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
