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Asian Shares Pressured by Uncertainty Over U.S. and Greece

November 13, 2012 by Leave a Comment

The euro dropped 0.2 percent to a two-month low of $1.2676, which hoisted the dollar index to a two-month high of 81.20.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.9 percent in a decline led by growth-sensitive energy and technology sectors.

Worries about weak global demand, underscored on Monday by data showing Japan’s economy shrank, and the firmer dollar weighed on commodities prices and some regional share indexes.

Stocks in resource-rich Australia dropped 1.1 percent while Hong Kong shed 1 percent and Shanghai lost 1.2 percent.

Japan’s Nikkei average gave up early gains to fall 0.3 percent to a four-week low, putting it on course for a seventh straight session of decline.

“Investors can’t assess the extent of impact from the fiscal cliff and it could be months before the issue is settled, so this uncertainty is keeping investors guarded,” said Yuuki Sakurai, chief executive of Fukoku Capital Management.

“This, along with Europe continuing to muddle through its fiscal problems, is putting downside pressure on markets.”

U.S. lawmakers return to the capital on Tuesday. Analysts say a failure to act on scheduled $600 billion in tax increases and government spending cuts due early next year could tip the United States back into a recession.

Greece’s international lenders agreed on Monday to give Athens two more years to meet budget targets but euro zone finance ministers did not disburse more aid. Euro zone finance ministers will meet again on November 20 to discuss Greece.

Sakurai said market caution over the leadership transition in China this week is offsetting more bullish sentiment from recent data suggesting a pick up in the economy. Investors want to see the political change completed without any problems and the shape of the new leaders’ policies, he said.

COMMODITIES SLIP

Reflecting the slight risk aversions, Asian credit market spreads on the iTraxx Asia ex-Japan investment-grade index widened by 1 basis point.

U.S. crude futures fell 0.4 percent to $85.20 a barrel and Brent dropped 0.4 percent to $108.60.

London copper eased 0.3 percent to $7,618.75 a tonne and gold inched down 0.2 percent to $1,723.44 an ounce, having failed to test last week’s high around $1,738.

“I think there’s some disappointed selling. Of course a strong dollar also affects gold a little bit,” said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

Analysts have said commodities are under pressure from hedge fund selling as they close their books for the year.

U.S. shares ended little changed on Monday in low volume trading while European shares fell.

(Additional reporting by Joyce Lee in Seoul and Lewa Pardomuan in Singapore; Editing by Neil Fullick)

Article source: http://www.nytimes.com/reuters/2012/11/12/business/12reuters-markets-global.html?partner=rss&emc=rss

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Stocks Finish Flat as Investors Await a Greek Debt Deal

January 24, 2012 by Leave a Comment

Markets ended flat on Monday as few developments affected stocks except investor hopes that Greece would eventually reach a deal with private creditors on lowering its debt.

Greece’s private creditors are being asked to accept longer maturities and lower interest rates on new bonds swapped for their existing ones.

The major Wall Street stock indexes wavered little all day. The Standard Poor’s 500-stock index ended up 0.05 percent, or 0.62 points, to 1,316. The Dow Jones industrial average fell 0.09 percent, or 11.66 points, to 12,708.82. The Nasdaq composite index also lost 0.09 percent, or 2.53 points, to close at 2,784.17.

Greece, which is negotiating alongside fellow members of the euro zone and the International Monetary Fund, wants interest rates as low as 3 percent on the new bonds. But the private creditors believe that is too low, and are aiming for about 4.5 percent.

Both sides said a deal was nevertheless close, heartening investors. The euro was the main beneficiary, climbing 1.3 percent to $1.3033.

Greek officials say negotiations on the private debt write-down are continuing by phone, with no appointment yet for new face-to-face talks.

Greece was to be the main topic of discussion at Monday’s meeting in Brussels of the finance ministers for the 17 European Union members that use the euro.

In Europe, the FTSE 100 index of leading British shares closed up 0.9 percent, while the DAX in Germany rose 0.5 percent. The CAC 40 in France was also 0.5 percent higher.

Optimism that Greece would clinch a deal has brightened market sentiment this year, along with a run of successful European bond auctions and solid economic and corporate news, not least from the United States and China. Many stock indexes have risen to five-month highs, while the euro has headed back toward the $1.30 mark.

Though the Federal Reserve is expected to keep its loose monetary policy unchanged, there will be great interest in the outcome of this week’s rate-setting meeting. It will be the first time the Fed will publish its interest rate forecasts out to 2016, part of a strategy to enhance communication with financial markets.

Investors will be particularly interested to see how long policy makers expect interest rates to remain low. Previously, the Fed said it expected to keep them low until the middle of 2013.

“Most, ourselves included, expect the projections to suggest the Fed sees rates on hold well into 2014,” said Adam Cole, an analyst at RBC Capital Markets.

In the oil markets, traders were watching developments in the Persian Gulf. Iran has threatened to close the Strait of Hormuz if the United States and other countries impose more sanctions on it because of its nuclear program. Many analysts doubt that Iran could set up a blockade for long, but any supply shortages would cause supplies to tighten. Benchmark crude was up $1.25 to $99.58 a barrel on the New York Mercantile Exchange.

The Treasury’s 10-year note fell 9/32, to 99 16/32. The yield was 2.06 percent, up from 2.03 percent late Friday.

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Asia Stocks Fall as Europe Debt Crisis Festers

November 30, 2011 by Leave a Comment

BANGKOK (AP) — World stocks fell Wednesday after a meeting of Europe’s finance ministers failed to stem fears that the euro currency union is hurtling toward a breakup. Banking stocks slumped after some of the world’s top financial institutions were slapped with a credit rating downgrade.

European shares headed south in early trading. Britain’s FTSE 100 fell 0.8 percent to 5,296.40. Germany’s DAX shed 0.7 percent to 5,760.28 and France’s CAC-40 lost 0.6 percent to 3,007.73. Wall Street was also headed for a lower opening. Dow Jones industrial futures fell 0.6 percent to 11,501 and SP 500 futures were 0.6 percent lower at 1,189.40.

Sluggish trading began earlier in the day in Asia, where Japan’s Nikkei 225 index dropped 0.5 percent to close at 8,434.61. South Korea’s Kospi dropped 0.5 percent to 1,847.51. Hong Kong’s Hang Seng dipped 1.5 percent to 17,989.35. Australia’s SP/ASX 200 swung back and forth until settling 0.4 percent higher at 4,119.80.

Mainland Chinese shares plummeted, with the benchmark Shanghai Composite Index falling 3.3 percent to 2,333.41. The Shenzhen Composite Index dropped 4 percent to 994.02.

Sentiment was dented after a meeting in Brussels of finance ministers from the 17 countries that use the euro ended without an announcement on plans to contain the debt crisis that is threatening to shatter the currency union.

The ministers sent debt-riddled Greece euro8 billion ($10.7 billion) to stem an immediate cash crisis, but they kicked more difficult issues — such as whether countries should cede some control over their finances to a central European authority — to the leaders of the European Union who meet next week.

In the latest sign of trouble, Italy was forced to pay a high interest rate on an auction of three-year debt Tuesday. The 7.89 percent rate was nearly three percentage points higher than last month, an enormous increase.

If Italy were to default on its debt of euro1.9 trillion ($2.5 trillion), the fallout could spell ruin for the euro common currency and send shock waves through the global economy. Such a prospect has left little appetite for risky assets.

Analysts at Credit Agricole CIB said in a report that “until concrete and detailed plans for a solution to the crisis are announced, the downward trend” in stocks will continue.

Ratings downgrades for many of the world’s largest banks also drove investors to the sidelines, analysts said. Standard Poor’s on Tuesday lowered its credit ratings for 37 financial companies, including Bank of America Corp., Citigroup Inc. and HSBC Holdings PLC.

Hong Kong-listed Industrial Commercial Bank of China, the world’s largest bank by market value, fell 2.3 percent. Japan’s Mizuho Financial Group lost 1 percent and Hong Kong shares of British bank HSBC Holdings fell 2.6 percent.

Insurance companies also fell. Hong Kong-listed China Life Insurance Co., the country’s biggest life insurer, lost 3.5 percent. Ping An Insurance fell 5.3 percent. Japan’s Tokio Marine Holdings shed 0.9 percent.

Among mainland Chinese shares, securities, nonferrous metals, media, cement and auto companies weakened. More than 20 companies plunged 10 percent.

“It was panic selling,” said Liu Kan, an analyst at Guoyuan Securities, based in Shanghai.

Investors were worried over an increase in sales of non-tradable shares in December as lockup periods expire and the possible launch soon of international shares in Shanghai. Officials of the Shanghai Stock Exchange denied rumors of an imminent launch of an international board in Shanghai, where only Chinese companies’ shares are now traded.

Shanghai-listed Founder Securities Co. lost 8.1 percent while China Merchants Securities Co. lost 4.5 percent, its lowest close in two years.

On Wall Street on Tuesday, a jump in U.S. consumer confidence sent stocks modestly higher. The Dow Jones industrial average rose 0.3 percent to close at 11,555.63. The Standard Poor’s 500 index rose 0.2 percent to 1,195.19. The Nasdaq composite, which consists mostly of technology stocks, fell 0.5 percent to 2,515.51.

The Conference Board, a private research firm, said its Consumer Confidence Index climbed 15 points in November to 56.0 — an improvement, but still well below the level of 90 that indicates an economy on solid footing.

Benchmark crude for January delivery was down 66 cents to $99.15 a barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.58 to settle at $99.79 on Tuesday.

In currency trading, the euro slipped to $1.3269 from $1.3331 late Tuesday in New York. The dollar was nearly unchanged at 77.92 yen from 77.93 yen.

___

AP researcher Fu Ting contributed from Shanghai.

Article source: http://www.nytimes.com/aponline/2011/11/29/business/AP-World-Markets.html?partner=rss&emc=rss

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European Leaders Seek Bold Debt Deal, Despite Hurdles

October 22, 2011 by Leave a Comment

As ever, the focus is on Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France, who have made a habit of cobbling together deals to present to their European Union colleagues. But forging an agreement now is harder than before, as Paris and Berlin face core differences over how to maximize the euro zone’s financial rescue fund and how far the European Central Bank should intervene in the bond markets, either on its own or through the bailout fund.

Already the two leaders have announced that Sunday’s summit meeting, which had already been delayed to allow more time for negotiations, would be followed by another summit meeting as early as Wednesday. That announcement, paradoxically, seemed to buoy stock and bond markets, apparently because the Europeans at least appeared to be focusing intensely on resolving the crisis.

But the delay may have been because Mr. Sarkozy needs pressure from other nations to bring Mrs. Merkel around to a more flexible position on how to use the bailout fund, called the European Financial Stability Facility, and the central bank.

Mr. Sarkozy has now rushed twice to Germany for talks with Mrs. Merkel, the last time on Wednesday, as his wife was giving birth, to press for a deal. The meeting was testy, said German officials, who have complained that France is “not budging an inch.” Mr. Sarkozy, clearly the supplicant in the relationship, speaks openly of a “European rendezvous with history,” while Mrs. Merkel keeps repeating that “there is no magic wand” and that a long-term solution will take time.

Jean-Claude Juncker, who also leads the meetings of euro zone finance ministers, said that Thursday’s move to delay final decisions until the second summit meeting Wednesday looked “disastrous” to the outside world. He canceled a news conference scheduled for after Friday’s meeting of the finance ministers of the 17 countries that use the euro, suggesting that no breakthrough was imminent.

The “Franco-German couple” has been vital to each of the agreements reached by the European Union during this two-year crisis. But so far none of the deals have been sufficient to solve even the problem of Greek indebtedness, which is growing worse in an austerity-driven recession, let alone the problem of contagion spreading now to Italy and Spain. Nor has there been an agreement yet on how much capital needs to be injected into European banks so that they can reassure investors that they will remain solvent even as the sovereign debt of Greece, Italy, Spain and other hard-hit countries loses value.

These are the main issues on the agenda.

On Greece, Germany appears willing for a deal to restructure Greek debt to no more than half of its face value, to try to bring Greece’s debt burden to a sustainable level. But Germany wants private investors and banks to accept such losses voluntarily to avoid a formal default, which would be a first for the euro zone.

Big European banks had already agreed to what was billed as a 21 percent reduction in the value of their Greek debt in July, a deal not yet implemented, and they are reluctant to reopen the matter. Nor are they confident that enough private bondholders would agree to such a large cut.

France and the European Central Bank do not want to restructure Greek debt further, fearing market contagion and, for Paris, additional pressure on French banks that hold significant amounts of Greek, Spanish and Italian debt. A major recapitalization of French banks would put more strain on France’s budget and require new cuts elsewhere to meet deficit targets, and could thus jeopardize France’s coveted AAA credit rating. That would be bad politics with elections six months away and Mr. Sarkozy already unpopular.

There is also a fear that banks would cut back on lending rather than try to raise more capital while their stock prices are down, which could lead to a new credit crunch at a time when the entire euro zone is on the brink of a new recession.

France wants Europe to collaborate on recapitalizing banks, ideally by turning the bailout fund into a bank, which could then draw on loans from the European Central Bank, which has the authority to print euros as needed.

But Germany and the central bank itself have resisted that option. “The path is closed for using the E.C.B. to ease liquidity problems,” Mrs. Merkel told her parliamentary caucus in Berlin on Friday, Reuters reported.

Mrs. Merkel wants each country to be responsible for injecting funds into its own banks, and only then turn to the regional bailout fund in an emergency. Politically, it is easier for her to explain to Germans that German money is being used to recapitalize German banks than to concede that it is going to everybody’s banks. Mrs. Merkel is also compelled by German law to seek a mandate from Parliament’s budget committee before committing new funds. Mr. Sarkozy does not face such restrictions.

Article source: http://www.nytimes.com/2011/10/22/world/europe/hopes-high-for-a-europe-debt-deal-despite-french-and-german-disagreements.html?partner=rss&emc=rss

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Europe to Vote on Tougher Rules for Currency

September 28, 2011 by Leave a Comment

While steering far clear of transferring actual authority over national budgets here, the revamped rules, scheduled for a vote Wednesday in the European Parliament, are described as tougher, more credible and more sophisticated than the original set, on paper at least.

Laid out in six pieces of legislation and known as the six-pack, the rules contain the same targets for euro zone members as the old ones: budget deficits of no more than 3 percent of gross domestic product and a maximum debt level of 60 percent of gross domestic product.

But this time, the drafters hope the policing system will be more credible. In part, that is because countries that break rules will face the prospect of sanctions sooner, and a new voting system will make it harder for finance ministers to block them, as has happened.

“We cannot go back in time and prevent the current crisis,” said Guy Verhofstadt, a former Belgian prime minister and leader of the centrist deputies in the European Parliament, “but we finally have armed ourselves with the right measures to avoid future ones.”

Yet nobody can predict whether the new rules will stand up better than the old ones if challenged by the euro zone’s two big members, Germany and France. That is crucial because, in the history of euro rule bending, Greece’s concealment of its true public finances — which came to light almost two years ago — was only the most flagrant example.

When the euro was created, France met the rules set by the currency’s founders because of a windfall from the state-owned utility, France Télécom. Overnight, the French budget deficit shrank by 0.5 percent of G.D.P.

In 2003, Paris and Berlin exceeded the deficit limits set in the rule book, the Stability and Growth Pact. Faced with the prospect of sanctions and potential fines, Paris and Berlin used their political muscle to tear up the pact, and a weakened version was adopted in 2005.

The new sanctions system is even tougher than in the original because countries that break rules will be pressed early on to make a cash deposit — in a noninterest-bearing account — worth 0.2 percent of G.D.P.

If they then fail to correct their course, the deposit will be converted to a fine and forfeited.

And while the European Commission still must have the finance ministers’ permission to punish errant countries, the voting system has been adjusted to make this significantly harder to block.

In another innovation, countries with high debt that resist reducing it by a specified amount may also be fined in a similar way. Had such a system been in place before, Italy — with a debt ratio of twice the maximum target — would have been required to consolidate more rapidly.

Instead, Italy concentrated on controlling its budget deficit. That was not enough, however, to keep it from getting caught up in the crisis as worries over sovereign debt levels spread around Europe’s periphery.

The revised rules are expected to pass the Parliament, their final hurdle, though Socialist opposition to some parts could make for a close vote. Once enacted, the rules would begin to take effect in stages in January, with the rules on debt delayed until 2015.

If approved, an early warning system would be established to spot developments like asset bubbles, including the housing booms that later collapsed in Spain and Ireland. Countries thought to be at risk could find themselves in an “excessive imbalance procedure” that could also lead to sanctions.

Under the new rules, targets would apply to all 27 European Union members, but fines could be levied only on the 17 members that use the euro.

Supporters of the new rules contend that financial markets have overlooked their importance, because reaching agreement has been so tortuous and time-consuming.

But will the rules work?

“What we have is a very strict and very intrusive surveillance regime,” said one European Union official not authorized to speak publicly. “You are only one decision away from potentially having to face sanctions.”

But he also acknowledged the challenges ahead in identifying looming problems like asset bubbles because much will rely on interpretation of data.

Article source: http://feeds.nytimes.com/click.phdo?i=302dd6224fa7b704422927f8f5882dca

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Mixed Reaction to Europe’s Talk of Bolstering a Bailout Fund

September 27, 2011 by Leave a Comment

European officials said a plan was in the works that would enlarge the bailout fund’s borrowing power but not the amount that countries were contributing. The proposal was met guardedly by German officials, who are already struggling to swing public opinion in favor of the more modest aid plan they agreed to in July, let alone any new initiatives.

As finance ministers and central bankers trickled back to Europe from meetings in Washington over the weekend, markets were clearly eager for a plan that would isolate Greece’s problems from the rest of the Continent and ensure that Italy and Spain did not also fall victim to the debt crisis.

The main stock indexes in Europe rose Monday, in part because of expectations that a more robust response to the problem was in the works.

A more potent bailout fund would not remove the need for other changes, like strengthening the banking system and improving decision making by the European Union, said Nicolas Véron, a senior fellow at Bruegel, a research organization in Brussels. But it would help, he said.

“I don’t think one measure can solve it all, but it would make a significant difference in market sentiment,” said Mr. Véron, who testified in Washington last week before the Senate Banking Committee on the debt crisis. Meanwhile, Finland appeared to be closer to resolving an impasse that had threatened to hold up deployment of the existing bailout fund. Alexander Stubb, the Finnish minister for European affairs, said the country’s Parliament was likely to approve a plan agreed to by leaders in July.

Finland is also close to resolving a dispute about its demand for collateral in return for granting more aid to Greece. The dispute illustrated how political opposition in just one of the 17 European Union countries that use the euro can block initiatives.

“I’m very confident we will get the package through Parliament,” Mr. Stubb said by phone. He declined to give details of how the collateral dispute might be resolved.

In Brussels, Amadeu Altafaj-Tardio, a spokesman for the European Commission, confirmed that discussions were under way on methods to extend the effectiveness of the bailout fund, called the European Financial Stability Facility.

Olli Rehn, the commissioner for economic and monetary affairs, had made clear at meetings in Washington that the euro zone was “contemplating further leveraging” of the stability fund, Mr. Altafaj-Tardio said. That option has been urged by United States officials.

Separately, leaders tried to quash rumors that Greece and its creditors had discussed the possibility of banks’ taking a larger cut in the value of their Greek bond holdings — perhaps as much as 50 percent — to reduce the government’s debt burden to a more manageable level.

Such a move remained highly controversial and was opposed by the large banks as well as the European Central Bank, which owns Greek bonds with a value of as much as 60 billion euros, or $80.8 billion. Any Greek default would probably also require a coordinated bailout of banks holding large amounts of Greek debt.

As has often been the case, European leaders seemed to have different perceptions of what was being discussed and how likely it was that the proposals would find support.

Martin Kotthaus, a spokesman for the German Finance Ministry, said in Berlin there was no need to expand the size of the bailout fund by giving it more money than already agreed. There is fear that pumping more money into the fund might threaten the credit rating of countries like France by increasing their liabilities.

But German officials did not appear to be opposed to increasing the rescue fund’s power to leverage its government guarantees. They wanted only to avoid any discussion until Parliament votes this week on a proposal to expand the size of the fund to 780 billion euros. That plan was agreed to by European leaders on July 21. Some analysts have said that the fund needs to be two to three times as big to convince markets that it could handle a wider crisis.

On Monday, a senior official in the Greek Finance Ministry, responding to persistent default rumors, said no such event was imminent. And on Sunday, Evangelos Venizelos, the Greek finance minister, said in Washington that the government’s plan to exchange some existing bonds for new, longer-term securities remained on track.

The debt exchange would impose a relatively modest 21 percent loss on the face value of the affected bonds. It is regarded as a good deal for investors because they would receive more solid paper in exchange. Greek creditors must still indicate their willingness to participate.

Policy makers want to put Greece on a path toward reducing its debt load to just below 100 percent of its gross domestic product within this decade so that it can wean itself off taxpayer bailouts. The hope is that much of that reduction would come through revived economic growth.

But those prospects seem distant given the deep recession into which Greece has fallen and stricter belt-tightening measures being demanded by international creditors.

Jack Ewing reported from Frankfurt and Stephen Castle from Brussels. Liz Alderman contributed reporting from Paris and Landon Thomas Jr. from London.

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G-20 Statement Aims to Reassure World Markets

September 23, 2011 by Leave a Comment

WASHINGTON — The world’s major economies released an unexpected joint statement Thursday night reiterating their commitment to the stability of banks and financial markets, seeking to soothe nervous investors on six continents.

“We are committed to supporting growth, implementing credible fiscal consolidation plans, and ensuring strong sustainable growth,” said the communiqué from the Group of 20 nations. “This will require a collective and bold action plan with everyone doing their part.”

The statement, however, did not include commitments to new actions, or any talk of additional support for Europe. It also does not hasten the plan of the member nations to announce any actions at a November meeting of heads of state in Cannes, France.

The possibility of more immediate action also was not discussed at a dinner for member finance ministers and central bank governors Thursday night, according to a senior Treasury Department official who insisted on anonymity because the conversations were private.

Instead, the members of the European monetary union expressed their determination to complete a planned expansion of a European bailout fund, so that it can purchase the debt of troubled countries. Other nations expressed their concern and support, the official said.

The snap decision to issue a statement — the dinner was intended as an informal gathering before the opening Friday of the annual meeting of the World Bank and the International Monetary Fund — is a reflection of rising concern about the health of the global economy.

The statement cited problems including indebted countries, fragile banks, turbulent markets, weak growth and “unacceptably high unemployment.”

The I.M.F. -World Bank meeting is traditionally a chance for nations to address problems in the developing world. This year, however, the meeting has been given over to talk about problems in Europe and the United States.

There is growing evidence that those issues are weighing on the economies of developing nations by unsettling their markets.

“The immediate problem at hand is to get growth back on track in developed countries,” the countries Brazil, Russia, India, China and South Africa said in a statement Thursday. In language more often directed at poorer countries, the five nations called on developed countries “to adopt responsible macroeconomic and financial policies.”

Even traditional allies are expressing growing frustration with the political paralysis and economic problems of Europe and the United States.

The leaders of six members of the G-20 released a letter Thursday to Nicolas Sarkozy, president of France, calling for “decisive action to support growth, confidence and credibility.”

The six countries — Australia, Britain, Canada, Indonesia, Mexico and South Korea — have little in common except that they are not members of the European Union. Yet, they stressed the need for stronger steps.

“The barriers to action are now political as much as economic,” the letter said. “We must send a clear signal that we are ready to take the actions necessary to maintain growth and stability for all for the future.”

The United States elevated the meetings of the G-20 during the financial crisis after concluding that its traditional meetings with six other countries — the Group of 7 — were excluding too many important players. The nations now represented at the table account for about 85 percent of global economic output.

Article source: http://www.nytimes.com/2011/09/23/business/global/g-20-statement-aims-to-reassure-world-markets.html?partner=rss&emc=rss

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E.U. Vows to Back Banks That Fail Stress Tests

July 13, 2011 by Leave a Comment

The results of the stress tests, which are scheduled to be released on Friday, could pose a headache for the 27 European Union finance ministers who met here to discuss ways to ease the region’s financial turmoil.

Olli Rehn, the European Union’s commissioner for economic and monetary affairs, said that once vulnerable banks were identified they “must recapitalize themselves, or be recapitalized or restructured.”

In a statement, the finance ministers said that backstop mechanisms would aid struggling banks.

“These measures privilege private sector solutions but also include a solid framework for the provision of government support in case of need, in line with state aid rules,” the statement said.

Officials insist that the exercise is more stringent than tests done last year, which failed to reveal a looming banking crisis in Ireland. The new tests will include a review of how lenders would handle a 0.5 percent economic contraction in the euro zone in 2011, a 15 percent drop in European stock markets and potential trading losses on sovereign debt.

The officials insist that Europe’s banks and governments are better prepared this time around.

Jacek Rostowski, the finance minister of Poland, which holds the European Union’s rotating presidency, argued that Europe now had “a banking system that is in much better shape than it was last year.”

A fresh example of the stress that banks will need to endure came late Tuesday. Moody’s Investors Service cut Ireland’s credit rating to junk status, adding it to Portugal and Greece on the list of euro area countries whose ratings are below investment grade.

Ireland’s rating was lowered to Ba1 from Baa3, and Moody’s signaled that the country faced further downgrades in the next year. Standard Poor’s and Fitch Ratings still have an investment grade rating for the country.

Moody’s said Ireland would most likely need another bailout and that policy makers would force the private sector to shoulder some of the burden.

“The prospect of any form of private sector participation in debt relief is negative for holders of distressed sovereign debt,” the company said in a statement. “This is a key factor in Moody’s ongoing assessment of debt-burdened euro area sovereigns.”

After the downgrade, the Irish agency that manages the country’s debt said that it had sufficient money from the country’s first bailout to cover its financing requirements until the end of 2013.

The downgrade of Ireland was certain to raise investor fears that the Greek debt crisis would spread. European officials raised the stakes on Tuesday by pressing for an emergency meeting of euro zone leaders on Friday, the same day that the stress test results are expected to be announced.

The plan represents a risky gamble by Herman Van Rompuy, the president of the European Council. If the meeting is held on schedule and fails to answer the crucial questions about Greece that were left unresolved by European finance ministers on Monday and Tuesday, it could end up unsettling the markets even more.

A gathering of finance ministers from the 17 countries that use the euro ended on Monday with a declaration suggesting that their bailout fund would be expanded and could be used to buy sovereign bonds from Greece and other deeply indebted countries.

That kind of declaration —rejected months ago because of German objections — has forced its way back onto the agenda because of the growing turmoil in the financial markets and fear that Spain and Italy could also be victims of Europe’s debt crisis.

As the meeting on Monday was getting under way, George A. Papandreou, the Greek prime minister, sent a letter to Jean-Claude Juncker, the prime minister of Luxembourg who leads the group of euro zone finance ministers. The letter was made public on Tuesday.

“If Europe does not make the right, collective, forceful decisions now,” he wrote, “we risk new, and possibly global, market calamities due to a contagion of doubt that could engulf our common union.”

“ ‘Crunch time’ has arrived,” he added, “and there is no room for indecisiveness and errors.”

Niki Kitsantonis contributed reporting from Athens.

Article source: http://feeds.nytimes.com/click.phdo?i=dc7ab2a37add76bec2ff9b5bf692d5b0

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Worsening Debt in Europe Is Called Major Threat to British Banks

June 25, 2011 by Leave a Comment

Mr. King urged British banks to be especially diligent and clear in disclosing their exposure to European sovereign debt, to avoid a collapse of confidence among investors. He also called on banks to set aside more capital when earnings were strong instead of distributing it to shareholders or employees.

“The most serious and immediate risk to the U.K. financial system stems from the worsening sovereign debt crisis in several euro area countries,” Mr. King said during a briefing on financial stability by the interim Financial Policy Committee, of which he is chairman.

The new committee, which includes executives from the Bank of England and the Financial Services Authority, is a result of Prime Minister David Cameron’s revamp of the country’s financial regulation after the banking crisis.

Mr. King’s comments came as European Union leaders met in Brussels to discuss a second bailout for Greece and ways to stabilize the euro zone area. Greece has until the end of the month to meet conditions for its next aid payment of 12 billion euros, or $17 billion, ahead of a finance ministers’ meeting on July 3.

Some investors remain concerned that the Greek prime minister, George A. Papandreou, could struggle to gather enough support to push through the necessary budget cuts, which has pushed down the euro and weighed on European stock markets. Jean-Claude Trichet, the president of the European Central Bank, warned earlier this week that the sovereign debt crisis posed a serious threat to the financial stability of Europe.

The Financial Policy Committee warned that “any escalation of stresses could also be transmitted via interconnected global markets, including via the United States, leading to a tightening of bank funding conditions.” It said “such contagion could be amplified if bank creditors were unsure about the resilience of their counterparties.”

Mr. King said he was less worried about British banks’ direct exposure to Greek debt, which he said was “very small,” than the chances that a lack of transparency and increased risk awareness could paralyze financial markets.

“If there’s uncertainty about exposures and a lack of transparency, there’s always the risk that people may feel it’s just not worth continuing the rollover funding to institutions,” Mr. King said. “Greater clarity about the extent of these exposures would help to limit the transmission of problems to U.K. banks.”

The European Banking Authority said Friday that it had adjusted its stress tests of European banks to better account for potential trading losses on sovereign debt from troubled economies, including Greece. The results are due next month.

“It’s necessary that stress tests are credible,” Mr. King said. The hope is that detailed data on the banks’ capital and government debt exposure would calm those investors who fear a Greek default.

The committee also warned that British banks should improve their provisioning for real estate loans that are in arrears or had breached some covenants. The committee implied that some banks were not diligent enough in setting aside money to cover such loans, which were mainly for commercial real estate.

The committee also said it was increasingly mindful of risks linked to exchange-traded funds, which were now worth $300 billion in Europe, and asked the Financial Services Authority to monitor the industry more closely.

Floyd Norris, whose Off the Charts column normally appears on this page, is on vacation.

Article source: http://feeds.nytimes.com/click.phdo?i=600a720e8f9a810f8a67d04d21afb321

Filed Under: Business News Tagged With: , ,

Uncertainty Over Greece Weighs on Financial Markets

June 16, 2011 by Leave a Comment

Stocks on Wall Street were mixed in early trading on Thursday. Shortly after the opening, the Dow Jones industrial average was slightly higher, by about 12.41 points. The Dow had closed down 1.5 percent, at 11,897.27 points, on Wednesday as concerns about Greece were compounded by new fears about the pace of the United States economic recovery.

In early trading, the Standard Poor’s 500-stock index was up by 1.44 points, while the Nasdaq composite index fell 3.17 points. Both had closed down more than 1.7 percent on Wednesday.

The euro slipped, Asian and European stocks faltered and the yield on bonds of the more indebted European nations climbed.

Spain sold $4 billion of bonds at an auction Thursday, missing its top target and with average yields creeping upward again.

In Greece, Prime Minister George Papandreou said he would reshuffle his Cabinet and request a vote of confidence in Parliament after talks with the opposition about a unity government foundered.

With just a five-seat majority in Parliament, Mr. Papandreou has been struggling to get his government behind additional austerity measures demanded by its foreign creditors, and to contain growing rifts within his party

Meantime, there remained no agreement among Greece’s euro-area partners over a second emergency loan package. Talks have stalled over the extent to which private bondholders should share the burden in any new rescue.

In a statement Thursday, however, the European Union’s commissioner for economic affairs, Olli Rehn, said that he expected euro-zone finance ministers to sign off on the payout of 12 billion euros ($17 billion) for Greece from the original bailout on Sunday, and to decide on a second bailout in early July as well as the extent of private sector involvement.

“This two-step approach,” he said, “means that the funding of the Greek sovereign debt can now be ensured until September, while we take the decisions for the medium-term, beyond September, in July.”

Mr. Rehn added that he expected the Greek Parliament to agree new austerity measures.

Germany’s insistence on the role of private investors in the next bailout has contrasted with that of France and the European Central Bank, which are backing a position that would be less punishing to bondholders. On Thursday, President Nicolas Sarkozy of France called for a sense of “responsibility” and “compromise” on the issue.

“Everyone in every corner of global financial markets should be keeping a very close eye on upcoming Greek events,” the Deutsche Bank strategists Jim Reid and Colin Tan said in a research note, “The period is resembling the build-up to the Lehman collapse where, although markets were increasingly nervous, virtually everyone expected a last-minute buyer.”

“The only way to arrest the slide is if everyone backs down from their current position or if one side backs down significantly,” the analysts added. “The risks are building as the situation gets ever more difficult.”

China, which has purchased billions of euros in European debt and recently signaled its willingness to buy more, reaffirmed its support Thursday ahead of a visit next week by Prime Minister Wen Jiabao to Hungary, Germany and Britain.

“We hope Greece can realize stability and development through cooperation with the E.U. and the international community,” a foreign ministry spokesman, Hong Lei, was quoted as saying by The Associated Press in Beijing.

The febrile mood in the markets was accentuated by comments late Wednesday from the Irish Finance Minister, Michael Noonan.

He said that Dublin was ready to impose losses on senior unsecured bond holders of Anglo Irish Bank and Irish Nationwide Building Society if the European Central Bank agreed. His comments came after a meeting with the International Monetary Fund, which, he said, understood his position.

The remarks added to negative sentiment surrounding the financial sector following the announcement Wednesday of a review by Moody’s Investors Service of major French banks in the light of their exposure to Greece.

The financial services component of the Euro Stoxx 600 index was down 1.7 percent at midday Thursday. The CAC-40 index in Paris was down 1.1 percent, while the broader Euro Stoxx 50 index of blue chips shed 0.8 percent.

That followed drops in Asian markets, including 1.9 percent in Australia and South Korea and 1.8 percent for the Hang Seng index in Hong Kong.

The Nikkei 225 in Japan sagged 1.7 percent, the Taiex in Taiwan dropped 2 percent and stocks in mainland China fell 1.5 percent.

“There has been a complete loss of confidence,” said Francis Lun, managing director at Lyncean Holdings in Hong Kong. “With Greece on the verge of default, there are now fears that there will be a wider financial crisis.”

The euro was trading at $1.4117 Thursday, down from $1.4180 late Wednesday. Yields on benchmark Spanish, Greek, Portuguese and Italian government bonds climbed, while yields on safer German and British bonds fell.

Christine Hauser contributed reporting from New York, Bettina Wassener from Hong Kong and Stephen Castle from Brussels.

Article source: http://www.nytimes.com/2011/06/17/business/global/17markets.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,
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