora sent home $496.7 million, compared with $334.7 million in the same period a year before.
This article is sponsored by medical case study.
Monday, July 9, 2012
Wall Street down on growth concerns, earnings uncertainty
Machinery orders in Japan fell at a record pace of 14.8 percent in May, far worse than the 3.3 percent forecast, while inflation in China eased to a 29-month low of 2.2 percent in June.
'While tame inflation provides greater opportunities for central banks to fight the slowing economy, many investors are coming round to the conclusion that too much of the powder has already been used and is damaging hopes for a rebound,' said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
The data comes on the heels of Friday's disappointing U.S. jobs report, which showed non-farm payrolls grew by only 80,000 in June.
Further raising concerns, Spanish bond yields rose past the 7-percent level viewed as unsustainable by many analysts ahead of a meeting by euro zone finance ministers later in the day. Diplomats said the country will be granted an extra year to reach its deficit targets after it outlines further budget savings.
Alcoa Inc
Investors will closely monitor corporate earnings for signs the euro zone debt crisis has dented profits, especially among multinational companies.
The Dow Jones industrial average <.DJI> was down 60.85 points, or 0.48 percent, at 12,711.62. The Standard & Poor's 500 Index <.SPX> was down 4.80 points, or 0.35 percent, at 1,349.88. The Nasdaq Composite Index <.IXIC> was down 8.49 points, or 0.29 percent, at 2,928.84.
UBS Investment Research downgraded payment processors Visa Inc
Amerigroup Corp
Boeing Co
(Reporting By Angela Moon; Editing by Padraic Cassidy)
This news article is brought to you by FASHION - where latest news are our top priority.
Analysis: Flagging world economy relying on unstable energy boost
LONDON (Reuters) - As storm clouds gather over the global economy again at midyear, lower energy prices are one of the few flickering rays of light on the horizon - even if they too look increasingly ephemeral.
Economic activity and business and household confidence around the globe has tailed off badly again in the second quarter. The headwinds remain fierce, from imponderables related to the latest wave of the euro crisis and European banks' retrenchment to U.S. fiscal uncertainty and a spluttering of growth engines in the big emerging economies.
Friday's lukewarm U.S. employment report for June and nagging doubts about the efficacy of latest measures to insulate the ailing euro zone have darkened the skies yet again.
The International Monetary Fund last week flagged an imminent cut to its 3.5 percent 2012 global growth forecast, which is likely to at least reverse its modest 0.2 percentage point April upgrade.
And major central banks in the United States, the euro zone, China and Britain have all eased monetary policy again in recent weeks to ward off the growing chill - positive moves in and of themselves but also a sign of concern about the deteriorating outlook.
One of the few remaining positives over the second quarter - or at least for the majority of countries that import oil - has been an almost $30 per barrel plunge in benchmark crude prices in just three months.
As the global slowdown pulled the demand rug from under the energy markets, the traditional stabilizing effects of oil returned to the fray. So much so that year-on-year drop in oil prices is almost a whopping 20 percent.
'The drop in oil is clearly one of the few hopes, even though everything is contingent on it being sustained and there are so many risks to that. Even then, you have to wonder whether any benefits just get swamped by relentless deleveraging,' said Neil MacKinnon, economist at Russian bank VTB Capital.
WHAT'S THE HOPE?
Apart from putting more money in the pockets of consumers and firms by lowering fuel bills, and eventually the cost of products with high energy inputs, the drop in oil prices should have a significant impact on consumer inflation rates that are already falling far below the danger rates seen last year.
For central banks keen to ease monetary and financial conditions still further to fill in the hole left by retrenching banks, this amounts to a green light for even further money printing and interest rate cuts.
Monday's news of a sharp drop in Chinese inflation to a 29-month low of 2.2 percent in June showed just why China's central bank felt it had the room to cut interest rates last week again for the second time in a month.
But the picture is global. Data from the Organisation for Economic Cooperation and Development shows annual inflation in the 34-country OECD area slowed to 2.1 percent in the year to May 2012 from 2.5 percent in April and was the lowest rate since January 2011 - all heavily influenced by oil and food prices.
JP Morgan economists Joseph Lupton and David Hensley say their measure of global inflation for June is set to move below the aggregated 2.6 percent global central bank target - taken from 26 countries they monitor - for the first time since September 2010 after peaking at 3.9 percent nine months ago.
'If our top-down model is correct, global consumer price inflation could slide to just 2.1 percent by year-end, 0.5 percentage point lower than both our forecast and central bank targets,' the economists said.
What's more, they added that the slippage is most skewed for the developed economies where consumer prices are more sensitive to moves in oil prices and could both accelerate monetary easing and boost consumer spending there in particular.
'In response to this sharp boost to purchasing power, global consumer spending should accelerate in the second half of 2012. Indeed, based on its historical relationship with oil prices, global consumer goods spending looks set to accelerate to one of the strongest gains in over a decade.'
Other global economy optimists have also picked up on the potential windfalls from oil. Jim O'Neill, chairman of Goldman Sachs Asset Management, is keen to point out that five-year forward prices of oil - less prone to ebb and flow of short-term spot market moves - have fallen below their 200-day moving averages.
'I'd rather trust the 5-year price than the spot price, and it is now below its own moving average. This has to be good news for anyone, other than those long crude oil,' he told clients in series of slides last month.
What's more, the broader energy price picture in the United States has for months contained a huge potential fillip as gas prices have fallen sharply relative to the rest of the world due to an unlocking of vast gas reserves in underground shale deposits. If similar deposits were exploited elsewhere in the world, the impact could spread longer-term.
'With little other positive news to grasp onto in recent months, shale gas offers a welcome diversion from the torrent of Eurozone crisis headlines,' said Rob Carnell, chief economist at ING Financial, adding the impact was 'significant' for growth inflation and jobs if not as revolutionary as some suggest.
ENERGY TO THE RESCUE?
So, energy to the rescue? Well, maybe.
Long-term futures prices are certainly encouraging for policymakers trying to see through the fog. But the counterbalancing economic effects of spot prices go both ways and worries about oil supplies as much as demand come into play.
No sooner had last month's EU summit lifted world markets generally, correlated spot oil prices perked back up too.
Fresh nerves about the Iranian nuclear standoff and concern about oil workers' strikes in Norway pumped crude back briefly above $100 per barrel from lows below $90 last month.
And fears that new money printing from the developed-world central banks has for years now tended to 'leak' into commodity markets and prices means the latest wave of monetary easing tends to at least underpin oil prices there too.
IMF economists poring over the question are quick to point out that the world economy has adapted relatively well to the four-fold increase in oil prices in a decade but acknowledge that supply disruptions and a pervasive market fear of long-term scarcity make price spikes higher a constant threat.
In a recent article on the impact of oil prices on world growth, IMF economist Jorg Decressin said growing consumption of oil revenues in oil-exporting countries that used to recycle windfalls back into western debt markets means this buffer for western economies may be weakened -- not least because western interest rates are rock bottom now anyway.
'In the current situation, where global interest rates are low, increased global savings are of little help and oil price spikes would be even more unwelcome. The recycling of oil revenues does not work as well as before,' he wrote.
For now at least, lower energy prices may indeed be a lifeline for a nervous world economy but it's a lonely positive and far from a stable one.
(Reporting by Mike Dolan. Editing by Jeremy Gaunt.)
This news article is brought to you by PRODUCT-REVIEWS - where latest news are our top priority.
Economic activity and business and household confidence around the globe has tailed off badly again in the second quarter. The headwinds remain fierce, from imponderables related to the latest wave of the euro crisis and European banks' retrenchment to U.S. fiscal uncertainty and a spluttering of growth engines in the big emerging economies.
Friday's lukewarm U.S. employment report for June and nagging doubts about the efficacy of latest measures to insulate the ailing euro zone have darkened the skies yet again.
The International Monetary Fund last week flagged an imminent cut to its 3.5 percent 2012 global growth forecast, which is likely to at least reverse its modest 0.2 percentage point April upgrade.
And major central banks in the United States, the euro zone, China and Britain have all eased monetary policy again in recent weeks to ward off the growing chill - positive moves in and of themselves but also a sign of concern about the deteriorating outlook.
One of the few remaining positives over the second quarter - or at least for the majority of countries that import oil - has been an almost $30 per barrel plunge in benchmark crude prices in just three months.
As the global slowdown pulled the demand rug from under the energy markets, the traditional stabilizing effects of oil returned to the fray. So much so that year-on-year drop in oil prices is almost a whopping 20 percent.
'The drop in oil is clearly one of the few hopes, even though everything is contingent on it being sustained and there are so many risks to that. Even then, you have to wonder whether any benefits just get swamped by relentless deleveraging,' said Neil MacKinnon, economist at Russian bank VTB Capital.
WHAT'S THE HOPE?
Apart from putting more money in the pockets of consumers and firms by lowering fuel bills, and eventually the cost of products with high energy inputs, the drop in oil prices should have a significant impact on consumer inflation rates that are already falling far below the danger rates seen last year.
For central banks keen to ease monetary and financial conditions still further to fill in the hole left by retrenching banks, this amounts to a green light for even further money printing and interest rate cuts.
Monday's news of a sharp drop in Chinese inflation to a 29-month low of 2.2 percent in June showed just why China's central bank felt it had the room to cut interest rates last week again for the second time in a month.
But the picture is global. Data from the Organisation for Economic Cooperation and Development shows annual inflation in the 34-country OECD area slowed to 2.1 percent in the year to May 2012 from 2.5 percent in April and was the lowest rate since January 2011 - all heavily influenced by oil and food prices.
JP Morgan economists Joseph Lupton and David Hensley say their measure of global inflation for June is set to move below the aggregated 2.6 percent global central bank target - taken from 26 countries they monitor - for the first time since September 2010 after peaking at 3.9 percent nine months ago.
'If our top-down model is correct, global consumer price inflation could slide to just 2.1 percent by year-end, 0.5 percentage point lower than both our forecast and central bank targets,' the economists said.
What's more, they added that the slippage is most skewed for the developed economies where consumer prices are more sensitive to moves in oil prices and could both accelerate monetary easing and boost consumer spending there in particular.
'In response to this sharp boost to purchasing power, global consumer spending should accelerate in the second half of 2012. Indeed, based on its historical relationship with oil prices, global consumer goods spending looks set to accelerate to one of the strongest gains in over a decade.'
Other global economy optimists have also picked up on the potential windfalls from oil. Jim O'Neill, chairman of Goldman Sachs Asset Management, is keen to point out that five-year forward prices of oil - less prone to ebb and flow of short-term spot market moves - have fallen below their 200-day moving averages.
'I'd rather trust the 5-year price than the spot price, and it is now below its own moving average. This has to be good news for anyone, other than those long crude oil,' he told clients in series of slides last month.
What's more, the broader energy price picture in the United States has for months contained a huge potential fillip as gas prices have fallen sharply relative to the rest of the world due to an unlocking of vast gas reserves in underground shale deposits. If similar deposits were exploited elsewhere in the world, the impact could spread longer-term.
'With little other positive news to grasp onto in recent months, shale gas offers a welcome diversion from the torrent of Eurozone crisis headlines,' said Rob Carnell, chief economist at ING Financial, adding the impact was 'significant' for growth inflation and jobs if not as revolutionary as some suggest.
ENERGY TO THE RESCUE?
So, energy to the rescue? Well, maybe.
Long-term futures prices are certainly encouraging for policymakers trying to see through the fog. But the counterbalancing economic effects of spot prices go both ways and worries about oil supplies as much as demand come into play.
No sooner had last month's EU summit lifted world markets generally, correlated spot oil prices perked back up too.
Fresh nerves about the Iranian nuclear standoff and concern about oil workers' strikes in Norway pumped crude back briefly above $100 per barrel from lows below $90 last month.
And fears that new money printing from the developed-world central banks has for years now tended to 'leak' into commodity markets and prices means the latest wave of monetary easing tends to at least underpin oil prices there too.
IMF economists poring over the question are quick to point out that the world economy has adapted relatively well to the four-fold increase in oil prices in a decade but acknowledge that supply disruptions and a pervasive market fear of long-term scarcity make price spikes higher a constant threat.
In a recent article on the impact of oil prices on world growth, IMF economist Jorg Decressin said growing consumption of oil revenues in oil-exporting countries that used to recycle windfalls back into western debt markets means this buffer for western economies may be weakened -- not least because western interest rates are rock bottom now anyway.
'In the current situation, where global interest rates are low, increased global savings are of little help and oil price spikes would be even more unwelcome. The recycling of oil revenues does not work as well as before,' he wrote.
For now at least, lower energy prices may indeed be a lifeline for a nervous world economy but it's a lonely positive and far from a stable one.
(Reporting by Mike Dolan. Editing by Jeremy Gaunt.)
This news article is brought to you by PRODUCT-REVIEWS - where latest news are our top priority.
French economy stumbles as business morale dips
PARIS (Reuters) - France's central bank said it expects the euro zone's second largest economy to have shrunk in the second quarter, with business sentiment worsening under the weight of weak domestic demand and higher taxes.
The Bank of France stuck on Monday with last month's forecast for a 0.1 percent GDP contraction, leaving the near 2 trillion euro ($2.5 trillion) economy - which posted zero growth in the first three months of the year - on the brink of recession.
Opening an industrial relations conference, President Francois Hollande said the economy would flatline over the first half of the year.
The central bank's monthly business sentiment indicator, meanwhile, fell in June to levels not seen since late 2009 when the economy was emerging from its worst post-war slump.
The data will add to the discomfort of Hollande, elected in May at the head of a Socialist government promising to avoid the painful bouts of austerity that have multiplied across other parts of Europe.
France's slowdown has hit state revenues, and in his first major set of economic measures last Wednesday, Hollande announced tax rises worth 7.2 billion euros, singling out large companies and the rich.
'French business confidence remains low due to an anemic domestic market and (the) new taxes announced (last week),' ING economist Manuel Maleki said.
'Moreover, the poor international climate and the uncertainty regarding the future of the euro zone have hit (the index).'
Sentiment for the industrial sector eased to 91 from 92 in May with a decline in the auto industry offset by an improvement in pharmaceuticals and the agro-food industry. Services sentiment fell to 90 from 92 with the outlook for the coming months clouded by high uncertainty.
Facing deteriorating business conditions, many French companies are slashing their headcount and, with unemployment rates already running at 13-year high, the CGT union fears as many as 75,000 further jobs may be on the line.
($1 = 0.8126 euros)
(Reporting by Leigh Thomas; Editing by John Stonestreet)
This news article is brought to you by ASTROLOGY - where latest news are our top priority.
The Bank of France stuck on Monday with last month's forecast for a 0.1 percent GDP contraction, leaving the near 2 trillion euro ($2.5 trillion) economy - which posted zero growth in the first three months of the year - on the brink of recession.
Opening an industrial relations conference, President Francois Hollande said the economy would flatline over the first half of the year.
The central bank's monthly business sentiment indicator, meanwhile, fell in June to levels not seen since late 2009 when the economy was emerging from its worst post-war slump.
The data will add to the discomfort of Hollande, elected in May at the head of a Socialist government promising to avoid the painful bouts of austerity that have multiplied across other parts of Europe.
France's slowdown has hit state revenues, and in his first major set of economic measures last Wednesday, Hollande announced tax rises worth 7.2 billion euros, singling out large companies and the rich.
'French business confidence remains low due to an anemic domestic market and (the) new taxes announced (last week),' ING economist Manuel Maleki said.
'Moreover, the poor international climate and the uncertainty regarding the future of the euro zone have hit (the index).'
Sentiment for the industrial sector eased to 91 from 92 in May with a decline in the auto industry offset by an improvement in pharmaceuticals and the agro-food industry. Services sentiment fell to 90 from 92 with the outlook for the coming months clouded by high uncertainty.
Facing deteriorating business conditions, many French companies are slashing their headcount and, with unemployment rates already running at 13-year high, the CGT union fears as many as 75,000 further jobs may be on the line.
($1 = 0.8126 euros)
(Reporting by Leigh Thomas; Editing by John Stonestreet)
This news article is brought to you by ASTROLOGY - where latest news are our top priority.
Sunday, July 8, 2012
Asian stocks drop after weak US jobs growth
SINGAPORE (AP) - Asian stocks were lower Monday after a disappointing U.S. jobs report stoked concern that the world's biggest economy remains mired in weak growth.
The U.S. economy added a less than expected 80,000 jobs last month, the Labor Department said Friday. The tepid employment growth, which followed the first drop in U.S. manufacturing in three years, increases pressure on the Federal Reserve to implement monetary stimulus measures known as quantitative easing.
The release later this week of the minutes of the last Fed meeting might show whether the Fed is leaning toward more stimulus to boost growth.
'The obvious concern is that this is the start of a slowdown that will lead to another recession,' Capital Economics said in a report. 'Although it is very clear that the U.S. economy has lost a lot of momentum, there are no real indications that it will soon come to a complete standstill or even go into reverse.'
Japan's Nikkei 225 index fell 0.8 percent to 8,953.11 and Hong Kong's Hang Seng was down 1.5 percent to 19,495.88.
South Korea's Kospi slipped 1.3 percent to 1,834.08. Australia's S&P/ASX 200 dropped 0.7 percent to 4,130.70 and China's Shanghai Composite shed 1.1 percent to 2,199.16.
Inflation figures for China released Monday showed the consumer price index at its lowest since January 2010. That will give Beijing leeway to continue adding stimulus to fight an economic slowdown. China is scheduled to release its latest trade numbers Tuesday and retail sales, industrial production and gross domestic product on Friday. In a surprise move, China last week cut interest rates for a second time in a month.
'All these easing measures should filter through to generate a modest growth recovery,' said HSBC economist Qu Hongbin.
On Friday, the Dow Jones industrial average closed down 1 percent at 12,772.47. The Standard & Poor's 500 fell 0.9 percent to 1,354.68. The Nasdaq composite was down 1.3 at 2,937.33.
Benchmark oil for August delivery was up 47 cents at $84.92 a barrel in electronic trading on the New York Mercantile Exchange. Crude fell $2.77 cents to settle at $84.45 on Friday in New York.
In currencies, the euro rose slightly to $1.2393 from $1.2285 on Friday in New York. The dollar fell to 79.57 yen from 79.68 yen.
The U.S. economy added a less than expected 80,000 jobs last month, the Labor Department said Friday. The tepid employment growth, which followed the first drop in U.S. manufacturing in three years, increases pressure on the Federal Reserve to implement monetary stimulus measures known as quantitative easing.
The release later this week of the minutes of the last Fed meeting might show whether the Fed is leaning toward more stimulus to boost growth.
'The obvious concern is that this is the start of a slowdown that will lead to another recession,' Capital Economics said in a report. 'Although it is very clear that the U.S. economy has lost a lot of momentum, there are no real indications that it will soon come to a complete standstill or even go into reverse.'
Japan's Nikkei 225 index fell 0.8 percent to 8,953.11 and Hong Kong's Hang Seng was down 1.5 percent to 19,495.88.
South Korea's Kospi slipped 1.3 percent to 1,834.08. Australia's S&P/ASX 200 dropped 0.7 percent to 4,130.70 and China's Shanghai Composite shed 1.1 percent to 2,199.16.
Inflation figures for China released Monday showed the consumer price index at its lowest since January 2010. That will give Beijing leeway to continue adding stimulus to fight an economic slowdown. China is scheduled to release its latest trade numbers Tuesday and retail sales, industrial production and gross domestic product on Friday. In a surprise move, China last week cut interest rates for a second time in a month.
'All these easing measures should filter through to generate a modest growth recovery,' said HSBC economist Qu Hongbin.
On Friday, the Dow Jones industrial average closed down 1 percent at 12,772.47. The Standard & Poor's 500 fell 0.9 percent to 1,354.68. The Nasdaq composite was down 1.3 at 2,937.33.
Benchmark oil for August delivery was up 47 cents at $84.92 a barrel in electronic trading on the New York Mercantile Exchange. Crude fell $2.77 cents to settle at $84.45 on Friday in New York.
In currencies, the euro rose slightly to $1.2393 from $1.2285 on Friday in New York. The dollar fell to 79.57 yen from 79.68 yen.
Obama team targets Romney over taxes, Republicans cry foul
Democrats and Republicans tussled over the economy, but it was Romney's offshore assets that Democrats seized on during the Sunday talk shows in their quest to portray him as a wealthy man out of touch with ordinary Americans. Romney faces Obama in the November 6 election and polls indicate a close race.
Democratic National Committee Chairwoman Debbie Wasserman Schultz raised the issue on 'Fox News Sunday' as her interview time ran out.
'I'd really like to see Mitt Romney release more than one year of tax records, because there's been disturbing reports recently that he's got a Bermuda corporation, a secretive Bermuda corporation that no one knows anything about, investments in the Caymans, kind of Swiss bank account.'
'Americans need to ask themselves why does an American businessman need a Swiss bank account and secretive investments like that?' Schultz said.
Obama campaign adviser Robert Gibbs, on CNN's 'State of the Union,' called on Romney to release years of back tax records to allow scrutiny of his adherence to tax law. Asked whether Romney had broken the law, Gibbs said, 'Well, we don't know.'
'The one thing he could do ... to clear up whether or not he's done anything illegal - whether he's shielding his income from taxes in Bermuda or Switzerland - is to do what every other presidential candidate's done, and that's to release a series of years of their own tax returns,' Gibbs said.
'This is a guy whose slogan is: 'Believe in America' - and it should be 'Business in Bermuda.' That's what Mitt Romney's all about,' Gibbs said.
Romney's campaign fought back.
'The Obama campaign's latest unfounded character assault on Mitt Romney is unseemly and disgusting,' said Andrea Saul, a Romney campaign spokeswoman.
The Associated Press has reported that an offshore company based in Bermuda has helped bolster Romney's wealth even though it did not appear on his state or federal financial reports for 15 years.
The Obama campaign released an online video on Sunday raising questions about Romney's offshore accounts. 'Mitt Romney could be the first president in history to stash millions offshore so the American people deserve an explanation as to why he chose to invest in other countries known as tax havens rather than the United States,' the campaign said in a statement.
'DISHONEST ATTACKS'
Saul defended the Republican presidential challenger, saying, 'Mitt Romney had a successful career in the private sector, pays every dime of taxes he owes, has given generously to charitable organizations, and served numerous causes greater than himself.'
'Barack Obama has become what he once ran against - a typical politician willing to use false and dishonest attacks to save his job after failing to do his job,' Saul said.
Romney, a multi-millionaire former private equity executive, is one of the richest men ever to run for U.S. president. He has an estimated net worth of up to $250 million.
Romney has released his 2010 returns and estimates for 2011 but has been reluctant to release more. In April, he requested an extension to file his 2011 tax forms while estimating his tax liability at $3.2 million for last year.
Four months before the presidential election, Democrats are seeking to portray Romney as out of touch with the plight of Americans in a struggling economy, while Republicans point to Obama's policies as inadequate for strong economic growth.
The latest data point in the political battle over which candidate is better for the U.S. economy was the June U.S. employment report on Friday that showed non-farm payrolls grew by 80,000 jobs and the unemployment rate stayed at 8.2 percent.
Republicans said it showed Obama's policies were not invigorating the economy, while Democrats said it pointed to movement in the right direction.
'Clearly what they're doing is not working,' Senate Republican Leader Mitch McConnell told CNN's 'State of the Union' program. He called Obama's job creation record 'terrible.'
'People are unhappy with the economy. They know that Mitt Romney is a job creator,' McConnell said.
Gibbs said the employment report showed that the economy was growing. 'We've made progress, but we've got a long way to go.'
Asked about the Obama campaign trying to define Romney as an outsourcer of jobs in a new ad, Republican National Committee Chairman Reince Priebus responded: 'The only job that we need to make sure we outsource in this country is Barack Obama's job.'
He said on 'Fox News Sunday' that 'Barack Obama hasn't done anything in regard to what he promised he would do and making sure that we have a level playing field with China. He's in the sand box with China every day. He hasn't stood up to China.'
(Additional reporting by Paul Simao; Editing by Will Dunham)
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China boosts state firms as entrepreneurs struggle
Across town from Liu's office is a project that exemplifies China's mini-stimulus: A 69.6 billion yuan ($11 billion steel) mill being built by a government company and financed by state-owned banks that lend little to the private sector. It will employ 5,000 people - or one job for each $2.2 million of investment.
'We get no government help,' said Liu, as his office air conditioner struggled against the muggy heat of this southern city. 'But we're a small company, and small companies shouldn't bother the government.'
Spending like that of Baosteel Group, owner of the Zhanjiang mill, is expected to help push up economic growth later this year. But the emphasis on state industry that creates few jobs will come at a longer-term cost, setting back efforts to reduce reliance on investment and generate self-sustaining growth powered by consumer spending.
The strategy will further entrench subsidy-guzzling government companies that dominate industries from oil to telecoms. That might hamper reforms the World Bank and others say are needed to keep the economy growing by curbing state industry and nurturing free-market competition and more dynamic private companies.
'When the economy gets into trouble, all those good intentions get thrown out the window, and we revert to Plan A, which is always to encourage more investment and ensure that funds keep flowing to state-owned companies,' said Mark Williams, chief Asia economist for Capital Economics.
Beijing has cut interest rates twice since the start of June and reduced fuel prices as it tries to buoy growth that declined to 8.1 percent in the first quarter. It has promised more spending on low-cost housing, airports and other public works. That will pour money into state-owned construction companies and suppliers of steel and cement.
Baosteel's Zhanjiang mill is one of a series of industrial projects the government approved in May as stimulus measures after previously blocking them to prevent overinvestment in unneeded facilities. State-owned Wuhan Iron & Steel Group also received approval for a new mill state media say will cost more than 60 billion yuan ($9.5 billion).
Both are to be financed by state banks, which still channel at least 80 percent of lending to state companies despite China's three decades of market-oriented reforms and the growth of private business that has driven its economic boom.
Leaders including Premier Wen Jiabao have promised to help the private sector with more bank lending and other measures, but entrepreneurs say they have yet to see changes.
'I have never been able to get a bank loan,' said Deng Mingxin, owner of a company in Changshu, a city northwest of Shanghai, that makes components for zippers. He said state companies appear to get credit easily while bank employees expect bribes to approve loans for private borrowers.
Deng's workforce has shrunk by two-thirds to 10 people over the past six months as employees left after wage hikes of up to 30 percent failed to keep pace with rising living costs. He said he is considering moving to lower-cost Vietnam.
'I am disappointed at the situation in China,' he said. 'This is unfair.'
Today's state companies and their relationship to the private sector have changed drastically from the era of central planning.
Beijing cut back state industry in the late 1990s, wiping out tens of millions of jobs. Then a new generation of leaders began in 2005 to build up elite companies such as oil giant PetroChina Ltd., phone carrier China Mobile Ltd. and Bank of China Ltd. to control industries deemed strategic.
State companies benefit from monopolies, low-cost bank loans, free land and other favors. Instead of competing with private companies, state firms extract money from them by controlling access to oil, electric power, phone service and other essential resources.
Communist leaders say China needs big companies that can compete globally. But the system also serves a political goal by providing a source of jobs and money to reward the party's supporters and keep it in power in a rapidly changing society.
Beijing's 4 trillion yuan ($586 billion) stimulus in response to the 2008 crisis added to the growth of state industry. Government-owned construction and other enterprises received the bulk of that while thousands of small manufacturers and other private companies went bankrupt.
State industry growth also has been driven by official directives that say companies in steel, energy and other industries deemed strategic must have at least 50 percent government ownership. In some cases, private entities were forced into being acquired by state companies.
Estimates of the portion of the economy controlled by non-private companies range from 30 percent to as much as 50 percent if entities such as worker cooperatives are included.
State industry's vast wealth - and high pay for executives who are political appointees, not risk-taking entrepreneurs - is fueling public resentment.
The top tier of 119 state companies directly controlled by the Cabinet received subsidies worth an estimated 7.5 trillion yuan ($1.2 trillion) in 2001-09 in the form of low-cost land, bank loans and other resources, according to the Unirule Institute of Economic Research, an independent group in Beijing.
'People are gradually becoming aware that state-owned enterprises are inefficient and unfair institutions that occupy the people's resources to serve their own circle,' said Unirule director Sheng Hong.
'The high levels of government and the ruling party increasingly recognize this,' Sheng said. 'On the other hand, state-owned enterprises are a huge interest group. They have a lot of political influence and money.'
Zhanjiang, in Guangdong province, the heart of China's export-driven manufacturing industries, reflects the conflict between the Communist Party's need for a robust private sector and its determination to build up state-owned companies.
The backbone of the local economy is private factories that employ thousands of people making furniture and traditional Chinese medicines or processing seafood.
Liu, who named his company Yi Pian Hong after a 1960s postage stamp that shows communist radicals holding aloft Mao Zedong's Little Red Book, expects this year's sales to be comparable to 2011. That is better than some competitors, but below the 20 to 40 percent annual growth his 5-year-old company is used to. The company pays for its financing needs out of revenues or credit from suppliers.
'Certainly, it's hard to get a bank loan,' Liu said.
At another furniture company, a manager said sales might be down 10 percent due to government curbs on housing sales that were imposed to cool surging prices. He asked not to be identified by name because he was not authorized to speak for his company.
The local branch of China's central bank said a survey of small businesses in Zhanjiang found 90 percent reported cash shortages or trouble credit.
Despite the prominence of private industry in Guangdong, only 12 percent of its bank lending goes to entrepreneurs, according to a speech by the province's deputy party secretary, Zhu Mingguo, reported by a party newspaper.
'The bigger state-owned companies can stay afloat because they have access to finance, and that means that they have a huge competitive advantage,' said Williams. ' So whether it just involves them taking market share or outright taking over the smaller firms, the result is, they come out the other end in a much stronger position.'
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AP researchers Zhao Liang in Beijing and Fu Ting in Shanghai contributed.
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