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.
Monday, March 23, 2009
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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