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Archive for February, 2012

Confidence in Europe Rises More Than Forecast on Stability Signs: Economy

Economic confidence in the euro area improved more than forecast in February, adding to signs the economy is stabilizing after a fourth-quarter contraction.

An index of executive and consumer sentiment in the 17- nation euro area rose for a second month, increasing to 94.4 from 93.4 in January, the European Commission in Brussels said today. Economists had forecast a gain to 94, the median of 31 estimates in a Bloomberg News survey showed.

Germany’s economy, Europe’s largest, has helped soften the impact of tougher austerity measures across the region as companies boost output and hiring to meet export demand. German business confidence rose more than economists forecast to a seven-month high in February and investors became more optimistic. European Central Bank President Mario Draghi has said that while some euro-area nations may see a “mild” recession, the overall situation “seems to be stabilizing.”

Today’s report suggests that “the euro zone is past the worst,” said Howard Archer, chief European economist at IHS Global Insight in London. “Even so, sentiment is still at a pretty low level and the euro zone is far from out of the economic woods.”

The euro was little changed after the report, trading at $1.3441 at 11:11 a.m. in Frankfurt, up 0.3 percent on the day. The Stoxx Europe 600 Index (SXXP) rose 0.2 percent.

German Unemployment

Germany’s expansion may help temper a slump in the euro area this year, according to the commission. German gross domestic product may rise 0.6 percent in 2012, while the economies of Italy, Spain, the Netherlands, Belgium and Greece are seen shrinking. French GDP may increase 0.4 percent, it said on Feb. 23.

German consumer confidence will increase to a 12-month high in March, helped by declining unemployment, GfK SE (GFK) said today. German unemployment probably fell for a fourth month in February, a Bloomberg survey shows. The Federal Labor Agency in Nuremberg will release the report tomorrow.

The uptick in European confidence echoed encouraging economic news from Japan, where retail sales exceeded economists’ forecasts in January, signaling a recovery in consumer spending will help the world’s third-largest economy return to growth this quarter.

‘Unusual Surge’

Sales rose 1.9 percent from a year earlier, after a 2.5 percent increase in December, the Trade Ministry said in Tokyo today. The median forecast of 15 economists surveyed by Bloomberg News was for a 0.1 percent decline. Car sales jumped 24 percent, the most in 22 years, after the government re- introduced a subsidy for buyers of energy-efficient cars.

In the U.S., orders for durable goods probably declined in January for the first time in four months as aircraft demand slowed, economists said before a government report today. Bookings for goods meant to last at least three years fell 1 percent after a 3 percent increase the prior month, according to the median forecast of economists surveyed by Bloomberg News.

A gauge of sentiment among European manufacturers increased to minus 5.8 in February from minus 7 in the previous month, today’s report showed. That’s the highest since August. An indicator of services confidence slipped to minus 0.9 from minus 0.7, while a gauge of consumer sentiment rose to minus 20.3 from minus 20.7. Indicators of retail trade and construction also improved.

‘Danger Zone’

Still, the region may struggle to gather strength after the economy shrank 0.3 percent in the fourth quarter. Manufacturing output dropped more than economists estimated in February and services industries failed to expand. Euro-region unemployment probably held at 10.4 percent in January, the highest in more than a decade, according to a Bloomberg survey.

The world economy is “not out of the danger zone” amid fragile financial systems, high public and private debt and rising oil prices, International Monetary Fund Managing Director Christine Lagarde said after a G-20 meeting last weekend.

Some companies have relied on faster-growing markets to bolster sales. Hermes International (RMS) SCA, the French maker of Birkin bags, on Feb. 9 reported full-year sales that beat its own forecast amid demand in the Americas and most parts of Asia. BASF SE (BAS), the world’s biggest chemical maker, on Feb. 24 predicted its run of record earnings to extend to a third year after emerging markets in Asia helped boost sales.

ECB Bond Purchases

A gauge of euro-region manufacturers’ production expectations rose to 2.9 from 1.9 in January and an indicator of order books increased to minus 14.2 from minus 16.4. At the same time, manufacturers grew more pessimistic about export orders and employment conditions, today’s report showed.

The ECB, which has purchased government bonds and provided banks with unlimited cash, will publish its latest economic projections on March 8. The central bank earlier this month kept borrowing costs at 1 percent, matching a record low.

“We can see a tentative stabilization at low levels of activity but also with some signs, the very first signs of some improvement here and there,” Draghi said. “That’s for the average of the euro area. In some countries there will be a mild or more-than-mild recession.”

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European Stocks Sneak Higher

European stocks ended with mild gains Tuesday, as investors positioned themselves ahead of the European Central Bank’s second liquidity boost.

The Stoxx Europe 600 index closed up 0.2% at 264.33. The U.K.’s FTSE 100 index ended up 0.2% at 5927.91, Germany’s DAX rose 0.6% to 6887.63 and France’s CAC-40 index ended 0.4% higher at 3453.99.

Stocks kicked off the session on a positive note, as market participants shrugged off Standard & Poor’s downgrade of Greece’s credit rating late Monday to “selective default.” The move was widely expected and came after banks agreed to write off more than half of their Greek debt holdings as part of the country’s second bailout. Tuesday, the ECB temporarily suspended the eligibility of Greek bonds as collateral.

Although the overall tone was upbeat, stocks were choppy and volumes were fairly light Tuesday, with traders noting some reluctance to make any bold moves ahead of the ECB’s second long-term refinancing operation. The strong gains made in equity markets at the start of 2012 have been attributed in large part to the ECB’s first round of LTRO in December last year. With this in mind, investors were waiting to see what the take-up will be like second time around, with an expected range of €250 billion to €600 billion.

With regards to economic news, much of the focus was on the U.S. European stocks took a turn for the worse after figures showed durable-goods orders fell 4% in January, against expectations for a 1.1% drop. There was also some bad news on house prices. The Standard & Poor’s Case-Shiller home price index showed prices fell in December, ending 2011 at the lowest levels since the housing crisis began in mid-2006. But a better-than-expected reading from the Conference Board consumer-confidence index for February helped stocks claw their way back into positive territory.

On the corporate front, Peugeot shares surged on news that General Motors may be buying a stake in the company. However, by the time of the markets’ close, the stock was up just 0.4%, after The Wall Street Journal reported the stake sale was part of a €1 billion, potentially discounted, share sale by Peugeot.

On the downside, Dutch navigation-equipment maker TomTom slumped 15% on a disappointing outlook. It said revenue is set to decline this year, as lower sales at its consumer business contributed to a 77% fall in fourth-quarter net profit.

By the time of the European stock markets close, the single currency was trading at $1.3462 from $1.3398 late Monday, while the dollar was at ¥80.44 from ¥80.61. Sterling last traded at $1.5887 from $1.5824.

Late in Europe, light, sweet crude for April delivery was down 28 cents at $108.28 on the New York Mercantile Exchange. Gold for April delivery was up $11.10 at $1,786.00 per troy ounce late in Europe on the Comex division of Nymex.

Eurozone to slip back into recession in 2012, EU officials predict

BRUSSELS — The European Union lowered its growth forecast Thursday for this year and warned that the eurozone would undergo a “mild recession,” casting further gloom on the continent’s economic prospects.

The new figures are likely to intensify concerns that, as European nations enact tough austerity measures to appease the debt markets, they are undermining the economic growth needed to help pull them out of financial distress.

In its forecast, the European Commission said the 17-nation single currency zone will probably shrink by 0.3 percent as a whole in 2012. In November, it had forecast growth of 0.5 percent for the year.

Pushing the projections down were a contraction of 1.3 percent foreseen for Italy and 1 percent in Spain — two of the eurozone’s biggest economies also beset by debt troubles. Of the three small countries that have received international bailouts, Ireland was expected to see slight growth, and Greece and Portugal were projected to suffer steep contractions.

The gross domestic product for all 27 nations of the European Union will be flat, according to the commission forecast.

“The EU is set to experience stagnating GDP this year, and the euro area will undergo a mild recession,” the report said.

Compared with November, “prospects have worsened and risks remain, but there are signs of stabilization especially in the recent period,” said Olli Rehn, the European commissioner for economic and monetary affairs.

“Financial markets remain rather fragile, but there are signs of stabilization,” Rehn said.

“With the exception of Greece, spreads have come down since mid-November,” he said, referring to the premium in borrowing costs paid by the eurozone’s struggling nations.

Rehn also argued that there were no signs of a credit crunch after the intervention in December by the European Central Bank, when it offered cheap, longer-term loans to the banking sector.

“The new liquidity measures by the European Central Bank have contributed to the improvement,” Rehn said.

The November forecast had predicted that Germany, the economic engine of Europe, would record just 0.8 percent growth in 2012. That was lowered to 0.6 percent Thursday.

A closely watched barometer of German business sentiment rose more than expected, raising optimism that the economy is growing again after declining 0.2 percent in the last quarter of 2011.

The Ifo Business Climate Indicator, considered a reliable predictor of future economic performance, rose for the fourth month in a row. Manufacturers, retailers, wholesalers and builders all reported feeling better about their prospects than in January.

“Today’s Ifo index provides further evidence that the economic contraction at the end of last year was only a brief stopover,” said Carsten Brzeski, an economist at ING Bank, in a note to clients. The data mean there is “at least some good news for the eurozone.”

Greece bailout: MPs approve debt swap deal

Health workers and doctors went on strike in protest at the latest austerity measures

The Greek parliament has passed a law that allows a debt write-down with private creditors, which is a key plank of its EU/IMF bailout agreement.

Banks and other private creditors will be asked to take a 53.5% loss on their bonds, wiping out 107bn euros (£90bn;$142bn) of Greek debt.

Now that the debt swap has been approved, MPs will also be asked to back further austerity measures.

They are required before Greece receives its second big EU/IMF loan.

Earlier this week, eurozone countries agreed to the 130bn euro loan in order to bring Greece’s debt down from 160% of GDP to 120.5% of GDP by 2020. Without a further loan, Greece stands to default on its debts on 20 March.

Ministers have to push through 3.3bn euros in budget cuts in the next few days. One of the harshest measures is a 22% reduction in the minimum wage, which is set to go through early next week. A minimum monthly wage would fall to 580 euros, and even less for people aged under 25.

MPs are also due to vote next week on pension cuts as well as reductions in the health, education and defence budgets.

Doctors and other health workers went on strike on Thursday, protesting outside the health ministry.

‘Cheese on a mousetrap’

The debt-swap law went through parliament on Thursday largely because of the support of the two main parties – Pasok and New Democracy – in Prime Minister Lucas Papademos’s coalition government.

A number of left-wing groups and the far-right Laos party, which recently pulled out of the government, objected to emergency measures being used to push through the bill.

“You put the debt swap in front of us like a piece of cheese on a mousetrap, which is 10 years of hardship,” MP Dimitrios Papadimoulis told parliament, adding that a proposal to slash 300m euros from pensions should be replaced with a freeze on an order for two German-made submarines.

But Finance Minister Evangelos Venizelos said that not ratifying the bond-swap deal would be catastrophic.

“The true dilemma is: either sacrifices with prospects, or complete destruction with no prospects. Either cuts which are harsh… or the inability to pay salaries and pensions,” he said.

Included in the debt swap law are collective action clauses (CACs) which will force all private bond-holders to take a loss on their investments if two-thirds of investors back the government’s offer. For the swap to go ahead, 50% of investors will have to respond to it.

The European Commission has forecast a 0.3% contraction in the eurozone economy in 2012, with the Greek economy expected to shrink by 4.4%.

BBC News

Stocks lower a day after Dow’s blip above 13,000

NEW YORK — A day after Dow 13,000, investors took a break.

Stocks closed lower Wednesday for the first time in four trading days. The Dow Jones industrial average lost 27.02 points to finish at 12,938.67. The day before, it briefly passed 13,000 for the first time since May 2008.

Some investors worried about the details of a bailout deal reached for Greece this week. But analysts said investors were mostly in a holding pattern after seeing the market hit an important psychological mark.

“The market is pausing for the next slew of good news,” said Doug Cote, chief market strategist at ING Investment Management. “The real U.S. economy continues to march along while the attention is on Europe.”

On Thursday, the government will give the latest reading on unemployment claims. They have been declining steadily and fell last week to 348,000, the lowest since March 2008.

The Dow has lost ground on just four of the past 11 trading days. It’s been trading at or near four-year highs for three weeks and is up 6 percent this year. Strong corporate earnings have been a key factor, Cote said.

On Wednesday, the Dow traded in a range of just 63 points. Over the past year, it has had smaller trading ranges on only nine other days. The average daily range over that time has been 181 points.

Financial stocks led the market lower. Investors worried that a $170 billion bailout for Greece, announced Tuesday, would not be enough to keep the debt-laden country from eventually defaulting and possibly leaving the euro currency group.

Greece says the bailout, plus an agreement it hopes to secure from investors to take losses on Greek government bonds, will keep it in the euro group. “There is no issue of the country’s financial collapse,” Finance Minister Evangelos Venizelos said.

The Greek economy is entering its fifth year of recession. Fitch ratings agency downgraded Greece further into junk status Wednesday, to a rating of C, one notch above default.

In the U.S., the Standard & Poor’s 500 lost 4.55 points to close at 1,357.66. The Nasdaq composite index declined 15.40 points to 2,933.17. Volume was lighter than average, 3.6 billion shares.

All three major averages are well ahead for the year. The Dow is up 5.9 percent, the S&P 8 percent and the Nasdaq 12.6 percent.

“The market has done well in the face of some pretty low expectations,” said Todd Salamone of Schaeffer’s Investment Research. “Right now we’re just seeing a few speed bumps.”

Salamone said he believes investors will keeping focusing on negative news overseas despite better news on the U.S. economy. Last week, Congress extended a cut in the Social Security payroll tax, worth $1,000 for someone making $50,000 a year.

European markets closed lower. In Asia, stocks mostly rose even after a fairly weak Chinese manufacturing survey. The dollar rose to a seven-month high against the Japanese yen. U.S. Treasury prices edged higher, and the yield on the 10-year U.S. Treasury note fell to 2 percent from 2.05 percent.

Among U.S. stocks making big moves:

— Computer maker Dell fell 6 percent after reporting an 18 percent drop in first-quarter profit. The company was hurt by slow sales to government agencies, tough competition from Apple and flooding in Thailand that disrupted its supplies.

— Toll Brothers Inc., the luxury homebuilder, fell 5 percent after posting a quarterly loss. It did report more signed contracts and a bigger backlog, encouraging measures for coming months.

— Garmin Ltd., which makes GPS systems, jumped 9 percent after its quarterly net income rose 25 percent on higher prices and sales. The company’s results and 2012 revenue forecast beat Wall Street’s expectations.

Greek bailout wins two cheers from wary investors

Greece’s bailout reinforces a rally that has driven yields for Italy and Spain down from euro-era records, giving the region’s leaders time to convince investors they can deliver both economic growth and spending discipline.

“It is good to have cleared the Greek Damocles sword for a few months,” said Raphael Gallardo, the head of economic research at Axa Investment Managers in Paris, which oversees about 515 billion euros ($680 billion). “The euro area governments and European Central Bank have won some time, two months at least. It is positive for risk assets in the short run.”

Italy’s average 10-year borrowing cost has dropped to below 5.4 percent this year from 7.1 percent at the end of December.Spain’s 10-year yield is 5.08 percent, down from more than 6.7 percent in mid-November and compared with its 2011 average of 5.4 percent.

Greece’s government has to convince its lenders it can enforce the spending cuts that won it 130 billion euros of aid, its second rescue in three years. French President Nicolas Sarkozy faces an election, while Italian Prime Minister Mario Monti has to persuade lawmakers to back labor market reforms.

“The deal may have removed near-term uncertainty, it won’t immediately change our investment view,” said Helen Roberts, who oversees 27 billion pounds ($43 billion) as head of government bonds at F&C Asset Management in London. “People said the right thing, now they need to do the right thing. It’s a hard environment to implement austerity measures. It’s a worry that the Greek government might not be able to do much even though they are fully committed to the agreement.”

‘Containment Walls’

Euro members have spent at least 386 billion euros averting defaults for Greece, Ireland and Portugal, none of which are currently able to sell bonds on the international capital markets. The euro has held between a low of $1.26 and a high of $1.33 this year, and currently trades at about $1.32. It peaked at almost $1.50 in May last year, and was at a low of $1.2858 on Dec. 29.

“Unfortunately it doesn’t feel like the world has changed a whole lot,” said Arif Husain, the director of European fixed income at Alliance Bernstein Ltd. in London, which oversees $218 billion. “It will be a relief to not have to read the same repetitive headlines each morning. This does hopefully buy some more time for Europe to further build containment walls and move further toward fiscal consolidation before it has to tackle this problem for the third and potentially final time.”

Unlimited Funds

The ECB will offer a second round of unlimited three-year loans on Feb. 29 via a longer-term refinancing operation, after handing out 489 billion euros in December. That cash has helped drive the Euribor-OIS spread, which gauges banks reluctance to lend to each other by measuring the difference between the euro interbank offered rate and overnight indexed swaps, to its lowest in more than five months, at 68 basis points.

“I invested 10 percent of one of the portfolios I manage in Italian debt in mid-January having never bought Italiangovernment bonds before,” said Michael Riddell, a London-basedfund manager at M&G Investments, which oversees about $323 billion. “I didn’t think Greece would have a messy default. The enormous liquidity that the ECB is throwing at the market via LTRO is having a much larger effect on peripheral sovereigns than what happens in Greece.”

Avoiding Default

Greece’s latest rescue includes a debt swap with private bondholders who will forego 53.5 percent of their principal by swapping new debt for old.

“The biggest benefit here for investors and for Greece and the euro zone is that we’ve been able to avoid a disorderly default and all of the negative consequences that would in all likelihood have come with that default,” Charles Dallara, managing director of the International Institute of Finance, which represented bondholders in the negotiations, said yesterday.

The package means Greece won’t miss a 14.5 billion-euro debt payment scheduled for next month, which risked triggering concern that other nations such as Portugal, which has seen its 10-year yield stuck above 10 percent for the past six months, might also default.

“You’ve got to be encouraged,” said Geraud Charpin who helps oversee $42 billion at BlueBay Asset Management Ltd. in London. “It has effectively removed the prospect of a disorderly default at the end of March.”

‘Accident-Prone’

A report by the International Monetary Fund, the European Union and the ECB warned that Greece’s situation remains“accident-prone with questions about sustainability hanging over it.” While the cuts imposed on the nation are designed to get its debt down to 120 percent of gross domestic product by 2020, the report said a worst-case scenario could see that balloon to 160 percent.

“This doesn’t put Greece on a sustainable footing in anything other than a best-case scenario,” said Patrick Armstrong, a managing partner at Armstrong Investment Managers which oversees $353 million and holds a “small amount” of Greece’s March 2012 note. “A default or exit of the euro-region is still very likely at some point.”

Armstrong said the IMF’s growth forecasts are overly optimistic and reflect “the best-case scenario rather than the base-case,” with the government’s inability to generate revenue by collecting taxes likely to undermine its economy.

No Surprise

Greece’s economy will contract 4.3 percent this year and stall next year before returning to growth in 2014, based on the assumptions used in the bailout agreement. Debt will peak at 168 percent of GDP in 2013.

“This is probably the best deal the Greeks are likely to get that is consistent with staying in the euro,” said Toby Nangle, who helps manage the equivalent of about $49 billion as head of multi asset allocation at Threadneedle Asset Management in London. “There’s a question mark over Greece’s ability to deliver. People have had a long time to prepare. They ought not to be surprised at what’s going on now.”

Gold edges up after Greek deal gives euro brief boost

LONDON: Gold rose for a second day on Tuesday, taking its cue from a brief rally in the euro after euro zone finance ministers struck a deal with Greece on its emergency funding, while silver shrugged off data that showed a steep drop in Chinese imports.

Euro zone finance ministers sealed a 130-billion-euro ($172 billion) bailout for Greece on Tuesday to avert a chaotic default in March after persuading private bondholders to take greater losses and Athens to commit to deep cuts.

The euro held onto gains on Tuesday due to relief over Greece’s securing of a rescue deal to avoid a chaotic default, but sceptical investors were looking to sell into a bounce on doubts whether it makes the country’s debt burden any more manageable.

Spot gold rose 0.2 percent on the day to $1,736.84 an ounce by 1100 GMT, while most-active US April futures rose nearly 0.8 percent to $1,739.10 an ounce.

“Gold is trading more like the other metals, as a risk asset, rather than a risk hedge,” Citigroup analyst David Wilson said.

“You’d have thought that all the macro issues would be supportive for gold, when looking at US and European debt, and a slowing China, but it seems to be largely driven by the dollar/euro,” he said, adding his bank saw the gold price moving closer towards $1,800 an ounce later this year.

Gold’s correlation with the single European currency is holding close to 50 percent, compared with a correlation of around just 30 percent two weeks ago, indicating that it is more likely now to move in tandem with the euro than against it.

Gold priced in euros meanwhile rose 0.3 percent on the day to 1,312.59 euros an ounce, set for a decline of 1.4 percent so far this month, following January’s 10-percent rally.

In spite of gold’s waning positive link with risk aversion, investors have snapped up almost as much of the metal through exchange-traded products so far this month as they did in the whole of January.

ETP HOLDINGS UP IN FEB

Holdings of gold in the world’s major ETPs fell on the day by 12,300 ounces to 70.307 million ounces, but are still set for a rise of more than 600,000 ounces so far in February, marking a second straight month of net inflows.

Silver took its cue from a higher gold price and edged up on the day, shrugging off a decline in January imports of silver by China, a major consumer of the metal.

Chinese imports of silver fell to 191.7 tonnes in January, their lowest in three years. In 2011, China imported a total of 3,575 tonnes of silver, the lowest in at leat four years and down from 5,154 tonnes in 2010.

“This continues the trend – which we have observed for many months now – towards declining silver imports, removing a crutch which in the past has been important to the price. That said, the decreased imports were cushioned in January by growing demand for coins and ETFs,” Commerzbank analysts said.

“What is more, speculative financial investors have also been showing greater optimism again recently, allowing the price of silver to gain nearly 20 percent in January – it is now hovering at roughly the same level as at the end of the month.”

In more bullish news for silver, India’s imports could top 5,000 tonnes in 2012 compared with 4,800 tonnes a year ago, president of Bombay Bullion Association Prithviraj Kothari said on Tuesday.

If imports were to rise above 5,000 tonnes, this would mark a high since 2008’s 5,48 tonnes in imports.

Platinum was the top performer out of the precious metals complex, rising by neary 1.3 percent on the day to $1,660.24 an ounce, close to its highest in three months

The platinum price has risen by 10 percent in the last month, since the closure of world number two producer Impala Platinum’s operations at Rustenburg due to strike action.

The company said on Monday it had lost 80,000 ounces of platinum output at Rustenburg, which contributes 60 percent of Impala’s total production.

The rally in platinum has narrowed its discount to gold, which is now below $80 an ounce, compared with historical lows of more than $200 an ounce in late December and early January.

Palladium rose 1.0 percent on the day to be bid at $698.97 an ounce, around its highest for a week, buoyed by the strength in the euro and other industrial metals.