29 March , 2009
TORONTO — A vast electronic spying operation has infiltrated computers and has stolen documents from hundreds of government and private offices around the world, including those of the Dalai Lama, Canadian researchers have concluded.
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Tim Leyes for The New York Times
The Toronto academic researchers who are reporting on the spying operation dubbed GhostNet include, from left, Ronald J. Deibert, Greg Walton, Nart Villeneuve and Rafal A. Rohozinski.
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In a report to be issued this weekend, the researchers said that the system was being controlled from computers based almost exclusively in China, but that they could not say conclusively that the Chinese government was involved.
The researchers, who are based at the Munk Center for International Studies at the University of Toronto, had been asked by the office of the Dalai Lama, the exiled Tibetan leader whom China regularly denounces, to examine its computers for signs of malicious software, or malware.
Their sleuthing opened a window into a broader operation that, in less than two years, has infiltrated at least 1,295 computers in 103 countries, including many belonging to embassies, foreign ministries and other government offices, as well as the Dalai Lama’s Tibetan exile centers in India, Brussels, London and New York.
The researchers, who have a record of detecting computer espionage, said they believed that in addition to the spying on the Dalai Lama, the system, which they called GhostNet, was focused on the governments of South Asian and Southeast Asian countries.
Intelligence analysts say many governments, including those of China, Russia and the United States, and other parties use sophisticated computer programs to covertly gather information.
The newly reported spying operation is by far the largest to come to light in terms of countries affected.
This is also believed to be the first time researchers have been able to expose the workings of a computer system used in an intrusion of this magnitude.
Still going strong, the operation continues to invade and monitor more than a dozen new computers a week, the researchers said in their report, “Tracking ‘GhostNet’: Investigating a Cyber Espionage Network.” They said they had found no evidence that United States government offices had been infiltrated, although a NATO computer was monitored by the spies for half a day and computers of the Indian Embassy in Washington were infiltrated.
The malware is remarkable both for its sweep — in computer jargon, it has not been merely “phishing” for random consumers’ information, but “whaling” for particular important targets — and for its Big Brother-style capacities. It can, for example, turn on the camera and audio-recording functions of an infected computer, enabling monitors to see and hear what goes on in a room. The investigators say they do not know if this facet has been employed.
The researchers were able to monitor the commands given to infected computers and to see the names of documents retrieved by the spies, but in most cases the contents of the stolen files have not been determined. Working with the Tibetans, however, the researchers found that specific correspondence had been stolen and that the intruders had gained control of the electronic mail server computers of the Dalai Lama’s organization.
The electronic spy game has had at least some real-world impact, they said. For example, they said, after an e-mail invitation was sent by the Dalai Lama’s office to a foreign diplomat, the Chinese government made a call to the diplomat discouraging a visit. And a woman working for a group making Internet contacts between Tibetan exiles and Chinese citizens was stopped by Chinese intelligence officers on her way back to Tibet, shown transcripts of her online conversations and warned to stop her political activities.
The Toronto researchers said they had notified international law enforcement agencies of the spying operation, which in their view exposed basic shortcomings in the legal structure of cyberspace. The F.B.I. declined to comment on the operation.
Although the Canadian researchers said that most of the computers behind the spying were in China, they cautioned against concluding that China’s government was involved. The spying could be a nonstate, for-profit operation, for example, or one run by private citizens in China known as “patriotic hackers.”
“We’re a bit more careful about it, knowing the nuance of what happens in the subterranean realms,” said Ronald J. Deibert, a member of the research group and an associate professor of political science at Munk. “This could well be the C.I.A. or the Russians. It’s a murky realm that we’re lifting the lid on.”
A spokesman for the Chinese Consulate in New York dismissed the idea that China was involved. “These are old stories and they are nonsense,” the spokesman, Wenqi Gao, said. “The Chinese government is opposed to and strictly forbids any cybercrime.”
The Toronto researchers, who allowed a reporter for The New York Times to review the spies’ digital tracks, are publishing their findings in Information Warfare Monitor, an online publication associated with the Munk Center.
At the same time, two computer researchers at Cambridge University in Britain who worked on the part of the investigation related to the Tibetans, are releasing an independent report. They do fault China, and they warned that other hackers could adopt the tactics used in the malware operation.
Saturday, March 28, 2009
How Crisis Shapes the Corporate Model
29 March , 2009
EVER since the financial crisis broke in earnest last September, history has been mined for nuggets of insight. The Great Depression, the Panic of 1907, Japan’s lost decade of the 1990s, the Swedish banking crash in the late 1990s, and so on. Each time, though, the focus has tended to be on the lessons learned for economic policy and theory.
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The New York Times, 1946
After the Great Depression, the American railroad system was among several forces that helped to build huge and wide-ranging companies.
Let’s try a different lens. How have past crises shaped management thinking and strategy? Innovation in management, after all, is adaptive. Management is not a science, like physics, with immutable laws and testable theories. Instead, management, at its best, is an intelligent response to outside forces, often disruptive ones.
Times of severe economic duress, management experts say, can serve to sharply accelerate trends already under way.
The Depression and its immediate aftermath, they say, was such a catalyst for forces already in motion. The main development, they note, was the rise of the modern multidivisional enterprise like General Electric, DuPont and General Motors. It was made possible by the mature technologies of transportation and communication — railroads, the telephone and the telegraph.
The technologies made it possible to monitor and coordinate business operations as never before. And the Depression made it imperative for managers to achieve efficient economies of scale to tap national markets, ensuring corporate survival amid a downward spiral in total demand.
A modern version of that kind of technology-aided shift in management practice and corporate organization could be in the offing, says John Hagel III, the co-director of the Deloitte Center for Edge Innovation, a research arm of the consulting firm.
The sharp downturn, according to Mr. Hagel, will force companies to go beyond simple cost-cutting to take a hard look at the economics of their businesses. Most companies, he says, are actually bundles of three different businesses: infrastructure management, product and service development and commercialization, and customer relations.
The current crisis, Mr. Hagel says, opens the door to “an unbundling of the corporation” to achieve greater efficiency and profitability. The trend, he notes, is already exemplified by specialist companies that focus on particular infrastructure fields. In logistics, Mr. Hagel says, many companies farm out those chores to Federal Express and U.P.S.; in call centers, he points to Convergys; and in contract manufacturing, to Flextronics.
Of the three business areas, new product development is the one that lends itself not to size, but to small creative teams, and thus is the most difficult for large corporations. Mr. Hagel cites Procter & Gamble as a big company that understands the benefits of unbundling. It has set a goal of getting half its new-product innovations from outside the company, through licensing and collaboration with partners. And P.& G., Mr. Hagel says, has invested heavily in Web technology and clever software to analyze and nurture customer relations.
To Mr. Hagel, such developments look like an Internet-era rerun of the corporate transformation of the 1930s and ’40s. “We’re facing the potential to have that play out again — this time with digital infrastructures that allow companies to organize and manage their activities in new ways,” he said.
Manufacturing innovations and distribution patterns have been powerfully shaped by economic shifts. Japan’s just-in-time, lean manufacturing system, management experts note, was an adaptation to postwar poverty, a shortage of capital and scarce land for factories, while pro-market policies in China and India opened the door to globalization.
There may well be a different pattern of global production and distribution when the world economy emerges from the current crisis, says George Stalk, senior adviser to the Boston Consulting Group. Assuming that long-term oil prices average $80 a barrel or so, and that roads, ports and airports continue to be congested, smaller factories closer to home — in the Midwest or Mexico, for example — may be more economical and flexible than those in Asia. “For a lot of goods, China will no longer be the preferred source,” Mr. Stalk said.
Times of turmoil also bring changes in social attitudes and politics, which ripple into new management practices. Labor unions, for example, rose to prominence during the Depression. Unions brought large companies a needed dose of industrial stability, as the earlier ideological wars between labor and capital receded. If the workers were less likely to be radicals, the days of robber-baron owners were in eclipse as well.
Their power was supplanted by “a new subspecies of economic man — the salaried manager,” wrote Alfred D. Chandler Jr., in his Pulitzer Prize-winning history, “The Visible Hand: The Managerial Revolution in American Business” (Harvard, 1977). Chandler called the model “managerial capitalism,” and the role of management was to balance the interests of a diverse group of stakeholders including workers, government and shareholders.
That model held sway until the 1980s, when the stagnation of economic growth and corporate profits of the 1970s brought a narrowed focus on stock-market returns as the primary measure of management performance. In politics, the Reagan revolution decreed that government was not the solution, but the problem.
TODAY, the pendulum is swinging back to a model in which corporations will be regarded more as social organizations, whose obligations extend well beyond Wall Street, according to Rakesh Khurana, a professor at Harvard Business School. He says that in seeking government aid, the automakers portray themselves as “pillars of their communities and pillars of American manufacturing, not purely economic entities.”
“The narrative for corporate America has changed,” Professor Khurana observed. “Government is not seen in opposition to the firm, but as a partner.”
Such swings, it seems, are the norm historically. “If there’s an ideology of management,” he said, “it is pragmatism.”
EVER since the financial crisis broke in earnest last September, history has been mined for nuggets of insight. The Great Depression, the Panic of 1907, Japan’s lost decade of the 1990s, the Swedish banking crash in the late 1990s, and so on. Each time, though, the focus has tended to be on the lessons learned for economic policy and theory.
Skip to next paragraph
Enlarge This Image
The New York Times, 1946
After the Great Depression, the American railroad system was among several forces that helped to build huge and wide-ranging companies.
Let’s try a different lens. How have past crises shaped management thinking and strategy? Innovation in management, after all, is adaptive. Management is not a science, like physics, with immutable laws and testable theories. Instead, management, at its best, is an intelligent response to outside forces, often disruptive ones.
Times of severe economic duress, management experts say, can serve to sharply accelerate trends already under way.
The Depression and its immediate aftermath, they say, was such a catalyst for forces already in motion. The main development, they note, was the rise of the modern multidivisional enterprise like General Electric, DuPont and General Motors. It was made possible by the mature technologies of transportation and communication — railroads, the telephone and the telegraph.
The technologies made it possible to monitor and coordinate business operations as never before. And the Depression made it imperative for managers to achieve efficient economies of scale to tap national markets, ensuring corporate survival amid a downward spiral in total demand.
A modern version of that kind of technology-aided shift in management practice and corporate organization could be in the offing, says John Hagel III, the co-director of the Deloitte Center for Edge Innovation, a research arm of the consulting firm.
The sharp downturn, according to Mr. Hagel, will force companies to go beyond simple cost-cutting to take a hard look at the economics of their businesses. Most companies, he says, are actually bundles of three different businesses: infrastructure management, product and service development and commercialization, and customer relations.
The current crisis, Mr. Hagel says, opens the door to “an unbundling of the corporation” to achieve greater efficiency and profitability. The trend, he notes, is already exemplified by specialist companies that focus on particular infrastructure fields. In logistics, Mr. Hagel says, many companies farm out those chores to Federal Express and U.P.S.; in call centers, he points to Convergys; and in contract manufacturing, to Flextronics.
Of the three business areas, new product development is the one that lends itself not to size, but to small creative teams, and thus is the most difficult for large corporations. Mr. Hagel cites Procter & Gamble as a big company that understands the benefits of unbundling. It has set a goal of getting half its new-product innovations from outside the company, through licensing and collaboration with partners. And P.& G., Mr. Hagel says, has invested heavily in Web technology and clever software to analyze and nurture customer relations.
To Mr. Hagel, such developments look like an Internet-era rerun of the corporate transformation of the 1930s and ’40s. “We’re facing the potential to have that play out again — this time with digital infrastructures that allow companies to organize and manage their activities in new ways,” he said.
Manufacturing innovations and distribution patterns have been powerfully shaped by economic shifts. Japan’s just-in-time, lean manufacturing system, management experts note, was an adaptation to postwar poverty, a shortage of capital and scarce land for factories, while pro-market policies in China and India opened the door to globalization.
There may well be a different pattern of global production and distribution when the world economy emerges from the current crisis, says George Stalk, senior adviser to the Boston Consulting Group. Assuming that long-term oil prices average $80 a barrel or so, and that roads, ports and airports continue to be congested, smaller factories closer to home — in the Midwest or Mexico, for example — may be more economical and flexible than those in Asia. “For a lot of goods, China will no longer be the preferred source,” Mr. Stalk said.
Times of turmoil also bring changes in social attitudes and politics, which ripple into new management practices. Labor unions, for example, rose to prominence during the Depression. Unions brought large companies a needed dose of industrial stability, as the earlier ideological wars between labor and capital receded. If the workers were less likely to be radicals, the days of robber-baron owners were in eclipse as well.
Their power was supplanted by “a new subspecies of economic man — the salaried manager,” wrote Alfred D. Chandler Jr., in his Pulitzer Prize-winning history, “The Visible Hand: The Managerial Revolution in American Business” (Harvard, 1977). Chandler called the model “managerial capitalism,” and the role of management was to balance the interests of a diverse group of stakeholders including workers, government and shareholders.
That model held sway until the 1980s, when the stagnation of economic growth and corporate profits of the 1970s brought a narrowed focus on stock-market returns as the primary measure of management performance. In politics, the Reagan revolution decreed that government was not the solution, but the problem.
TODAY, the pendulum is swinging back to a model in which corporations will be regarded more as social organizations, whose obligations extend well beyond Wall Street, according to Rakesh Khurana, a professor at Harvard Business School. He says that in seeking government aid, the automakers portray themselves as “pillars of their communities and pillars of American manufacturing, not purely economic entities.”
“The narrative for corporate America has changed,” Professor Khurana observed. “Government is not seen in opposition to the firm, but as a partner.”
Such swings, it seems, are the norm historically. “If there’s an ideology of management,” he said, “it is pragmatism.”
Australia’s Economy Can Emerge Stronger From Crisis, Swan Says
March 29 (Bloomberg) -- Australia’s economy can emerge stronger from the global recession provided the “right” action is taken internationally and in the domestic market, Treasurer Wayne Swan said.
Swan and Prime Minister Kevin Rudd will be discussing toxic assets at the Group of 20 leaders’ summit in London later this week, the Treasurer said today in an e-mailed note. Swan said he will also meet his counterparts from developed and developing countries to discuss further action to restore economic growth and support jobs.
Leaders of the world’s 20 largest economies will meet April 2 to devise a common approach to combating the global financial crisis, after the International Monetary Fund this month forecast the world economy will shrink as much as 1 percent in 2009. Financial institutions have reported credit-related losses of more than $1.2 trillion since the crisis began in mid-2007, according to data compiled by Bloomberg.
“While there are no quick fixes to this global recession, with the right action globally and here at home, we can come through this stronger and more prosperous than before,” Swan said in the note. Australia’s retail activity and jobs have benefited from the government’s economic stimulus plan, he said.
Australia’s economy shrank in the fourth quarter for the first time in eight years as exports and housing slumped. Gross domestic product fell 0.5 percent from the third quarter, when it increased 0.1 percent, the statistics bureau reported March 4. Data released last week showed that both the U.S. and U.K. economies contracted by 1.6 percent in the final three months of last year, their worst performances since the early 1980s.
The nation’s financial system has so far weathered the global crisis “much better” than those in many other countries, while the housing market has also held up better, Swan said. A temporary guarantee of borrowing by state governments, announced last week, will support jobs and protect infrastructure development plans, he said.
Swan and Prime Minister Kevin Rudd will be discussing toxic assets at the Group of 20 leaders’ summit in London later this week, the Treasurer said today in an e-mailed note. Swan said he will also meet his counterparts from developed and developing countries to discuss further action to restore economic growth and support jobs.
Leaders of the world’s 20 largest economies will meet April 2 to devise a common approach to combating the global financial crisis, after the International Monetary Fund this month forecast the world economy will shrink as much as 1 percent in 2009. Financial institutions have reported credit-related losses of more than $1.2 trillion since the crisis began in mid-2007, according to data compiled by Bloomberg.
“While there are no quick fixes to this global recession, with the right action globally and here at home, we can come through this stronger and more prosperous than before,” Swan said in the note. Australia’s retail activity and jobs have benefited from the government’s economic stimulus plan, he said.
Australia’s economy shrank in the fourth quarter for the first time in eight years as exports and housing slumped. Gross domestic product fell 0.5 percent from the third quarter, when it increased 0.1 percent, the statistics bureau reported March 4. Data released last week showed that both the U.S. and U.K. economies contracted by 1.6 percent in the final three months of last year, their worst performances since the early 1980s.
The nation’s financial system has so far weathered the global crisis “much better” than those in many other countries, while the housing market has also held up better, Swan said. A temporary guarantee of borrowing by state governments, announced last week, will support jobs and protect infrastructure development plans, he said.
Friday, March 27, 2009
Asian Stocks Complete Best Week Since 2007, Enter Bull Market
March 28 (Bloomberg) -- Asian stocks posted their biggest weekly gain since August 2007 amid optimism governments worldwide will succeed in reviving lending and global growth.
The MSCI Asia Pacific Index has rallied 21 percent from a five-year low on March 9, technically entering a bull market. Toyota Motor Corp., which gets 37 percent of its sales from North America, gained 10 percent in Tokyo on optimism the U.S. Treasury’s plan to remove banks’ toxic assets will revive economic growth. BHP Billiton Ltd., the world’s No. 1 mining company, climbed 5.7 percent in Sydney after prices for oil and metals advanced.
“We are building a base for the next bull market,” Mark Mobius, who helps oversee about $20 billion of emerging-market assets at Templeton Asset Management Ltd., said in Hong Kong. “You have to be careful not to miss the opportunity. With all the negative news, there is a tendency to hold back.”
MSCI’s Asian benchmark gauge rose 7.5 percent to 85.49 this week, its best weekly performance since the week ended Aug. 24, 2007. A measure tracking energy stocks on the MSCI gauge rallied 11 percent this week, the sharpest jump among the 10 industry groups on the MSCI Asia Pacific Index.
Hong Kong’s Hang Seng Index rose 10 percent, its best week since October. Japan’s Nikkei 225 Stock Average climbed 8.6 percent while South Korea’s Kospi Index added 5.7 percent.
Governments from the U.S. to Japan are widening measures to ease the financial crisis, which has caused more than $1 trillion of losses worldwide, and to avert what the World Bank predicts will be the first global economic contraction since World War II.
Government Action
The U.S. Treasury announced on March 23 plans to rid banks of toxic real-estate assets. The country and Japan also pledged on March 18 to buy government debt, while banks including Barclays Plc reported strong starts to the year.
Toyota jumped 10 percent to 3,260 yen in Tokyo this week. Sony Corp., which gets a quarter of its sales from the U.S., surged 13 percent to 2,225 yen. Samsung Electronics Co., the world’s biggest maker of computer memory, rose 7.8 percent to 584,000 won in Seoul.
“When you consider how much money governments have thrown at the crisis to get liquidity going, you’d think it’ll have some effect,” said Chris Hall, who helps oversee about $2 billion at Adelaide, South Australia-based Argo Investments. “It’ll take a bit of time to all come through.”
BHP climbed 5.7 percent to A$34.01 in Sydney this week. Cnooc Ltd., China’s biggest offshore oil producer, jumped 11 percent to HK$8.33 in Hong Kong. Crude oil added 2.6 percent to $52.38 a barrel in New York this week. A measure of six primary metals traded in London fell 0.1 percent.
Rising Valuations
Rio Tinto Group, the world’s third-largest mining company, soared 21 percent to A$56.88. The company said March 26 that it had an alternative plan should Aluminum Corp. of China’s $19.5 billion investment deal fail.
MSCI’s Asian benchmark gauge rose 13.7 percent in March, which was the biggest monthly gain since October 1998, when governments were cutting interest rates to alleviate the Asian financial crisis.
The gains pared the measure’s drop this year to 4.6 percent, and raised the average valuation of companies on the MSCI Asia Pacific Index yesterday to 16.7 times profit, the highest level since December 2007, data compiled by Bloomberg show.
The gauge’s 14-day relative strength index, which measures how rapidly prices have risen or fallen, yesterday rose above the level of 70 that some traders use as a signal to sell.
“The market will remain resilient, though technical indicators indicate it is overheating,” said Mitsushige Akino, who oversees the equivalent of $615 million at Tokyo-based Ichiyoshi Investment Management Co.
Industrial & Commercial Bank of China Ltd. jumped 27 percent to HK$4.19 this week in Hong Kong as Goldman Sachs Group Inc. agreed to keep most of its stake in the company for at least another year. ICBC is the world’s most profitable bank.
Elpida Memory Inc. soared 50 percent to 735 yen in Tokyo after computer-chip prices rallied and on optimism share sales by two units will help it avoid early repayment of loans.
The MSCI Asia Pacific Index has rallied 21 percent from a five-year low on March 9, technically entering a bull market. Toyota Motor Corp., which gets 37 percent of its sales from North America, gained 10 percent in Tokyo on optimism the U.S. Treasury’s plan to remove banks’ toxic assets will revive economic growth. BHP Billiton Ltd., the world’s No. 1 mining company, climbed 5.7 percent in Sydney after prices for oil and metals advanced.
“We are building a base for the next bull market,” Mark Mobius, who helps oversee about $20 billion of emerging-market assets at Templeton Asset Management Ltd., said in Hong Kong. “You have to be careful not to miss the opportunity. With all the negative news, there is a tendency to hold back.”
MSCI’s Asian benchmark gauge rose 7.5 percent to 85.49 this week, its best weekly performance since the week ended Aug. 24, 2007. A measure tracking energy stocks on the MSCI gauge rallied 11 percent this week, the sharpest jump among the 10 industry groups on the MSCI Asia Pacific Index.
Hong Kong’s Hang Seng Index rose 10 percent, its best week since October. Japan’s Nikkei 225 Stock Average climbed 8.6 percent while South Korea’s Kospi Index added 5.7 percent.
Governments from the U.S. to Japan are widening measures to ease the financial crisis, which has caused more than $1 trillion of losses worldwide, and to avert what the World Bank predicts will be the first global economic contraction since World War II.
Government Action
The U.S. Treasury announced on March 23 plans to rid banks of toxic real-estate assets. The country and Japan also pledged on March 18 to buy government debt, while banks including Barclays Plc reported strong starts to the year.
Toyota jumped 10 percent to 3,260 yen in Tokyo this week. Sony Corp., which gets a quarter of its sales from the U.S., surged 13 percent to 2,225 yen. Samsung Electronics Co., the world’s biggest maker of computer memory, rose 7.8 percent to 584,000 won in Seoul.
“When you consider how much money governments have thrown at the crisis to get liquidity going, you’d think it’ll have some effect,” said Chris Hall, who helps oversee about $2 billion at Adelaide, South Australia-based Argo Investments. “It’ll take a bit of time to all come through.”
BHP climbed 5.7 percent to A$34.01 in Sydney this week. Cnooc Ltd., China’s biggest offshore oil producer, jumped 11 percent to HK$8.33 in Hong Kong. Crude oil added 2.6 percent to $52.38 a barrel in New York this week. A measure of six primary metals traded in London fell 0.1 percent.
Rising Valuations
Rio Tinto Group, the world’s third-largest mining company, soared 21 percent to A$56.88. The company said March 26 that it had an alternative plan should Aluminum Corp. of China’s $19.5 billion investment deal fail.
MSCI’s Asian benchmark gauge rose 13.7 percent in March, which was the biggest monthly gain since October 1998, when governments were cutting interest rates to alleviate the Asian financial crisis.
The gains pared the measure’s drop this year to 4.6 percent, and raised the average valuation of companies on the MSCI Asia Pacific Index yesterday to 16.7 times profit, the highest level since December 2007, data compiled by Bloomberg show.
The gauge’s 14-day relative strength index, which measures how rapidly prices have risen or fallen, yesterday rose above the level of 70 that some traders use as a signal to sell.
“The market will remain resilient, though technical indicators indicate it is overheating,” said Mitsushige Akino, who oversees the equivalent of $615 million at Tokyo-based Ichiyoshi Investment Management Co.
Industrial & Commercial Bank of China Ltd. jumped 27 percent to HK$4.19 this week in Hong Kong as Goldman Sachs Group Inc. agreed to keep most of its stake in the company for at least another year. ICBC is the world’s most profitable bank.
Elpida Memory Inc. soared 50 percent to 735 yen in Tokyo after computer-chip prices rallied and on optimism share sales by two units will help it avoid early repayment of loans.
Asian Currencies Have Best Weekly Run in a Year on Stock Rally
March 28 (Bloomberg) -- Asian currencies rose for a fourth week, the longest winning streak in almost a year, as a global stock rally revived investor appetite for emerging-market assets.
South Korea’s won touched a two-month high against the dollar after a central bank report showed the economy shrank less than initially estimated in the fourth quarter. Indonesia’s rupiah strengthened for a third week as overseas investors bought $120 million more of the nation’s equities than they sold this month. The MSCI Asia Pacific Index of regional shares jumped 7.5 percent, the biggest weekly gain since August 2007.
“Asian currencies followed sentiment in the global stock market quite closely,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong. “That’s why we had a solid performance this week.”
The won was at 1,349.00 per dollar as of the 3 p.m. local close, 4.7 percent stronger than last week, according to Seoul Money Brokerage Services Ltd. Malaysia’s ringgit gained 0.8 percent this week to 3.6155 and Taiwan’s dollar appreciated 0.1 percent to NT$33.779. The rupiah rose 2.3 percent to 11,500.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, had a fourth weekly gain, the longest run since April 2008. It rose 0.8 percent this week to 104.88. Eight of the 10 most-active currencies in Asia outside Japan climbed against the greenback.
Growth Outlook
South Korea’s gross domestic product shrank a revised 5.1 percent in the fourth quarter, the central bank reported yesterday. That’s less than the previously reported 5.6 percent decline and follows a 0.2 percent expansion in the three months to September.
“The Korean won had been one of the harder-hit currencies in recent months so it’s reasonable that they enjoy one of the nicer rebounds as investor sentiment has improved in the past few weeks,” said David Cohen, director of Asian forecasting at Action Economics in Singapore.
The rupiah had its biggest weekly advance of the year after better-than-expected earnings at U.S. companies added to speculation a global recession is easing.
“Stock markets are up and that should benefit most of the regional currencies,” said Apratim Chakravarty, head of global markets at HSBC Holdings Plc in Jakarta. “The outlook for the rupiah will also be positive.”
Investors should buy the Indonesian rupiah as its economy will fare better than regional peers, according to Standard Chartered Plc. The Jakarta Composite Index of shares was up 7.5 percent this week.
G-20 Meeting
The Taiwan dollar traded near a six-week high after the central bank on March 26 refrained from cutting the benchmark interest rate from the least on record, saying borrowing costs can’t get any lower. The benchmark Taiex index of shares rose this week by the most in more than six years as purchases by global funds exceeded sales on all but one of the past 12 days.
China said on March 26 stimulus spending has helped stem a slowdown in the world’s third-largest economy. Leaders from the Group of 20 nations may step up efforts to revive global growth when they meet in London on April 2, according to Hideki Hayashi, chief economist at Shinko Securities Co.
“Asian currencies will continue to gain next week because people are more optimistic on stocks and the negative effect of risk is diminishing,” said Hayashi, who is based in Tokyo. “We expect to hear better results from the G-20 summit.”
Elsewhere, the Philippine peso climbed 0.3 percent this week to 48.19 a dollar. The Thai baht traded at 35.32, advancing 0.2 percent in the week. India’s rupee rose 0.1 percent in the week to 50.6025. China’s yuan weakened 0.07 percent to 6.8325. Singapore’s dollar traded at S$1.5138, from S$1.5132 a week ago.
South Korea’s won touched a two-month high against the dollar after a central bank report showed the economy shrank less than initially estimated in the fourth quarter. Indonesia’s rupiah strengthened for a third week as overseas investors bought $120 million more of the nation’s equities than they sold this month. The MSCI Asia Pacific Index of regional shares jumped 7.5 percent, the biggest weekly gain since August 2007.
“Asian currencies followed sentiment in the global stock market quite closely,” said Dariusz Kowalczyk, chief investment strategist at SJS Markets Ltd. in Hong Kong. “That’s why we had a solid performance this week.”
The won was at 1,349.00 per dollar as of the 3 p.m. local close, 4.7 percent stronger than last week, according to Seoul Money Brokerage Services Ltd. Malaysia’s ringgit gained 0.8 percent this week to 3.6155 and Taiwan’s dollar appreciated 0.1 percent to NT$33.779. The rupiah rose 2.3 percent to 11,500.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the region’s 10 most-active currencies excluding the yen, had a fourth weekly gain, the longest run since April 2008. It rose 0.8 percent this week to 104.88. Eight of the 10 most-active currencies in Asia outside Japan climbed against the greenback.
Growth Outlook
South Korea’s gross domestic product shrank a revised 5.1 percent in the fourth quarter, the central bank reported yesterday. That’s less than the previously reported 5.6 percent decline and follows a 0.2 percent expansion in the three months to September.
“The Korean won had been one of the harder-hit currencies in recent months so it’s reasonable that they enjoy one of the nicer rebounds as investor sentiment has improved in the past few weeks,” said David Cohen, director of Asian forecasting at Action Economics in Singapore.
The rupiah had its biggest weekly advance of the year after better-than-expected earnings at U.S. companies added to speculation a global recession is easing.
“Stock markets are up and that should benefit most of the regional currencies,” said Apratim Chakravarty, head of global markets at HSBC Holdings Plc in Jakarta. “The outlook for the rupiah will also be positive.”
Investors should buy the Indonesian rupiah as its economy will fare better than regional peers, according to Standard Chartered Plc. The Jakarta Composite Index of shares was up 7.5 percent this week.
G-20 Meeting
The Taiwan dollar traded near a six-week high after the central bank on March 26 refrained from cutting the benchmark interest rate from the least on record, saying borrowing costs can’t get any lower. The benchmark Taiex index of shares rose this week by the most in more than six years as purchases by global funds exceeded sales on all but one of the past 12 days.
China said on March 26 stimulus spending has helped stem a slowdown in the world’s third-largest economy. Leaders from the Group of 20 nations may step up efforts to revive global growth when they meet in London on April 2, according to Hideki Hayashi, chief economist at Shinko Securities Co.
“Asian currencies will continue to gain next week because people are more optimistic on stocks and the negative effect of risk is diminishing,” said Hayashi, who is based in Tokyo. “We expect to hear better results from the G-20 summit.”
Elsewhere, the Philippine peso climbed 0.3 percent this week to 48.19 a dollar. The Thai baht traded at 35.32, advancing 0.2 percent in the week. India’s rupee rose 0.1 percent in the week to 50.6025. China’s yuan weakened 0.07 percent to 6.8325. Singapore’s dollar traded at S$1.5138, from S$1.5132 a week ago.
Japan’s Bonds Fall Most in 7 Weeks as Stock Gains Damp Demand
March 28 (Bloomberg) -- Japan’s 10-year bonds completed the biggest loss in seven weeks as stock gains sapped demand for the relative safety of government debt.
Benchmark yields approached a six-week high as optimism the worst of the global financial turmoil is over helped propel the Nikkei 225 Stock Average to its third weekly advance. Bonds also fell on speculation the supply of debt will keep increasing as the government raises record amounts to fund measures to combat the deepening recession.
“Bonds are being sold given stronger stocks and this trend may continue,” said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co., which oversees $3.3 billion. “As long as there are no negative surprises in economic data, bonds are likely not to be bought.”
The yield on the 1.3 percent bond due March 2019 rose 6.5 basis points this week to 1.32 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.576 yen to 99.823 yen. The yield yesterday reached 1.325 percent, the highest level since Feb. 10.
Ten-year bond futures for June delivery fell 1.36 this week to 138.21 on the Tokyo Stock Exchange.
The Nikkei 225 advanced 8.6 percent over the five trading days, a fourth week of gains, and touched the highest level since Jan. 9, boosted by a rally in U.S. shares.
‘Rising Pressure’
“The Nikkei will be under rising pressure following U.S. stocks” and that is negative for bonds, said Jun Ishii, a fixed-income strategist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s largest bank by assets.
Benchmark bonds have handed investors a loss of 0.03 percent in the three weeks through March 26, according to Merrill Lynch & Co. indexes. The Nikkei has surged 22 percent in the same period.
Japanese bonds are headed for a quarterly loss and Treasuries are set for their worst start to the year since 1996 as the governments of the world’s two biggest economies increase debt sales to fund measures to combat the global recession.
“Even though fundamentals remain weak, supply concerns will dominate the bond market,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, a unit of France’s Credit Agricole SA.
Third Package
Japanese Prime Minister Taro Aso, whose approval rating has slumped before elections that must be called by September, is compiling a third stimulus package to add to the amount pledged since he took office six months ago.
The government is likely to pass an additional supplementary budget in June and bond issuance will probably increase by as much as 10 trillion yen ($102 billion), said Koji Shimamoto, chief strategist at BNP Paribas Securities Japan Ltd. in Tokyo, the top-rated debt analyst in Japan according to Nikkei Veritas newspaper.
The last time Japan stepped up bond sales, in the financial year starting in April 2005, 10-year yields surged 45 basis points. A basis point is 0.01 percentage point.
This week’s drop in bonds was tempered after a government report yesterday showed consumer prices excluding fresh food were unchanged in February from a year earlier. An absence of inflation helps preserve the value of the fixed payments of debt.
Japan will experience a general drop in prices, known as deflation, through the first quarter of next year, according to a Bloomberg News survey of economists. Business sentiment may have slid to the lowest level in 34 years in April, a separate Bloomberg survey of economists showed before the Bank of Japan’s Tankan survey on April 1.
‘Huge Impact’
“Deflation will have a huge impact on markets and monetary policy,” said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd., a unit of Citigroup Inc. Investors should “buy bonds on dips.”
Inflation-linked bonds signal the world’s second-largest economy may enter a period deflation. Ten-year bonds protected against inflation yielded about 2.12 percentage points more than similar-dated conventional bonds yesterday, Bloomberg data show. The securities typically yield less than regular bonds because their principal payment increases at the same rate as inflation.
Benchmark yields approached a six-week high as optimism the worst of the global financial turmoil is over helped propel the Nikkei 225 Stock Average to its third weekly advance. Bonds also fell on speculation the supply of debt will keep increasing as the government raises record amounts to fund measures to combat the deepening recession.
“Bonds are being sold given stronger stocks and this trend may continue,” said Masaru Hamasaki, a senior strategist at Toyota Asset Management Co., which oversees $3.3 billion. “As long as there are no negative surprises in economic data, bonds are likely not to be bought.”
The yield on the 1.3 percent bond due March 2019 rose 6.5 basis points this week to 1.32 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.576 yen to 99.823 yen. The yield yesterday reached 1.325 percent, the highest level since Feb. 10.
Ten-year bond futures for June delivery fell 1.36 this week to 138.21 on the Tokyo Stock Exchange.
The Nikkei 225 advanced 8.6 percent over the five trading days, a fourth week of gains, and touched the highest level since Jan. 9, boosted by a rally in U.S. shares.
‘Rising Pressure’
“The Nikkei will be under rising pressure following U.S. stocks” and that is negative for bonds, said Jun Ishii, a fixed-income strategist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s largest bank by assets.
Benchmark bonds have handed investors a loss of 0.03 percent in the three weeks through March 26, according to Merrill Lynch & Co. indexes. The Nikkei has surged 22 percent in the same period.
Japanese bonds are headed for a quarterly loss and Treasuries are set for their worst start to the year since 1996 as the governments of the world’s two biggest economies increase debt sales to fund measures to combat the global recession.
“Even though fundamentals remain weak, supply concerns will dominate the bond market,” said Susumu Kato, chief economist in Tokyo at Calyon Securities, a unit of France’s Credit Agricole SA.
Third Package
Japanese Prime Minister Taro Aso, whose approval rating has slumped before elections that must be called by September, is compiling a third stimulus package to add to the amount pledged since he took office six months ago.
The government is likely to pass an additional supplementary budget in June and bond issuance will probably increase by as much as 10 trillion yen ($102 billion), said Koji Shimamoto, chief strategist at BNP Paribas Securities Japan Ltd. in Tokyo, the top-rated debt analyst in Japan according to Nikkei Veritas newspaper.
The last time Japan stepped up bond sales, in the financial year starting in April 2005, 10-year yields surged 45 basis points. A basis point is 0.01 percentage point.
This week’s drop in bonds was tempered after a government report yesterday showed consumer prices excluding fresh food were unchanged in February from a year earlier. An absence of inflation helps preserve the value of the fixed payments of debt.
Japan will experience a general drop in prices, known as deflation, through the first quarter of next year, according to a Bloomberg News survey of economists. Business sentiment may have slid to the lowest level in 34 years in April, a separate Bloomberg survey of economists showed before the Bank of Japan’s Tankan survey on April 1.
‘Huge Impact’
“Deflation will have a huge impact on markets and monetary policy,” said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd., a unit of Citigroup Inc. Investors should “buy bonds on dips.”
Inflation-linked bonds signal the world’s second-largest economy may enter a period deflation. Ten-year bonds protected against inflation yielded about 2.12 percentage points more than similar-dated conventional bonds yesterday, Bloomberg data show. The securities typically yield less than regular bonds because their principal payment increases at the same rate as inflation.
Wednesday, March 25, 2009
Australia’s Banks Better Placed Than Most, RBA Says
March 26 (Bloomberg) -- Australian banks continue to report solid profits, haven’t accumulated large holdings of high-risk securities, and didn’t ease lending standards to the same extent as counterparts around the world, the central bank said.
“The Australian banking system is considerably better placed to weather the current challenges than many other systems around the world,” the Reserve Bank of Australia said in its half-yearly Financial Stability Review published today in Sydney. The nation’s five largest banks, led by Westpac Banking Corp., reported an annualized post-tax return on equity in the latest half year of 15 percent, the report said. Still, the slowing economy has led to an increase in charges for bad and doubtful debts to A$5.3 billion ($3.7 billion) from A$1.4 billion a year earlier.
“Compared with other financial systems around the world, Australia looks to be a shining light,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. The Reserve Bank “has no real concern about a vulnerable or fragile banking system.”
Australia’s dollar traded at 69.96 U.S. cents at 11:43 a.m. in Sydney from 69.95 cents before the central bank’s report was released. The S&P/ASX 200 stock index gained 0.7 percent to 3,633, led by shares in exporters and banks.
“Notwithstanding this positive assessment, the banking system is facing a more difficult environment than it has for some years,” the report said.
Bad Loans
Problem loans have risen from “very low levels” and lending growth has also slowed recently, the Reserve Bank added.
The ratio of non-performing assets to total on-balance- sheets assets was about 1 percent in December, compared with 0.4 percent a year earlier, the central bank said. “This ratio is now marginally higher than that recorded in the 2001 downturn” and “well below” the 6 percent peak in the early 1990s, when the nation’s economy was last in a recession.
Housing loans that were 90 days or more in arrears accounted for 0.48 percent of outstanding loans in December, compared with 0.32 percent a year earlier.
“Looking ahead, the main downside risk to the performance of banks’ housing portfolios is from a rise in unemployment as the economy slows,” the report said.
Australia’s economy unexpectedly shrank 0.5 percent in the three months through December from the previous quarter, the first contraction in eight years, and the jobless rate rose in February to a four-year high of 5.2 percent as companies such as Macquarie Group Ltd. and BHP Billiton Ltd. cut full-time jobs.
Interest Rates
To boost the economy, central bank policy makers led by Governor Glenn Stevens have cut the benchmark lending rate by a record four percentage points since September to a 45-year low of 3.25 percent.
The cuts and government grants to first-time home buyers of as much as A$21,000 are unlikely to cause a U.S.-style subprime crisis, Anthony Richards, head of economic analysis at the Reserve Bank, said in Sydney today.
“The past year and a half has seen lending standards tighten in Australia, with a significant shrinkage in the amount of lo-doc and non-confirming lending,” Richards told a housing conference. Such loans are often compared with U.S. subprime loans.
Reductions in borrowing costs “have helped to alleviate debt-servicing pressures,” the central bank said in today’s report.
Government Guarantee
Many businesses have taken a “more conservative approach to their finances, by paying down debt and raising equity,” the report said. “This is despite the business sector, as a whole, having entered the current period of financial turmoil with its balance sheet in good shape after a number of years of solid profit growth.”
Following the collapse of Lehman Brothers Holdings Inc. in September, which deepened a global credit squeeze, Australia’s government in November provided a guarantee for wholesale funding for the nation’s banks.
“Since these arrangements have been in place, Australian banks have issued A$85 billion of long-term debt,” the report said. Of that, some A$81 billion was issued under the guarantee.
“This compares with just A$3.5 billion of term debt that was issued in the three months to November,” the report said.
The nation’s four largest banks raised a total of A$18 billion from shareholders in the second half of 2008.
Bank Ratings
Moody’s Investors Service this month lowered its outlook on Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia and Westpac Bank to negative from stable. That was the first time Australia’s four biggest banks have had a negative outlook since the 1991 recession.
All four banks remain Aa rated by the New York-based ratings agency. Moody’s revised the outlook for National Australia Bank Ltd. to negative in August.
Today’s report also noted the U.S. government’s plan, announced this week, to support so-called public-private investment funds to purchase troubled loans and securities, has “received widespread market support.”
“Despite this, it could be some time before it is clear whether these initiatives have been sufficient to put the financial sector on the path to recovery,” the report added.
“The Australian banking system is considerably better placed to weather the current challenges than many other systems around the world,” the Reserve Bank of Australia said in its half-yearly Financial Stability Review published today in Sydney. The nation’s five largest banks, led by Westpac Banking Corp., reported an annualized post-tax return on equity in the latest half year of 15 percent, the report said. Still, the slowing economy has led to an increase in charges for bad and doubtful debts to A$5.3 billion ($3.7 billion) from A$1.4 billion a year earlier.
“Compared with other financial systems around the world, Australia looks to be a shining light,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. The Reserve Bank “has no real concern about a vulnerable or fragile banking system.”
Australia’s dollar traded at 69.96 U.S. cents at 11:43 a.m. in Sydney from 69.95 cents before the central bank’s report was released. The S&P/ASX 200 stock index gained 0.7 percent to 3,633, led by shares in exporters and banks.
“Notwithstanding this positive assessment, the banking system is facing a more difficult environment than it has for some years,” the report said.
Bad Loans
Problem loans have risen from “very low levels” and lending growth has also slowed recently, the Reserve Bank added.
The ratio of non-performing assets to total on-balance- sheets assets was about 1 percent in December, compared with 0.4 percent a year earlier, the central bank said. “This ratio is now marginally higher than that recorded in the 2001 downturn” and “well below” the 6 percent peak in the early 1990s, when the nation’s economy was last in a recession.
Housing loans that were 90 days or more in arrears accounted for 0.48 percent of outstanding loans in December, compared with 0.32 percent a year earlier.
“Looking ahead, the main downside risk to the performance of banks’ housing portfolios is from a rise in unemployment as the economy slows,” the report said.
Australia’s economy unexpectedly shrank 0.5 percent in the three months through December from the previous quarter, the first contraction in eight years, and the jobless rate rose in February to a four-year high of 5.2 percent as companies such as Macquarie Group Ltd. and BHP Billiton Ltd. cut full-time jobs.
Interest Rates
To boost the economy, central bank policy makers led by Governor Glenn Stevens have cut the benchmark lending rate by a record four percentage points since September to a 45-year low of 3.25 percent.
The cuts and government grants to first-time home buyers of as much as A$21,000 are unlikely to cause a U.S.-style subprime crisis, Anthony Richards, head of economic analysis at the Reserve Bank, said in Sydney today.
“The past year and a half has seen lending standards tighten in Australia, with a significant shrinkage in the amount of lo-doc and non-confirming lending,” Richards told a housing conference. Such loans are often compared with U.S. subprime loans.
Reductions in borrowing costs “have helped to alleviate debt-servicing pressures,” the central bank said in today’s report.
Government Guarantee
Many businesses have taken a “more conservative approach to their finances, by paying down debt and raising equity,” the report said. “This is despite the business sector, as a whole, having entered the current period of financial turmoil with its balance sheet in good shape after a number of years of solid profit growth.”
Following the collapse of Lehman Brothers Holdings Inc. in September, which deepened a global credit squeeze, Australia’s government in November provided a guarantee for wholesale funding for the nation’s banks.
“Since these arrangements have been in place, Australian banks have issued A$85 billion of long-term debt,” the report said. Of that, some A$81 billion was issued under the guarantee.
“This compares with just A$3.5 billion of term debt that was issued in the three months to November,” the report said.
The nation’s four largest banks raised a total of A$18 billion from shareholders in the second half of 2008.
Bank Ratings
Moody’s Investors Service this month lowered its outlook on Australia & New Zealand Banking Group Ltd., Commonwealth Bank of Australia and Westpac Bank to negative from stable. That was the first time Australia’s four biggest banks have had a negative outlook since the 1991 recession.
All four banks remain Aa rated by the New York-based ratings agency. Moody’s revised the outlook for National Australia Bank Ltd. to negative in August.
Today’s report also noted the U.S. government’s plan, announced this week, to support so-called public-private investment funds to purchase troubled loans and securities, has “received widespread market support.”
“Despite this, it could be some time before it is clear whether these initiatives have been sufficient to put the financial sector on the path to recovery,” the report added.
Australia Not at Risk of U.S.-Style Subprime Crisis
March 26 (Bloomberg) -- Australia’s lowest benchmark interest rate in four decades and government grants to first- time home buyers are unlikely to cause a U.S.-style subprime crisis, an official at Australia’s central bank said.
“The past year and a half has seen lending standards tighten in Australia, with a significant shrinkage in the amount of lo-doc and non-conforming lending,” Anthony Richards, head of economic analysis at the Reserve Bank, said in Sydney today. He didn’t address monetary policy.
Concerns have been raised that four percentage points of interest-rate reductions since September and government grants of as much as A$21,000 ($14,700) to first-home buyers could lead to an expansion of lending to riskier borrowers, Richards said. First-time buyers accounted for a record 26.5 percent of dwellings that were financed in January, up from 18.1 percent a year earlier, a report on March 11 showed.
“No doubt some of the loans being written now will turn sour,” Richards told the Fourth Annual Housing Congress today. “However, overall, I suspect that the risk of non-performing loans increasing to the extent seen in the U.S. is low.”
Still, potential buyers “need to carefully consider their own circumstances, including whether they would be able to continue to service their loans if mortgage rates were at some point to begin to return to more normal levels,” he added.
The Australian dollar traded at 69.86 U.S. cents at 9:15 a.m. in Sydney from 69.86 cents just before the speech was released. The two-year government bond yield was unchanged at 3.07 percent. A basis point is 0.01 percentage point.
Mortgage Payments
Reserve Bank of Australia Governor Glenn Stevens lowered the benchmark interest rate to 3.25 percent in February to help stoke an economy that unexpectedly shrank in the fourth quarter for the first time in eight years. Since September, commercial banks have reduced the rate on variable home loans by 375 basis points.
The rate reductions have saved borrowers with an average A$250,000 home loan about A$600 a month. Around 90 percent of property buyers in Australia have variable-rate mortgages.
“It is clear that monetary policy has been effective in lowering borrowing rates in the Australian economy,” Richards said.
By contrast, central banks in other countries have also cut their policy rates by at least as much as the Reserve Bank, but have typically seen much smaller reductions in the actual rates paid by households and businesses, Richards added.
Debt Burden
“The fall in borrowing rates has reduced the debt- servicing burden of the household sector by approximately 5 percent of household disposable income,” he said. “That implies a significant amount of cash flow relief, for spending on other goods and services or to save and/or pay down debt.”
Policy makers left the benchmark rate unchanged this month for the first time in six meetings, saying recent cuts are supporting the economy.
While property prices fell around 3 percent last year, most of the declines were in more expensive suburbs, which have “fallen noticeably,” Richards said. “This presumably reflects the greater exposure of people in higher-priced suburbs to financial developments.”
Richards added that auction clearance rates for Sydney and Melbourne this year have shown “a significant pickup relative to late 2008.”
Government Handouts
Government grants to first-time buyers, the central bank’s rate cuts and lower prices have led to a “significant improvement” in housing affordability for people paying mortgages or contemplating a purchase, he said.
Home-building approvals unexpectedly fell in January for a seventh month, adding to signs the economy is in its first recession since 1991. Gross domestic product shrank 0.5 percent in the fourth quarter from the previous three months.
While “home-building is likely to remain weak in the near term, there are a number of factors which should support activity over the medium term, providing stimulus to the broader economy,” Richards said.
Richards said there may be a need for about 40,000 new dwellings a year to keep rental vacancy rates at “normal levels of around 3 percent,” compared with the current rate of 1.5 percent.
“Whatever the true shortfall of dwellings, we can say with some confidence that our housing market is relatively tight,” he said. That will “‘support homebuilding in the period ahead.”
“The past year and a half has seen lending standards tighten in Australia, with a significant shrinkage in the amount of lo-doc and non-conforming lending,” Anthony Richards, head of economic analysis at the Reserve Bank, said in Sydney today. He didn’t address monetary policy.
Concerns have been raised that four percentage points of interest-rate reductions since September and government grants of as much as A$21,000 ($14,700) to first-home buyers could lead to an expansion of lending to riskier borrowers, Richards said. First-time buyers accounted for a record 26.5 percent of dwellings that were financed in January, up from 18.1 percent a year earlier, a report on March 11 showed.
“No doubt some of the loans being written now will turn sour,” Richards told the Fourth Annual Housing Congress today. “However, overall, I suspect that the risk of non-performing loans increasing to the extent seen in the U.S. is low.”
Still, potential buyers “need to carefully consider their own circumstances, including whether they would be able to continue to service their loans if mortgage rates were at some point to begin to return to more normal levels,” he added.
The Australian dollar traded at 69.86 U.S. cents at 9:15 a.m. in Sydney from 69.86 cents just before the speech was released. The two-year government bond yield was unchanged at 3.07 percent. A basis point is 0.01 percentage point.
Mortgage Payments
Reserve Bank of Australia Governor Glenn Stevens lowered the benchmark interest rate to 3.25 percent in February to help stoke an economy that unexpectedly shrank in the fourth quarter for the first time in eight years. Since September, commercial banks have reduced the rate on variable home loans by 375 basis points.
The rate reductions have saved borrowers with an average A$250,000 home loan about A$600 a month. Around 90 percent of property buyers in Australia have variable-rate mortgages.
“It is clear that monetary policy has been effective in lowering borrowing rates in the Australian economy,” Richards said.
By contrast, central banks in other countries have also cut their policy rates by at least as much as the Reserve Bank, but have typically seen much smaller reductions in the actual rates paid by households and businesses, Richards added.
Debt Burden
“The fall in borrowing rates has reduced the debt- servicing burden of the household sector by approximately 5 percent of household disposable income,” he said. “That implies a significant amount of cash flow relief, for spending on other goods and services or to save and/or pay down debt.”
Policy makers left the benchmark rate unchanged this month for the first time in six meetings, saying recent cuts are supporting the economy.
While property prices fell around 3 percent last year, most of the declines were in more expensive suburbs, which have “fallen noticeably,” Richards said. “This presumably reflects the greater exposure of people in higher-priced suburbs to financial developments.”
Richards added that auction clearance rates for Sydney and Melbourne this year have shown “a significant pickup relative to late 2008.”
Government Handouts
Government grants to first-time buyers, the central bank’s rate cuts and lower prices have led to a “significant improvement” in housing affordability for people paying mortgages or contemplating a purchase, he said.
Home-building approvals unexpectedly fell in January for a seventh month, adding to signs the economy is in its first recession since 1991. Gross domestic product shrank 0.5 percent in the fourth quarter from the previous three months.
While “home-building is likely to remain weak in the near term, there are a number of factors which should support activity over the medium term, providing stimulus to the broader economy,” Richards said.
Richards said there may be a need for about 40,000 new dwellings a year to keep rental vacancy rates at “normal levels of around 3 percent,” compared with the current rate of 1.5 percent.
“Whatever the true shortfall of dwellings, we can say with some confidence that our housing market is relatively tight,” he said. That will “‘support homebuilding in the period ahead.”
Asian Technology Stocks Advance; Healthcare, Utilities Decline
March 26 (Bloomberg) -- Asian technology and finance stocks rose on better-than-expected U.S. economic reports. Healthcare and utility shares fell, led by Japanese companies trading without rights to their latest dividends.
Sony Corp., which earns a quarter of its sales from the U.S., advanced 6.7 percent in Tokyo after U.S. durable-goods orders rose the most in more than a year. Takeda Pharmaceutical Co., Asia’s biggest drugmaker, and Tokyo Electric Power Co., Japan’s largest power company, fell more than 2 percent in Tokyo as they went ex-dividend.
“The landslide-like deterioration of the global economy has halted,” Juichi Wako, a strategist at Tokyo-based Nomura Securities Co., said in an interview with Bloomberg Television. “We’ve seen continued resilience in the market, but today there could be a pause in the rally.”
The MSCI Asia Pacific Index rose 0.3 percent to 84.57 as of 10:33 a.m. in Tokyo. The index has climbed 20 percent from a five-year low on March 9 on speculation the worst of the financial crisis is over. The rally raised average valuations of companies on the gauge to 16.4 times profit, the highest level since Dec. 27, 2007, data compiled by Bloomberg show.
Japan’s Topix Index fell 0.2 percent, the first decline in nine days. Australia’s S&P/ASX 200 Index rose 0.7 percent as the central bank said the country wasn’t at risk of a U.S.-style subprime crisis. All markets open for trading advanced except New Zealand and Malaysia.
Brokerage Upgrade
Futures on the Standard & Poor’s 500 Index climbed 0.8 percent today. The gauge gained 1 percent yesterday as government reports showed February orders for U.S. durable goods gained the most since December 2007, while sales of new homes increased last month from a record-low pace in January. Economists had expected both figures to decline.
Sony, world’s second-biggest maker of consumer electronics, climbed 6.7 percent to 2,200 yen. Merrill Lynch & Co. raised its recommendation on the stock to “buy” from “neutral,” saying the company’s reorganization would boost earnings.
Takeda dropped 2.2 percent to 3,600 yen. Tokyo Electric lost 2.7 percent to 2,520 yen. More than 2,800 Japanese companies trade without rights to a dividend today, weighing down the Nikkei by 74.23 points, according to data compiled by Bloomberg.
Sony Corp., which earns a quarter of its sales from the U.S., advanced 6.7 percent in Tokyo after U.S. durable-goods orders rose the most in more than a year. Takeda Pharmaceutical Co., Asia’s biggest drugmaker, and Tokyo Electric Power Co., Japan’s largest power company, fell more than 2 percent in Tokyo as they went ex-dividend.
“The landslide-like deterioration of the global economy has halted,” Juichi Wako, a strategist at Tokyo-based Nomura Securities Co., said in an interview with Bloomberg Television. “We’ve seen continued resilience in the market, but today there could be a pause in the rally.”
The MSCI Asia Pacific Index rose 0.3 percent to 84.57 as of 10:33 a.m. in Tokyo. The index has climbed 20 percent from a five-year low on March 9 on speculation the worst of the financial crisis is over. The rally raised average valuations of companies on the gauge to 16.4 times profit, the highest level since Dec. 27, 2007, data compiled by Bloomberg show.
Japan’s Topix Index fell 0.2 percent, the first decline in nine days. Australia’s S&P/ASX 200 Index rose 0.7 percent as the central bank said the country wasn’t at risk of a U.S.-style subprime crisis. All markets open for trading advanced except New Zealand and Malaysia.
Brokerage Upgrade
Futures on the Standard & Poor’s 500 Index climbed 0.8 percent today. The gauge gained 1 percent yesterday as government reports showed February orders for U.S. durable goods gained the most since December 2007, while sales of new homes increased last month from a record-low pace in January. Economists had expected both figures to decline.
Sony, world’s second-biggest maker of consumer electronics, climbed 6.7 percent to 2,200 yen. Merrill Lynch & Co. raised its recommendation on the stock to “buy” from “neutral,” saying the company’s reorganization would boost earnings.
Takeda dropped 2.2 percent to 3,600 yen. Tokyo Electric lost 2.7 percent to 2,520 yen. More than 2,800 Japanese companies trade without rights to a dividend today, weighing down the Nikkei by 74.23 points, according to data compiled by Bloomberg.
Tuesday, March 24, 2009
U.S. Plan Seeking Expanded Power in Seizing Firms
25 March , 2009
WASHINGTON — The Obama administration and the Federal Reserve, still smarting from the political furor over the bailout of American International Group, began a full-court press on Tuesday to expand the federal government’s power to seize control of troubled financial institutions deemed too big to fail.n his news conference on Tuesday night, President Obama said the government could have handled the A.I.G. bailout much more effectively if it had had the same power to seize large financial companies as it did to take over failed banks.
“It is precisely because of the lack of this authority that the A.I.G. situation has gotten worse,” Mr. Obama said, predicting that “there is going to be strong support from the American people and from Congress to provide that authority.”
Earlier on Tuesday, the Treasury secretary, Timothy F. Geithner, offered a proposal that would allow the government to take control, restructure and possibly close any kind of financial institution that was in trouble and big enough to destabilize the broader financial system.
The federal government has long had the power to take over and close banks and other deposit-taking institutions whose deposits are insured by the government and subject to detailed regulation.
But the Obama administration and the Fed would extend that authority to insurance companies like A.I.G., investment banks, hedge funds, private equity firms and any other kind of financial institution considered “systemically” important. That would let the government for the first time take control of private equity firms like Carlyle or industrial finance giants like GE Capital should they falter.
The Treasury and the Fed each sent their own proposals to the House Financial Services Committee on Tuesday, and President Obama has asked Congressional leaders to put the legislation on a fast track. House Democrats said they planned to act quickly and hoped to bring a bill to the House floor within the next several weeks.
If Congress approves such a measure, it would represent one of the biggest permanent expansions of federal regulatory power in decades. But scores of questions remained on Tuesday about how the authority would actually work, and industry experts cautioned that it would only be one step in a broad overhaul of financial regulation that President Obama and Congress were beginning to map out.
Mr. Geithner, testifying before the House Financial Services Committee, said the government could have grappled more effectively with A.I.G. — an insurance conglomerate over which neither the Fed nor any other federal bank regulator had much authority — if the Treasury had already had broader authority to “resolve” troubled institutions.“As we have seen with A.I.G., distress at large, interconnected, nondepository financial institutions can pose systemic risks just as the distress at banks can,” Mr. Geithner told lawmakers. “We will do what is necessary to stabilize the financial system, and with the help of Congress, develop the tools that we need to make our economy more resilient.”
Ben S. Bernanke, chairman of the Federal Reserve, said that such powers would have allowed the government to scale back A.I.G.’s contracts to pay outsize bonuses and perhaps negotiate lower payments to the domestic and foreign banks that were among its creditors.
“If a federal agency had had such tools on Sept. 16, they could have been used to put A.I.G. into conservatorship, unwind it slowly, protect policyholders and impose haircuts on creditors and counterparties,” Mr. Bernanke told lawmakers.
But even as they made their case, administration officials left many of the big questions unanswered. Among them: what kinds of companies are “systemically important” and how does that get decided? What should be the government’s ultimate goal — to wind down the troubled company as quickly and smoothly as possible, or to rehabilitate it and return it to health?
Under Mr. Geithner’s plan, the decision-making power would lie primarily with Treasury and the F.D.I.C., though the Treasury would have to consult with the White House and the Fed.
But that idea could clash with plans to create a new, overarching “risk regulator” that would be responsible for monitoring risk across the financial system. Some lawmakers have proposed that the Fed, which is already at the heart of the financial system, should play that role.
Other experts say the F.D.I.C. would be a more logical choice, taking advantage of its experience in taking over smaller banks. Supporters of this approach are concerned that the Fed will be overburdened with its regulatory duties and note that the Fed failed for years to exercise its authority to regulate dangerous mortgage practices.
Jamie Dimon, the chief executive of JPMorgan Chase and an outspoken supporter for creating a systemic risk regulator, said it was hard to expand the government’s authority to seize troubled financial companies without also dealing with the regulatory issues. “You can’t take care of your heart and not your lungs,” he said in a telephone interview on Tuesday. “You need someone to look behind the corners and to say something like, ‘this company is too big or too risky.’ ”
Mr. Dimon said that giving the government this power would have provided a process for dealing with failing institutions like Lehman Brothers, Bear Stearns, Wachovia and A.I.G.
“You don’t want too big to fail,” he said. “You want a resolution process where the process doesn’t damage the whole system.”
Representative Barney Frank, chairman of the House Financial Services Committee, plans to start drafting a bill in the next several days.
Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, said Congress might consider putting the oversight authority in the hands of a task force, rather than consolidating it at the Fed.
Mr. Dodd talked of establishing a council that includes the Fed, the F.D.I.C. and the Office of Comptroller of the Currency to avoid giving too much power to a single agency. “I for one would be sort of intrigued in looking at alternative ideas,” Mr. Dodd said.
On Thursday, Mr. Geithner plans to outline his broader plan for overhauling the financial regulatory system.
On Friday, President Obama plans to meet at the White House with top executives from many of the nation’s largest financial institutions to discuss his financial stabilization effort.
Administration officials have said their regulatory plan will create a broad role for the Fed as the lead risk regulator.
The administration is also expected to propose tighter regulation for derivative financial products, like the credit-default swaps that caused most of A.I.G.’s problems, and to require that such instruments be traded in a more transparent manner on exchanges or through clearinghouses.
Mr. Geithner made it clear on Tuesday that he would be pushing for tighter oversight of executive compensation, in part to make sure that financial incentives did not encourage reckless financial practices.
WASHINGTON — The Obama administration and the Federal Reserve, still smarting from the political furor over the bailout of American International Group, began a full-court press on Tuesday to expand the federal government’s power to seize control of troubled financial institutions deemed too big to fail.n his news conference on Tuesday night, President Obama said the government could have handled the A.I.G. bailout much more effectively if it had had the same power to seize large financial companies as it did to take over failed banks.
“It is precisely because of the lack of this authority that the A.I.G. situation has gotten worse,” Mr. Obama said, predicting that “there is going to be strong support from the American people and from Congress to provide that authority.”
Earlier on Tuesday, the Treasury secretary, Timothy F. Geithner, offered a proposal that would allow the government to take control, restructure and possibly close any kind of financial institution that was in trouble and big enough to destabilize the broader financial system.
The federal government has long had the power to take over and close banks and other deposit-taking institutions whose deposits are insured by the government and subject to detailed regulation.
But the Obama administration and the Fed would extend that authority to insurance companies like A.I.G., investment banks, hedge funds, private equity firms and any other kind of financial institution considered “systemically” important. That would let the government for the first time take control of private equity firms like Carlyle or industrial finance giants like GE Capital should they falter.
The Treasury and the Fed each sent their own proposals to the House Financial Services Committee on Tuesday, and President Obama has asked Congressional leaders to put the legislation on a fast track. House Democrats said they planned to act quickly and hoped to bring a bill to the House floor within the next several weeks.
If Congress approves such a measure, it would represent one of the biggest permanent expansions of federal regulatory power in decades. But scores of questions remained on Tuesday about how the authority would actually work, and industry experts cautioned that it would only be one step in a broad overhaul of financial regulation that President Obama and Congress were beginning to map out.
Mr. Geithner, testifying before the House Financial Services Committee, said the government could have grappled more effectively with A.I.G. — an insurance conglomerate over which neither the Fed nor any other federal bank regulator had much authority — if the Treasury had already had broader authority to “resolve” troubled institutions.“As we have seen with A.I.G., distress at large, interconnected, nondepository financial institutions can pose systemic risks just as the distress at banks can,” Mr. Geithner told lawmakers. “We will do what is necessary to stabilize the financial system, and with the help of Congress, develop the tools that we need to make our economy more resilient.”
Ben S. Bernanke, chairman of the Federal Reserve, said that such powers would have allowed the government to scale back A.I.G.’s contracts to pay outsize bonuses and perhaps negotiate lower payments to the domestic and foreign banks that were among its creditors.
“If a federal agency had had such tools on Sept. 16, they could have been used to put A.I.G. into conservatorship, unwind it slowly, protect policyholders and impose haircuts on creditors and counterparties,” Mr. Bernanke told lawmakers.
But even as they made their case, administration officials left many of the big questions unanswered. Among them: what kinds of companies are “systemically important” and how does that get decided? What should be the government’s ultimate goal — to wind down the troubled company as quickly and smoothly as possible, or to rehabilitate it and return it to health?
Under Mr. Geithner’s plan, the decision-making power would lie primarily with Treasury and the F.D.I.C., though the Treasury would have to consult with the White House and the Fed.
But that idea could clash with plans to create a new, overarching “risk regulator” that would be responsible for monitoring risk across the financial system. Some lawmakers have proposed that the Fed, which is already at the heart of the financial system, should play that role.
Other experts say the F.D.I.C. would be a more logical choice, taking advantage of its experience in taking over smaller banks. Supporters of this approach are concerned that the Fed will be overburdened with its regulatory duties and note that the Fed failed for years to exercise its authority to regulate dangerous mortgage practices.
Jamie Dimon, the chief executive of JPMorgan Chase and an outspoken supporter for creating a systemic risk regulator, said it was hard to expand the government’s authority to seize troubled financial companies without also dealing with the regulatory issues. “You can’t take care of your heart and not your lungs,” he said in a telephone interview on Tuesday. “You need someone to look behind the corners and to say something like, ‘this company is too big or too risky.’ ”
Mr. Dimon said that giving the government this power would have provided a process for dealing with failing institutions like Lehman Brothers, Bear Stearns, Wachovia and A.I.G.
“You don’t want too big to fail,” he said. “You want a resolution process where the process doesn’t damage the whole system.”
Representative Barney Frank, chairman of the House Financial Services Committee, plans to start drafting a bill in the next several days.
Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, said Congress might consider putting the oversight authority in the hands of a task force, rather than consolidating it at the Fed.
Mr. Dodd talked of establishing a council that includes the Fed, the F.D.I.C. and the Office of Comptroller of the Currency to avoid giving too much power to a single agency. “I for one would be sort of intrigued in looking at alternative ideas,” Mr. Dodd said.
On Thursday, Mr. Geithner plans to outline his broader plan for overhauling the financial regulatory system.
On Friday, President Obama plans to meet at the White House with top executives from many of the nation’s largest financial institutions to discuss his financial stabilization effort.
Administration officials have said their regulatory plan will create a broad role for the Fed as the lead risk regulator.
The administration is also expected to propose tighter regulation for derivative financial products, like the credit-default swaps that caused most of A.I.G.’s problems, and to require that such instruments be traded in a more transparent manner on exchanges or through clearinghouses.
Mr. Geithner made it clear on Tuesday that he would be pushing for tighter oversight of executive compensation, in part to make sure that financial incentives did not encourage reckless financial practices.
HSBC Said to Plan 1,000 U.K. Job Cuts, Consider Closing Offices
March 25 (Bloomberg) -- HSBC Holdings Plc, Europe’s biggest bank by market value, may cut about 1,000 jobs in the U.K., according to a person familiar with the situation.
The jobs will be eliminated in processing and operations, and some administration sites may be closed, said the person, who declined to be identified because the information is confidential. London-based HSBC employs about 58,000 people in the U.K. and 330,000 worldwide.
“HSBC, like all banks, must be thinking it’s going to be a tough year and they are looking to make savings,” said Leigh Goodwin, an analyst at Fox-Pitt Kelton Ltd. in London who has an “underperform” rating on the stock. “The bank has always been cost conscious.”
HSBC is raising 12.5 billion pounds ($18.4 billion) in the U.K.’s biggest rights offering to boost its capital and fund expansion in emerging markets. The company eliminated about 500 jobs in the U.K. in November and 1,100 positions at its global banking and markets unit in September. Barclays Plc, the U.K.’s third-largest bank, has shed more than 4,500 jobs this year.
An HSBC spokesman declined to comment, saying the bank would never discuss job cuts without first discussing the matter with employees.
HSBC, unlike rivals Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, hasn’t needed a capital injection from the government and its share offering is fully underwritten.
The jobs will be eliminated in processing and operations, and some administration sites may be closed, said the person, who declined to be identified because the information is confidential. London-based HSBC employs about 58,000 people in the U.K. and 330,000 worldwide.
“HSBC, like all banks, must be thinking it’s going to be a tough year and they are looking to make savings,” said Leigh Goodwin, an analyst at Fox-Pitt Kelton Ltd. in London who has an “underperform” rating on the stock. “The bank has always been cost conscious.”
HSBC is raising 12.5 billion pounds ($18.4 billion) in the U.K.’s biggest rights offering to boost its capital and fund expansion in emerging markets. The company eliminated about 500 jobs in the U.K. in November and 1,100 positions at its global banking and markets unit in September. Barclays Plc, the U.K.’s third-largest bank, has shed more than 4,500 jobs this year.
An HSBC spokesman declined to comment, saying the bank would never discuss job cuts without first discussing the matter with employees.
HSBC, unlike rivals Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc, hasn’t needed a capital injection from the government and its share offering is fully underwritten.
Japan Exports Drop Record 49% as Global Slump Deepens
March 25 (Bloomberg) -- Japan’s exports plunged a record 49.4 percent in February as deepening recessions in the U.S. and Europe sapped demand for the country’s cars and electronics.
Shipments to the U.S., the country’s biggest market, tumbled an unprecedented 58.4 percent from a year earlier, the Finance Ministry said today in Tokyo. Automobile exports tumbled 70.9 percent.
The collapse signals gross domestic product may shrink this quarter at a similar pace to the annualized 12.1 percent contraction posted in the previous three months, the sharpest since 1974. Prime Minister Taro Aso is compiling his third stimulus package as companies from Toyota Motor Corp. to Panasonic Corp. fire thousands of workers.
“There’s a still of lot of weakness out there; that’s going to be a big drag on production and most people are looking for the first-quarter GDP to be as bad as the previous quarter,” said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “Japan is as dependent on exports as anybody.”
The Nikkei 225 Stock Average slipped 0.7 percent at the morning close in Tokyo. Panasonic and Sony Corp., the world’s biggest consumer electronics makers, led the declines.
The yen traded at 97.83 per dollar from 98.25 before the report. The currency has weakened 7.3 percent this year, offering some relief to exporters whose profits were eroded by its 23 percent gain in 2008.
Sharpest Since 1980
Last month’s drop in exports was the sharpest since at least 1980, when the government started to keep comparable data. Economists predicted a 47.6 percent decline.
Toyota, forecasting its first net loss in 59 years, yesterday said overseas shipments plunged 69 percent in February.
Demand fell across all regions. Exports to Europe dropped a record 54.7 percent, shipments to Asia declined 46.3 percent and goods sent to China slumped 39.7 percent.
Imports fell a record 43 percent, helping Japan post its first trade surplus in five months. The 82.4 billion yen ($842 million) surplus was still 91.2 percent lower than the same month a year earlier.
Sentiment among Japan’s largest manufacturers probably fell to a 33-year low this month, economists predict the Bank of Japan’s Tankan survey will show next week.
World leaders from the Group of 20 economies will meet in London on April 2 to forge a common response to the financial crisis that spawned the global recession. Japan is siding with the U.S. in urging more fiscal stimulus, while European governments favor stricter rules for financial markets.
Worst Recession
Finance Minister Kaoru Yosano said on March 22 that a new stimulus package of as much as 20 trillion yen, double the amount pledged since October, is “not out of line” as the world’s second-biggest economy heads for its worst recession since 1945. The spending would add to public debt already estimated at 170 percent of gross domestic product.
“There’s been a structural shock to the manufacturing sector,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “Yes, the government can create demand temporarily, but that can’t fill the export gap forever.”
Japan has become more reliant on exports in the past decade, making it especially vulnerable to changes in global commerce, which the World Trade Organization forecasts will shrink 9 percent this year, the most since World War II. During Japan’s expansion of 2002 to 2007, exports as a portion of GDP rose to 15.6 percent from 10.4 percent.
Fared Worse
Asia’s largest economy fared worse last month than its neighbors. Exports from South Korea fell 17.1 percent, about half the pace of the decline in the previous month. Taiwan’s shipments slid 28.6 percent after dropping a record 44.1 percent in January.
“The fact that these other countries are doing a little better might give Japan some encouragement that world demand is bottoming out,” said Action Economics’ Cohen. “It should only be a matter of time before Japan shows the same stabilization.”
There are signs that China, Japan’s second-largest overseas market, is stabilizing. The World Bank said last week that government spending on roads, power grids and housing is “working” to take up the slack left by plunging exports.
“For some sectors like the chemical and raw-material industries, they’re seeing some rebound in demand coming from China,” said BNP’s Shiraishi. “Basically, demand for key industries -- transportation machinery, electronics, general machinery -- those aren’t recovering.”
Shipments to the U.S., the country’s biggest market, tumbled an unprecedented 58.4 percent from a year earlier, the Finance Ministry said today in Tokyo. Automobile exports tumbled 70.9 percent.
The collapse signals gross domestic product may shrink this quarter at a similar pace to the annualized 12.1 percent contraction posted in the previous three months, the sharpest since 1974. Prime Minister Taro Aso is compiling his third stimulus package as companies from Toyota Motor Corp. to Panasonic Corp. fire thousands of workers.
“There’s a still of lot of weakness out there; that’s going to be a big drag on production and most people are looking for the first-quarter GDP to be as bad as the previous quarter,” said David Cohen, director of Asian economic forecasting at Action Economics in Singapore. “Japan is as dependent on exports as anybody.”
The Nikkei 225 Stock Average slipped 0.7 percent at the morning close in Tokyo. Panasonic and Sony Corp., the world’s biggest consumer electronics makers, led the declines.
The yen traded at 97.83 per dollar from 98.25 before the report. The currency has weakened 7.3 percent this year, offering some relief to exporters whose profits were eroded by its 23 percent gain in 2008.
Sharpest Since 1980
Last month’s drop in exports was the sharpest since at least 1980, when the government started to keep comparable data. Economists predicted a 47.6 percent decline.
Toyota, forecasting its first net loss in 59 years, yesterday said overseas shipments plunged 69 percent in February.
Demand fell across all regions. Exports to Europe dropped a record 54.7 percent, shipments to Asia declined 46.3 percent and goods sent to China slumped 39.7 percent.
Imports fell a record 43 percent, helping Japan post its first trade surplus in five months. The 82.4 billion yen ($842 million) surplus was still 91.2 percent lower than the same month a year earlier.
Sentiment among Japan’s largest manufacturers probably fell to a 33-year low this month, economists predict the Bank of Japan’s Tankan survey will show next week.
World leaders from the Group of 20 economies will meet in London on April 2 to forge a common response to the financial crisis that spawned the global recession. Japan is siding with the U.S. in urging more fiscal stimulus, while European governments favor stricter rules for financial markets.
Worst Recession
Finance Minister Kaoru Yosano said on March 22 that a new stimulus package of as much as 20 trillion yen, double the amount pledged since October, is “not out of line” as the world’s second-biggest economy heads for its worst recession since 1945. The spending would add to public debt already estimated at 170 percent of gross domestic product.
“There’s been a structural shock to the manufacturing sector,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “Yes, the government can create demand temporarily, but that can’t fill the export gap forever.”
Japan has become more reliant on exports in the past decade, making it especially vulnerable to changes in global commerce, which the World Trade Organization forecasts will shrink 9 percent this year, the most since World War II. During Japan’s expansion of 2002 to 2007, exports as a portion of GDP rose to 15.6 percent from 10.4 percent.
Fared Worse
Asia’s largest economy fared worse last month than its neighbors. Exports from South Korea fell 17.1 percent, about half the pace of the decline in the previous month. Taiwan’s shipments slid 28.6 percent after dropping a record 44.1 percent in January.
“The fact that these other countries are doing a little better might give Japan some encouragement that world demand is bottoming out,” said Action Economics’ Cohen. “It should only be a matter of time before Japan shows the same stabilization.”
There are signs that China, Japan’s second-largest overseas market, is stabilizing. The World Bank said last week that government spending on roads, power grids and housing is “working” to take up the slack left by plunging exports.
“For some sectors like the chemical and raw-material industries, they’re seeing some rebound in demand coming from China,” said BNP’s Shiraishi. “Basically, demand for key industries -- transportation machinery, electronics, general machinery -- those aren’t recovering.”
Monday, March 23, 2009
Bond Default Risk Plunges on $1 Trillion U.S. Toxic Asset Plans
March 24 (Bloomberg) -- The cost of protecting Asia-Pacific bonds from default plunged after the Obama administration announced a $1 trillion plan to help remove toxic assets from U.S. banks’ balance sheets.
The Markit iTraxx Japan index of credit-default swaps dropped 40 basis points to 367, the biggest one-day fall since Dec. 12, Credit Suisse Group AG prices show. The Markit iTraxx Australia index fell 15 basis points to 355 as of 11:55 a.m. in Sydney, Citigroup Inc. data show.
The Treasury, Federal Reserve and Federal Deposit Insurance Corp. will provide private investors with financing to buy illiquid loans and securities held by banks, the Treasury said yesterday. The Public-Private Investment Program will use up to $100 billion from the $700 billion Troubled Asset Relief Program enacted last year, giving the government “purchasing power” of $500 billion, which may double over time, the Treasury said.
The new program “should support asset values and liquidity,” Deutsche Bank AG Sydney-based analysts Gus Medeiros, Colin Tan and Ken Crompton said in a note to clients today. The new mechanism for asset purchases removes some uncertainty and “may prevent banks from hoarding assets to avoid writedowns.”
U.S. stocks rallied, capping the market’s steepest two-week gain since 1938, as investors speculated the plan will spur growth and revive lending without the government being forced to nationalize banks. Asian stocks rose today as South Korea said it will spend a record $13 billion on cash handouts, cheap loans, new infrastructure and job training to counter what may be the nation’s first recession in more than a decade.
Korea, Macquarie
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan was 10 basis points lower at 360 as of 9:10 a.m. in Singapore, Barclays Capital data show. The cost to protect South Korean government debt from default for five years fell 10 basis points to 350.
Contracts on the senior debt of Macquarie Group Ltd., Australia’s largest investment bank, fell 50 basis points to 700, according to Citigroup. That’s the swaps’ biggest one-day decline since Jan. 2, according to CMA DataVision prices.
The Markit CDX North America Investment-Grade index of 125 companies in the U.S. and Canada declined 13 basis points to 185 yesterday, according to CMA DataVision.
Credit-default swap indexes are benchmarks for protecting bonds against default, and traders use them to speculate on changes in credit quality. An increase in the price suggests deteriorating investor perceptions of credit quality and a decrease indicates improvement.
The contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt.
The Markit iTraxx Japan index of credit-default swaps dropped 40 basis points to 367, the biggest one-day fall since Dec. 12, Credit Suisse Group AG prices show. The Markit iTraxx Australia index fell 15 basis points to 355 as of 11:55 a.m. in Sydney, Citigroup Inc. data show.
The Treasury, Federal Reserve and Federal Deposit Insurance Corp. will provide private investors with financing to buy illiquid loans and securities held by banks, the Treasury said yesterday. The Public-Private Investment Program will use up to $100 billion from the $700 billion Troubled Asset Relief Program enacted last year, giving the government “purchasing power” of $500 billion, which may double over time, the Treasury said.
The new program “should support asset values and liquidity,” Deutsche Bank AG Sydney-based analysts Gus Medeiros, Colin Tan and Ken Crompton said in a note to clients today. The new mechanism for asset purchases removes some uncertainty and “may prevent banks from hoarding assets to avoid writedowns.”
U.S. stocks rallied, capping the market’s steepest two-week gain since 1938, as investors speculated the plan will spur growth and revive lending without the government being forced to nationalize banks. Asian stocks rose today as South Korea said it will spend a record $13 billion on cash handouts, cheap loans, new infrastructure and job training to counter what may be the nation’s first recession in more than a decade.
Korea, Macquarie
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan was 10 basis points lower at 360 as of 9:10 a.m. in Singapore, Barclays Capital data show. The cost to protect South Korean government debt from default for five years fell 10 basis points to 350.
Contracts on the senior debt of Macquarie Group Ltd., Australia’s largest investment bank, fell 50 basis points to 700, according to Citigroup. That’s the swaps’ biggest one-day decline since Jan. 2, according to CMA DataVision prices.
The Markit CDX North America Investment-Grade index of 125 companies in the U.S. and Canada declined 13 basis points to 185 yesterday, according to CMA DataVision.
Credit-default swap indexes are benchmarks for protecting bonds against default, and traders use them to speculate on changes in credit quality. An increase in the price suggests deteriorating investor perceptions of credit quality and a decrease indicates improvement.
The contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements. A basis point, or 0.01 percentage point, is worth $1,000 on a swap that protects $10 million of debt.
Banking Plan Propels Wall St. to Best Day in Months
Details of the government’s plans to clean up the nation’s banks ignited a blazing stock market rally on Monday, lifting Wall Street to its best one-day performance in five months and tempting some investors to imagine what they would not have dared just a few weeks ago — that the worst may finally be over.
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The Dow surged nearly 500 points, and the Standard & Poor’s 500-stock index rose more than 7 percent, in what amounted to a rare cheer from Wall Street for the Obamaadministration and Treasury Secretary Timothy F. Geithner.
“This is what the markets wanted,” said David Bianco, chief United States equity strategist at UBS.
In the last two weeks, glimmers of hope for a recovery in the financial industry have pushed the Dow up 19 percent and the S.& P. 500 up 21.5 percent from their bear market lows, the steepest such rally in stocks since 1938.
Just last month, major stock markets spiraled to a 12-year low after the administration delivered a rough outline of a public-private partnership to shore up the major banks — with little substance or detail.
But on Monday morning, as the Treasury Department filled in the blanks of a $500 billion to $1 trillion plan to buy up troubled assets, investors started buying early in Europe and did not stop until the closing bell rang on Wall Street. The Dow gained 497.48 points, or 6.84 percent, to close at 7,775.86, while the S.& P. 500 was up 54.38 points, to 822.92. The Nasdaq closed 6.8 percent higher, at 1,555.77.
The rally was cemented by signs of a possible uptick in the housing market. The National Association of Realtors said existing-home sales rose 5.1 percent in February as buyers scooped up foreclosed homes.
“The areas that fall the fastest are going to recover,” said Guy Cecala, publisher of Inside Mortgage Finance. “There’s going to be a floor established. Seven hundred thousand dollar houses are $250,000 — that’s what’s bringing people back into the markets.”
In New York, the S.& P. financial index surged 18 percent, propelling an updraft that lifted every sector of the stock market. Banks like Wells Fargo and Bank of America, which could participate in the program, each rose more than 20 percent. Citigroup, whose stock fell below $1 two weeks ago, closed at $3.13.
The government is betting its plan will loosen credit markets and restore normal lending conditions by allowing banks to deleverage billions of dollars in mortgage-related debt sitting on their balance sheets. The program would be financed using capital from private investors like hedge funds, and about $75 billion to $100 billion from the $700 billion financial bailout. The Federal Deposit Insurance Corporation — which guarantees the bank accounts of individuals — would provide most of the financing.
“This is the free-money rally,” said Barry Ritholtz, chief executive of Fusion IQ, an investment and research firm. “Traders like the fact that there’s a boatload of cash headed their way.”
The Financial Services Roundtable, a leading financial services lobby, threw its weight behind the Treasury’s plans on Monday morning, saying that the purchase program would keep the troubled assets from bogging down big banks and preventing a recovery in banking and the broader financial system.
Mark Mobius, the chairman of Templeton Asset Management, said in an interview with Bloomberg Television that a bull market rally was under way. Other analysts have declared that a punishing slide from Dow 14,000 had finally ended, and that the markets had found a floor.
“Have we bottomed out?” said James W. Paulsen, chief investment strategist at Wells Capital Management. “I think so.”
But others are being much more cautious. The global economy is shrinking fast, the United States is still losing 600,000 jobs every month, and the rally that lifted the S.& P. 500 24 percent from November to early January fell apart.
Analysts warn that the recent gains could collapse just as quickly if the administration’s asset purchase program hits a snag or housing deteriorates further.
Underscoring those weaknesses, bond investors are forcing financial companies to pay more to borrow money, expanding the difference between financial bond rates and Treasury rates to 8.5 percent.
The report showing a jump in sales of previously owned homes fed hopes that housing was finally scraping bottom, at least in the West and other parts of the country hit badly by the housing bust. Economists and real estate experts said the hardest hit parts of the country, like California, Nevada and Arizona, were starting to emerge from the worst of the housing crisis.
But economists said that, despite the increase, a wave of new foreclosures was likely to hit the housing market as people without jobs used up their savings and defaulted on their mortgages. Markets like New York or Washington, where prices have not tumbled so sharply, will probably face more stagnant sales and sliding prices in the months ahead.
“We’re in for a really difficult 2009,” said Lance Martin, a real estate broker in Southern California’s hard-hit Inland Empire — mainly Riverside and San Bernardino counties.
The Treasury’s 10-year note fell 6/32, to 100 27/32. The yield, which moves in the opposite direction from the price, rose to 2.65 percent, from 2.63 percent late Friday.
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The Dow surged nearly 500 points, and the Standard & Poor’s 500-stock index rose more than 7 percent, in what amounted to a rare cheer from Wall Street for the Obamaadministration and Treasury Secretary Timothy F. Geithner.
“This is what the markets wanted,” said David Bianco, chief United States equity strategist at UBS.
In the last two weeks, glimmers of hope for a recovery in the financial industry have pushed the Dow up 19 percent and the S.& P. 500 up 21.5 percent from their bear market lows, the steepest such rally in stocks since 1938.
Just last month, major stock markets spiraled to a 12-year low after the administration delivered a rough outline of a public-private partnership to shore up the major banks — with little substance or detail.
But on Monday morning, as the Treasury Department filled in the blanks of a $500 billion to $1 trillion plan to buy up troubled assets, investors started buying early in Europe and did not stop until the closing bell rang on Wall Street. The Dow gained 497.48 points, or 6.84 percent, to close at 7,775.86, while the S.& P. 500 was up 54.38 points, to 822.92. The Nasdaq closed 6.8 percent higher, at 1,555.77.
The rally was cemented by signs of a possible uptick in the housing market. The National Association of Realtors said existing-home sales rose 5.1 percent in February as buyers scooped up foreclosed homes.
“The areas that fall the fastest are going to recover,” said Guy Cecala, publisher of Inside Mortgage Finance. “There’s going to be a floor established. Seven hundred thousand dollar houses are $250,000 — that’s what’s bringing people back into the markets.”
In New York, the S.& P. financial index surged 18 percent, propelling an updraft that lifted every sector of the stock market. Banks like Wells Fargo and Bank of America, which could participate in the program, each rose more than 20 percent. Citigroup, whose stock fell below $1 two weeks ago, closed at $3.13.
The government is betting its plan will loosen credit markets and restore normal lending conditions by allowing banks to deleverage billions of dollars in mortgage-related debt sitting on their balance sheets. The program would be financed using capital from private investors like hedge funds, and about $75 billion to $100 billion from the $700 billion financial bailout. The Federal Deposit Insurance Corporation — which guarantees the bank accounts of individuals — would provide most of the financing.
“This is the free-money rally,” said Barry Ritholtz, chief executive of Fusion IQ, an investment and research firm. “Traders like the fact that there’s a boatload of cash headed their way.”
The Financial Services Roundtable, a leading financial services lobby, threw its weight behind the Treasury’s plans on Monday morning, saying that the purchase program would keep the troubled assets from bogging down big banks and preventing a recovery in banking and the broader financial system.
Mark Mobius, the chairman of Templeton Asset Management, said in an interview with Bloomberg Television that a bull market rally was under way. Other analysts have declared that a punishing slide from Dow 14,000 had finally ended, and that the markets had found a floor.
“Have we bottomed out?” said James W. Paulsen, chief investment strategist at Wells Capital Management. “I think so.”
But others are being much more cautious. The global economy is shrinking fast, the United States is still losing 600,000 jobs every month, and the rally that lifted the S.& P. 500 24 percent from November to early January fell apart.
Analysts warn that the recent gains could collapse just as quickly if the administration’s asset purchase program hits a snag or housing deteriorates further.
Underscoring those weaknesses, bond investors are forcing financial companies to pay more to borrow money, expanding the difference between financial bond rates and Treasury rates to 8.5 percent.
The report showing a jump in sales of previously owned homes fed hopes that housing was finally scraping bottom, at least in the West and other parts of the country hit badly by the housing bust. Economists and real estate experts said the hardest hit parts of the country, like California, Nevada and Arizona, were starting to emerge from the worst of the housing crisis.
But economists said that, despite the increase, a wave of new foreclosures was likely to hit the housing market as people without jobs used up their savings and defaulted on their mortgages. Markets like New York or Washington, where prices have not tumbled so sharply, will probably face more stagnant sales and sliding prices in the months ahead.
“We’re in for a really difficult 2009,” said Lance Martin, a real estate broker in Southern California’s hard-hit Inland Empire — mainly Riverside and San Bernardino counties.
The Treasury’s 10-year note fell 6/32, to 100 27/32. The yield, which moves in the opposite direction from the price, rose to 2.65 percent, from 2.63 percent late Friday.
Satyam to Select Winning Bidder by April 15, Business Line Says
March 24 (Bloomberg) -- Satyam Computer Services Ltd. may select the winning bidder for a 51 percent stake by April 15, The Hindu Business Line newspaper reported today, citing an unidentified person involved in the process.
Offers from the short-listed suitors will be due around April 9, the newspaper reported. Hari Thalapalli, Satyam’s head of marketing, didn’t answer calls to his mobile phones.
Satyam’s government-appointed board is pushing ahead with the sale before restating accounts and while facing U.S. lawsuits after former chairman Ramalinga Raju said Jan. 7 he had falsified accounts by more than $1 billion.
Offers from the short-listed suitors will be due around April 9, the newspaper reported. Hari Thalapalli, Satyam’s head of marketing, didn’t answer calls to his mobile phones.
Satyam’s government-appointed board is pushing ahead with the sale before restating accounts and while facing U.S. lawsuits after former chairman Ramalinga Raju said Jan. 7 he had falsified accounts by more than $1 billion.
Asian Stocks Extend Global Rally on U.S. Treasury’s Bank Plan
March 24 (Bloomberg) -- Asian stocks rose, extending a rally that has driven the MSCI World Index to a five-week high, on optimism the U.S. Treasury’s plan to remove banks’ toxic assets will revive economic growth.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, surged 3.9 percent after the U.S. said it will finance as much as $1 trillion in purchases of banks’ distressed assets. BHP Billiton Ltd., Australia’s largest oil producer, added 2.2 percent after oil prices rose. Toyota Motor Corp., which gets 37 percent of sales from North America, gained 3.6 percent in Tokyo after the yen weakened against the dollar.
“Investors are riding a tide of euphoria over the U.S. plan,” Mamoru Shimode, chief equity strategist at Resona Trust & Banking Co. said in an interview with Bloomberg Television. “Whether $1 trillion will suffice or there will be willing sellers remains to be seen.”
The MSCI Asia Pacific Index advanced 1.6 percent to 83.52 at 11:17 a.m. in Tokyo, adding to a 3.4 percent gain yesterday. The gauge has rallied 18 percent from a five-year low on March 9 amid speculation the worst of the financial crisis is over. The MSCI World rose 0.6 percent to 834.86, the highest since Feb. 13.
Hong Kong’s Hang Seng Index climbed 1.7 percent, taking its gains since March 9 to 21 percent. Gains of more than 20 percent indicate stocks have entered a bull market. Japan’s Nikkei 225 Stock Average climbed 2.1 percent. All markets advanced.
Futures on the U.S. Standard & Poor’s 500 Index lost 0.4 percent today. The gauge soared 7.1 percent in New York, the biggest advance since Oct. 28 and narrowing this year’s loss to 8.9 percent. Europe’s Dow Jones Stoxx 600 Index gained 3 percent to the highest close since Feb. 19.
Purchasing Power
Macquarie Countrywide Trust, an Australian real estate investment trust, rallied 12 percent after saying it had sold five properties. Nippon Steel Corp. and JFE Holdings Inc., Japan’s two largest mills, added at least 3 percent after winning price cuts for hard coking coal.
The Treasury, Federal Reserve and Federal Deposit Insurance Corp. will provide private investors with financing to buy illiquid loans and securities held by banks, the Treasury said yesterday. The Public-Private Investment Program will use up to $100 billion from the $700 billion Troubled Asset Relief Program enacted last year, giving the government “purchasing power” of $500 billion, which may double over time, the Treasury said.
The proposal was the latest government response to the financial crisis that has hampered bank lending and dragged the global economy into what the World Bank estimates will be the first contraction in more than six decades.
Finance Stocks Rally
The Fed pledged on March 18 to buy as much as $300 billion of Treasuries and stepped up purchases of mortgage bonds to bring down borrowing costs. The Bank of Japan said earlier the same day that it will raise the amount of government debt it buys from banks each month.
Mitsubishi UFJ surged 3.9 percent to 532 yen. Mizuho Financial Group Inc., Japan’s second-largest publicly traded bank, rose 4.1 percent to 229 yen.
The Bank of Japan will brief executives of 14 major banks today on its plans to provide subordinated loans to help them bolster capital, Nikkei English News reported, without saying where it obtained the information.
An index of finance stocks on the MSCI Asia Pacific Index climbed 2.1 percent. The sub-index is the worst performer among the broader gauge’s 10 industry groups in the past 12 months, as credit losses worldwide swelled to more than $1.2 trillion.
Oil Prices Surge
Commonwealth Bank of Australia, the nation’s largest mortgage lender, climbed 2.1 percent to A$35.82 in Sydney. KB Financial Group Inc., which controls South Korea’s largest bank, gained 4.8 percent to 35,100 won.
BHP added 2.2 percent to A$34.06. Woodside Petroleum Ltd., Australia’s second-largest oil producer, climbed 4.2 percent to A$40.06. In New York, crude-oil futures jumped 3.3 percent to $53.80 a barrel yesterday, the highest settlement since Nov. 28.
Toyota gained 3.6 percent to 3,160 yen, and Canon Inc., the world’s largest camera maker, rose 4.2 percent to 2,875 yen after the Japanese currency depreciated against the dollar to as much as 97.35 from 96.18 at the 3 p.m. close of stock trading in Tokyo yesterday. A weaker local currency boosts the value of overseas sales for Japanese companies.
Macquarie Countrywide Trust, an Australian real estate investment trust, rallied 12 percent to 23.5 Australian cents after saying it sold five properties for A$92.6 million ($66 million).
Nippon Steel, the world’s No. 2 producer of the alloy, advanced 3.4 percent to 278 yen, and rival JFE rose 3 percent to 2,275 yen. The companies negotiated a 57 percent cut in the price they pay BHP for hard coking coal, two industry executives with knowledge of the deal said.
Mitsubishi UFJ Financial Group Inc., Japan’s biggest publicly traded bank, surged 3.9 percent after the U.S. said it will finance as much as $1 trillion in purchases of banks’ distressed assets. BHP Billiton Ltd., Australia’s largest oil producer, added 2.2 percent after oil prices rose. Toyota Motor Corp., which gets 37 percent of sales from North America, gained 3.6 percent in Tokyo after the yen weakened against the dollar.
“Investors are riding a tide of euphoria over the U.S. plan,” Mamoru Shimode, chief equity strategist at Resona Trust & Banking Co. said in an interview with Bloomberg Television. “Whether $1 trillion will suffice or there will be willing sellers remains to be seen.”
The MSCI Asia Pacific Index advanced 1.6 percent to 83.52 at 11:17 a.m. in Tokyo, adding to a 3.4 percent gain yesterday. The gauge has rallied 18 percent from a five-year low on March 9 amid speculation the worst of the financial crisis is over. The MSCI World rose 0.6 percent to 834.86, the highest since Feb. 13.
Hong Kong’s Hang Seng Index climbed 1.7 percent, taking its gains since March 9 to 21 percent. Gains of more than 20 percent indicate stocks have entered a bull market. Japan’s Nikkei 225 Stock Average climbed 2.1 percent. All markets advanced.
Futures on the U.S. Standard & Poor’s 500 Index lost 0.4 percent today. The gauge soared 7.1 percent in New York, the biggest advance since Oct. 28 and narrowing this year’s loss to 8.9 percent. Europe’s Dow Jones Stoxx 600 Index gained 3 percent to the highest close since Feb. 19.
Purchasing Power
Macquarie Countrywide Trust, an Australian real estate investment trust, rallied 12 percent after saying it had sold five properties. Nippon Steel Corp. and JFE Holdings Inc., Japan’s two largest mills, added at least 3 percent after winning price cuts for hard coking coal.
The Treasury, Federal Reserve and Federal Deposit Insurance Corp. will provide private investors with financing to buy illiquid loans and securities held by banks, the Treasury said yesterday. The Public-Private Investment Program will use up to $100 billion from the $700 billion Troubled Asset Relief Program enacted last year, giving the government “purchasing power” of $500 billion, which may double over time, the Treasury said.
The proposal was the latest government response to the financial crisis that has hampered bank lending and dragged the global economy into what the World Bank estimates will be the first contraction in more than six decades.
Finance Stocks Rally
The Fed pledged on March 18 to buy as much as $300 billion of Treasuries and stepped up purchases of mortgage bonds to bring down borrowing costs. The Bank of Japan said earlier the same day that it will raise the amount of government debt it buys from banks each month.
Mitsubishi UFJ surged 3.9 percent to 532 yen. Mizuho Financial Group Inc., Japan’s second-largest publicly traded bank, rose 4.1 percent to 229 yen.
The Bank of Japan will brief executives of 14 major banks today on its plans to provide subordinated loans to help them bolster capital, Nikkei English News reported, without saying where it obtained the information.
An index of finance stocks on the MSCI Asia Pacific Index climbed 2.1 percent. The sub-index is the worst performer among the broader gauge’s 10 industry groups in the past 12 months, as credit losses worldwide swelled to more than $1.2 trillion.
Oil Prices Surge
Commonwealth Bank of Australia, the nation’s largest mortgage lender, climbed 2.1 percent to A$35.82 in Sydney. KB Financial Group Inc., which controls South Korea’s largest bank, gained 4.8 percent to 35,100 won.
BHP added 2.2 percent to A$34.06. Woodside Petroleum Ltd., Australia’s second-largest oil producer, climbed 4.2 percent to A$40.06. In New York, crude-oil futures jumped 3.3 percent to $53.80 a barrel yesterday, the highest settlement since Nov. 28.
Toyota gained 3.6 percent to 3,160 yen, and Canon Inc., the world’s largest camera maker, rose 4.2 percent to 2,875 yen after the Japanese currency depreciated against the dollar to as much as 97.35 from 96.18 at the 3 p.m. close of stock trading in Tokyo yesterday. A weaker local currency boosts the value of overseas sales for Japanese companies.
Macquarie Countrywide Trust, an Australian real estate investment trust, rallied 12 percent to 23.5 Australian cents after saying it sold five properties for A$92.6 million ($66 million).
Nippon Steel, the world’s No. 2 producer of the alloy, advanced 3.4 percent to 278 yen, and rival JFE rose 3 percent to 2,275 yen. The companies negotiated a 57 percent cut in the price they pay BHP for hard coking coal, two industry executives with knowledge of the deal said.
Sunday, March 22, 2009
China’s Economy May Recover First From Global Slump
March 23 (Bloomberg) -- China’s economy may be the first to recover from the global recession as a 4 trillion yuan ($585 billion) stimulus package takes effect, a senior government researcher said.
“China has the ability to become the first in the world to step out of the crisis and keep stable growth for the mid and long term,” Zhang Yutai, director of the Development Research Center of the State Council, said in a live broadcast from the China Development Forum in Beijing yesterday.
The stimulus plan, which runs through 2010 and includes spending on roads, railways and houses, may add as much as 1.9 percentage points to this year’s expansion, Zhang said. Vice Premier Li Keqiang reaffirmed the government’s goal of 8 percent growth, saying some industries “have seen signs of recovery.”
The world’s third-biggest economy is showing “early signs” of stabilizing as government-backed investment counters a slump in exports, the World Bank said March 18. China is targeting an expansion even as world trade collapses and the global economy faces its first contraction since World War II.
Zhang’s comments echoed a state media report last month that quoted Premier Wen Jiabao as saying that China was likely to be the first major economy to recover.
The research head’s prediction of the likely contribution from stimulus spending was lower than some economists’ estimates. “Government-influenced” spending will account for three- quarters of the expansion this year, according to a World Bank report last week. Standard Chartered Bank says stimulus will contribute 3 percentage points.
Unemployment, Property
China faces tumbling exports, rising unemployment, and a sagging property market. Millions of migrant workers have lost their jobs as declining overseas orders force factories to scale back production or shut.
The World Bank cut last week its forecast for China’s growth this year to 6.5 percent from a previous 7.5 percent. The Organization for Economic Cooperation and Development said it will reduce its estimate this month to between 6 percent and 7 percent as the global slump deepens. The International Monetary Fund sees a 6.7 percent expansion.
Gross domestic product expanded 6.8 percent in the fourth quarter, the weakest pace in seven years. The economy grew 9 percent for all of last year, down from 13 percent in 2007.
Lending and spending have surged as the stimulus package kicks in. Urban fixed-asset investment rose 26.5 percent in the first two months of 2009 and bank loans quadrupled in February.
“China has the potential to further boost domestic spending,” Zhu Zhixin, vice director of the National Development and Reform Commission, said at the forum.
Premier Wen said on March 13 that China has “adequate ammunition” to revive the economy and can add to the stimulus package at any time.
The government is planning a record 950 billion yuan budget deficit this year. The risk posed by the deficit is “under government control,” Wang Jun, vice minister of finance, said at the forum.
“China has the ability to become the first in the world to step out of the crisis and keep stable growth for the mid and long term,” Zhang Yutai, director of the Development Research Center of the State Council, said in a live broadcast from the China Development Forum in Beijing yesterday.
The stimulus plan, which runs through 2010 and includes spending on roads, railways and houses, may add as much as 1.9 percentage points to this year’s expansion, Zhang said. Vice Premier Li Keqiang reaffirmed the government’s goal of 8 percent growth, saying some industries “have seen signs of recovery.”
The world’s third-biggest economy is showing “early signs” of stabilizing as government-backed investment counters a slump in exports, the World Bank said March 18. China is targeting an expansion even as world trade collapses and the global economy faces its first contraction since World War II.
Zhang’s comments echoed a state media report last month that quoted Premier Wen Jiabao as saying that China was likely to be the first major economy to recover.
The research head’s prediction of the likely contribution from stimulus spending was lower than some economists’ estimates. “Government-influenced” spending will account for three- quarters of the expansion this year, according to a World Bank report last week. Standard Chartered Bank says stimulus will contribute 3 percentage points.
Unemployment, Property
China faces tumbling exports, rising unemployment, and a sagging property market. Millions of migrant workers have lost their jobs as declining overseas orders force factories to scale back production or shut.
The World Bank cut last week its forecast for China’s growth this year to 6.5 percent from a previous 7.5 percent. The Organization for Economic Cooperation and Development said it will reduce its estimate this month to between 6 percent and 7 percent as the global slump deepens. The International Monetary Fund sees a 6.7 percent expansion.
Gross domestic product expanded 6.8 percent in the fourth quarter, the weakest pace in seven years. The economy grew 9 percent for all of last year, down from 13 percent in 2007.
Lending and spending have surged as the stimulus package kicks in. Urban fixed-asset investment rose 26.5 percent in the first two months of 2009 and bank loans quadrupled in February.
“China has the potential to further boost domestic spending,” Zhu Zhixin, vice director of the National Development and Reform Commission, said at the forum.
Premier Wen said on March 13 that China has “adequate ammunition” to revive the economy and can add to the stimulus package at any time.
The government is planning a record 950 billion yuan budget deficit this year. The risk posed by the deficit is “under government control,” Wang Jun, vice minister of finance, said at the forum.
Czech bank governor warns economy could shrink by 2%
By Jan Cienski in Prague and Thomas Escritt in Budapest
Published: March 23 2009 02:00 | Last updated: March 23 2009 02:00
The Czech Republic could see its economy contract by as much as 2 per cent this year if the recession worsens in western Europe, warned Zdenek Tuma, the governor of the export-oriented country's central bank.
"At this moment the risks are on the downside," Mr Tuma said in an interview with the Financial Times. "We cannot avoid the impact of a world economic slowdown." The prediction is much grimmer than the bank's official forecast, which says the economy will shrink by 0.3 per cent this year. Mr Tuma admitted that the bank's forecasts were changing rapidly. Just a couple of months ago, it was predicting the economy would grow by 2.9 per cent.
However, despite the gloomier outlook, Mr Tuma insisted that his country had one of the healthier economies in the region, and would not need help from the International Monetary Fund or other international institutions to ride out the economic crisis. "There is no doubt that some countries will need help from international institutions," he said. "I see no need for IMF or other help at this time."
His comments came as Hungary was thrown into a fresh bout of political uncertainty at the weekend after Ferenc Gyurcsany, prime minister, announced he would resign. Mr Gyurcsany said he would stand down because he was perceived as a hindrance to economic reforms, vital to the crisis-hit country's recovery. With Hungary facing difficulties managing its IMF rescue programme as it slides deep into recession, investors will be watching to see whether Mr Gyurcsany's successor can restore stability.
Meanwhile Prague is convinced it cannot spend its way out of the downturn. The centre-right government of Mirek Topolanek, prime minister, has focused on helping companies keep up employment by reducing some social security contributions and amending tax regulations, but is shying away from pouring money into the economy on the US and UK model.
"If there is a drop in foreign demand, such a sizeable drop cannot be substituted for by the government," said Mr Tuma. "The role of the government is to mitigate the impact mainly through automatic stabilisers."
Mr Topolanek faces a vote of confidence tomorrow in parliament, where he controls only 96 out of 200 MPs.
Reliance on exports, which are equivalent to about 80 per cent of gross domestic product, was the Czech Republic's biggest vulnerability, said Mr Tuma.
However, other parts of the economy are much sounder than in the rest of the region. The banking system is liquid and has almost none of the foreign currency loans that are causing concern in Hungary and Poland. Prague has been trying hard to accentuate those differences so as not to be lumped with central Europe's more problematic regions, such as the Baltics and the Balkans.
The region's central banks and bank regulators have issued several joint statements underlining their differences, and the drumbeat finally seems to be having an effect, with signs that sounder currencies such as the Czech koruna and the Polish zloty are detaching themselves from the more troubled Hungarian forint.
"What is positive is that capital markets are starting to differentiate among the countries of the region," said Mr Tuma.
Published: March 23 2009 02:00 | Last updated: March 23 2009 02:00
The Czech Republic could see its economy contract by as much as 2 per cent this year if the recession worsens in western Europe, warned Zdenek Tuma, the governor of the export-oriented country's central bank.
"At this moment the risks are on the downside," Mr Tuma said in an interview with the Financial Times. "We cannot avoid the impact of a world economic slowdown." The prediction is much grimmer than the bank's official forecast, which says the economy will shrink by 0.3 per cent this year. Mr Tuma admitted that the bank's forecasts were changing rapidly. Just a couple of months ago, it was predicting the economy would grow by 2.9 per cent.
However, despite the gloomier outlook, Mr Tuma insisted that his country had one of the healthier economies in the region, and would not need help from the International Monetary Fund or other international institutions to ride out the economic crisis. "There is no doubt that some countries will need help from international institutions," he said. "I see no need for IMF or other help at this time."
His comments came as Hungary was thrown into a fresh bout of political uncertainty at the weekend after Ferenc Gyurcsany, prime minister, announced he would resign. Mr Gyurcsany said he would stand down because he was perceived as a hindrance to economic reforms, vital to the crisis-hit country's recovery. With Hungary facing difficulties managing its IMF rescue programme as it slides deep into recession, investors will be watching to see whether Mr Gyurcsany's successor can restore stability.
Meanwhile Prague is convinced it cannot spend its way out of the downturn. The centre-right government of Mirek Topolanek, prime minister, has focused on helping companies keep up employment by reducing some social security contributions and amending tax regulations, but is shying away from pouring money into the economy on the US and UK model.
"If there is a drop in foreign demand, such a sizeable drop cannot be substituted for by the government," said Mr Tuma. "The role of the government is to mitigate the impact mainly through automatic stabilisers."
Mr Topolanek faces a vote of confidence tomorrow in parliament, where he controls only 96 out of 200 MPs.
Reliance on exports, which are equivalent to about 80 per cent of gross domestic product, was the Czech Republic's biggest vulnerability, said Mr Tuma.
However, other parts of the economy are much sounder than in the rest of the region. The banking system is liquid and has almost none of the foreign currency loans that are causing concern in Hungary and Poland. Prague has been trying hard to accentuate those differences so as not to be lumped with central Europe's more problematic regions, such as the Baltics and the Balkans.
The region's central banks and bank regulators have issued several joint statements underlining their differences, and the drumbeat finally seems to be having an effect, with signs that sounder currencies such as the Czech koruna and the Polish zloty are detaching themselves from the more troubled Hungarian forint.
"What is positive is that capital markets are starting to differentiate among the countries of the region," said Mr Tuma.
Japan Manufacturer Sentiment Tumbles Most on Record
March 23 (Bloomberg) -- Confidence among Japanese manufacturers slid the most in at least five years as a deepening global recession spurred record declines in exports and factory output, a government survey showed.
Sentiment among manufacturers was minus 66 points this quarter compared with minus 44.5 three months earlier, a joint survey by the Cabinet Office and Finance Ministry showed today. The drop was the biggest since the report began in 2004. A negative number means pessimists outnumber optimists.
Businesses said they will cut spending next fiscal year as the global collapse in demand erodes earnings. Prime Minister Taro Aso is preparing a stimulus package that may be twice as big as the 10 trillion yen ($104 billion) already pledged to revive an economy facing its worst recession since 1945.
“We’re far from an environment where companies can be optimistic,” said Yoshiki Shinke, a senior economist at Dai- Ichi Life Research Institute in Tokyo. “Companies may cut business investment more next fiscal year and we’re going to see job and wage cuts intensify.”
The yen traded at 96.18 per dollar at 9:48 a.m. in Tokyo from 95.93 before the report was published.
Finance Minister Kaoru Yosano told TV Asahi’s “Sunday Project” yesterday that additional stimulus of 20 trillion yen is “not out of line.”
Companies surveyed said they plan to slash spending on plant and equipment 29.4 percent in the year starting April 1, more than the 10.3 percent cutbacks projected this fiscal year.
Profit Outlook
Profits are estimated to slide 10.7 percent, less than the 41.2 percent drop anticipated in the year ending March 31.
“Companies think things will get better in the second half of the year; I think they’re over-optimistic,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. Adachi said a worsening job market will put pressure on consumers.
The ratio of jobs available to each applicant fell at the fastest pace since 1992 in January. Toyota Motor Corp., which is forecasting its first net loss in almost six decades, said last week it will recruit the fewest graduates in Japan in 14 years next fiscal year.
The ruling Liberal Democratic Party may ask the government to bail out large companies struggling to obtain cash, LDP Secretary-General Hiroyuki Hosoda said in an interview on March 18. “Should a big company go bankrupt, 10,000 people could lose their jobs,” he said.
Tankan Survey
Today’s report offers a hint of the results likely to emerge in the Bank of Japan’s Tankan survey due April 1. That report, the nation’s most closely watched gauge of corporate confidence, will probably show sentiment among large manufacturers plunged to the lowest in more than 30 years, according to economists surveyed.
Unlike the Tankan, which measures the level of confidence, today’s survey examines the degree of change in sentiment from the previous quarter.
The Bank of Japan is surveying companies through the end of this month, making the Tankan Japan’s most current gauge of business confidence. The responses for today’s survey were collected through Feb. 25.
Sentiment among manufacturers was minus 66 points this quarter compared with minus 44.5 three months earlier, a joint survey by the Cabinet Office and Finance Ministry showed today. The drop was the biggest since the report began in 2004. A negative number means pessimists outnumber optimists.
Businesses said they will cut spending next fiscal year as the global collapse in demand erodes earnings. Prime Minister Taro Aso is preparing a stimulus package that may be twice as big as the 10 trillion yen ($104 billion) already pledged to revive an economy facing its worst recession since 1945.
“We’re far from an environment where companies can be optimistic,” said Yoshiki Shinke, a senior economist at Dai- Ichi Life Research Institute in Tokyo. “Companies may cut business investment more next fiscal year and we’re going to see job and wage cuts intensify.”
The yen traded at 96.18 per dollar at 9:48 a.m. in Tokyo from 95.93 before the report was published.
Finance Minister Kaoru Yosano told TV Asahi’s “Sunday Project” yesterday that additional stimulus of 20 trillion yen is “not out of line.”
Companies surveyed said they plan to slash spending on plant and equipment 29.4 percent in the year starting April 1, more than the 10.3 percent cutbacks projected this fiscal year.
Profit Outlook
Profits are estimated to slide 10.7 percent, less than the 41.2 percent drop anticipated in the year ending March 31.
“Companies think things will get better in the second half of the year; I think they’re over-optimistic,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. Adachi said a worsening job market will put pressure on consumers.
The ratio of jobs available to each applicant fell at the fastest pace since 1992 in January. Toyota Motor Corp., which is forecasting its first net loss in almost six decades, said last week it will recruit the fewest graduates in Japan in 14 years next fiscal year.
The ruling Liberal Democratic Party may ask the government to bail out large companies struggling to obtain cash, LDP Secretary-General Hiroyuki Hosoda said in an interview on March 18. “Should a big company go bankrupt, 10,000 people could lose their jobs,” he said.
Tankan Survey
Today’s report offers a hint of the results likely to emerge in the Bank of Japan’s Tankan survey due April 1. That report, the nation’s most closely watched gauge of corporate confidence, will probably show sentiment among large manufacturers plunged to the lowest in more than 30 years, according to economists surveyed.
Unlike the Tankan, which measures the level of confidence, today’s survey examines the degree of change in sentiment from the previous quarter.
The Bank of Japan is surveying companies through the end of this month, making the Tankan Japan’s most current gauge of business confidence. The responses for today’s survey were collected through Feb. 25.
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