Monday 16 April 2012

The Economic Crisis

Spanish Minister Asks ECB to Buy Bonds as Crisis Deepens
A Spanish minister called on the European Central Bank to do more to stem the sovereign debt crisis as the cost of insuring the country’s bonds against default surged to a record.



15 April, 2012

They should step up purchases of bonds,” Jaime Garcia- Legaz, a deputy minister in Luis de Guindos’s Economy Ministry, said yesterday in an interview.

His comments came as ECB officials split over the steps to tame the crisis amid growing expectations that Spain will be the next euro member to seek a European bailout. Spanish banks’ borrowings from the ECB surged almost 50 percent in March, data showed yesterday, as they took almost a third of the longer-term lending offered to euro-region institutions.

Prime Minister Mariano Rajoy is struggling to convince investors he can get Spain’s finances under control after last month refusing to meet deficit targets set by the European Commission and the previous government. While Rajoy said on April 12 Spain won’t need a rescue, credit-default swaps rose 17 basis points to 498 yesterday, surpassing the all-time high closing price of 493, according to CMA.

The yield on Spain’s 10-year bonds rose 16 basis points to 5.98 percent, edging closer to the 7 percent level that pushed Greece, Ireland and Portugal into rescues.
Rajoy’s austerity plan today won the support of leaders from the 12 regions where his Peoples Party governs. There are 17 in total. The PP’s regional presidents pledged to cut public services, eliminate duplication between different levels of government and write deficit targets into their budget laws.

Extraordinary Measures

Garcia-Legaz’s comments go beyond those of his prime minister, who has repeatedly praised the ECB’s extraordinary liquidity measures. Budget Minister Cristobal Montoro referred yesterday to the “importance of the role” of European institutions in fighting the crisis.

If you’re demanding ultra-restrictive fiscal policies from Spain and Italy then it makes sense to have monetary policy with stronger bond purchases,” said Garcia-Legaz, a former secretary general of the Faes research institute that’s linked to the ruling People’s Party.

ECB officials are nevertheless struggling to present a united front over what to do next as investors dump Spanish bonds amid renewed concern about bad assets at the country’s banks.

ECB Split

While Executive Board member Benoit Coeure signaled on April 11 the bank may start buying Spanish bonds, his Dutch colleague Klaas Knot said yesterday that the ECB is “very far” from reactivating a policy that failed to stop a selloff in Spanish bonds in November.

I hope we never have to use it again,” he said in Amsterdam.

Spanish yields surged above 6 percent in August, prompting the ECB to start buying bonds, and reached 6.78 percent in November before ECB President Mario Draghi said the bank would offer financial institutions unlimited three-year loans.

That measure helped tame Spanish borrowing costs, as institutions used ECB funds to pile up on the nation’s bonds. Spanish banks’ holdings of government debt jumped to 220 billion euros ($288 billion) in January from 178 billion euros in November, according to data from the Treasury.

Net Borrowing

Average net borrowings from the ECB by Spanish banks climbed to 227.6 billion euros last month from 152.4 billion euros in February, the Bank of Spain said yesterday on its website. In net terms, they tapped more than 60 percent of the amount taken by euro-region lenders.

Still, Garcia-Legaz, a former deputy director of Spain’s Treasury who’s now in charge of trade, said Spain won’t have trouble funding itself as the deficit cuts implemented since the government took over in December bolster confidence. The central government faces 11.9 billion euros of bond redemptions in April, 12.7 billion euros in July, and 20.2 billion euros in October, Treasury data show.

With the profile of redemptions it has and the credibility that will be generated from the deficit reduction, it won’t have problems financing itself,” he said.







S&P 500 Posts First Back-to-Back Weekly Drop for 2012
U.S. stocks fell, sending the Standard & Poor’s 500 to its first back-to-back weekly decline since November, after employers added fewer jobs than estimated and investor concern over global economic growth intensified.


26 April, 2012

All 10 groups in the S&P 500 also slipped after China’s gross domestic product slowed more than forecast. Financial shares fell the most, sinking 2.8 percent, as Bank of America Corp. (BAC) (BAC) tumbled 6 percent. Apple Inc. (AAPL) (AAPL), the world’s largest company by market value, sank 4.5 percent for the biggest weekly loss since October. Alcoa Inc. (AA) (AA), the first company in the Dow Jones Industrial Average to disclose quarterly results, rose 2.3 percent after posting an unexpected profit.

The S&P 500 dropped 2 percent to 1,370.26, its worst week since Dec. 16. The decline came even as the benchmark index for American equities had its best two-day gain of the year on April 11 and 12, sparked by optimism about earnings and signals from the Federal Reserve that interest rates will remain low. The Dow lost 210.55 points, or 1.6 percent, to 12,849.59.

There are still macro concerns that are weighing on the market right now,” Joseph Veranth, chief investment officer at Dana Investment Advisors in Brookfield, Wisconsin, said in a telephone interview. The firm manages $3.4 billion. In the U.S., “economic numbers haven’t gone off a cliff, but the key is they are a little weaker than people expected,” he said. China and Europe “are concerns for us as part of the overall puzzle.”

Jobs Report

Equities fell as U.S. employers added 120,000 jobs in March, less than the median economist forecast of 205,000 in a Bloomberg survey. Consumer confidence dropped and more Americans than forecast filed claims for jobless benefits. A surge in Spanish and Italian bond yields fueled concern Europe’s debt crisis is worsening, while China said its economy expanded 8.1 percent in the first quarter, the slowest pace since 2009.

The S&P 500 has slumped 2.7 percent in April, poised for the biggest monthly loss since September. The index finished the previous three months with a 12 percent gain, producing the best first-quarter rally since 1998.

The benchmark gauge jumped 0.7 percent on April 11 following Alcoa’s results, and added 1.4 percent April 12 as Fed Vice Chairman Janet Yellen and New York Fed President William C. Dudley endorsed the central bank’s view that borrowing costs are likely to stay low through 2014. Stocks retreated 1.3 percent on the final day of the week as the cost of insuring against a Spanish default rose to a record.

The Chicago Board Options Exchange Volatility Index (VIX), which measures the cost of using options as insurance against declines in the S&P 500, jumped 17 percent to 19.55. The gauge, known as VIX, rose for a fourth week, the longest streak since August. It reached 14.26 in March, the lowest level since 2007.

Financials Tumble

Concern about the global economy drove financial shares lower even as JPMorgan Chase & Co. (JPM) (JPM) and Wells Fargo & Co. (WFC) (WFC) reported earnings that beat estimates. Bank of America tumbled 6 percent to $8.68 for the biggest decline in the Dow. JPMorgan lost 2.6 percent to $43.21, while Wells Fargo dropped 2.6 percent to $32.84.

Alcoa rose 2.3 percent to $9.85. The largest U.S. aluminum producer reported a first-quarter profit after customers from automakers to beverage-can manufacturers ordered more of the metal and the company closed higher-cost smelting capacity.

Ninety-one companies in the S&P 500 are scheduled to announce results next week. They include Citigroup Inc., Goldman Sachs Group Inc., Bank of America and some of the largest technology companies such as International Business Machines Corp., Intel Corp. and Microsoft Corp.

Slowing Earnings

S&P 500 per-share profit growth slowed to 1.7 percent during the first three months of the year from 4.9 percent in the fourth quarter, according to analyst estimates compiled by Bloomberg. “Expectations for earnings have really come down significantly over the last three to six months,” Veranth said. “It might have been overdone.”

Chesapeake Energy Corp. (CHK) (CHK) plunged 9.9 percent to $19.95, leading energy companies to a 2.7 percent retreat. The second- largest U.S. natural-gas producer announced $2.6 billion in asset sales that will cut debt and fund drilling after slumping gas prices eroded cash flow.

The S&P 500 Information Technology Index (S5INFT) fell 2 percent, dropping for the first time this year and ending its longest string of weekly gains since at least 1989. Apple sank 4.5 percent to $605.23. After rising to a record on April 9, the shares fell four days in a row for the longest losing streak since December.

Hewlett-Packard Co. (HPQ) (HPQ) advanced 6.3 percent to $24.57. Gartner Inc. said the global personal-computer industry unexpectedly grew in the first quarter and the Palo Alto, California-based company remained a market leader.

Supervalu Inc. (SVU) (SVU) rose 25 percent, the most in the S&P 500, to $6.41. The supermarket and pharmacy chain forecast 2013 earnings excluding some items of at least $1.27 a share, beating the average analyst forecast of $1.19.


See also



"Hungarian Prime Minister Viktor Orban attacked the European Union for imposing political conditions on an EU-IMF loan desperately needed by Budapest, in an interview on Friday.

"'Creating political conditions -- for example over the justice system -- would amount to blackmail, which is unacceptable within the European Union,' Orban told national radio MR1 in his weekly interview."

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