Japanese Stocks Rise on Spain Bank Bailout, China Imports

By Yoshiaki Nohara - Jun 11, 2012 9:54 AM GMT+0700

June 11 (Bloomberg) --　Japanese stocks rose, with the benchmark Nikkei 225 Stock Average (NKY) headed for the biggest gain since April, on speculation a bailout for Spanish banks will ease Europe’s debt crisis and after China’s trade grew faster than expected.

Canon Inc. (7751), a camera maker that gets 31 percent of its revenue in Europe, advanced 2.7 percent. Fanuc Corp. (6954), a manufacturer of robotics controls for Chinese factories, rose 1.6 percent. Sharp Corp. (6753), Japan’s largest maker of liquid- crystal displays, gained 6.6 percent after saying Foxconn Technology Group will start buying its panels earlier than expected as part of a revival plan.

The Nikkei 225 Stock Average added 1.9 percent to 8,616.79 at the 11:30 a.m. trading break in Tokyo, poised for the biggest increase since April 18. The gauge rose 0.2 percent last week, snapping a nine-week loss. The broader Topix (TPX) Index gained 1.7 percent to 730.05, with all 33 of its industry groups climbing.

“The bailout will keep companies that borrow from Spanish banks from going down all together,” said Kiyoshi Ishigane, a Tokyo-based senior strategist at Mitsubishi UFJ Asset Management Co., which oversees the equivalent of $70 billion. “In China, overseas demand is stronger than expected, while domestic demand continues to slow. That makes it easy to do more monetary easing because it has a direct impact on domestic demand.”

The Topix fell 16 percent from this year’s high on March 27 amid concern the European crisis is deepening and as growth in China slows. Shares on the measure are valued at 0.86 times book value. A number below one means a company can be bought for less than the value of its assets.

‘Market Oblivious’

“The market has been oblivious to valuations because having equities itself is considered risky amid uncertain external factors,” said Kuninobu Takeuchi, Tokyo-based executive portfolio manager at DIAM Co., which manages about $126 billion. “Once people step back and retain a peace of mind, they will look for buying opportunities.”

The Standard & Poor’s 500 Index (SPXL1) advanced 0.8 percent on June 8. Futures on the gauge climbed 1 percent today after Spain over the weekend asked euro-zone governments for as much as 100 billion euros ($125 billion) to rescue its banking system. Spain became the fourth nation to seek a bailout after Greece, Ireland and Portugal. Greek voters on June 17 will decide whether to observe requirements for another rescue.

Spain Rescue

“It’s crucial for Spain’s financial system to stabilize because its economy is much bigger than Greece,” Takeuchi at Diam said. “The bailout is bringing an issue to the end. It’s positive for equities.”

Exporters to Europe and banks advanced. Canon added 2.7 percent to 3,215 yen. Mitsubishi UFJ Financial Group Inc. (8306), Japan’s biggest lender, advanced 1.4 percent to 352 yen.

Companies linked to China gained after the government yesterday reported imports rose 12.7 percent in May and exports advanced 15.3 percent, topping estimates.

Another report showed inflation increased the least in two years last month and industrial output and retail sales missed estimates. The data adds pressure for more stimulus after the People’s Bank of China on June 7 reduced benchmark interest rates for the first time since 2008 to bolster slowing growth.

Fanuc gained 1.6 percent to 13,640 yen. TDK Corp. (6762), a maker of electronics components that gets 30 percent of its sales in China, rose 5.2 percent to 3,655 yen.

The Nikkei 225 Volatility Index (VNKY) declined 5.8 percent to 26.90, indicating traders expect a swing of about 8 percent on the benchmark gauge over the next 30 days. Trading volume was 15 percent below the 30-day average.

Sharp, Sumco

Sharp advanced 6.6 percent to 418 yen after saying Foxconn’s flagship Hon Hai Precision Industry Co. will start buying from its TV panel unit next quarter, three months earlier than planned. The loss-making operation, in which Foxconn is investing, will be taken off Sharp’s balance sheet next month.

Sumco Corp. (3436), a maker of silicon wafers for semiconductors, gained 12 percent to 774 yen. It reported operating profit of 2.9 billion yen ($36 million) for the three months ended April 30, beating the analysts’ estimates of 1 billion yen.

Olympus Corp. (7733) lead declines on the Nikkei 225, dropping 5 percent to 1,232 yen after the optics maker said it may sell shares to raise capital.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.

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Spanish Bondholders May Rank Behind Official Loans After Bailout

By John Glover - Jun 11, 2012 5:00 AM GMT+0700

Investors holding bonds issued by Spain and its banks will probably rank behind official creditors in the queue for payment after the nation asked for a bailout of as much as 100 billion euros ($125 billion).

The funds will be channeled through the state-run FROB bank-rescue fund and Spain will “retain the full responsibility of the financial assistance and will sign” the agreement with the other partners, according to the statement issued June 9. The document did not make clear whether the European Stability Mechanism, the region’s permanent support fund, which is likely to start operating in July, or the temporary European Financial Stability Facility, will make the loan.

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A Spanish national flag flies above the Madrid stock exchange, or Bolsas y Mercados, in Madrid. Photographer: Angel Navarrete/Bloomberg

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Spain's Prime Minister Mariano Rajoy speaks to reporters in Madrid today. Photographer: Angel Navarrete/Bloomberg

“This is state financing, and the risks of an equity injection into the banks will stay with Spain,” said Alberto Gallo, head of European macro credit research at Royal Bank of Scotland Group Plc in London. “Spain needs a systematic restructuring of its banking system, which could entail haircuts to subordinated bank debt. Official lenders on the other hand are likely to demand seniority.”

Spanish Prime Minister Mariano Rajoy has been forced to abandon his attempt to recapitalize the nation’s banks without outside help as the country’s descent into recession obliged lenders to own up to spiraling losses. While Rajoy said yesterday the agreement was “the opening of a credit line,” rather than a bailout such as those received by Greece, Ireland and Portugal, and the conditions of the loan affected the financial industry, the sovereign is ultimately responsible.

Preferred Creditor

If the cash were to come from the ESM, its treaty provides it with preferred creditor status, junior only to the International Monetary Fund. The EFSF isn’t explicitly a preferred creditor, prompting Finland’s Finance Minister Jutta Urpilainen to demand collateral if the facility were used to advance the money. Even so, the Greek example showed that official lenders aren’t willing to accept losses, preferring to force private bondholders to take greater writedowns in a restructuring.

Euro-area leaders would prefer Spain’s financing to come from the ESM because the fund will have paid-in capital, German lawmaker Norbert Barthle, the budgetary expert in Merkel’s Christian Democratic Union caucus, told Stuttgarter Zeitung newspaper. The authorities should examine whether the ESM has sufficient capital, he was quoted as saying.

“The risk is now all Spanish bonds are inferior to the ESM,” Steen Jakobsen, chief economist at Saxo Bank A/S in Hellerup, Denmark, wrote in a research note. “Finland already declared that if this loan is coming from EFSF they want collateral.”

Bonds Rally

Spanish bonds rallied last week, with the 10-year yield dropping 31 basis points, or 0.31 percentage point, to 6.22 percent. The yield has declined from this year’s high of 6.7 percent on May 30.

Article 12 of the ESM treaty requires government bond terms to contain collective action clauses from January 2013. These allow a set majority of bondholders to force minorities to take losses in a restructuring and were used in March to compel private investors to accept a writedown of 53.5 percent of the face value of their Greek debt.

Holders of the subordinated debt of banks that Spain has to rescue will probably have to accept losses, according to Gary Jenkins, director of Swordfish Research Ltd. in Amersham, England.

“Whilst Spanish politicians tried to claim that this was not a bailout it is of course a de-facto bailout of Spain itself,” Jenkins wrote in a note. “Considering that sovereign support for Greece required private-sector involvement it would be a bit of a turn up for the books if the equivalent for banks did not involve PSI.”

Irish banks raised capital by forcing holders of subordinated bonds to sell back their securities at a fraction of face value, generating a capital gain they used to increase their capital ratios. Senior bondholders of Irish banks weren’t affected amid concern lenders elsewhere would struggle to raise funds if such securities were written down.

Provisions making senior debt subject to so-called bail-ins aren’t due to become effective until 2018.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editor responsible for this story: Paul Armstrong at parmstrong10@bloomberg.net

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China Trade Surprise Signals Domestic Stimulus Focus

By Bloomberg News - Jun 11, 2012 8:03 AM GMT+0700

China’s exports rose in May at more than double the pace analysts estimated while industrial output and retail sales trailed forecasts, signaling that last week’s interest-rate cut was aimed at countering a domestic slowdown.

Overseas shipments climbed 15.3 percent from a year earlier, the customs bureau said yesterday, exceeding all 29 estimates in a Bloomberg News survey. Industrial output gained by less than 10 percent for a second month and retail sales increased the least in almost six years excluding holiday-month distortions, statistics bureau reports showed June 9.

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Shipping containers are stacked at the Yangshan Deep Water Port in Shanghai. China’s resilience in trade indicates Europe’s debt crisis has yet to produce a collapse in world commerce on the scale of the 2008 global recession, even as the plight of Spain’s banks threatens to deepen the trauma. Photographer: Nelson Ching/Bloomberg

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June 11 (Bloomberg) -- Helen Zhu, chief China equity strategist at Goldman Sachs Group Inc., talks about the outlook for the nation's economy and stocks. She speaks with Zeb Eckert on Bloomberg Television's "First Up." (Source: Bloomberg)

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June 11 (Bloomberg) -- Tim Condon, chief Asia economist at ING Financial Markets, talks about China's economic outlook, the European sovereign debt crisis and its implications for global markets. He speaks with Zeb Eckert on Bloomberg Television's "First Up." (Source: Bloomberg)

China’s trade resilience signals Europe’s crisis has yet to spark a collapse in world commerce on the scale of 2008, even as Spain’s banking woes threaten to deepen the trauma. Stronger exports and imports also support the case for Premier Wen Jiabao to adopt a more restrained stimulus than the credit boom officials unleashed in 2008, which stoked a property bubble.

“The better-than-expected trade data should help alleviate ongoing concerns of a sharp growth deterioration in the near term,” said Sun Junwei, a Beijing-based economist with HSBC Holdings Plc. “The key to securing a soft landing pivots on reviving domestic demand and that will necessitate more stimulus but it will be more measured than in 2008 and monetary policy won’t be eased excessively.”

The government may boost tax cuts and speed up spending on public works to ensure growth of more than 8.5 percent in the second half of the year, the bank says. Further reductions in interest rates are “possible” and reserve requirements may be cut four more times this year to spur lending, according to Sun.

Spain Rescue

China’s stocks had their biggest slide this year last week, after the rate cut heightened concern the nation’s economic slowdown is deepening. Equities rallied in Asia today after a weekend agreement in Europe to provide Spain with as much as $125 billion to bail out its banks. The MSCI Asia Pacific Index was up 1.2 percent at 9:51 a.m. in Tokyo.

Trade data from Singapore today also showed resilience, with non-oil domestic exports advancing 3.2 percent in May from a year before, compared with the median estimate for a 3 percent gain. Malaysia is projected to report an increase in industrial production for June.

In France, a report is forecast to show industrial production fell for a second month in April from March. In Italy, the national statistics institute will confirm last month’s preliminary report that the economy contracted 0.8 percent in the three months through March from the previous quarter, according to economists in a Bloomberg survey.

Rate Cut

China on June 7 announced the first rate reduction in more than three years to spur demand. The 25 basis-point move took one-year borrowing costs to 6.31 percent and the one-year deposit rate to 3.25 percent.

China’s economic growth eased to 8.1 percent in the first quarter from a year earlier and may slow to 7.7 percent in the three months through June, according to JPMorgan Chase & Co. The bank also predicts full-year expansion of 7.7 percent, the least since 1999. Wen in March set a 2012 growth target of 7.5 percent, down from an 8 percent goal in place since 2005.

Inflation in May eased to 3 percent, the statistics bureau said, the lowest reading in two years and below the government’s 2012 target of 4 percent for the fourth month.

The decline will offer more room for policy easing, said Lu Ting, head of Greater China economics at Bank of America Corp. in Hong Kong. He expects the government to start and speed up more projects and make financing easier by cutting reserve requirements and interest rates, approving more corporate bond issuance and lifting lending restrictions.

Bank Loans

The People’s Bank of China may release money supply and new lending figures for May as soon as today. M2, the broadest measure of money supply, probably rose 12.9 percent while new yuan loans were 700 billion yuan ($110 billion), up from 681.8 billion yuan the previous month and 551.6 billion yuan a year ago, Bloomberg surveys showed.

China’s statistics bureau also reported fixed-asset investment excluding rural households rose 20 percent in the first five months. That was the weakest gain for a January-May period since 2001, according to previously released data.

Industrial output increased 9.6 percent in May from a year earlier and retail sales grew 13.8 percent. Home-appliance sales growth slid to 0.5 percent compared with a 15.4 percent gain a year ago, after the government ended incentive programs.

Consumer Subsidies

Gome Electrical Appliances Holding Ltd. (493), China’s second- biggest electronics retailer, said May 25 its first-quarter net income slumped 88 percent from a year earlier as demand dropped when the programs ended. President Wang Jun Zhou said new subsidies announced last month for energy-saving appliances will be “particularly important” to boost television and air- conditioner sales.

Customs data showed a trade surplus of $18.7 billion last month, more than economists estimated, while the median forecast for export growth was 7.1 percent. Imports rose 12.7 percent from a year earlier compared with the median estimate for a 5.5 percent gain. Crude oil purchases climbed to a record and iron ore imports were the highest in three months.

“This shows it’s not all doom and gloom,” said Song Seng Wun, an economist with CIMB Research Pte. in Singapore. “Growth momentum may be slowing, but it’s not about to crash.”

--Zhou Xin, Zheng Lifei. Editors: Nerys Avery, Chris Anstey

To contact Bloomberg news staff on this story: Zhou Xin in Beijing at xzhou68@bloomberg.net Zheng Lifei in Beijing at lzheng32@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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U.S. Stock Futures Rise as Spain Asks for Bailout to Help Banks

By Rita Nazareth - Jun 11, 2012 5:53 AM GMT+0700

U.S. stock futures advanced, following the biggest weekly rally in the Standard & Poor’s 500 Index this year, after Spain asked for a bailout of as much as 100 billion euros ($125 billion) to help shore up its banks.

S&P 500 (SPX) futures expiring in September rose 1.2 percent to 1,338.10 at 7:47 a.m. Tokyo time. They also gained after Chinese exports grew in May at more than double the pace analysts projected. The euro strengthened 1 percent to $1.2644.

Spanish Prime Minister Mariano Rajoy, who on May 28 said he wouldn’t seek a bailout, characterized the deal as a credit line for banks and an endorsement of his policies. The crisis in Spain, coinciding with the prospect of Greece exiting the euro after elections on June 17, roiled markets around the world, sending the euro to an almost two-year low on June 1 and raising Spanish borrowing costs to near euro-era records.

“This Spanish deal will at least alleviate some concern as we wait another week for the Greek election,” Richard Sichel, who oversees $1.6 billion as chief investment officer at Philadelphia Trust Co., said in a phone interview. “This situation has been dragged out for longer than anybody wanted.”

The S&P 500 rose 0.8 percent on June 8, rebounding from an earlier decline, on optimism that weekend discussions among European finance officials could result in help for Spain. The benchmark stock index gained 3.7 percent last week amid speculation European and American central banks will join China in trying to spur economic growth.

Bear Market

European officials have failed to control the spread of a debt crisis that started in Greece at the end of 2009 and has now required a bailout in the euro area’s fourth-largest economy. Concern about a deepening of the region’s turmoil almost drove the S&P 500 into a bear market last year as the index tumbled more than 19 percent between April 29 and Oct. 3. Since then, the index surged as much as 29 percent to a four- year high in April, then lost 6.6 percent through last week.

“The Spanish deal is another Band-Aid,” said Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati. He spoke in a telephone interview. “Any pop that you get probably won’t be sustainable. Many investors are viewing this with skepticism. The problem is not going to be fixed by this amount. It’s not a solution, and people know the difference. Expect more volatility not less.”

U.S. stock futures also rose after Chinese exports climbed 15.3 percent from a year earlier in May, exceeding all 29 estimates in a Bloomberg News survey. Other reports showed industrial output and retail sales in China trailed forecasts, signaling last week’s cut in interest rates was aimed at countering a domestic slowdown. The nation announced the first cut in rates in more than three years on June 7.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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