Tuesday, 31 July 2012

European shares rally fades on ECB reality check

Tue Jul 31, 2012 4:44am EDT
* FTSEurofirst 300 down 0.1 percent
* Traders eye central bank action from ECB
* UBS, BP sharp fallers after Q2 results
By Tricia Wright

LONDON, July 31 (Reuters) - A three-day rally in European shares ran out of steam on Tuesday, hit by the lack of clear evidence that the European Central Bank will deliver strong action this week to back up its pledge to support the euro.
Expectations that the European Central Bank would start buying Spanish and Italian bonds again after a meeting this Thursday were triggered last week by promises from ECB President Mario Draghi to do "whatever it takes" to defend the euro.
German Chancellor Angela Merkel and French President Francois Hollande have repeated that mantra but many analysts have warned from the start that the ECB may not yet have a clear mandate for bold action from Berlin.
A Reuters poll on Monday showed 19 of 24 euro money market traders believed the ECB would revive its bond-buying programme, but only 10 said the bank would do so on Thursday.
"The tactical PR campaign to support the euro zone has bought ministers some time in a typically thin summer market," Mike McCudden, head of derivatives at Interactive Investor, said.
"But actions do indeed speak louder than words and it's only a matter of time before patience runs out."
The FTSEurofirst 300 was down 0.1 percent at 1,071.80 by 0819 GMT, having soared more than 5 percent in the previous three sessions in a rally sparked by Draghi's pledge.
"Today will probably be a quiet last day of the month. Everybody is waiting for Thursday to see if Draghi can deliver," said Lex van Dam, hedge fund manager at Hampstead Capital, which manages $500 million of assets.
"He'd better pull a big rabbit out of his hat."
Ahead of the ECB meeting, investors were faced with a raft of earningsnews.
UBS topped the FTSEurofirst 300 fallers' list, off 5.5 percent, after reporting a shock slump in profit as a drop in trading pushed its investment bank into the red from the previous quarter and it took a big hit on Facebook's glitch-ridden stock market debut.
Trading volume in UBS was robust, at 56 percent of the 90-day daily average.
Rival Deutsche Bank, which saw second-quarter profit plunge at its investment bank, hit by the euro zone debt crisis, traded 1.3 percent lower.
BP, meanwhile, was left nursing a 3.3 percent fall after delivering the worst of a poor set of quarterly results among top oil companies, slashing $5 billion off the value of U.S. assets and undershooting expectations with its operating result.
BP also saw solid trading volume, at 47 percent of the 90-day daily average.
"BP disappoints widely with its second quarter numbers; even after stripping out major write-downs on U.S. shale gas and the Liberty project in Alaska, these results are a significant miss and are likely to disappoint the market," RBC Capital Markets said in a note.
Of the 44 percent of European companies to have reported so far, 47 percent have missed expectations, according to Thomson Reuters Starmine data.

Monday, 30 July 2012

Wall Street dips after year's best two-day run, Fed eyed

Traders work on the floor of the New York Stock Exchange, July 27, 2012. REUTERS/Brendan McDermid
Traders work on the floor of the New York Stock Exchange, July 27, 2012.
Credit: Reuters/Brendan McDermid
NEW YORK | Mon Jul 30, 2012 4:44pm EDT
(Reuters) - Stocks finished mostly flat on Monday as investors paused following the best two-day run this year, with central bank meetings and a full load of U.S. economic data looming.
Traders have bet that the Federal Reserve and the European Central Bank will suggest further action to stimulate their economies is on the way when each meets later this week.
The sectors least sensitive to economic growth - telecoms, consumer staples and utilities - posted healthy gains, suggesting a cautious move to defensive plays.
Blue chips like Wal-Mart Stores (WMT.N) and AT&T (T.N) hit new 52-week highs. Wal-Mart rose 0.6 percent to end at $74.98 after hitting $75.24 earlier. AT&T added 0.8 percent to close at $37.43 after hitting $37.69.
Last week, a strong statement from ECB President Mario Draghi drove theDow above 13,000 for the first time since early May, and gave the S&P 500 its biggest two-day rally since December.
"With all that news later in the week and after the big run, I think there's probably a little bit of hesitation to run ahead of these numbers," said Janna Sampson, co-chief investment officer at OakBrook Investments in Lisle, Illinois.
The Fed begins a two-day meeting on Tuesday while the ECB will meet on Thursday. The U.S. economic calendar is heavy this week, including Friday's payrolls report for July.
The Nasdaq Composite underperformed the other major indexes, weighed down by a 5.9 percent drop in shares of Citrix Systems (CTXS.O) and a 1 percent fall in Intel (INTC.O).
The Dow Jones industrial average .DJI dipped 2.65 points, or 0.02 percent, to 13,073.01 at the close. The Standard & Poor's 500 Index .SPX edged down just 0.67 of a point, or 0.05 percent, to 1,385.30. The Nasdaq Composite Index .IXIC fell 12.25 points, or 0.41 percent, to end at 2,945.84.
About 5.5 billion shares changed hands on the New York Stock Exchange, the Nasdaq and the Amex - 18.5 percent below the year-to-date daily average of 6.75 billion shares through last Friday.
On the NYSE, decliners slightly outnumbered advancers by 1,520 to 1,460. On the Nasdaq, 1,586 issues fell while 883 shares rose.
Apple Inc (AAPL.O) climbed 1.7 percent to $595.03. Jury selection began on Monday in a high-stakes patent battle between the iPad maker and Samsung Electronics (005930.KS), the culmination of over a year of pre-trial jousting with billions of dollars in the balance.
According to Thomson Reuters data, of the 294 companies in the S&P 500 that have reported second-quarter earnings to date, 67 percent have posted earnings above analysts' expectations. Over the past four quarters, the average is a 68 percent beat rate.
Shaw Group (SHAW.N) surged 55.5 percent to $41.49 after the engineering company agreed to be acquired by Chicago Bridge & Iron Co (CBI.N) for about $3 billion in cash and stock.
Progenics Pharmaceuticals Inc (PGNX.O) plunged 50.1 percent to $5.39 and Salix Pharmaceuticals Ltd (SLXP.O) tumbled 13 percent to $46.25 after the U.S. Food and Drug Administration declined to approve wider use of one of their drugs and asked for more data.
(Reporting by Rodrigo Campos; Editing by Jan Paschal)

Fed Weighs Cutting Interest On Banks’ Reserves After ECB Move

By Caroline Salas Gage and Liz Capo McCormick - Jul 31, 2012 12:21 AM GMT+0400

Federal Reserve Chairman Ben S. Bernanke may be taking another look at cutting the interest rate the Fed pays on bank reserves to bring down short-term borrowing costs and spur the slowing U.S. expansion.
Bernanke testified to Congress on July 17 that reducing the rate from its current 0.25 percent is one of several easing steps the Fed might take to reduce unemployment stuck above 8 percent for more than three years. In February, by contrast, the Fed chairman told Congress that lowering the rate might drive away investors from short-term money markets.
Ben S. Bernanke, chairman of the U.S. Federal Reserve. Photographer: Joshua Roberts/Bloomberg
July 27 (Bloomberg) -- John Taylor, chairman and chief executive officer of FX Concepts LLC, talks about the European debt crisis, the U.S. economy and Federal Reserve policy. Taylor, speaking with Sara Eisen on Bloomberg Television's "Money Moves," also discusses the outlook for currencies. (Source: Bloomberg)
July 26 (Bloomberg) -- Stephen Stanley, chief economist at Pierpont Securities LLC, talks about the outlook for Federal Reserve policy and the U.S. economy. He speaks with Tom Keene, Sara Eisen and Scarlet Fu on Bloomberg Television's "Surveillance." (Source: Bloomberg)
July 25 (Bloomberg) -- Allen Sinai, chief executive officer of Decision Economics Inc., talks about the outlook for the Federal Reserve's policies. He speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)
July 25 (Bloomberg) -- Stephen Roach, a professor at Yale University and former non-executive chairman for Morgan Stanley in Asia, talks about the outlook for another round of stimulus from the Federal Reserve. Roach speaks with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)
July 30 (Bloomberg) -- Harm Bandholz, chief U.S. economist at UniCredit Group, talks about Federal Reserve monetary policy and economic outlook. Bandholz, speaking with Tom Keene and Scarlet Fu on Bloomberg Television's "Surveillance," also discusses the European debt crisis.
Ben S. Bernanke, chairman of the U.S. Federal Reserve, waits to deliver his semiannual monetary policy report to the House Financial Services Committee in Washington. Photographer: Joshua Roberts/Bloomberg
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“They’re reconsidering it,” said Ward McCarthy, a former Richmond Fed economist. A July 5 decision by the European Central Bank to cut its deposit rate to zero is prompting renewed interest in the strategy, said McCarthy, chief financial economist at Jefferies & Co. McCarthy said it’s unlikely the Fed will reduce the rate at a two-day meeting that starts tomorrow.
Policy makers meeting this week are looking for new monetary tools after the Fed lowered its benchmark interest rate to near zero in December 2008 and purchased $2.3 trillion of securities to spur the economy. A government report on July 27 showed economic growth slowed to a 1.5 percent annual rate in the second quarter as consumers curbed spending.
“They are at the end of their rope and are probably searching for every last option for what they can do,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New Yorkand a former economist for the Fed Board in Washington. “You can’t rule anything out because they’re going to flail around and try every last thing they can.”

Take Action

European stocks rose today to their highest level since April on speculation policy makers will take action to ease the debt crisis. ECB President Mario Draghi meets with U.S. Treasury Secretary Timothy Geithner in Frankfurt today after leaders in Berlin, Paris and Rome backed him by saying they will do what’s needed to protect the 17-nation euro.
The benchmark Stoxx Europe 600 Index rose 1.6 percent to 263.94 at the close, while the Standard and Poor’s 500 Index decreased less than 0.1 percent to 1,385.3 at the 4 p.m. close in New York on concern the 3.6 percent rally over the prior two days had outpaced the economic outlook.
Economic confidence in the euro area fell in July more than economists forecast to the lowest in almost three years, suggesting the economy’s slump extended into the third quarteras governments struggled to tame the debt crisis. An index of executive and consumer sentiment in 17-nation euro area dropped to 87.9 from 89.9 in June, the European Commission in Brussels said today.

Aid Growth

Japan’s industrial production unexpectedly declined and South Korean manufacturers’ confidence dropped to a three-year low, building the case for extra monetary and fiscal measures to aid growth. Production fell 0.1 percent in June from May, when it slid 3.4 percent, Japan’s Trade Ministry said today. The South Korean confidence index for August was at 70 after 81 for July, the central bank said.
The Fed may extend its time frame for keeping interest rates low beyond late 2014 at the coming meeting, Feroli said. Another option mentioned by Bernanke is a new round of large- scale bond purchases, which McCarthy said is more likely to occur later this year than in August.
Central banks around the world are digging deeper into their tool kits in search of innovative ways to unclog bank lending. The FOMC meeting ends one day before Draghi’s Governing Council and Bank of England Governor Mervyn King’s Monetary Policy Committee.

Cutting Rate

The institutions’ last meetings ended with the Fed prolonging its Operation Twist program to extend the maturities of assets on its balance sheet, the ECB cutting its benchmark rate to a record low 0.75 percent and the BOE restarting bond buying.
By reducing the interest it pays on excess reserves, a central bank gives financial institutions an incentive to shift their money into lending that yields a higher return. The aim is to expand the supply of credit and speed economic growth.
Excess reserves have mushroomed as the Fed bought securities from banks in its bid to lower long-term interest rates. The amount of such reserves at the Fed was $1.49 trillion on July 25, up from $991 billion at the end of 2010 and $2.4 billion at the end of 2007, Fed data show.
Traders have speculated the Fed will follow the ECB, pushing short-term rates lower in the U.S., according to Jim Lee, head of U.S. derivative strategy at Royal Bank of Scotland Group Plc’s RBS Securities Inc. in StamfordConnecticut. The fed funds effective rate fell to 14 basis points on July 27 from 17 basis points on July 5. A basis point is 0.01 percentage point.

No Disruptions

“Part of the reason for the demand this month for short- term U.S. debt has been due to speculation that the Fed will cut the IOER following the ECB’s move and given the lack of disruptions in European money markets,” Lee said in an interview, referring to the interest rate on excess reserves.
The yield on the two-year Treasury note fell to 0.23 percent today, down from 0.29 percent on July 5, while the implied yield for eurodollar futures that expire in December has fallen about 12 basis points during the period. The rate is based on expectations for three-month dollar Libor, or the London interbank offered rate.
“Clearly the market is purchasing some lottery tickets in case the Fed does cut the IOER,” Lee said. The Fed has held the rate at 25 basis points since December 2008.
After the ECB’s cut, deposits at the central bank fell to 321 billion euros ($396 billion) on July 26, the least since Dec. 21.

Investor Demand

The ECB’s move fueled investor demand for short-term sovereign debt from the region’s safest nations, including Germany, Austria, and Finland, driving rates lower, with some of them falling below zero for the first time. Investors holding debt with a negative yield to maturity will receive less than they paid to buy the securities.
The central bank’s action hasn’t caused significant disruptions in European markets, said Alex Roever, head of short-term fixed-income strategy at JPMorgan in New York.
Market stability following the ECB’s move has probably prompted Bernanke to reconsider, Feroli said. Rising short-term borrowing costs may have also made the tool more appealing.
The fed funds effective rate -- at 14 basis points on July 27 -- has increased from six basis points at the end of September. That month the Fed announced its Operation Twist plan extending the average maturity of bonds in its portfolio by selling short-term securities and buying longer-term debt.

Increase Leverage

Also, the average rate for borrowing and lending Treasuries for one day through repurchase agreements, or repos, rose to as high this year as 0.297 percent on July 2, from minus 0.001 percent at the end of last year, a Depository Trust & Clearing Corp. index of General Collateral Finance repos shows. The rate was 0.172 percent on July 27. Securities dealers use repos to finance holdings and increase leverage.
If Bernanke decided to lower the deposit rate, he would probably reduce it by about 10 or 12 basis points, instead of to zero, Feroli said.
A reduction may pose fewer political disadvantages than Bernanke’s other stimulus options, including an expansion of the Fed’s balance sheet. The central bank’s purchase of $2.3 trillion in securities during two rounds of so-called quantitative easing has drawn fire from lawmakers, including House Speaker John Boehner, an Ohio Republican, concerned about inflation risks.

Stop Paying

In contrast, some lawmakers have urged Bernanke to stop paying interest on reserves.
“What you’re actually doing by this is sort of incentivizing the banks” to “keep their excess reserves at the Fed,” Representative Scott Garrett, a Republican from New Jersey, said to Bernanke during Feb. 29 congressional testimony by the central bank chief. “Isn’t that sort of counter to what your policy should be?”
Bernanke said the benefits from a rate reduction would be “pretty small.” Also, a cut would risk triggering some “financial side effects.”
The Fed’s other stimulus tools include altering the language on the outlook for interest rates and using the so- called discount window for direct lending to banks, Bernanke said in July 17 congressional testimony.
“That’s a range of things that we could do,” Bernanke said. “Each one of them has costs and benefits, and that’s an important part of the calculation.”
An IOER reduction alone probably wouldn’t buoy economic growth, said George Goncalves, head of interest-rate strategy in New York at Nomura Holdings Inc., a primary dealer.
The Fed may make the cut “in combination with a change in communication policy” extending the Fed’s commitment to hold the main interest rate close to zero beyond late 2014, or paired with another round of quantitative easing, Goncalves said.
To contact the reporters on this story: Caroline Salas Gage in New York atcsalas1@bloomberg.net; Liz Capo McCormick in New York at emccormick7@bloomberg.net
To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

Euro Weakens Before ECB On Bond-Purchase Speculation

By Allison Bennett - Jul 31, 2012 12:14 AM GMT+0400
The euro fell for the first time in four days against the dollar amid speculation the European Central Bank will expand its balance sheet to stem the rise of the region’s sovereign-bond yields.
The 17-nation currency dropped from almost a two-week high versus the yen even as Spanish bonds extended a rally before the bank’s next policy decision on Aug. 2. ECB President Mario Draghi pledged last week to do whatever it takes to preserve the currency, suggesting policy makers may intervene in bond markets. Sweden’s krona rallied as the economy expanded more than analysts predicted.
July 30 (Bloomberg) -- Gerard Lyons, chief economist at Standard Chartered Plc, talks about the euro-region debt crisis. He speaks with Tom Keene on Bloomberg Television's "Surveillance." (Source: Bloomberg)
“We’ve had the weekend to digest Draghi’s comments; the euro is going to come under continued selling pressure, and any further easing is going to viewed as euro-negative,” saidMichael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp. “The euro is considerably oversold at this point, so you could see some profit-taking just ahead of the decision.”
The euro dropped 0.6 percent to $1.2254 at 4:13 p.m. New York time, after strengthening 1.4 percent last week. It was poised for a 3.3 percent loss for July and a 5.5 percent drop for the year. The single currency declined 0.9 percent to 95.81 yen after climbing to 97.34 on July 27, the strongest level since July 17. The yen gained 0.4 percent to 78.19 per dollar.
“You could see a challenge of $1.20 before the decision, and I would expect going into the decision and shortly thereafter you could get back to the $1.23 area,” Woolfolk said. He expects the euro to weaken to $1.16 in coming months.

Volatility Rises

One-week implied volatility for euro-dollar options, which signals the expected pace of currency swings, was at almost the highest level since June 15. It was 11.933 percent after rising yesterday to 11.945 percent.
“The euro is going to trade on speculation on whether the ECB is going to be doing bond buying,” Steven Englander, head of Group-of-10 currency strategy at Citigroup Inc. in New York, said in a radio interview today on “Bloomberg Surveillance” with Tom Keene. “I’m on the euro-bullish side for at least this week.”
Analysts surveyed by Bloomberg predict the currency will end 2012 at $1.23.
Draghi is due to meet U.S. Treasury Secretary Timothy Geithner today as he attempts to win over Bundesbank President Jens Weidmann on measures to ease the region’s debt woes. The proposal involves the European Financial Stability Facility buying government bonds in the primary market, buttressed by ECB purchases on the secondary market to ensure transmission of its record-low interest rates, two central bank officials said July 27 on condition of anonymity. More rate cuts and long-term loans to banks are also up for discussion, one of the officials said.

Spanish Bonds

Spain’s 10-year government bond yields traded at 6.61 percent after reaching a euro-era high of 7.75 percent July 25.
Geithner and German Finance Minister Wolfgang Schaeuble earlier backed a commitment by European leaders to defend the euro area, while failing to mention its weakest link, Greece. They issued a joint statement after they held talks on the German North Sea island of Sylt today.
While the ECB’s commitment to preserve the euro is necessary, it’s not sufficient by itself to resolve the debt crisis, Moody’s Investors Service said in a report.
“In both situations, where the ECB does more or less, you see the euro lower,” said Aroop Chatterjee, a currency strategist at Barclays Plc in New York. “In a world where the ECB does less, the risks remain elevated and people will worry about the potential for a breakup. We’re in the other world where the ECB does more in terms of sovereign-bond purchases or easing of policy. This is typically negative for the currency.”

Monthly Performance

The euro has weakened 3.4 percent in the past month, the worst performer of the 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar rose 0.2 percent and the yen gained 2.5 percent.
Sweden’s krona climbed as much as 1.7 percent to 8.3173 against the euro, its strongest since September 2000. The currency rose for a fourth day against the dollar, gaining 1.1 percent to 6.7910 and touching 6.7842, the highest since May 4.
The Swedish economy grew 1.4 percent in the quarter through June, after advancing a revised 0.9 percent the previous three months, Stockholm-based Statistics Sweden said.
Brazil’s real and South Africa’s rand were the biggest losers among major currencies. The real slid 0.8 percent to 2.0377 per dollar, and the rand lost 0.6 percent to 8.2080 to the greenback.
The dollar may extend its slide against the yen to its weakest in five months should the U.S. currency breach its lowest level from last week, according to UBS AG analysts citing trading patterns.

Downside Skew

“The directional risk remains skewed to the downside” as long as so-called resistance holds at 78.82 yen, Richard Adcock, a London-based fixed-income technical strategist, wrote in an e- mailed note to clients today. A break below last week’s low, which was 77.94 yen on July 23, may open the way for the U.S. currency to slip to 77.65 yen, Adcock wrote. Resistance is an area on a chart where sell orders may be clustered.
Demand for the dollar was tempered before the Federal Reserve starts a two-day meeting tomorrow amid speculation the central bank will signal additional stimulus.
Fed Chairman Ben S. Bernanke said this month policy makers are “looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market.” While the central bank refrained from introducing a third round of asset purchases at its June meeting, Bernanke indicated it’s an option. It bought $2.3 trillion of securities from 2008 to 2011 to spur growth.

Dollar Repatriation

U.S. investors repatriated $48.9 billion from December to May, the first time they brought assets home during a six-month stretch since the period following the failure of Lehman Brothers Holdings Inc. in 2008, according to Treasury Department data compiled by Bloomberg. Inflows into funds that focus on U.S. bonds more than doubled to $157 billion in the first six months from $65 billion during the same period a year earlier, while international bond investments were unchanged, according to TrimTabs Investment Research.
To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net
To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

Stocks Advance For Third Day On Europe Optimism; Grains Rally

By Richard Frost and Santanu Chakraborty - Jul 30, 2012 11:09 AM GMT+0400
Stocks (SXXP) rose for a third day on speculation European Union policy makers will take action to ease the debt crisis. Corn jumped to a record as a drought persisted in the U.S. Midwest, while the euro weakened.
The Stoxx Europe 600 Index advanced 0.5 percent at 8:03 a.m. in London, extending a run of eight weekly gains, while futures on the Standard & Poor’s 500 Index fell 0.4 percent. The MSCI Asia Pacific Index (MXAP) added 0.9 percent, almost erasing July’s loss. The cost of insuring Asia-Pacific bonds slid to the lowest level since April, while corn and soybean futures rallied more than 2 percent. The euro retreated 0.3 percent from a three-week high against the dollar.
Japan’s industrial production unexpectedly fell in June, while South Korean manufacturers’ confidence dropped to the lowest level in more than three years, official reports showed today. Photographer: SeongJoon Cho/Bloomberg
European Central Bank President Mario Draghi meets with U.S. Treasury Secretary Timothy Geithner in Frankfurt today after leaders in Berlin, Paris and Rome backed him by saying they will do what’s needed to protect the 17-nation euro. Spain is forecast to report today that its economy shrank for the third quarter in a row, while Japan announced an unexpected drop in industrial production and South Korean data showed manufacturers’ confidence is the lowest in more than three years.
“There is an expectation that European leaders will follow up by buying Spanish bonds or further easing,” said A.S. Thiyaga Rajan, a Singapore-based senior managing director at Aquarius Investment Advisors Pte. Globally, “there are no clear signs of recovery,” he said.
Draghi’s proposal involves Europe’s rescue fund buying government bonds on the primary market, buttressed by ECB purchases on the secondary market to ensure transmission of its record-low interest rates, two central bank officials said July 27 on condition of anonymity. Further ECB rate cuts and long- term loans to banks are also up for discussion, one of the officials said.

Spain GDP

In the U.S., Federal Reserve policy makers meet this week before a jobs report to decide whether additional stimulus is needed to combat a slowdown in the world’s biggest economy. Spain’s gross domestic product fell 0.4 percent in the second quarter from the previous three months, according to the median forecast of economists surveyed by Bloomberg before data today.
More than two stocks rose for each one that fell on MSCI’s Asian Pacific gauge. The measure has lost 0.2 percent this month, paring its 2012 gain to 2.8 percent. More than 270 companies listed on the index are scheduled to announce earnings this week.
Japan’s Topix Index gained 0.7 percent. Konica Minolta Holdings Ltd., a maker of photo film, rose 5.8 percent in Tokyo after operating profit almost doubled from a year earlier. Fujitsu Ltd. (6702), Japan’s biggest provider of computer services, fell to the lowest level in almost 34 years after posting a wider-than-expected first-quarter loss.

Cashed Up

Almost half of the 1,671 companies in the Topix, the country’s broadest measure of equity performance, have more cash than debt on their balance sheets, a record. At the same time, the index’s 75 percent drop since 1989 pushed prices to 0.86 times book value, 4 percent from a two-decade low, data show.
Japan’s industrial output fell 0.1 percent in June from May, when it declined 3.4 percent, the Trade Ministry said. The median estimate of 29 economists surveyed by Bloomberg News was for a 1.5 percent increase. The Bank of Korea said an index measuring manufacturers’ expectations for August was at 70, the lowest level since May 2009.
“It’s increasingly likely that the Fed and European Central Bank will ease further by September,” said Masamichi Adachi, a senior economist at JPMorgan Securities in Tokyo and a former central bank official. In Japan, the government may implement a supplementary budget by September, with the central bank expanding asset purchases, Adachi said.

Bond Risk

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan dropped seven basis points to 160 basis points, Royal Bank of Scotland Group Plc prices show. The gauge is headed for its lowest close since April 4, according to data provider CMA.
The euro weakened 0.4 percent to $1.2273, after rallying 1.4 percent last week to its highest level since July 5.
Draghi must now deliver or face a renewed selloff on bond markets, where soaring Spanish and Italian yields have fueled speculation that the monetary union could fall apart. The ECB chief is also attempting to win over Bundesbank President Jens Weidmann, a critic of ECB bond purchases.
Figures tomorrow may show euro-area unemployment climbed to a record 11.2 percent last month, a Bloomberg poll showed. A U.S. report due on Aug. 3 may show the pace of hiring in July probably failed to reduce the nation’s jobless rate, which has been stuck above 8 percent for more than three years, economists said. Other U.S. data may show manufacturing stagnated in July and consumer confidence fell for a fifth month.

Midwest Drought

December-delivery corn climbed 2.9 percent to $8.1625 a bushel on the Chicago Board of Trade. Soybeans for November delivery jumped 2.5 percent to $16.425 a bushel.
The drought in the Midwest is unlikely to be broken in the six to 10 days from July 27, as rains that fell in many parts of the region were not enough to improve conditions, Telvent DTN Inc. said in a report that day.
Crop conditions are the poorest since 1988 and parts of the U.S. are suffering from the worst drought since 1956. Corn, which goes into everything from food to sweetener to biofuel to feeds for pigs and chicken, has soared 60 percent since June 15, signaling higher food prices and boosting costs for producers of meat and ethanol.
To contact the reporters on this story: Richard Frost in Hong Kong at rfrost4@bloomberg.net; Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net
To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net