Obama in Mexico Grabs Sideline Meetings on European Debt

By Hans Nichols and Mike Dorning - Jun 19, 2012 5:57 AM GMT+0700

President Barack Obama, working to help contain Europe’s sovereign debt crisis, pressed leaders of the world’s largest economies today, including Germany’s Angela Merkel, to find a consensus plan as financial markets escalated pressure on Spain.

Enlarge image

President Barack Obama with Ambassador Julian Ventura at Los Cabos International Airport to attend the G20 Summit on June 17, 2012, in Mexico. Photographer: Carolyn Kaster/AP Photo

Enlarge image

President Barack Obama walks down the steps of Air Force One after arriving at Los Cabos International Airport in San Jose del Cabo, Mexico. Photographer: Paul J. Richards/AFP/Getty Images

Chiefs of the Group of 20 nations are in Los Cabos, Mexico, for two days of meetings as Spanish borrowing costs soared to a euro-era record and elections in Greece failed to damp the threat of contagion that threatens the global and U.S. economies as well as Obama’s re-election prospects.

“We are going to be very busy,” Obama said as he left a morning meeting with the summit’s host, Mexican President Felipe Calderon. “We are confident that this will be a productive summit.”

European leaders, including German representatives, have come to the summit with a “notable shift” in outlook, persuaded by a slowing global economy of the need to place greater Treasury Undersecretary for International Affairs.

In addition to Calderon, Obama was meeting today on the sidelines of the summit with Merkel and Russian President Vladimir Putin, with whom he discussed violence in Syria and other issues.

“We agreed on the need for a cessation of the violence,” Obama told reporters after the Putin meeting today.

‘Common Points’

“We have found many common points on this issue,” Putin said, adding that the two sides will continue discussions.

Putin and Obama also talked about the U.S. missile defense program, a source of friction between the two countries, and the expansion of commercial ties, which are “far below” where they should be, Obama said. He called the two-hour talk “candid and thorough.”

Earlier in the day, Obama welcomed the results of yesterday’s Greek elections as a “positive prospect not only for their forming a government, but also working constructively with their international partners.”

Greek political parties that support a bailout and austerity plan won a majority of seats in the parliament.

Obama met with Merkel for 45 minutes before the formal G-20 sessions began and is scheduled to meet tonight with the leaders of all five European nations at the summit. Tomorrow he meets with Chinese President Hu Jintao.

Pressuring Merkel

While pressure is building on Merkel to be more accommodating to European nations enveloped in the debt crisis, she said this morning that the new Greek government shouldn’t be granted additional leeway on the terms of its international bailout.

“The important thing is that the new government sticks with the commitments,” Merkel told reporters today. “There can be no loosening on the reform steps.”

“I’m definitely not talking about a new aid package. The money we have provided is comprehensive,” she said.

Brainard said at a news conference later in the day that European leaders are prepared to find other ways of easing the burden on Greece, saying “we can expect” flexibility on the timetable for meeting reform goals.

Spanish 10-year bond yields leaped above the 7 percent level that forced Greece, Ireland and Portugal to call for sovereign rescues for the first time since the euro’s creation.

The 10-year Spanish yield jumped as much as 41 basis points to 7.29 percent before paring gains and trading at 7.16 percent at 11:44 a.m. New York time. The euro depreciated 0.6 percent to $1.2567 after rising and falling as much as 0.9 percent.

Debt Crisis

The Standard & Poor’s 500 Index swung between gains and losses while the Stoxx Europe 600 (SXXP) Index ended little changed after surging as much as 1.1 percent.

Europe’s sovereign debt crisis has become a familiar, if unwanted, presence at meetings of world leaders.

“We are heading into the second consecutive G-20 summit that will be dominated by concerns over the euro crisis and a vote in Greece,” said Daniel Price, managing director of Rock Creek Global Advisors LLC, a Washington-based consultancy.

“Tensions are higher this time for several reasons,” he said. “The contagion only feared in Cannes has now in fact materialized in Spain.”

With international markets looking for an indication of how European leaders plan to act, the stakes at the two-day summit in Los Cabos are high for a global economy at a “very dangerous moment,” said World Bank President Robert Zoellick.

European ‘Cloud’

Obama was home in Chicago for two days off from public duties before the summit. He attended a wedding, visited friends and, hours before departing for Mexico last night, played golf.

While Obama has called Europe’s banking and growth crisis a “cloud” hanging over the U.S. economy, administration officials said they don’t expect the summit to resolve the sovereign debt problem that has led to high borrowing costs and economic contraction in much of Southern Europe.

“Let me also just underscore this isn’t a meeting where we expect Europeans to make decisions about Europe,” said Michael Froman, deputy security adviser for international economic affairs, in a briefing for reporters in Washington on June 15. “The G-20 looks forward to hearing more from the European leaders on the progress of their efforts to stabilize their banking system and promote growth, and to hear what their vision is for taking this effort forward toward fiscal and financial union.”

Concrete Steps

Froman said concrete steps are more likely when European leaders meet for a summit June 28-29. America’s ability to force European leaders and institutions to take action is limited, he said.

“This is not an issue of U.S. leverage,” Froman said. “It’s Europe doing what’s in Europe’s interests and what’s in the interest of the rest of the global economy.”

Leaders may use the summit to agree to boost the $430 billion firewall the International Monetary Fund announced in April, Calderon said. “I estimate that there will be a larger capitalization than the pre-accord reached in Washington, which will be finalized here, but I don’t want to speculate by how much,” he told reporters June 16.

Failure to stem the crisis would add to economic uncertainty in the U.S. at a time when Obama and his presumptive Republican rival, Mitt Romney, are squaring off on how to spur growth and create jobs.

Romney Comment

Romney said in an interview aired yesterday that the U.S. isn’t going to bail out European banks if the financial crisis there worsens.

Europe “is capable of dealing with their banking crisis if they choose to do so” with a response heavily dependent on Germany, Romney said on CBS’s “Face the Nation” program. The U.S. is “not going to send checks to Europe. We’re not going to bail out the European banks. We’re going to be poised here to support our economy.”

Obama is in a two-front battle as an incumbent president facing re-election amid flagging economic indicators.

“Obama is running both against Europe as well as” Romney, said Jacob Funk Kirkegaard, a research fellow at the Peterson Institute for International Economics in Washington. “He’s in a bind.”

In addition to Europe’s financial woes, leaders will discuss sectarian violence in Syria, where the United Nations suspended its observer mission on June 16. Russia has defended its delivery of attack helicopters to the Syrian regime, a move the U.S. has said is escalating the 15-month conflict.

With economic uncertainty in Europe, there are signs that the U.S. economy may be cooling at home. More Americans than forecast applied for unemployment insurance payments, with claims for jobless benefits rising by 6,000 to 386,000 in the week ended June 9. The Commerce Department reported that retail sales in the U.S. fell in May for a second month. Employment growth has waned compared with its pace earlier this year, and the jobless rate rose for the first time in 11 months in May, to 8.2 percent.

To contact the reporters on this story: Hans Nichols in Los Cabos, Mexico at hnichols2@bloomberg.net; Mike Dorning in Los Cabos, Mexico at mdorning@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

Read more...

Oil Rises Most in a Week in New York on Greek Election Optimism

By Ben Sharples - Jun 18, 2012 6:31 AM GMT+0700

Oil rose to the highest in a week as projections showed Greece’s two largest pro-bailout parties winning enough seats to forge a parliamentary majority, easing concern Europe’s debt crisis will worsen and crimp fuel demand.

Futures gained as much as 1.9 percent in New York. The New Democracy and socialist Pasok parties won a combined 163 seats in the 300-member legislature, according to estimates from the Interior Ministry based on partially counted returns from voting yesterday. The prospect that anti-bailout party Syriza would gain control had rattled markets concerned Greece may quit the 17-nation Euro currency union.

Oil for July delivery advanced as much as $1.57 to $85.60 a barrel in electronic trading on the New York Mercantile Exchange, the highest intra-day price since June 11. It was at $84.73 at 9:36 a.m. Sydney time. The contract increased 12 cents to $84.03 on June 15, the highest close since June 8. Prices are down 14 percent this year.

Brent oil for August settlement rose 89 cents, or 0.9 percent, to $98.50 a barrel on the London-based ICE Futures Europe exchange. The front-month price for the European benchmark contract was at a premium to West Texas Intermediate of $13.53, up from $13.28 on June 15.

Syriza received 26.6 percent and 71 seats, the results showed. The vote forced Greeks, in a fifth year of recession, to choose open-ended austerity to stay in the euro or reject the terms of a bailout and risk the turmoil of exiting the 17-nation currency.

Crown Prince

The death of Crown Prince Nayef bin Abdulaziz Al Saud in Saudi Arabia, the world’s largest oil exporter, raised the issue of succession for the second time in less than a year.

Nayef, who also served as the kingdom’s interior minister for more than three decades, was interred yesterday in Mecca in an unmarked grave. King Abdullah, who is in his late 80s, attended the ceremony.

Nayef’s death leaves Prince Salman bin Abdulaziz as a leading contender for the crown prince position, as the kingdom grapples with high youth unemployment, security issues including the threat of al-Qaeda militants and unprecedented political change in the Middle East.

To contact the reporter on this story: Ben Sharples in Melbourne at bsharples@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski in Singapore at akwiatkowsk2@bloomberg.net

Read more...

Fed Seen Twisting to Risk Management to Spur U.S. Growth

By Craig Torres - Jun 18, 2012 6:51 AM GMT+0700

Federal Reserve officials must choose this week between their best estimates and their worst fears of what will happen to the U.S. economy.

Policy makers will bring new forecasts to their June 19-20 meeting and probably will mark down their April central-tendency estimate for growth of 2.4 percent to 2.9 percent this year. Lurking in the background is the risk of increasing financial stress in Europe and stubbornly high U.S. unemployment that has remained above 8 percent for 40 consecutive months.

Play Video

June 7 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke talks about the U.S. economy and the outlook for monetary policy. Bernanke, in a testimony to the Joint Economic Committee in Washington, says the economy is at risk from Europe's debt crisis, and the prospect of fiscal tightening in the U.S., while refraining from discussing steps the central bank might take to protect the expansion. U.S. Representative Kevin Brady, a Texas Republican, also speaks. (Excerpts. Source: Bloomberg)

All this could prompt them to move away from their outlook for moderate growth and tilt toward a “risk-management” strategy pioneered by former Fed Chairman Alan Greenspan, which puts more emphasis on tracking and containing high-cost threats. Both Janet Yellen, the Fed’s vice chairman, and William C. Dudley, head of the Federal Reserve Bank of New York, used the phrase in the past month.

“What we are hearing from Vice Chairman Yellen and President Dudley, and the minutes of the last meeting, is that there are more risks on the downside,” said Donald Kohn, the former Fed vice chairman who is now a senior fellow at the Brookings Institution. “The ability to combat weakness with interest rates at the zero lower-bound is limited and uncertain. In a situation like this, their reasoning is you might want to buy some insurance.”

Extend Twist

That insurance may come in the form of extending Operation Twist -- which JPMorgan Chase & Co. and Jefferies & Co. predict -- or an even more aggressive response if Fed officials see high costs in a slowdown of U.S. growth. The $400 billion program, which was announced in September and ends this month, involves selling short-term debt and buying longer-term bonds.

The Fed has about $190 billion of short-term maturities left to continue Operation Twist for another three months, based on calculations by Nomura Securities International Inc. The firm’s forecast is for no extension at the June meeting, with both Chairman Ben S. Bernanke and the Federal Open Market Committee probably indicating they could take additional easing steps, such as outright bond purchases, if economic circumstances warrant.

An extension would fit a forecast that says the U.S. economy will avoid a disaster scenario of rising unemployment and rapidly decelerating inflation. The Fed’s decision June 20 at 12:30 p.m. New York time could be more aggressive than investors expect if policy makers decide their confidence in their own forecasts is low and want to do something extra to lean against a worst-case scenario, said Vincent Reinhart, chief U.S. economist in New York at Morgan Stanley.

‘High Odds’

“We put high odds on them acting at the meeting,” said Reinhart, who was the head of the Fed board’s Division of Monetary Affairs, which develops policy strategy, under chairmen Greenspan and Bernanke. “Risk management says that you act in advance of a potential downdraft in activity because that could trigger” a collapse in demand that would be difficult to escape with the main policy rate at zero. The Fed cut the target for the federal funds rate to a record-low range between zero and 0.25 percent in December 2008.

Financial-market indicators are signaling a flight from risk. Yield spreads on the Credit Suisse U.S. Liquid Corporate Index, which tracks almost 1,300 U.S. investment-grade corporate bonds with an average maturity of about 10 years, widened to as much as 1.865 percentage points over Treasuries of similar maturity this month, the highest since January. The Standard & Poor’s 500 Index of stocks is down 5.4 percent from its 12-month high of 1,419.04 on April 2.

Greek Election

Greece’s largest pro-bailout parties, New Democracy and Pasok, won enough seats to forge a parliamentary majority, official projections showed, easing concern the country was headed toward an imminent exit from the euro. The currency rose 0.6 percent to $1.2717 at 8:14 a.m. in Tokyo today, while S&P 500 Index (SPX) futures expiring in September increased 0.4 percent.

In the U.S., payrolls increased by just 69,000 jobs last month, and unemployment rose to 8.2 percent from 8.1 percent in April. Retail sales fell for a second month, with the May total, excluding autos, slumping by the most in two years. Still, few private-sector economists are forecasting another recession. The U.S. will grow between 2 percent and 2.5 percent in each of the remaining three quarters this year, according to the median estimates in a Bloomberg News survey in early June.

Early Boost

Some of the weakness in labor markets could be explained by unseasonably warm weather that boosted hiring earlier this year. Operation Twist has helped increase housing activity, with sales of new and existing homes rising to a 4.96 million seasonally adjusted annual rate in April from 4.51 million a year earlier, based on Bloomberg calculations.

Service industries, which account for about 90 percent of the economy, grew in May, according to the Institute for Supply Management’s index of non-manufacturing businesses.

Fed officials probably won’t have complete confidence in a baseline outlook that’s likely to call for continued moderate growth and perhaps even a faster acceleration next year, said Julia Coronado, chief economist for North America at BNP Paribas in New York.

“What the Fed is worried about is that a seasonal slow patch will be converted into something worse because of the uncertainty over Europe and U.S. fiscal policy,” said Coronado, who worked on the Fed board forecasting staff. “The risks are that we will be disappointed on the downside in the U.S. economy again.”

Insuring Against Shocks

Yellen’s outlook calls for a gradual reduction in the unemployment rate and stable inflation of around 2 percent, she said in a June 6 speech in Boston. Being patient with that forecast may not be desirable, she added.

“Risk-management considerations arising from today’s unusual circumstances strengthen the case for additional accommodation,” she said. “It may well be appropriate to insure against adverse shocks that could push the economy into territory where a self-reinforcing downward spiral of economic weakness would be difficult to arrest.”

Yellen said the FOMC could begin another round of bond purchases or extend its portfolio maturity further if the expansion proceeds at an “insufficient pace.”

Dudley addressed similar concerns in a May 24 speech before the Council on Foreign Relations in New York. Hazards to U.S. growth are “skewed to the downside, reflecting risks posed by developments in Europe and the impending U.S. fiscal cliff,” he said. “The costs associated with such downside outcomes are likely to be considerably higher than the costs of realizing upside surprises.”

Fiscal Cliff

The so-called fiscal cliff includes the expiration of income-tax cuts first enacted under President George W. Bush, the end of payroll-tax reductions and automatic decreases in government expenditures, which would trim a combined 3 percentage points from growth next year if allowed to kick in, according to economists surveyed by Bloomberg News at the end of May. Instead, compromises will limit the damage to 0.8 point, sustaining the expansion, the survey showed.

In a 2003 speech that shaped monetary-policy strategy, Greenspan told central bankers in Jackson Hole, Wyoming, that “uncertainty” was the “defining characteristic” of the policy landscape, making risk management a core element of central banking.

“Policy makers need to consider not only the most likely future path for the economy but also the distribution of possible outcomes about that path,” he said. Officials “operating under a risk-management paradigm may be led to undertake actions intended to provide some insurance against the emergence of especially adverse outcomes.”

Opposite Strategy

That paradigm is the opposite of a “keep-your-powder-dry” strategy that waits for confirmation from lagging economic data to indicate the economy is turning one way or another, said Joe Gagnon, senior fellow at the Peterson Institute for International Economics in Washington.

He predicts the Fed will extend Operation Twist for another three months. Because risk-management considerations come into play, he said he won’t rule out another round of bond purchases that includes mortgage-backed securities.

“Risk management means your forecast is the most likely outcome, but you shouldn’t just set your policy on that,” said Gagnon, who worked under Greenspan and Bernanke as associate director in the Fed’s Division of International Finance. “If the risk now is a lower outcome on employment or growth, then they need to take that into account by being more stimulative than they otherwise would have been.”

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

Read more...

Euro Gains as Pro-Bailout New Democracy Wins Greek Poll

By Keith Jenkins and Emma Charlton - Jun 18, 2012 6:30 AM GMT+0700

The euro strengthened as official projections showed the pro-bailout New Democracy party won the election in Greece, easing concern the country would be forced from the currency bloc.

The 17-nation euro extended last week’s 1 percent jump versus the dollar after figures from the Interior Ministry based on 95 percent of the votes showed the party led by Antonis Samaras won 29.8 percent of the vote and secured 129 seats in the 300-seat legislature. Anti-bailout party Syriza gained 26.8 percent and 71 seats, while socialist Pasok, with 12.4 percent, took 33 seats, according to partially counted returns posted on the Athens-based ministry’s website today.

Enlarge image

The euro has weakened 3.6 percent in the past six months, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Photographer: Chris Ratcliffe/Bloomberg

“It’s broadly positive, but I think what you have to acknowledge is that a lot of Europe’s problems still remain,” said Robert Rennie, chief currency strategist at Westpac Banking Corp. (WBC) in Sydney. “There’s still a lot of unknowns in terms of the outlook for Europe. I don’t think those question marks have really changed.”

The euro appreciated 0.6 percent to $1.2713 at 8:25 a.m. in Tokyo from the close in New York last week. It fell as low as $1.2288 on June 1, the weakest level since July 2010. It jumped 1.1 percent to 100.54 yen from 99.49. The shared currency strengthened 0.5 percent to 80.86 U.K. pence, after touching 79.68, the weakest since May 16.

The dollar rose 0.4 percent to 79.08 yen. The U.S. currency slid 0.5 percent versus the Swiss franc to 94.50 centimes. It fell 0.6 percent to $1.0118 per Australian dollar.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six U.S. trading partners, fell 0.3 percent to 81.324. The gauge earlier declined to 81.161, the lowest since May 22.

Greek Ballot

While 21 parties were on the Greek ballot yesterday, the main contest was between Syriza leader Alexis Tsipras, who has promised to renege on budget cuts demanded by creditors, and New Democracy’s Samaras, who has said his challenger was risking an exit from the currency union. Greece was left with a political stalemate after the previous general election on May 6.

Since the initial vote, the euro weakened 4.8 percent against the yen and lost 3.4 percent versus the dollar through last week as investors sought havens from the turmoil. The crisis escalated on June 9 when Spain asked for a bailout of as much as 100 billion-euro ($127 billion) to prop up its banks.

Yesterday’s vote forced Greeks, in a fifth year of recession, to accept austerity or reject the bailout conditions. Leaders of the Group of 20 nations begin their annual gathering today in Los Cabos, Mexico, with French President Francois Hollande and German Chancellor Angela Merkel opting not to leave for the event until after the outcome in Greece is known.

Bailout Adjustments

European governments indicated a willingness to adjust the terms of Greece’s bailout package as long as a new government “swiftly” emerges from the election.

“There’s no time to lose or leeway for small party games,” Samaras said yesterday after placing first in the vote that will force him to rule with the third-place socialist Pasok party. “The country must be governed.”

Greece’s international monitors will “return to Athens as soon as a new government is in place to exchange views with the new government on the way forward,” euro-area finance ministers said in an e-mailed statement following the vote. The ministers sought “the swift formation of a new Greek government that will take ownership of the adjustment program.”

Above Average

Through most of the financial and political turmoil in Europe, the euro has held above its lifetime average of about $1.21 as investors put their faith in Merkel to keep the monetary union in place.

“The euro has been trading above $1.27 on the back on a possible coalition on the right side of austerity measures,” said Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd. in London. “If New Democracy get enough to form a coalition they’ll stick to the mandate and maintain the euro which will be a big relief to markets around the world.”

While forecasting little change in the euro versus the dollar, a majority of the world’s biggest foreign-exchange trading firms surveyed last month by Bloomberg News said the loss of a member such as Greece would risk more departures and send the currency lower.

The median year-end estimate for the euro is $1.25, according to more than 50 analyst estimates compiled by Bloomberg. The forecast has come down from $1.30 as recently as May 18.

Reduced Bets

Hedge funds and other large speculators reduced trades that would profit from a drop in the euro against the dollar last week from a record the week before, figures released on June 15 by the Washington-based Commodity Futures Trading Commission showed.

The difference in the number of wagers on a drop in the euro against the greenback versus those on an advance was 195,187 contracts on June 12, from 214,418, the data showed.

The premium for three-month options granting the right to sell the euro against the dollar relative to those allowing for purchases was 2.83 percentage points at the end of last week, up from a low this year of 1.41 percentage points in March. The so- called risk reversal rate has eased from 3.47 percentage points last month.

The implied volatility for one-month euro-dollar options, which indicates expected swings in the underlying currencies, reached a high of 13.29 percent last week. While that’s up from 8.25 percent in April, it’s below last year’s peak of 18.42 in September. The JPMorgan G7 Volatility Index rose to 11.88 this month from 8.84 in April, the least since November 2007.

Smaller Union

The most probable outcome is the euro will evolve into a smaller union, including France, Germany, Italy and Spain, and underpinned by stronger coordination and financing, Pacific Investment Management Co. Chief Executive Officer Mohamed El- Erian wrote in a May 15 report outlining the Newport Beach, California-based company’s medium-term economic outlook.

Rather than a euro failure, an orderly Greek exit from the currency has Nobel laureate Joseph Stiglitz predicting a stronger and more stable monetary union.

“If you can weather the storm and haven’t put your bets too short term, probably the euro is going to go up,” Stiglitz, a professor at Columbia University and winner of the 2001 Nobel Prize in economics, said in a June 4 interview at Bloomberg’s New York headquarters. “It’s likely there will survive some rump version,” centered on Germany, he said. If it includes countries such as France, the “euro would likely appreciate.”

Merkel, Sarkozy

The euro is down from this year’s high of $1.3487 on Feb. 24, and has depreciated about 6.1 percent during the past year against a basket of nine developed-market peers, according to Bloomberg Correlation-Weighted Indexes.

For much of the crisis, speculating on a weaker euro meant betting against the ability of Merkel and then-French President Nicolas Sarkozy to keep the currency union together. They said in a September statement that “it is more than ever indispensable” to “assure the stability of the euro zone.”

Sarkozy since became the first French president in 30 years to fail to win re-election. The standing of Hollande’s Socialist Party was further bolstered following yesterday’s parliamentary election in France. The party and its allies won an absolute majority in the National Assembly, exit polls showed, paving the way for them to pass legislation without the aid of other members of parliament.

In Germany, Merkel’s Christian Democratic Union had its worst-ever result in an election last month in the country’s most populous state.

Greek Debt

Of Greece’s 266 billion euros of debt, about 194 billion euros, or 73 percent, is held by the European Central Bank, euro-area governments and the IMF, according to the Greek debt management office in Athens. In 2010, before the first bailout, Greece owed about 310 billion euros, all to the private sector.

Greece completed the largest bond restructuring in history in March, as holders forgave more than 100 billion euros on their government securities.

Since then, Greek bonds issued under the terms of the deal have slumped. The 2 percent note due February 2023 was at 16.42 percent of face value on June 15, down from 28.68 percent on March 15. The bonds yielded 27.13 percent last week.

German two-year yields turned negative for the first time on June 1, meaning investors were paying for the safety of holding the region’s safest assets, while 10-year rates touched an all-time low of 1.127 percent the same day.

“If these polls prove to be accurate and New Democracy can form a coalition, then there is some scope for a relief rally,” said Simon Smith, chief economist at foreign-exchange broker FXPro Group Ltd. in London. “There’s so much uncertainty about whether a viable coalition will be formed that the market will still be skeptical. It’s still a long road for Greece. We are bearish euro.”

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Emma Charlton in London at echarlton1@bloomberg.net

To contact the editors responsible for this story: Daniel Tilles at dtilles@bloomberg.net; Rocky Swift at rswift5@bloomberg.net

Read more...

Greece Races as Cash Dwindles With Europe Seeking Return to Cuts

By Jonathan Stearns - Jun 18, 2012 4:19 AM GMT+0700

Greece’s two traditional political rivals are in a race to forge an unprecedented coalition as the state’s cash dwindles, bank deposits flee and Europe demands renewed austerity pledges before releasing more emergency aid.

Greece will run out of money in mid-July, the Syriza party, which placed second in yesterday’s election, said on June 13 after being briefed by Acting Finance Minister Giorgios Zanias. Caretaker Labor and Social Security Minister Antonis Roupakiotis refused to offer assurances pensions will be paid in August, Athens News Agency reported the same day.

Enlarge image

With the 17-nation currency’s future on the line, finance ministers pledged to assist Greece in its struggle with the cycle of austerity and recession that has trapped the country since it became the first victim of the debt crisis in 2010. Photographer: Chris Ratcliffe/Bloomberg

Play Video

June 17 (Bloomberg) -- Greece avoided political and financial chaos as voters gave a narrow victory to pro-bailout parties in Sunday's election. But it won't be easy for first-place finisher New Democracy to form a coalition government. Bloomberg TV Economics Editor Michael McKee reports from Athens. (Source: Bloomberg)

“There’s no time to lose or leeway for small party games,” Antonis Samaras, leader of New Democracy, said in Athens yesterday after placing first in a rerun vote that will force him to rule with the third-place socialist Pasok party. “The country must be governed.”

Two months of political limbo threaten to cut off the quarterly disbursement of euro-area and International Monetary Fund loans that have kept the country afloat since 2010. Greece, in its fifth year of recession, would face having to abandon the 17-nation euro and reintroduce the drachma were the flow of rescue funds to stop.

Political leaders in Europe insist Greece enact spending cuts promised in return for 240 billion euros ($305 billion) in rescue packages since 2010 while holding out the possibility of granting extra time to meet targets for narrowing the budget deficit.

‘Stand by Greece’

“We will continue to stand by Greece,” European Union President Herman Van Rompuy said in a statement following the vote.

After an inconclusive May 6 election that led to the June 17 rerun, European and IMF budget experts canceled a mission to review Greece’s eligibility for the next aid installment and now intend to carry out the assessment around the end of June. That plan assumes a new Greek government is in place by then.

“There’s not even a day to lose,” said Evangelos Venizelos, leader of Pasok.

New Democracy won 130 seats in the 300-seat parliament, according to Interior Ministry projections with almost 90 percent of the vote counted. Pasok, which has alternated in power with New Democracy over the past four decades, won 33 seats, enough to forge a coalition that backs the creditors’ austerity demands.

Syriza Demands

Syriza matched its second-place ranking of last month by stepping up demands to abandon the fiscal-tightening program.

Alexis Tsipras, the head of eight-year-old Syriza, had vowed to keep Greece in the euro while winning concessions on the rescue terms from European leaders including German Chancellor Angela Merkel. He said New Democracy and Pasok, which united last year to back further fiscal tightening by a caretaker government, had “lowered the Greek flag and surrendered it to Angela Merkel.”

Tsipras signaled yesterday that Syriza won’t join a government with New Democracy and Pasok, saying his faction “will be present in all developments as the main voice of the anti-bailout vote in Greece.”

Euro-area finance ministers said Greece’s economic recovery requires “continued fiscal and structural reforms.” In a statement yesterday, the European ministers urged the “swift formation of a new Greek government that will take ownership of the adjustment program.”

Pursue Cuts

Greece must pursue budget cuts with “determination” to win the release of further aid, the European Commission said on May 30. The country faces a cumulative fiscal gap in 2013-2014 of 5.5 percent of gross domestic product, according to the commission, the 27-nation EU’s executive arm.

A lack of progress in bolstering tax collection, improving public procurement and selling state-owned assets has left Greece struggling to meet targets for narrowing a budget deficit that in 2009 was more than five times the EU limit.

European and IMF demands for an economic overhaul underpin an initial 110 billion-euro rescue in May 2010 and a second 130 billion-euro loan package that, along with the world’s biggest writedown of privately held debt, followed this year. The latest package is due to last through 2014.

The Greek budget-policy shortcomings have increased skepticism in euro nations such as Germany, the Netherlands and Finland about offering aid, while the worst recession in Greece during peacetime has made domestic voters critical of the fiscal-austerity demands. Syriza’s electoral success last month sparked concerns across Europe about a possible Greek exit from the euro area.

Deposit Outflows

Greek deposit outflows accelerated before the June 17 election, two bankers familiar with the situation said, on concern the nation may move closer to abandoning the euro. Daily withdrawals had increased to as much as 500 million euros this month, one banker said, asking not to be identified because the figures aren’t public.

Greece narrowed its deficit from more than 15 percent of GDP in 2009 to 9.1 percent in 2011. The country’s spending gap is due to fall to around 7 percent of GDP this year.

With Greece’s financial troubles still festering more than two years after sparking Europe’s debt crisis, Italy at risk of joining the Greek, Irish, Portuguese and Spanish governments in seeking emergency aid and European leaders split over deeper fiscal integration, the onus to calm any renewed volatility on financial markets may fall on central banks.

Central banks “are the only actors who can react swiftly,” Joachim Fels, chief economist at Morgan Stanley (MS) in London, said in a June 17 report.

To contact the reporter on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Read more...

Greek Pro-Bailout Parties Take Majority, Projection Shows

By Maria Petrakis and Natalie Weeks - Jun 18, 2012 3:28 AM GMT+0700

Greece’s largest pro-bailout parties, New Democracy and Pasok, won enough seats to forge a parliamentary majority, official projections showed, easing concern the country was headed toward an imminent exit from the euro. The currency rose on the result.

The election would give New Democracy and Pasok 163 seats if they agree to govern together in the 300-member parliament, according to the official projection by the Interior Ministry in Athens based on 63 percent of today’s vote.

Enlarge image

Alexis Tsipras, leader of Greece's Syriza party, arrives to cast his vote in the second round of the Greek general elections, in Athens. Tsipras told supporters to “turn your backs on the two parties of bankruptcy,” urging them to reject the two main parties. Photographer: Chris Ratcliffe/Bloomberg

Enlarge image

Greeks head to the ballot box in two days for a contest that may determine the fate of the world's first democracy and the future of the newest reserve currency, while roiling markets from Wellington to Wall Street. Photographer: Chris Ratcliffe/Bloomberg

“For markets, a majority for an ND-Pasok coalition would be a relief,” Holger Schmieding, London-based chief economist at Berenberg Bank, said in a note today. “It would very much reduce the risk of a Greek euro exit.”

The vote forced Greeks, in a fifth year of recession, to choose open-ended austerity to stay in the euro or reject the terms of a bailout and risk the turmoil of exiting the 17-nation currency. The election threatened to dominate a summit of world leaders that starts tomorrow in Mexico.

Antonis Samaras’s New Democracy had 30.1 percent, or 130 seats, and Socialist Pasok took 12.6 percent for 33 seats, the projection showed. Alexis Tsipras’s Syriza, which advocated reneging on the terms of the bailout, won 26.5 percent, or 71 seats. Samaras called for a government of national salvation.

“The Greek people expressed their will to stay anchored with the euro, remain an integral part of the euro zone and honor the country’s commitments,” Samaras told supporters. “There’s no time to lose.”

Pressure on Venizelos

While Pasok leader Evangelos Venizelos demanded that Syriza join a unity coalition, the former finance minister said a government must be formed right away to avoid further economic deterioration and safeguard Greece’s place in the euro. That will make it harder for him to hold off demands to team up with Samaras in a coalition that excludes Tsipras.

Pasok “will not be able to resist such a pressure,” Wolfango Piccoli, a political risk analyst at Eurasia Group in London, said in an e-mail.

While 21 parties were on the ballot, the main contest was between Tsipras and Samaras, who said his challenger’s policy risked an exit from the currency union.

Tsipras signaled Syriza won’t join the national salvation government planned by New Democracy.

Syriza “will be present in all developments as the main voice of the anti-bailout vote in Greece,” he said in statements carried live on state-run NET TV today. Austerity measures underpinning the international rescues extended to Greece have no popular support, he said.

Euro Concerns

The election marked a revote after an inconclusive May 6 ballot that stoked increasing speculation that Greece’s dwindling cash reserves and accelerating deposit flight would force it out of the 17-nation currency union.

Now in its third year, the European debt crisis has rounded back to Greece, which sparked the turmoil in October 2009 when Pasok Prime Minister George Papandreou revealed a deficit four times more than European rules allowed. Greece has since gotten two rescue packages totaling 240 billion euros ($303 billion) from the European Union and International Monetary Fund.

In exchange for the aid, Greece promised state asset sales, pension cuts and wage reductions. Tsipras pledged to abandon those measures. Samaras had said that made the vote a referendum on quitting the euro. Tsipras, who said he’d try to keep Greece in the euro while tearing up the bailout agreements, urged voters to reject the two main parties that backed the international rescue, New Democracy and Pasok.

German Signal

Meantime, Germany signaled a willingness to loosen some of the pressure on Greece. “I can imagine we could do something in terms of the timeframe, because the standstill that has taken place over the past few weeks has done damage,” Foreign Minister Guido Westerwelle told broadcaster ZDF in Berlin today. “But one thing must be clear: the treaties must be valid in substance. They can’t be canceled or renegotiated.”

Before the vote, central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election looms as the next flashpoint for investors.

The Greek turmoil has cast a pall around the world, with Bank of England Governor Mervyn King calling the euro debt crisis a “black cloud” over the global economy.

Following the vote, the currency gained 0.6 percent to $1.2709 at 11:20 p.m. in Athens.

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Read more...

U.S. Stocks Rise Amid Speculation Central Banks May Act

By Rita Nazareth - Jun 16, 2012 3:45 AM GMT+0700

U.S. stocks rose, giving the Standard & Poor’s 500 Index its first back-to-back weekly rally since April, on speculation central banks will act to boost the economy as investors awaited Greek elections this weekend.

Microsoft Corp. (MSFT) gained 2.3 percent as a person familiar with the matter said the company will announce plans next week to sell a tablet computer running the next version of Windows. IntercontinentalExchange Inc. added 4.7 percent as its bid for the London Metal Exchange was rejected in favor of Hong Kong Exchanges & Clearing Ltd.’s offer. Facebook Inc. (FB) jumped 6.1 percent and capped the first weekly gain since it went public.

The S&P 500 rose 1 percent to 1,342.84 at 4 p.m. New York time, the highest since May 11. The Dow Jones Industrial Average climbed 115.26 points, or 0.9 percent, to 12,767.17. Trading volume for exchange-listed stocks in the U.S. was about 7.5 billion shares, 11 percent above the three-month average.

“Ahead of Sunday’s election in Greece, central bankers stand ready,” Peter Boockvar, equity strategist at Miller Tabak & Co. in New York, wrote today. “With all the water central banks have expended out of their fire hoses in their attempt to ‘do something,’ I can only think of magic candles. Those candles you blow out that only flare up again immediately after.”

Expectations for global policy action grew as central banks intensified warnings that Europe’s failure to tame its crisis threatens the economy. European Central Bank policy makers have overcome a key concern about taking the benchmark rate below 1 percent, two euro-area central bank officials said. The June 17 vote will turn on whether Greeks accept open-ended austerity to stay in the euro or reject the conditions of a bailout and risk becoming the first to exit the 17-member currency.

Fed Action

Stocks also rose on speculation the Federal Reserve may join central banks in taking steps to boost growth. Data today showed that industrial production unexpectedly fell and consumer confidence slid, adding to evidence of U.S. economic weakness. U.S. policy makers meet June 19-20.

“There’s hope of some coordinated action if bad news does occur,” said Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York. He spoke in a telephone interview. “There’s the Greek election. It could be an ongoing process.”

David Bianco, Deutsche Bank AG’s chief U.S. equity strategist, withdrew a forecast that the S&P 500 (SPX) will post a near-term gain of 5 percent or more, citing uncertainty before Greece’s elections. While Bianco maintained his year-end projection of 1,475 for the index, he said he’s no longer convinced the next 5 percent move in the gauge is higher.

Least-Tied

Concern about Europe’s debt crisis and a global slowdown put the S&P 500 on the brink of a so-called correction this month. It fell 9.9 percent from an almost four-year high in April through
June 1. Since then, the lowest valuation in six months and bets on policy action drove the gauge up 5.1 percent. The S&P 500 rose 1.3 percent this week.

All 10 groups in the S&P 500 rose today as energy and technology shares had the biggest rallies. Chevron Corp. (CVX), the second-largest U.S. energy company, added 2.4 percent to $104.33. Oracle Corp. (ORCL), the biggest maker of database software, added 2.9 percent to $27.70 after ThinkEquity LLC recommended buying the shares.

Microsoft jumped 2.3 percent to $30.02. The company may demonstrate the tablet computer at an event scheduled in Los Angeles on June 18, said a person familiar with the plans. The company has said it aims to release the new Windows 8 operating system in time for the holiday season. Frank Shaw, a spokesman for Microsoft, declined to comment.

Bidding Process

IntercontinentalExchange, the second-largest U.S. futures market, rallied 4.7 percent to $134.80. ICE (ICE) and Hong Kong Exchanges were the two parties left in a bidding process announced by the LME in September. The LME said today it would no longer be seeking competing takeover offers.

Facebook rose 6.1 percent to $30.01, extending its weekly advance to 11 percent. The company asked a court to consolidate more than 40 shareholder lawsuits over its initial public offering last month. Investors sued Facebook and Nasdaq OMX Group Inc. over problems in trading company shares on May 18, the first day they were publicly available.

Navistar International Corp. (NAV) soared 7.6 percent to $29.95. MHR Fund Management LLC disclosed a 13.6 percent stake in the truckmaker, more than billionaire investor Carl Icahn’s 11.9 percent holding. MHR is run by Mark Rachesky, a former protege of Icahn’s. MHR “may seek to engage in discussions with management,” according to a regulatory filing.

Financial Shares

Financial shares in the S&P 500 advanced 1.4 percent. Bank of America Corp. (BAC) added 3.1 percent to $7.90, after slumping as much as 1.4 percent earlier today.

David Trone, an analyst at JMP Securities LLC, expects some of the largest financial institutions to underperform as recent developments in Europe increase concern the region will experience “significant” damage.

SAIC Inc. (SAI) jumped 5.1 percent to $12.24. The defense contractor specializing in computer services was raised to overweight from neutral at JPMorgan Chase & Co.

The Bloomberg U.S. Airlines Index (BUSAIRL) of 10 stocks slumped 2.2 percent. AMR Corp. Chief Executive Officer Tom Horton asked an ad hoc bondholder group to study his plan for a stand-alone American Airlines before reviewing a possible merger for the bankrupt carrier, two people familiar with the matter said. Horton expressed frustration with attention being given to a pending US Airways Group Inc. (LCC) merger bid, the people said.

US Airways

US Airways tumbled 3.6 percent to $12.03. Southwest Airlines Co. (LUV) dropped 2.9 percent to $8.93.

Any multiyear rally in U.S. stocks may depend on a signal that the bond market has yet to send, according to Michael Hartnett, Bank of America’s chief global equity strategist.

Bond yields have to reach “an inflection point” before shares can move into what’s known as a secular bull market if history is any guide, Hartnett wrote this week.

Hartnett highlighted three inflection points in the past century that foreshadowed stock-market booms during the 1920s, after World War II, and throughout most of the 1980s and 1990s.

A comparable surge in share prices is unlikely, he wrote, “until Treasury yields rise in response to stronger growth and a healthier global economy.” The 10-year yield fell to a record 1.4387 percent this month.

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

Read more...

Torres Helps Spain Rout Ireland at Euro 2012; Croatia Ties Italy

By Bob Bensch - Jun 15, 2012 5:01 AM GMT+0700

Fernando Torres had two goals as Spain routed Ireland 4-0 to move into a tie atop Group C at the European soccer championship with Croatia, which rallied to draw 1-1 against Italy.

David Silva and Cesc Fabregas also scored last night in defending champion Spain’s win in Gdansk, Poland. Mario Mandzukic’s 72nd-minute score earned Croatia the point with Italy in Poznan.

Spain and Croatia have four points ahead of their meeting in the final round of group matches on June 18. The top two teams in each group advance to the quarterfinals.

“After two matches this is a really good situation,” Croatia coach Slaven Bilic said on UEFA’s website. “Six points would have been better, but this is pretty good.”

Italy has two points and Ireland, which was eliminated by its second straight loss, has none. They meet in the final game, with the Italians still in contention to advance.

Today, co-host Ukraine plays France in Donetsk and England meets Sweden in Kiev in the second round of games in Group D.

In Gdansk, Torres scored twice in his return to the lineup after starting on the bench for the 1-1 draw with Italy as manager Vicente del Bosque elected to play the opening game without a recognized striker.

“You have to enjoy every moment,” Torres said on UEFA’s website. “I had the luck to start the match and score goals and enjoy it with the team.”

Spain Domination

Spain dominated with 66 percent of possession and had 26 shot attempts, 20 on target, compared to six for Ireland, which becomes the first team eliminated from the 16-team tournament.

“For the vast majority we were chasing shadows,” Irish midfielder Keith Andrews told ITV. “We just couldn’t get near them.”

Torres needed four minutes to put Spain in front as he picked up the loose ball after Richard Dunne’s tackle on Silva at the edge of the area, moved to his right and fired a shot by goalkeeper Shay Given.

Given also made saves against Silva, Andres Iniesta, Xavi Hernandez and Alvaro Arbeloa to keep the Irish within a goal at halftime.

Silva doubled the lead four minutes after the break as he got the rebound after Given saved Torres’s shot and slid a left- footed effort through three defenders into the net.

Torres added his second goal in the 70th minute as he took a pass from Silva between two defenders and slotted past Given. Fabregas replaced Torres in the 74th minute and closed the scoring nine minutes later by powering a shot past Given after a short corner kick.

Mandzukic’s Third

In Poznan, Mandzukic’s goal wiped out a first-half score from Andrea Pirlo. It was the striker’s third goal to tie Germany’s Mario Gomez and Russia’s Alan Dzagoev for the tournament lead.

“We can get through,” Italy coach Cesare Prandelli said on UEFA’s website. “We are mathematically still in it, but we have missed an opportunity here.”

Italy controlled play early as Mario Balotelli took a pass from Emanuele Giaccherini, turned near the penalty spot and shot wide of goal after three minutes. Claudio Marchisio fired over goal and Balotelli’s shot was punched away by Stipe Pletikosa.

Italy goalkeeper Gianluigi Buffon went down to grab Darijo Srna’s cross at the near post and also caught Ivan Perisic’s header.

Antonio Cassano and Balotelli shot wide and Pletikosa then made two saves off Marchisio after the midfielder turned Srna in the area. Italy took the lead in the 39th minute when Pirlo curled a free kick between Pletikosa and the near post.

Croatia started quickly in the second half as Luka Modric forced a save from Buffon in the opening minute, then sent a shot over goal. Balotelli also shot over from just outside the area after finding space.

Croatia drew even with 18 minutes remaining as Ivan Strinic lofted a cross from the left for Mandzukic, who knocked it down and fired a shot in off the right post.

To contact the reporter on this story: Bob Bensch in London at bbensch@bloomberg.net.

To contact the editor responsible for this story: Christopher Elser at celser@bloomberg.net.

Read more...

Central Banks Warn Greek-Led Euro Stress Threatens World

By Simon Kennedy - Jun 15, 2012 6:34 AM GMT+0700

Central banks intensified warnings that Europe’s failure to tame its debt crisis threatens to roil the world’s financial markets and economy as Greece’s election in two days looms as the next flashpoint for investors.

Monetary policy makers from the U.K. to Japan and Canada sounded the alert about potential fallout from the single currency bloc’s troubles. They spoke as Group of 20 leaders prepare to meet in Mexico next week amid the weakest international economy since the 2009 recession.

Enlarge image

A supporter of Alexis Tsipras, leader of Greece's Syriza party. international economy since the 2009 recession. A victory by Syriza, the party that promises to renege on Greece’s end of the bailout deal, could speed the nation’s exit from the euro. Photographer: Chris Ratcliffe/Bloomberg

Play Video

June 15 (Bloomberg) -- Eric Fishwick, head of economic research at CLSA Ltd., talks about the outlook for a solution to Europe's debt crisis, and its similarities with Asia's currency crisis more than a decade ago. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

A victory by Syriza, the party that promises to renege on Greece’s end of the bailout deal, could speed the nation’s exit from the euro. Absent a quick fix from divided European governments, central bankers may have to engage in fresh crisis- fighting of their own to ensure markets operate and their economies grow if the election jolts investors. Spain’s 10-year bond yield vaulted above 7 percent yesterday in a fresh sign of the stress that has plagued the region for two years.

The crisis has created a “large black cloud of uncertainty hanging over not only the euro area, but our economy too, and indeed the world economy,” Bank of England Governor Mervyn King said in London late yesterday.

Canada faces a “major shock,” and global financial conditions could deteriorate significantly if Europe’s crisis worsens, the country’s central bank said yesterday. Bank of Japan (8301) Governor Masaaki Shirakawa said June 13 that the euro area poses the biggest challenge to the world’s No. 3 economy.

Sufficient Liquidity

“It will be very important for central banks over the next few weeks to articulate what their role is,” said Lawrence Goodman, president of the Center for Financial Stability in New York, a research group focused on financial markets. “The key goal will be to provide sufficient liquidity in the event of a freeze.”

U.S. stocks advanced after Reuters reported that central banks are prepared to coordinate actions if needed to boost liquidity in financial markets, citing officials linked to the G-20 nations. The Standard & Poor’s 500 Index added 1.1 percent to 1,329.10 at the close of trading in New York.

Central bankers have been at the forefront of efforts to insulate their economies from the financial crises that began to rage in August 2007. In October 2008, they cut interest rates in unison, and at the end of last year, six of them made it cheaper for banks to borrow dollars in emergencies. Dollar swap lines have been repeatedly augmented since the 2008 collapse of Lehman Brothers Holdings Inc.

Coordinated Response

Investors want global leaders to take action on reviving economic growth, Institute of International Finance Managing Director Charles Dallara said in a letter yesterday to the G-20. He said markets “will be looking expectantly for evidence of a globally coordinated policy response targeted to revive growth prospects.”

Europe’s turmoil this week forced Spain to ask for a bailout of its banks that may run as high as 100 billion euros ($126 billion), making it the fourth and largest euro-zone economy to seek aid. The record yield on Spanish bonds has fueled speculation the world’s 12th-biggest economy may need a full rescue.

Attention is turning to Greece, which votes a second time in six weeks after a May 6 ballot failed to yield a government. The Syriza party, led by Alexis Tsipras, is vying for first place in the opinion polls with a promise to abrogate the terms of the 240 billion-euro bailout from the European Commission, European Central Bank and International Monetary Fund. That’s drawn warnings that it could cost Greece the aid it needs and ultimately its place within the euro.

China’s Cut

Monetary policy makers are already leaning toward greater stimulus a week after China cut borrowing costs for the first time in four years. King said yesterday that more aid may be needed in the U.K., and a new plan to spur bank lending may be in place in a few weeks.

ECB President Mario Draghi last week left the door open for an interest-rate cut, while Federal Reserve Chairman Ben S. Bernanke says U.S. policy makers will discuss next week whether to do more to spur growth. Both have pointed to the limitations of repeated monetary support.

While the G-20 could consider coordinated monetary stimulus, it’s unlikely given neither the U.K. nor European central banks acted when they had a chance a week ago, Andrew Kenningham, an economist at Capital Economics Ltd. in London, said in a report yesterday.

Unlikely to Agree

“In fact, we think the central banks which matter most are unlikely to agree to further significant policy stimulus this year unless and until the crisis in the euro-zone deteriorates further,” he said.

G-20 governments are also indicating they will use the June 18-19 summit in Los Cabos, Mexico, to again demand Europe pursue fresh measures. It’s the fourth consecutive such meeting at which Europe’s strains have topped the agenda and comes seven months after talks in Cannes, France, were dominated by the prospect Greece could be forced from the euro.

Canadian Finance Minister James Flaherty said June 13 that “a disruptive moment” could occur if Greeks back anti-bailout parties, which may end up costing the country membership in the euro. U.S. Treasury Secretary Timothy F. Geithner said the same day that European leaders “recognize they’re going to have to do a bunch more.”

Less Incremental

“Countries outside of Europe have been consistent in calling for bolder, less incremental measures to stem the crisis,” said Daniel Price, who organized the first G-20 summit for President George W. Bush in 2008 and is now managing director of Rock Creek Global Advisors, a Washington-based consultancy. “They are losing patience with the apparent inability of Europe to implement reforms all recognize as necessary.”

Chancellor Angela Merkel, leader of Europe’s biggest economy, said yesterday Germany is willing to help resolve the regional strains though cannot tackle the global fallout alone.

Acknowledging that Germany, as “the engine of growth and anchor of stability in Europe,” will be asked to do more in Mexico, she said Germany would do so because “we are convinced that Europe is our destiny and our future.”

Merkel still rejected all “seemingly easy” solutions, such as issuing joint debt. European leaders are preparing for their own summit in Brussels this month aimed at devising ways to better integrate the euro area.

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

Read more...

Asian Stocks, Commodities Gain on Stimulus Bets; Dollar Declines

By Glenys Sim and Jonathan Burgos - Jun 15, 2012 9:55 AM GMT+0700

Asian stocks rose, poised for its biggest weekly gain in five months, and commodities climbed for a second day on expectations that central banks may increase measures to boost economies as Europe’s debt crisis hurts growth. Credit risk in the region fell and the dollar declined.

The MSCI Asia Pacific Index added 0.5 percent at 10:50 a.m. in Hong Kong, where the Hang Seng Index rallied 1 percent. Standard & Poor’s 500 Index futures advanced 0.2 percent after the gauge surged 1.1 percent yesterday. The S&P GSCI index of commodities climbed 0.7 percent to the highest level in a week. Asian credit risk dropped for a fifth day in the longest run since March 19. The Dollar Index lost 0.2 percent.

Enlarge image

Mervyn King, governor of the Bank of England. Photographer: Chris Ratcliffe/Bloomberg

U.S. stocks were buoyed yesterday after jobless claims and inflation data supported the case for more stimulus by the Federal Reserve, which meets for two days from June 19. Data today may show U.S. industrial production slowed and consumer confidence fell. Greek elections on June 17 may determine if the country upholds austerity conditions attached to international aid, and could lead to the first ouster from the euro bloc.

“We’re likely to see increasing talk from governments about how they can encourage the growth agenda,” said Angus Gluskie, who helps manages more than $350 million at White Funds Management in Sydney. “There’s plenty of uncertainties out there. We may still see investors continue to be nervous about Spain and Italy in the aftermath of Greece’s election.”

Monetary policy makers from the U.K. to Japan and Canada stepped up warnings about the threat to world financial markets should Europe fail to contain its debt crisis. Bank of England Governor Mervyn King said the central bank will activate a sterling liquidity facility to aid banks, and plans to have a form of credit easing operating to boost lending as the case for looser policy “is growing.”

Oil Gains

Crude in New York climbed 0.7 percent to $84.53 a barrel, extending yesterday’s 1.6 percent jump as the Organization of Petroleum Exporting Countries kept its output quota unchanged amid calls for members to reduce production to comply with current targets. Copper futures advanced 0.9 percent in London, set for its first weekly increase in seven. Gold for immediate delivery added 0.1 percent in its sixth consecutive advance.

“It would appear the weaker U.S. dollar and rallying U.S. equity markets in response to speculation that global leaders would intervene after this weekend’s election in Greece, were supportive,” Mark Pervan, head of commodity research at Australia & New Zealand Banking Group Ltd., wrote in a note.

China, the biggest consumer of most commodities including steel and aluminum, can further cut its reserve requirement ratio as M2 growth is “relatively slow” this year, according to a report by researchers at the Chinese Academy of Social Sciences published in the People’s Daily.

Chinese Yuan

The People’s Bank of China raised its daily yuan fixing by 0.16 percent, the most since May 2, to 6.3089 per dollar today. That’s 0.97 percent stronger than yesterday’s closing spot in Shanghai and the currency is allowed to trade as much as 1 percent on either side of the fixing.

The yuan strengthened 0.07 percent to 6.3657 per dollar in Shanghai, heading for the first weekly gain in six weeks, according to the China Foreign Exchange Trade System.

Three stocks rose in the MSCI Asia Pacific Index (MXAP) for each one that fell. China Railway Group Ltd. (390) advanced 2 percent in Hong Kong after the Economic Information Daily said the Chinese government plans to build six coal transport railways. DeNA Co., Japan’s biggest social-gaming operator, surged 14 percent on a stock buy-back plan.

To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

Read more...

Baidu to Share Revenue With Apple on China IPhone Deal

By Mark Lee - Jun 15, 2012 6:33 AM GMT+0700

Baidu Inc. (BIDU) said Apple Inc. (AAPL) will be entitled to a share of advertising sales after the Chinese company’s search engine was added as part of a software upgrade for iPhones in China.

The revenue-sharing agreement with Apple follows similar accords between Baidu and manufacturers of handsets that use Google Inc. (GOOG)’s Android operating system, Wang Jing, vice president at Beijing-based Baidu, said in a phone interview yesterday. He declined to disclose the commercial terms.

Apple said this week it will offer Baidu’s search engine as an option for iPhone and iPad customers and add Chinese-language support for its Siri voice technology, as the world’s most valuable company tailors its products for Chinese consumers. Baidu, which fields about 80 percent of China’s Web searches, is prepared to incur costs to add smartphone users by offering services such as music streaming for free, Wang said.

“Previously they were sharing revenue with websites to bring in search-engine traffic, and now they are sharing it with smartphone manufacturers,” said Eric Wen, who rates Baidu buy at Mirae Asset Securities in Hong Kong. He estimates Baidu distributes less than 10 percent of revenue generated from smartphones to device makers.

Baidu rose 0.8 percent to $117.64 at the close in New York. The stock has gained 1 percent this year, underperforming the 44 percent gain in the Hong Kong-traded shares of Tencent Holdings Ltd. (700), China’s biggest Internet company.

Carolyn Wu, a spokeswoman at Apple in Beijing, didn’t immediately return messages to her office and mobile phones seeking comment.

Focus on Smartphones

Baidu and Tencent both need to invest in their mobile Internet operations as more people in China access services on smartphones instead of computers, according to Mirae’s Wen.

Baidu is sharing advertising revenue with hardware partners to encourage them to install its search engine on their products before shipping. About 80 percent of branded phones based on the Android technology have Baidu preloaded, billionaire Chief Executive Officer Robin Li said in April.

Users of the new iOS 6 operating system that runs iPhones and iPads will have increased access to Chinese Internet services including Baidu, Sina Corp. (SINA)’s Weibo microblog, and online videos from Youku Inc., (YOKU) Apple said this week. The Cupertino, California-based company tripled its revenue in China last quarter, making the Asian country its biggest market outside the U.S.

Baidu introduced its “Cloud ROM” software for download by users of Android devices this month, giving them access to services including remote data storage and free music streaming.

“We are very willing to pay the costs, we are happy these services are free,” Wang said.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

Read more...

Pelosi Joins Cantor Among Wealthiest U.S. House Leaders

By Heidi Przybyla - Jun 15, 2012 1:41 AM GMT+0700

House Minority Leader Nancy Pelosi and her Republican counterpart, Majority Leader Eric Cantor, are the wealthiest members of the U.S. House leadership, according to financial disclosure forms.

Pelosi, 72, of California tops the list of House leaders, with $40 million to $187 million in financial assets she reports with her husband, San Francisco commercial real estate investor Paul Pelosi. Most of their assets are listed as rental properties in California and partnership income in companies including investment management and restaurants.

Enlarge image

House Minority Leader Nancy Pelosi in the Capitol Visitor Center. Photographer: Tom Williams/CQ Roll Call/Getty Images

Cantor, 49, of Virginia listed financial assets including stocks and real estate holdings valued at almost $4 million to $9.6 million on his annual financial disclosure statement released today.

In the Senate, Minority Leader Mitch McConnell of Kentucky stands far above all his leadership counterparts, listing assets valued between at least $9.9 million and $44.5 million. Much of the wealth is held by his wife, Elaine Chao, who served as labor secretary throughout former President George W. Bush’s eight years in office.

Arizona Senator Jon Kyl, the chamber’s second-ranking Republican, reported assets between $467,000 and $1.08 million, with the bulk of it in individual retirement accounts.

Domino’s Pizza

Among Cantor’s biggest stock holdings is an investment of $500,000 to $1 million in Domino’s Pizza Inc. (DPZ) His wife, Diana, a former Goldman, Sachs & Co. (GS) vice president who is chairman of the board of the Virginia Retirement System, is a director of Domino’s Pizza and Media General Inc. (MEG), a Richmond-based newspaper and broadcast company.

The Cantors also own an Arlington, Virginia, condominium valued at between $500,001 and $1 million. He listed between $500,000 and $1 million in Bank of America bank accounts.

Maryland Democrat Steny Hoyer, the minority whip, is among the least wealthy House leaders.

He cited assets of $30,000 to $100,000. Hoyer reported he owes at least $100,000 and as much as $250,000 in a mortgage on his home in Mechanicsville, Maryland, to SunTrust Banks in Richmond.

Financial disclosure forms filed by members of Congress require lawmakers to state the value of holdings in broad ranges. Precise figures aren’t made public.

Mutual Funds

House Speaker John Boehner, an Ohio Republican who once owned a small business, listed unearned income of at least $10,116 and as much as $46,700 from mutual-fund dividends or capital-gains distributions.

Boehner listed assets valued between $1.8 million and $5.4 million. All of his stock and bond investments in companies including Intel Corp., Home Depot Inc., Honeywell International Inc., Pfizer Inc. and JPMorgan Chase & Co. (JPM) were through individual retirement accounts. He and his wife, Debbie, who works as a real estate agent, didn’t report a mortgage on their home near a golf course in suburban Cincinnati.

Pelosi, who yielded the speakership to Boehner after Republicans won control of the House, and her husband own a vineyard in St. Helena, California, valued between $5 million and $25 million.

Reid’s Assets

In the Senate, Majority Leader Harry Reid of Nevada is the wealthiest Democratic leader, listing assets between $2.78 million to $6.19 million, with much of his net worth in real estate holdings in his home state of Nevada and in Arizona. Reid, the son of a Nevada hard-rock miner, has holdings in bonds and stock mutual funds and other investments.

Patty Murray of Washington state, the fourth-ranking Senate Democrat and the only woman in the chamber’s leadership, listed assets between $564,000 and $1.5 million. Senator Charles Schumer of New York, the chamber’s third-ranking Democrat, listed assets of $320,000 to $950,000.

About 20 percent of U.S. House members applied for filing extensions this year.

Members of Congress are required to report details of mortgages on their personal residences for the first time this year, a provision included as part of a congressional ethics law. While the Senate required members to list the terms of their mortgage -- including interest rates, length and points used to pay down their rates -- the House didn’t.

Mortgage Rates

Among lawmakers paying the highest home-mortgage interest rates is Schumer, who has a 15-year mortgage taken out in 2002 at 6.85 percent.

House Financial Services Committee Chairman Spencer Bachus, an Alabama Republican who will preside over a hearing on JPMorgan next week, has 2 mortgages with the bank, according to federal disclosure documents. JPMorgan chief executive Jamie Dimon is scheduled to testify before the committee on June 19.

Senate Democrat Jay Rockefeller of West Virginia reported among the best interest rates on a 1998 loan from the United National Bank of Charleston. It is listed as New York Prime minus 1 percent. As of June 13, the prime rate was 3.25 percent.

Today’s filings also show what gifts lawmakers have received. Representative Gary Ackerman, a New York Democrat, acknowledged exceeding legal limits. Ackerman, who is retiring at the end of the year, accepted a “priceless” gift, according to his personal financial disclosure form. What did the Long Islander get?

“The blessed opportunity for 30 years to pay back, in some small measure, the good things that happened to me.” And who gave it to him? “The people,” his form said.

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider in Washington at jschneider50@bloomberg.net.

Read more...

U.S. Stocks Rise on Reports Policy Makers May Take Action

By Inyoung Hwang - Jun 15, 2012 4:36 AM GMT+0700

U.S. stocks advanced, erasing a weekly loss for the Standard & Poor’s 500 Index, amid reports policy makers may take steps to assist economies battered by Europe’s sovereign debt crisis.

Enlarge image

Traders work at the New York Stock Exchange (NYSE) in New York. Photographer: Scott Eells/Bloomberg

All 10 groups in the S&P 500 rose, led by telephone service providers. Home Depot Inc. and Walt Disney Co. added at least 2.1 percent after data on inflation and jobless claims fueled bets the Federal Reserve will act to spur growth. Exxon Mobil Corp. (XOM), the largest energy producer by market value, increased 1.9 percent as oil rallied. Travelers Cos. and Bank of America Corp. (BAC) gained at least 2.1 percent as financial companies jumped.

The S&P 500 gained 1.1 percent to 1,329.10 at 4 p.m. in New York. The benchmark index for American equities is up 0.3 percent for the week. The Dow Jones Industrial Average rose 155.53 points, or 1.2 percent, to 12,651.91 today. Trading volume for exchange-listed stocks in the U.S. was about 6.6 billion shares, 2.5 percent below the three-month average.

“It’s a sign that they’re talking and that’s good,” Rod Smyth, the Richmond, Virginia-based chief investment strategist of Riverfront Investment Group, which manages $3 billion, said in a telephone interview. “Equity investors are poised with the knowledge that if European policy makers can figure out a way to stem the vicious cycle that’s been building, then stocks look really cheap and bonds look expensive.”

The S&P 500 tumbled as much a 9.9 percent from a four-year high in April through June 1 amid lower-than-forecast economic data and concern Europe’s debt crisis was spreading. The index has rebounded 4 percent since, and trades at 13.4 times its companies’ reported earnings, below the average of 16.4 since 1954, according to data compiled by Bloomberg. The S&P 500 fell yesterday as borrowing costs rose in Italy and Germany before elections in Greece on June 17 that may determine whether the Mediterranean nation will leave the euro area.

Central Banks

Stocks extended gains today amid reports of plans by central banks. Bloomberg News reported that U.K. Chancellor of the Exchequer George Osborne and Bank of England Governor Mervyn King are preparing two programs to increase the flow of credit. Reuters said that central banks are prepared to take action if needed to boost liquidity in financial markets if the Greek elections cause tumultuous trading, citing officials linked to the Group of 20 nations.

Speculation grew that the Federal Reserve will discuss stimulus efforts at its meeting next week after reports showed jobless claims unexpectedly climbed by 6,000 to 386,000 last week and the cost of living fell by the most in more than three years.

‘Good Stage’

“Good inflation data and weak employment is a good stage for a Fed policy response,” Kevin Shacknofsky, who helps manage about $5 billion for Alpine Mutual Funds in Purchase, New York, said in an e-mail. “We are at the stage where bad news is good news in terms of a policy response. Jobs will be the critical factor that influences the Fed.”

Home Depot (HD), the largest U.S. home-improvement retailer, climbed 2.3 percent to $52.16 and Disney, the world’s largest entertainment company, advanced 2.1 percent to $47.18. Exxon Mobil increased 1.9 percent to $82.13 and Cabot Oil & Gas Corp. (COG) jumped 8.6 percent to $35.04 as energy shares in the S&P 500 gained 1.7 percent as a group.

Travelers added 2.4 percent to $63.12, the biggest gain in the Dow, while Bank of America, the second-biggest U.S. lender, climbed 2.1 percent to $7.66 as financial stocks rallied 1.3 percent.

Telephone companies jumped 1.9 percent as a group. Consumer discretionary stocks, which include retailers, hotel chains and restaurant companies, climbed 1.4 percent. An S&P index of homebuilders advanced 4.1 percent, as Lennar Corp. (LEN) increased 3.6 percent to $25.55 and PulteGroup Inc. (PHM) added 5.2 percent to $8.85.

Casino Machines

International Game Technology (IGT) rose 14 percent, the most in the S&P 500, to $15.12. The maker of casino machines announced a share buyback plan of as much as $1 billion in an effort to reward investors after a 23 percent stock drop this year.

Kroger Co. (KR) climbed 6.1 percent to $22.58. The largest U.S. grocery-store chain said profit for the year ending Jan. 31 will be as much as $2.40 a share, up from a prior forecast of as much as $2.38. Kroger also said its board approved a new $1 billion share buyback program, replacing an authorization that was exhausted on June 12.

Family Dollar Stores Inc. (FDO) advanced 4 percent to a record $72.85. The discount retailer was raised to buy from neutral at Cleveland Research Co. on expectation new merchandising is driving up sales.

Edwards Lifesciences Corp. (EW) rose 7 percent to $96.88 for the third-biggest advance in the S&P 500. The company won the backing of U.S. advisers for an expanded use of its Sapien heart valve as an alternative to open-heart surgery.

Fed Meeting

The Fed, which will gather two days after the Greek election, has identified the country’s exit from the euro as an outcome that would deepen the crisis and threaten the U.S. expansion. The central banks bought $2.3 trillion of bonds in two rounds of so-called quantitative easing from 2008 through 2011 to stimulate growth through lower borrowing costs.

Chairman Ben S. Bernanke told lawmakers last week the “central question” confronting the Fed at its June 19-20 meeting is whether growth is fast enough to make “material progress” reducing unemployment. Fed officials, including Vice Chairman Janet Yellen, have said there’s scope for further easing at some point to reduce a jobless rate persisting above 8 percent.

“We’re still on the fence right now whether there is going to be another round of quantitative easing,” Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston, said in a phone interview. “We’re going to be cautious for the foreseeable future. There’s so many banana peels on the floor right now you can slip on any one of them at any time.”

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

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

Read more...