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Euro Watch: Euro Zone Slump Expands to Germany and France

February 15, 2013 by Leave a Comment

Germany and France are now caught up in a slump that was already well under way in other big euro zone economies like Spain and Italy.

The figures were a reminder of how hard it has become for many of the world’s most economically developed countries to overcome their debt problems and return to growth. Even the United States, which had appeared to be rebounding, surprised economists late last month by reporting contraction for the fourth quarter.

In the euro zone, economic output shrank 0.6 percent from October through December, compared with the previous quarter, according to official figures published on Thursday. That came after a decline of 0.1 percent in the third quarter.

While economists had expected a decline in the fourth quarter, they did not expect it to be quite so big. The disappointing data called into question the timing of a recovery that was supposed to begin later this year. And the figures put pressure on government budgets that are already stretched because tax revenue automatically falls when companies and workers are earning less.

Almost every one of the euro zone’s 17 members suffered a drop in gross domestic product. In the three biggest euro economies, G.D.P. fell 0.6 percent in Germany, 0.3 percent in France and 0.9 percent in Italy.

For France, especially, Thursday’s data was a deep embarrassment to the government. The Socialist president, François Hollande, was elected last May after pledging to reduce the budget deficit this year to 3 percent of G.D.P., as required under euro zone rules. And his finance minister, Pierre Moscovici, had promised numerous times since then that the government would meet the 3 percent limit this year. But the lack of growth will make it all but impossible to meet that goal.

The gloomy economic data could also influence the outcome of elections later this month in Italy, in which the country’s international credibility is at stake. The prolonged slump provides ammunition to populist forces led by former Prime Minister Silvio Berlusconi, perhaps giving his party enough seats in Parliament to block unpopular measures intended to improve the country’s economic performance.

The economic report by Eurostat, the European Union’s statistics agency, was not bad enough to kill all hope that the euro zone was on the mend and that it could see weak growth later in the year.

Industrial production for the bloc rose in December, and surveys have suggested that businesses and consumers were becoming more willing to spend because they were less afraid that the euro zone would break up under the stress of debt and banking crises.

“I think the euro zone looks a lot more stable,” said Marie Diron, an economist in London who advises the consulting firm Ernst Young. “There are surely companies in Germany and Finland which couldn’t really take the investment and equipment decisions they wanted to,” because of fears of a breakup. “Now that has disappeared.”

But Ms. Diron noted that unemployment remained high in many countries, creating political instability that was amplified by governments’ need to cut spending. “That’s really where the risk remains,” she said.

The deepest misery is still in Greece, even if fewer people are predicting that the country will have to leave the euro zone. Unemployment rose to a record 27 percent in November, the Greek Statistics Agency said on Thursday. Nearly two-thirds of young people are jobless.

The French economy has been suffering from a drop in industrial production, as large employers like the carmaker PSA Peugeot Citroën struggle to cope with plunging demand in their most important markets, including Spain, where growth last quarter fell 0.7 percent.

This week, the French government auditors, the Cour des Comptes, announced that French growth would be significantly below the 0.8 percent previously estimated by the Hollande government, making it practically impossible to keep the deficit below the goal of 3 percent of G.D.P. despite significant tax increases. The Thursday figures, showing a contraction of 0.3 percent in the fourth quarter and no growth at all in 2012, were even worse than expected.

The auditors recommended balancing the tax increases with more cuts in public spending, but the Hollande government has said that it wants to impose taxes up front and deal with more significant spending cuts in coming years. Some economists contend that France is taxing itself into a recession.

Mr. Hollande, who has argued for measures to promote economic growth as unemployment rises, acknowledged failure, telling reporters earlier this week, “There is no point sticking to objectives if they are not going to be achieved.”

Mr. Moscovici said after a cabinet meeting on Wednesday that the government did not want “to add austerity on top of austerity, either for France or for Europe.”

Among all 27 members of the European Union, including countries like Britain and the Czech Republic that are not part of the euro currency union, economic output fell 0.5 percent.

In Germany, the unexpectedly large decline in output was caused by lower exports and fewer purchases of equipment by companies.

During the first nine months of last year, Germany continued to defy the recession in the euro zone as a whole, benefiting from sales to countries outside the euro zone, especially the United States and China. But the decline in the fourth quarter illustrated Germany’s vulnerability to the fortunes of its neighbors.

In coming weeks, economists will be watching for evidence that the German economy has already begun growing again, as many predict. If so, that could help pull the rest of Europe out of recession.

“While we expect a stabilization in the first quarter and a weak recovery from the second quarter onwards,” Peter Vanden Houte, an economist at ING Bank, said in a note to clients, “one has to acknowledge that a lot of things still can go wrong.”

Steven Erlanger contributed reporting from Paris.

Article source: http://www.nytimes.com/2013/02/15/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss

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Japan Approves $116 Billion for Urgent Economic Stimulus

January 11, 2013 by Leave a Comment

TOKYO — The Japanese government approved emergency stimulus spending of ¥10.3 trillion Friday, part of an aggressive push by Prime Minister Shinzo Abe to kick-start growth in a long-moribund economy.

Mr. Abe also reiterated his desire for the Japanese central bank to make a firmer commitment to stopping deflation by pumping more money into the economy, which the prime minister has said is crucial to getting businesses to invest and consumers to spend.

“We will put an end to this shrinking and aim to build a stronger economy where earnings and incomes can grow,” Mr. Abe said. “For that, the government must first take the initiative to create demand and boost the entire economy.”

Under the plan, the Japanese government will spend $116 billion on public works and disaster mitigation projects, subsidies for companies that invest in new technology and financial aid to small businesses.

Through these measures, the government will seek to raise real economic growth 2 percentage points and add 600,000 jobs to the economy, Mr. Abe said. The package announced Friday amounts to one of the largest spending plans in Japanese history, he said.

By simply talking about stimulus measures, Mr. Abe, who took office late last month, has already driven down the value of the yen, much to the relief of Japanese exporters, whose competitiveness benefits from a weaker currency. In response, Tokyo stocks have rallied.

But the government’s promises to spend its way out of economic stagnation also raise concerns about public debt, which has already mushroomed to twice the size of the Japanese economy and is the largest in the industrialized world.

At the root of Japan’s debt problems was a similar attempt in the 1990s by Mr. Abe’s Liberal Democratic Party to stimulate economic growth through government spending on extensive public works projects across the country. The effort did little to bring growth to the wider economy.

On Friday, Mr. Abe said that the spending this time around would be better focused to bring about growth through investment in innovation. He said the government would also invest in measures that would help mitigate the decline in the Japanese population by encouraging families to have more children.

“To grow in a sustainable way, we must help create a virtuous cycle where companies actively borrow and invest, and in so doing raise employment and incomes,” Mr. Abe said.

“For that, it is extremely important that we adopt a growth strategy that gives everyone solid hope that the future of the Japanese economy lies in growth.”

Mr. Abe has assembled two panels of chief executives and academics, including Hiroshi Mikitani, chief executive of a major e-commerce company and a harsh critic of the old guard of economic policy makers, and Heizo Takenaka, a former economy minister and outspoken academic known for his disdain of pork-barrel spending.

Meanwhile, a more aggressive monetary policy designed to beat deflation could fall into place when the Bank of Japan’s board meets Jan. 20-21 for its monthly review.

Mr. Abe has leaned on Japan’s central bankers — whom he has criticized as too cautious — to commit to an inflation rate of at least 2 percent, which would help convince businesses that Japan would not arbitrarily reverse course on its easy money policy. For more than a decade, the rate of inflation has been flat or negative, reflecting languishing personal incomes and corporate profits.

Some at the central bank, still wary of the tremendous asset bubble that loose monetary policy set off in the late 1980s, have warned of the dangers of stoking inflation. The Bank of Japan’s governor, Masaaki Shirakawa, has also bristled at the idea of bankrolling public spending by buying more government bonds.

With its benchmark interest rate already near zero, the bank has few options left, other than to buy up government bonds and other financial assets if it is to inject money into the economy.

In an interview with the Nikkei business daily published Friday, Mr. Abe said he would seek in writing an agreement from the bank to pursue a target of 2 percent inflation, though he said the agreement would not set a deadline. He also said the bank should consider policies that would increase employment as much as possible.

Mr. Abe said that he hoped to pick as Mr. Shirakawa’s successor someone who shared the government’s position on inflation and employment, according to the interview. The central bank governor’s term runs out in April.

Hajime Takada, chief economist at the Mizuho Research Institute, said in a note to clients Friday that there were still too many unknowns to assess the effectiveness of Mr. Abe’s economic push.

But by setting a clearly pro-business policy agenda, Mr. Abe has started to change the mind-set of investors and corporations who had all but given up on growth — and for that, the new prime minister scores high, Mr. Takada said.

Article source: http://www.nytimes.com/2013/01/12/business/global/japan-approves-116-billion-for-urgent-economic-stimulus.html?partner=rss&emc=rss

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Oracle’s Earnings Miss Expectations

December 21, 2011 by Leave a Comment

The company’s earnings statement, released on Tuesday for the three months ending in November, suggested that cutbacks in technology spending have begun at major companies and government agencies. Management reinforced that perception with a forecast calling for meager growth in the current quarter, which ends in February.

The statement alarmed investors, causing Oracle shares to slide more than 8.5 percent in after-hours trading.

Sales of Oracle’s new software licenses edged up only 2 percent from the same time last year. Analysts had expected a double-digit gain in new software licenses. Wall Street focuses on that part of the business because selling new software products generates a stream of future revenue from maintenance and upgrades.

Part of the problem with sales was that technology decision-makers delayed signing contracts during the final few days of the quarter, according to Safra A. Catz, Oracle’s president and chief financial officer. That could be an indication that companies and government agencies are treading more carefully as Europe’s debt problems linger.

“Clearly, this quarter was not what we thought it would be,” Ms. Catz told analysts in a conference call on Tuesday. She said the company was hoping some of the deals postponed in the last quarter would be completed within the next two months.

In Oracle’s computer hardware division, which the company has been trying to build since buying the fallen Silicon Valley star Sun Microsystems for $7.4 billion last year, revenue dropped 10 percent from the same time last year.

Oracle earned $2.2 billion, or 43 cents a share, in its fiscal second quarter. That was a 17 percent increase from net income of $1.9 billion, or 37 cents a share at the same time last year. Excluding one-time items, Oracle earned 54 cents a share. That was below the average estimate of 57 cents a share among analysts polled by FactSet.

Revenue for the period edged up 2 percent from last year to $8.8 billion. Analysts, on average, had projected revenue of $9.2 billion.

In the current quarter, Oracle expects its adjusted earnings to range from 55 cents to 58 cents a share — below the average analyst estimate of 59 cents a share. Revenue is expected to rise by 2 percent to 5 percent from the same period a year ago.

Article source: http://feeds.nytimes.com/click.phdo?i=e5cb9cc3049b93aeadbf83fa18871080

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French President Warns of Dire Consequences if Euro Crisis Goes Unsolved

December 2, 2011 by Leave a Comment

The European Union needs “an overhaul,” Mr. Sarkozy said, to remain relevant and competitive, but he was vague about the details of what needs to be done. “If Europe does not change quickly enough, global history will be written without Europe,” he said. “Europe needs more solidarity and that means more discipline.”

His televised speech came against a backdrop of deepening alarm about the contagious nature of the euro crisis, which threatens Italy and has begun to sap confidence in France and Germany, the strongest economies among the 17 European Union countries that use the single currency. The crisis has exposed the seeming inability of European leaders to resolve the onerous debt problems of its weaker members, calling into question the survival of the euro, once seen as a glue that would bind Europe together.

Chancellor Angela Merkel of Germany is scheduled to give a similar address to Germans on Friday, but it was clear that Paris and Berlin do not agree on all aspects of a proposal. Mr. Sarkozy said the two would meet on Monday in Paris, before a European Union summit meeting next Thursday and Friday.

Mr. Sarkozy expressed confidence that the European Central Bank, while independent, would act in the face of possible deflation, one of the looming consequences of the crisis. To promote faster change and more fiscal responsibility, France favored more majority voting within the euro zone instead of acting only by unanimity. But the euro must be saved, Mr. Sarkozy said. “The disappearance of the euro,” he said, would “make our debt unmanageable” and create “a loss of confidence that would lead to paralysis and the impoverishment of France.”

Speaking in Toulon, the port city where three years ago he gave a major address about how to counter the 2008 economic crisis, Mr. Sarkozy said that convergence between France and Germany was his goal, but that convergence did not mean any loss of identity. “There can’t be a single currency without economies heading toward more convergence,” he said.

Facing a tough re-election fight in five months, Mr. Sarkozy is presenting himself as a man of experience, capable of strong leadership in a crisis. He is beginning to improve in the opinion polls, though from historically low levels. But if the crisis worsens, of course, Mr. Sarkozy’s chances for a second term are likely to diminish rapidly.

He is said to be more willing to try for treaty amendments to be approved by all 27 European Union members, as Germany and Britain want, though he is reported to believe that a treaty or an intergovernmental agreement among only the members of the euro zone would be easier — and faster — to achieve.

France would prefer to involve the European Central Bank more explicitly as a lender of last resort, which Germany rejects. Mrs. Merkel also rejects the idea of changing the bank’s charter in any treaty changes.

But European officials believe that a significant move toward treaty changes to create more economic governance in the euro zone — with tighter, more enforceable limits on debt and centralized oversight of national budgets — will give the European Central Bank the political cover to act more aggressively to defend Italy and Spain and drive down currently unsustainable interest rates on their bonds.

Mikolaj Dowgielewicz, Poland’s Europe minister, said on Thursday that it was “too late for half measures.” Decisions at next week’s European Union summit meeting should provide “a signal that there is a willingness to have the E.C.B. do more,” possibly with the help of the International Monetary Fund, he said. He said he was not speaking for the rotating European Union presidency, currently held by Poland.

Mario Draghi, the new head of the European Central Bank, hinted at a readiness for more aggressive action. “What I believe our economic and monetary union needs is a new fiscal compact — a fundamental restatement of the fiscal rules together with the mutual fiscal commitments that euro area governments have made,” he told the European Parliament on Thursday. He said that a new compact was “definitely the most important element to start restoring credibility. Other elements might follow, but the sequencing matters.” But he also said that the bank’s purchases of sovereign bonds must be “temporary and limited.”

France remains reluctant to involve the European Commission, the permanent European Union bureaucracy, or the European Parliament, in any serious oversight role for national budgets. France wants to reserve that power to the European Council of nations, arguing that directly elected national parliaments must be consulted. France has historically been reluctant to cede too much sovereignty to Brussels, beginning with the rejection of a European army in 1954 and the referendum defeat of a draft European constitution.

How much sovereignty to cede is an important political issue for Mr. Sarkozy, who heads France’s Gaullist party. He is seeking a balance between French nationalism, especially when Marine Le Pen of the far-right National Front is calling for France to exit the euro, and support for European solidarity in a crisis, when the euro, and possibly the whole European project that anchors Germany, appear to be at risk.

With details of the changes still be to agreed upon between France and Germany, the president of the European Council, Herman Van Rompuy, has begun circulating ideas as the basis for the negotiation, a European official said on the condition of anonymity because of the delicacy of the issue. “No one is waiting for a Franco-German paper,” the official said.

Stephen Castle contributed reporting from Brussels.

Article source: http://feeds.nytimes.com/click.phdo?i=6a9965c4919abce5c3b9d4759e6c01b3

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News Analysis: New Warnings of Euro Zone Danger — News Analysis

December 1, 2011 by Leave a Comment

The assumption has been that if political leaders can convince voters in their countries that they are capable of enforcing greater discipline and centralized intervention in national budgets, as Germany demands, then the European Central Bank will have the political breathing space to move more aggressively to support the bond sales of Spain and especially Italy. The thought is that the bank can flood the market, driving down interest rates to tolerable levels, buying time for Europe to fix its debt problems and overhaul laggard economies.

But with Europe veering toward recession and with increased skepticism that discipline will solve the deep structural imbalances in the euro zone, the markets’ concerns have passed from doubts about the solvency of individual countries to fears for the euro zone as a whole. Those doubts now include Germany, which cannot by itself, even if it wishes to, guarantee the credibility of Italian and Spanish debt, which totals more than $3.3 trillion.

For Kenneth S. Rogoff, an economics professor at Harvard, the biggest problem for the euro is not money so much as structure, or the lack of it. “This is a deep constitutional and institutional problem in Europe,” Mr. Rogoff said. “It’s not a funding problem.”

Yet, with even German interest rates rising, the markets are now worried about the sustainability of the euro zone as a whole, said Simon Johnson, a former chief economist for the International Monetary Fund and a professor at the M.I.T. Sloan School of Management. “The market has signaled that the risk is relative currency risk, not sovereign risk,” Mr. Johnson said. “So a ‘big bazooka’ won’t work for Europe now, because of worries about the euro itself breaking up and German interest rates going up.”

The last plan that was supposed to stop the rot, agreed upon last July but not put fully into place until mid-October, was the European Financial Stability Facility, with a lending capacity of 440 billion euros, or about $587 billion. While large enough to cover, as intended, a second Greek bailout, Ireland and Portugal, it is far too small for Italy and Spain, which are now in play.

And efforts to “leverage” the fund upward, a crucial element of the “big bazooka” Mr. Johnson referred to, are falling considerably short of the $1.35 trillion target, European officials acknowledged Wednesday. That failure is in large part because, as Mr. Johnson noted, the bond spreads for even the AAA-rated euro zone countries are going up, leaving less leeway for leveraging.

Mr. Johnson is a euro hawk, predicting a breakup of the euro zone. Others say Europe has more time, especially if the European Central Bank can intervene to support Italy more forcefully, which by its charter it is not supposed to do, at least not directly.

If so, Mr. Rogoff said, “the Europeans can stretch it out a long time, they have the money.” Nevertheless, he said, they “need to take a big step toward economic and political union, whoever wants to be a part of it.” Germany “is right to hold out for systemic changes,” he said. “The Europeans hoped to have 30 to 40 years to integrate more fully. Right now they don’t have 30 to 40 weeks.”

Some say they have far less than that.

“We are now entering the critical period of 10 days to complete and conclude the crisis response of the European Union,” said the bloc’s economics commissioner, Olli Rehn, on Wednesday.

France and Germany are concentrating their efforts on a fundamental shift in powers among the 17 European Union states that use the euro, seeking to amend the bloc’s treaties to allow more centralized oversight of national fiscal and budget policies, and more centralized interference in them, too. Penalties would be assessed on those countries that violate the rules of economic discipline, which will be tightened and clarified.

Article source: http://www.nytimes.com/2011/12/01/world/europe/new-warnings-of-euro-zone-danger-news-analysis.html?partner=rss&emc=rss

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European Economy Grew Slightly in 3rd Quarter

November 15, 2011 by Leave a Comment

Third-quarter real gross domestic product grew 0.2 percent from the previous three months in both the 17 euro-zone nations and in the 27 nations that make up the European Union, Eurostat, the statistics agency, said in Luxembourg. That was the same pace at which G.D.P. had grown in the second quarter. From a year earlier, seasonally adjusted G.D.P. increased by 1.4 percent in both zones.

By way of contrast, the U.S. economy grew by 0.6 percent in the third quarter from the second, while the Japanese economy grew by 1.5 percent.

It was Germany where the momentum was most pronounced, with output lifted by household spending and by businesses investing in machinery and equipment. Real, seasonally adjusted gross domestic product rose 0.5 percent from the second quarter’s 0.3 percent growth, and 2.5 percent from a year earlier, the Federal Statistical Office said in Wiesbaden. The second-quarter figure was revised up from the previously reported 0.1 percent.

In Paris, the French statistics institute, Insee, reported that the French economy grew by 0.4 percent in the third quarter, returning to growth after a 0.1 percent decline in the second quarter, as households spent more and industrial production rose. From a year earlier, the French economy grew 1.6 percent. The second-quarter figure was revised from the previous report, which showed growth as flat.

The preliminary data do not reflect growing evidence of a slowdown that began emerging this autumn.

Confidence is ebbing in Germany, according to a report Tuesday from the Z.E.W. institute. The institute’s economic sentiment indicator declined in November for a ninth straight month, dropping 6.9 points to minus 55.2 points, well below the historical average of 25.0 points and the lowest since the dark days of October 2008.

“World trade is weakening and the public debt problems in the euro zone and in the United States weigh heavily on business activity,” Wolfgang Franz, Z.E.W.’s president, said in a statement. “These risks could even gain more importance and thus could further harm economic growth in Germany.”

Citing painful budget-balancing measures that will weigh on growth, the European Commission last week cut its growth forecast for the 17 euro-zone nations to 1.5 percent this year and to 0.5 percent in 2012.

Olli Rehn, the European commissioner for economic and monetary affairs, said last Thursday that the European Union’s economic recovery “has now come to a standstill, and there is a risk of a new recession.”

Eurostat, the statistical office of the European Union, reported last Wednesday that euro-zone industrial production fell a steep 2.0 percent in September from August. The danger was reflected in a report Tuesday from Statistics Netherland showing that the Dutch economy shrank 0.3 percent in the third quarter from the previous three months — as well as in the sputtering output of the third- and fourth-largest euro-zone economies, Italy and Spain.

Italy’s economy is expected to shrink in the final quarter of 2011, the commission predicted.

Spain, with an unemployment rate of more than 20 percent, is also struggling. On Friday, the INE statistics institute in Madrid said the economy had stalled, growing not at all in the third quarter from the second, and had inched up only 0.8 percent from the third quarter of 2010.

Looking at the limited data available early Tuesday, Jonathan Loynes, an economist in London with Capital Economics, wrote in a research note that it appeared “with export growth generally slowing, it looks like domestic demand in the core economies might have picked up a bit.”

But the data are “all history,” he said. More forward-looking indicators, “suggest that the euro-zone economy is likely to drop back into recession” in the fourth quarter of 2011 “and beyond,” and risks even to gloomy forecasts “are shifting rapidly to the downside.”

Article source: http://www.nytimes.com/2011/11/16/business/global/european-economy-grew-0-2-percent-in-3rd-quarter-helped-by-france-and-germany.html?partner=rss&emc=rss

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News Analysis: Rating Cut of U.S. Debt Echoes the Nervousness of Global Markets

August 7, 2011 by Leave a Comment

Governments on both sides of the Atlantic have avoided grappling with fundamental problems, counting on renewed growth to help borrowers who cannot afford to pay and creditors who cannot afford to walk away.

But four years into this age of financial contagion, the global economy cannot seem to pick up steam. Every promising leap seems to end with a sickening thud. The easy answers are exhausted, and political leaders face a rising tide of anger that is constraining their ability to make more difficult choices.

S.P. said Friday that it was losing faith in America’s political leaders. Investors seem to be losing hope. The movements of markets are collective predictions of future prosperity, and the tidings are increasingly grim.

“Europe’s plan was to have growth fix the problem. America’s plan was to have growth fix the problem. And that’s not going to work,” said Kenneth Rogoff, an economics professor at Harvard. “I think it’s really starting to sink in that we’re not anywhere near an endgame.”

The United States and Europe face parallel debt problems. Here, banks and investors are pitted against homeowners. There, banks and investors are pitted against nations. In both cases, governments have struggled to rebalance their books.

There is no surplus of economic strength to throw at the problem. The United States and Europe ran up great debts in the years of plenty, living well and promising to pay later, even as they made expansive promises to aging populations.

“The restorative forces of the economy are very weak and the immediate forces that will be in place are worsening the problem,” said Joseph E. Stiglitz, an economist at Columbia University. “We already know it’s not going to be a V-shaped recovery. I had said in my book that it would be more of an L-shaped, slow recovery. I think the answer now is a Japan-style malaise.”

The weakness of the American economy is most evident in the lack of jobs. Only 55 percent of working-age adults held full-time jobs in July, the lowest level in modern times. About 25 million American adults want but cannot find full-time work, the government said Friday. The unemployment rate fell slightly, but mostly because 193,000 people stopped searching for jobs.

Consumer spending makes up 70 percent of the nation’s economic activity, and people without jobs spend less money. For more than a year the government has reported that the economy was expanding more quickly than employment, fueling hope that hiring would follow.

But last week the government said in a new estimate that it was mistaken, and that the economy actually had expanded at an annual rate of only 0.8 percent during the first half of the year — about the rate of population growth.

Falling home prices also shadow the recovery. Total household wealth remains 12 percent below its prerecession peak, according to the Federal Reserve. Consumer spending has not suffered a comparable decline, suggesting that people still see brighter days ahead. If they are wrong or if they lose faith, economists say, spending could dip even more sharply — and with it, the broader economy.

Corporate profits have climbed to record heights, but companies are not hiring. Long-term prosperity depends on investment in research and equipment and workers. But short-term fears are driving a turn toward austerity, said Gary P. Pisano, a professor at Harvard Business School.

“The dynamic that our government has gotten trapped in, companies are trapped in as well,” he said.

Professor Stiglitz said that falling stock prices could exacerbate the problem.

Article source: http://feeds.nytimes.com/click.phdo?i=5113ad43afb8d353b73915efdfec8029

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U.S. and European Markets Rise on Optimism Over Greek Vote

June 30, 2011 by Leave a Comment

A relief rally swept the European and American markets after an early Wednesday vote by the Greek Parliament to approve an austerity plan.

The plan was passed, a condition set by international lenders for providing more financing and preventing a default, after weeks of uncertainty in financial markets related to the debt problems in the euro zone.

Investors had been bracing for the Greek Parliament’s decision on the package, which includes unpopular wage cuts, tax increases and privatizations. While investors got some relief with the announcement that it had passed, analysts warned that unresolved fiscal issues remained.

“Today’s vote will certainly give some short-term relief to markets, but concerns about the long-term feasibility of Greece’s fiscal plans still remain in place,” said Diego Iscaro, an IHS Global Insight senior economist, in a research note after the vote.

Protests continued outside the Parliament building in Athens. A second vote was scheduled for Thursday on enabling legislation to set the timing of the privatizations, especially of Greece’s state-owned electric utility.

With so much anticipation before the vote, analysts said that by the time it took place, investors had fixed positions.

“This is classic ‘buy the rumor, sell the news,’ ” said Phil Orlando, chief equity market strategist at Federated Investors. “The equity market was up in anticipation. We priced it in ahead of time.”

Still, the news was enough to lead major indexes higher. The DAX index in Frankfurt closed up 1.7 percent at 7,294.14, while the FTSE 100 in London rose 1.5 percent to 5,855.95.

In the United States, the Dow Jones industrial average closed up 72.73 points, or 0.60 percent, at 12,261.42. The Dow has now risen every day this week, putting it up 326.84 points, or 2.74 percent, in that period.

The Standard Poor’s 500-stock index was up 10.74 points, or 0.83 percent, at 1,307.41 and the Nasdaq composite index was up 11.18 points, or 0.41 percent, at 2,740.49.

The Treasury’s 10-year note fell 24/32, to 100 1/32. The yield rose to 3.12 percent, from 3.03 percent late Tuesday.

Bank stocks helped lift the Dow, and Bank of America was the most actively traded in the broader markets’ financial sector, which rose more than 2 percent. Bank of America, which said it would set aside $14 billion to pay investors who bought securities it assembled from mortgages that later soured, rose nearly 3 percent to $11.14. The company said it expected the agreement to lead to a second-quarter loss of $8.6 billion to $9.1 billion.

Citigroup was up more than 3 percent at $41.50. Morgan Stanley rose 4.75 percent to $23.39.

Other sectors that forged ahead were materials and energy, which each closed more than 1 percent higher. Oil closed up $1.88 at $94.77.

Yields on benchmark 10-year Spanish, Portuguese and Greek bonds declined, while those in safer equivalents issued by Germany and France rose, indicating investors were willing to switch back into riskier securities.

 The euro ended the day at $1.4431, up slightly from $1.4370 Tuesday.

The agreement by Greek lawmakers on the austerity measures was a crucial step in the international rescue of the crippled economy, and the relatively muted market reaction to the vote showed that investors knew that the country’s financial troubles were far from over.

“What’s really important is not the vote itself,” said George Magnus, senior economic adviser at UBS in London, “but the implementation of what they’re voting on, and that’s where the programs will come unstuck.”

The vote was critical to unlocking near-term financing, specifically the disbursement of the fifth installment of the original 110 billion euro bailout for Athens (roughly $140 billion when agreed to last year).

That installment would be worth 12 billion euros and would enable Greece to meet obligations like bond coupon payments in July, while paving the way for a new international lending program to provide financing through 2014.

Euro area ministers are expected to provide details of the program on July 3.

In a research report released Tuesday, Citigroup analysts said: “Despite the aid package, eventual Greek haircuts may be inevitable, with estimated private sector haircuts of 65 to 77 percent,” referring to the write-downs that bond holders will be required to accept.

“In other words, a bailout package addresses the liquidity issue much more than the solvency issue,” Citigroup said.

Two Commerzbank analysts, Benjamin Schröder and Peggy Jäger, said early Wednesday that “even if the bills are passed, worries could still linger on for longer, if no broader consensus across Greek political parties forms.”

Article source: http://feeds.nytimes.com/click.phdo?i=e87656d09a002edd4e1dc496c875f276

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Asian Stocks Fall After S.&P. Warning

April 19, 2011 by Leave a Comment

Standard Poor’s, the credit ratings agency, lowered its outlook on the United States from stable to negative on Monday because of the country’s high budget deficits and rising government indebtedness. It also cited the “material risk that U.S. policy makers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013.”

S.P. did not actually downgrade the U.S. credit rating, and government officials in Japan on Tuesday voiced their support of the United States, saying that U.S. securities remained extremely good quality.

Still, S.P.’s statement sent brief jitters through the Treasury bond markets and spooked Wall Street, with the Dow Jones industrial average falling 1.1 percent Monday. In Europe, too, stocks fell steeply, dragged down by signs that the debt crisis in some of the continent’s periphery could be deepening.

The markets in the Asia-Pacific region followed suit on Tuesday.

In Japan, which is still struggling amid the turmoil caused by the disastrous earthquake and tsunami last month, the Nikkei 225 index was down 1.5 percent by the lunchtime break.

Singapore dropped 0.9 percent while South Korea was 0.8 percent lower. In Australia, the SP/ASX 200 index fell 1.3 percent.

The Hang Seng in Hong Kong sagged 1.4 percent by mid-morning, while the key index for mainland China was down 1.6 percent. In Taiwan, the Taiex fell 1.1 percent.

Despite the fundamentally good economic backdrop in many of the fast-growing Asian economies, investors are increasingly fretting about how policy makers will act to contain the mounting inflation that is plaguing much of the region.

The United States’ fiscal deficit and debt problems “are not the U.S.’s alone,” analysts at DBS in Singapore wrote in a research note on Tuesday.

“The rest of the world needs to come to terms that the U.S. can no longer sustain its role the consumer of last resort for the global economy indefinitely. Two years after the exit from the 2008 global crisis, there will be greater urgency for emerging markets, especially those with large surpluses, to focus and rely more on domestic demand for growth,” the DBS analysts commented.

Article source: http://feeds.nytimes.com/click.phdo?i=1ee1317a0292bb00c61ecae6105d178c

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