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Global Stocks Slip on Signs of Economic Stress in China and Japan

May 23, 2013 by Leave a Comment

HONG KONG — A 7 percent stock market sell-off in Tokyo led to moderate declines in equity markets across Europe and Asia on Thursday, and Wall Street opened weakly, amid concerns about global growth and uneasiness about central bank actions.

Shares came under pressure in Asian trading after news that the manufacturing sector in China, one of the main engines of global growth in recent years, was faltering. That, along with concerns about daring shock therapy Japan is employing to restart its economy after two decades of stagnation, further combined with leftover confusion in financial markets about the U.S. Federal Reserve’s intentions following testimony Wednesday by its chairman, helped to further rattle investors.

The result was a 7.3 percent rout in the Japanese market benchmark, the Nikkei 225-stock average, and other Asian markets followed. The Hang Seng Index in Hong Kong sagged 2.5 percent, and the Sydney benchmark index fell almost 2 percent.

In European afternoon trading, the Euro Stoxx 50 index of euro zone blue chips fell 2.5 percent, while the FTSE 100 in London was down 2 percent. On Wall Street, the Standard Poor’s 500-stock index was down more than 1 percent in morning trading, while the Dow Jones industrial average lost 0.6 percent. The Nasdaq was off 0.8 percent.

The euro ticked up 0.2 percent against the dollar, to $1.2887. The dollar fell 1.4 percent against the Japanese currency, to 101.74 yen.

China’s slowing momentum has been long in the making and is, to some extent, deliberately engineered by the authorities in Beijing, who are trying to bring about a more gradual but more balanced pace of growth. Still, disappointments over the performance of China’s economy – the second-largest in the world after that of the United States – remain liable to unsettle markets not just in Asia but around the globe.

High hopes that the bold economic policies of Prime Minister Shinzo Abe of Japan will succeed have prompted a huge rally in stocks since November. The Japanese market is still up nearly 40 percent since the start of the year.

Akira Amari, Japan’s economy minister, sought to calm nerves after the market closed Thursday. “The Japanese economy is staging a sound recovery, and there is no need for panic,” he said, according to the Nikkei business daily. The plunge “is not exceedingly large, and stock prices in China, where the shock originated, have not fallen so much either,” he added.

“The stock market’s rise has so far been largely driven by expectations of an economic turnaround, but we’ve yet to see Mr. Abe’s policies really gain traction,” said Kiyoshi Yoshimoto, chief senior economist at the Japan Research Institute in Tokyo. “That means even small shocks, like lower-than-expected numbers out of China or some volatility in bond markets, can trigger a big but temporary response.”

The sell-off Thursday came in spite of economic news from Europe that was, if not good, at least better than many expected. The Markit Economics euro zone purchasing managers’ index for the manufacturing sector rose to 47.8 from 46.7, while the services index rose to 47.5 from 47.0. While a number below 50 indicates continued contraction, the improvement suggests the economy may be getting nearer to its nadir, setting up conditions for a rebound in the second half.

In Hong Kong, Stephen Corry, chief investment strategist at LGT, agreed that a combination of negative news helped spur the sell-off, including the disappointing data from China and signs that the Fed may begin to scale back its stimulus efforts. But the Japanese market had rallied more than 14 percent this month alone, he added, and “was probably due a breather.”

Analysts have broadly welcomed Mr. Abe’s efforts to breathe life into the Japanese economy through a three-pronged approach of major fiscal spending, a promise to pursue structural reforms and a monetary policy that has effectively flooded the economy with cheap money through purchases of government bonds, commercial debt and other assets.

One result has been a weakening of the yen, whose 17 percent drop against the dollar since the start of this year has helped lift the earnings prospects of many Japanese exporters. Data released in the past few weeks have shown that the economy has begun to pick up speed.

Taking many market observers by surprise, however, bond yields have risen in recent days, fanning worries about a rising interest rate burden for the government. The yield on the 10-year Japanese government bond briefly spiked above 1 percent Thursday before dropping back to 0.9 percent. The move spooked investors, helping produce the fall in the stock markets, said Stephen Davies, chief executive of Javelin Wealth Management in Singapore.

Japan is vulnerable to rising borrowing costs because of its high public debt, which is twice the size of its economy. Bonds are also the main financial assets held by banks, pension funds and insurance companies, making a surge in debt yields perilous. Given the indebtedness of the Japanese government, there are worries about the impact that this could have if sustained,” Mr. Davies said. “It is too early to say whether it will be sustained, so we should not read too much into one day’s extreme move in the markets.”

Mr. Yoshimoto of the Japan Research Institute also said the sharp market moves Thursday had not changed the overall longer-term picture for recovery in Japan. That could change if Mr. Abe fails to follow through on his promises of economic reforms, he said, “but for now, there’s no need to become overly pessimistic about Japanese shares.”

David Jolly reported from Paris.  Hiroko Tabuchi contributed reporting from Tokyo.

Article source: http://www.nytimes.com/2013/05/24/business/global/china-economy.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Japan’s Moves to Weaken the Yen Have a Global Effect

April 9, 2013 by Leave a Comment

The most visible sign of the move by the bank, which is the country’s central bank, was the sharp decline of the yen and a 2.8 percent rise in the benchmark Nikkei 225-stock average. The dollar settled at 99.32 yen on Monday in New York, a four-year high. The euro traded at 129 yen, its highest level in more than three years.

“They’re taking a page out of the quantitative easing playbook, multiplied two and a half times what the Fed is doing,” said Michael H. Strauss, chief investment strategist at Commonfund in Wilton, Conn.

That, he said, created a situation where institutions and individuals both faced pressure to buy stocks, at home and overseas.

The shake-up was touched off on Thursday by Haruhiko Kuroda, the new Bank of Japan governor, who announced a decisive break with his predecessor’s policies. He said the bank would nearly double the amount of Japanese currency held by individuals and banks over the next two years as it tries to raise the annual inflation rate to its new 2 percent target.

Mr. Kuroda’s plan calls for the central bank to inject nearly 62 trillion yen, or $630 billion, into the economy this year, new money that must find a home. Some of that will undoubtedly end up overseas.

“This is a very big new injection of money into the global system,” said Thomas Mayer, senior adviser to Deutsche Bank in Frankfurt, and overseas bonds and equities will be among the beneficiaries.

United States stocks and bonds, which are already trading at high levels, are one obvious target for investors with yen to spend, he said. Core European countries like Germany, France and Britain are also favored destinations for Japanese capital, as are Australia and New Zealand.

The debt of governments in the developed world is already trading at low yields, Mr. Mayer noted, but as long as the euro zone crisis continues, struggling southern euro countries like Spain, Italy and Portugal may attract rather less investor interest because of concern about political risk.

While the size of the Japanese intervention is perhaps unprecedented relative to the size of the country’s economy, the Bank of Japan is in good company. The Federal Reserve, the Bank of England and the European Central Bank have all poured in liquidity and worked to hold interest rates down as the global financial sector creaks along year after year. That money is credited with helping to keep government borrowing costs low and to push the Dow Jones industrial average to high levels this month.

A weakening Japanese currency opens a window for international investors to profit on two fronts. With the central bank’s main interest rate target near zero, they can borrow the yen cheaply, then lend it abroad.

This “carry trade” offers the possibility of higher returns overseas — and if the yen falls, investors also reap a foreign-exchange gain since they can repay the loan in cheaper yen.

Of course, a rising yen would bring the opposite result, but the magnitude of the central bank’s plan could persuade investors that the currency is set to fall further.

Julian Jessop, chief global economist at Capital Economics in London, estimated that the dollar would continue strengthening to 110 yen this year and to 120 yen next year.

“The Bank of Japan’s new policy stance surely does amount to a game changer,” he noted, “at least for the currency markets.”

The weakening yen may also be felt by companies operating outside Japan — like American and German automakers and South Korean device manufacturers, which compete head-to-head with Japanese corporations. Those companies may find themselves under pressure to squeeze profit margins to compete against suddenly flush Japanese competitors.

“Some of these Japanese companies were profitable at 78 yen to the dollar,” Mr. Strauss said, so the dollar at 100 yen would be a boon for the corporate sector.

It will take time for competitors to Japanese companies to feel the effects, Mr. Mayer said, but he cautioned that there were larger concerns to consider: “By injecting such a large amount of money into the global financial system, you may end up distorting prices in such a way that it causes distortions in the real economy.”

Mr. Strauss said the biggest effect would be felt in Japan, where an investor could hold a 10-year government bond with a yield of less than 0.4 percent or could take on a little more risk in stocks.

The lesson after the Japanese investment bubble collapsed in 1990 was “never own equities again,” he said, but the moment may have arrived where that no longer holds true.

But today’s Japanese investors are more cautious than those of a generation ago, he added.

“I don’t think they’re going to go out and buy Pebble Beach,” he said, referring to the golf course in California that was acquired by a Japanese business owner in 1990 at a wildly inflated price.

Article source: http://www.nytimes.com/2013/04/09/business/global/yen-slides-close-to-level-of-100-to-the-dollar.html?partner=rss&emc=rss

Filed Under: Global Business Tagged With: , ,

Global Stocks Climb After Merkel Reiterates Support for Euro

December 2, 2011 by Leave a Comment

Also Friday, the German chancellor, Angela Merkel, reiterated her strong support for the euro, a move that helped bolster European stocks.

The American unemployment rate fell to 8.6 percent, after having been stuck around 9 percent for most of 2011, the Labor Department said.

The Standard Poor’s 500-stock index rose 0.7 percent in early trading, while the Dow Jones industrial average gained 0.6 percent and the Nasdaq composite index added 0.6 percent.

In Europe, the Euro Stoxx 50 added 1.5 percent by late afternoon. The FTSE 100 in London rose 1.1 percent and the DAX in Frankfurt increased 0.9 percent.

Mrs. Merkel told the German Parliament in a speech Friday that the future of the euro was time to fix the “mistakes of construction” in the euro zone.

Closer fiscal ties might also help to reduce German reticence toward jointly issued euro-bonds and a more active bond-buying by the European Central Bank, two steps that are also widely regarded as necessary for saving the currency.

“Mrs. Merkel is saying very clearly that she’s moving toward acceptance of euro bonds,” David Thébault, head of quantitative sales trading at Global Equities in Paris, said. “But in return she wants fiscal union.”

“Things have really advanced in Europe since last weekend,” Mr. Thébault said. “Germany and France are imposing budgetary rigor, and the E.C.B. has responded by becoming more accommodating.”

Asian shares were mostly higher. The Tokyo benchmark Nikkei 225 stock average rose 0.5 percent, while the Sydney market index S.P./ASX 200 rose 1.4 percent. In Hong Kong, the Hang Seng index added 0.2 percent.

But the Shanghai composite index fell 1.1 percent.

Nicholas Kulish contributed reporting from Berlin.

Article source: http://feeds.nytimes.com/click.phdo?i=661d2dee05494c9daeff14e9b48245f3

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Wall Street Loses Momentum After Rally

October 5, 2011 by Leave a Comment

In afternoon trading, the Euro Stoxx 50 index, a gauge of blue-chip shares in the euro zone, rose 2.9 percent. In London, the FTSE 100 rose 2.3 percent.

On Wall Street, all three major market indexes opened slightly lower, with the Standard Poor’s 500-stock index off 0.5 percent.

On Tuesday, the SP 500 closed 2.3 percent higher, as a massive rally in the final hour of trading led stocks out of the deep losses where they had spent most of the day.

The bounce was attributed by some traders to reports that finance ministers from the 17 European Union nations that use the euro were considering taking more aggressive action to bolster the region’s ailing banks.

Nevertheless, traders remained cautious Wednesday. In addition to confusion over the latest rescue plan for Greece and signs that a double-dip recession is imminent, problems in the banking system, which could require more taxpayer aid, threatened to further undermine government finances.

“All but the strongest euro-area sovereigns are likely to face sustained negative pressure on their ratings,” Moody’s Investors Service said on Wednesday, a day after it followed Standard Poor’s in cutting Italy’s credit rating, citing the country’s debt burden and paltry economic growth.

“Moody’s expects fewer countries below Aaa to retain high ratings,” the agency said, adding that “there are no immediate pressures that could cause downgrades for Aaa-rated countries.”

The momentum from Wall Street did not carry over into Asian markets, where most of the major indexes fell. The Nikkei 225 stock average in Tokyo fell 0.9 percent, the Hang Seng in Hong Kong fell 3.4 percent. But the SP/ASX 200 index in Sydney gained 1.4 percent.

The dollar was relatively stable, with the euro trading at $1.33.

American oil futures for November delivery rose 3 percent to $77.94 a barrel. Comex gold futures rose 0.6 percent to $1,625.90.

Article source: http://feeds.nytimes.com/click.phdo?i=99193d577488e63044d57879c0cd99fe

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