Stocks Rout Halts, Euro Advances as Risk Demand Stabilizes
May 21 (Bloomberg) -- U.S. stocks jumped, halting a weeklong global slide, while the euro rose for a third day and Treasuries erased an early gain on speculation the rout in risky assets overshot the potential damage from Europe’s debt crisis.
The Standard & Poor’s 500 Index climbed 1.5 percent to 1,087.69 at 4 p.m. in New York, erasing a morning drop of 1.5 percent that dragged the gauge below its weakest level during the May 6 crash. Brazil’s Bovespa index surged 3.6 percent, while copper jumped the most since February on signs of stronger demand in China. Currencies of commodity producing nations rallied versus the dollar. The 30-year Treasury yield rose one basis point to 4.1 percent after earlier dropping to 3.98 percent, its lowest level of the year.
The expiration of U.S. stock options added to market swings after the S&P 500 yesterday tumbled 3.9 percent, the most in more than a year. Financial shares in the S&P 500 rose 3.6 percent as a group as the Senate’s passage of legislation to reform the industry eased uncertainty surrounding the makeup of the new rules.
“Technically speaking we’re very oversold -- really that’s the understatement of the year,” said Walter Todd, who helps manage about $800 million at Greenwood Capital in Greenwood, South Carolina. “I’d rather be buying now than I would three weeks ago.”
Rebound After Correction
Today’s gain in the S&P 500 came after the benchmark index for U.S. stocks slumped yesterday to its lowest level since February as an unexpected increase in jobless claims and a surprise drop in the Conference Board’s index of leading economic indicators called into question the strength of the economic rebound.
The S&P 500 opened today trading at about 15.5 times the reported operating earnings of its companies over the past 12 months, the lowest valuation since July. The index erased its gain in the final hour of trading, only to rally 1.5 percent in the session’s final 20 minutes.
The rally that began 14 months ago is probably intact if history is any guide, Birinyi Associates Ltd. said. The S&P 500 fell 12 percent from a 19-month high on April 23 through yesterday as concern grew that Europe’s sovereign debt crisis would snuff out the global economic recovery.
Thirteen of 15 comparable drops the Westport, Connecticut- based firm calculated since 1945 have occurred either at bear market bottoms or during lasting advances.
‘First Official Correction’
“If we assume the bull market ended on April 23rd, it would be one of the weakest and shortest gains in the last 48 years,” Cleve Rueckert, an analyst at the research and money- management firm founded by Laszlo Birinyi, wrote in a note to clients today. “A more likely scenario is that the current bull market is experiencing its first official correction.” A correction is typically defined as a drop of at least 10 percent from a high.
JPMorgan Chase & Co., Wells Fargo & Co. and Bank of America Corp. rallied at least 4.5 percent to pace gains in 77 of 79 stocks in the S&P 500 Financials Index.
The U.S. Senate brought Congress to the brink of passing the most comprehensive regulation of the financial industry since the Great Depression. Senators approved restrictions on proprietary trading by banks and a consumer protection agency designed to prevent lending abuses. The legislation was approved by a 59-39 vote yesterday and requires reconciliation with a bill passed by the House of Representatives in December.
The legislation provides a mechanism for liquidating financial institutions that until recently were considered too big to fail. It also establishes a council of regulators monitoring threats to the economy and specific restraints on the trading of derivatives.
‘Not as Onerous’
“It’s an enormous document -- the devil will be in the details,” said David Katz, chief investment officer at Matrix Asset Advisors Inc. in New York, which manages $1.2 billion. “The early read is that it’s not as onerous as some feared.”
Europe’s benchmark index trimmed losses, while still sliding to the lowest since Nov. 3., on lingering concern that the region’s governments lack a common position on how to resolve the debt crisis. The Stoxx Europe 600 Index closed down 0.5 percent after sinking as much as 2.9 percent during the day. The gauge tumbled 4.6 percent this week, while the S&P 500 lost 4.2 percent.
The euro climbed to its highest level in a week against the dollar amid speculation investors who bet on its decline had to buy back the currency as it strengthened for a third day. The euro rose 1.8 percent since May 14 to cap its largest weekly gain in eight months after yesterday rebounding from a four-year low as traders theorized the European Central Bank may intervene to support the currency. German lawmakers today approved their country’s share of a $1 trillion euro-region bailout.
Brazil’s Bovespa rose for the first time in seven days as commodity producers surged after the measure fell to the cheapest level in more than a year. The Bovespa’s 19 percent drop from an April high dragged it to 11 times analysts’ earnings estimates yesterday, the lowest level in 13 months.
Copper futures for July delivery climbed 11.65 cents, or 4 percent, to $3.061 a pound in New York, the biggest gain for a most-active contract since Feb. 16.
Inventories monitored by the Shanghai Futures Exchange fell for a third straight week, the longest slide since October. China imported 309,772 metric tons last month, the second- biggest amount since June, the government said. Before today, copper dropped 6 percent this week on European debt concerns.
Gold fell in New York, capping the biggest weekly loss in five months, as some investors sold to lock in gains after a rally to a record a week ago. Gold futures for June delivery lost as much 1.1 percent to $1,176.10 an ounce on the Comex in New York. The metal slumped 4.2 percent this week, the most since the five days to Dec. 11.
Crude oil for July delivery dropped 76 cents to settle at $70.04 a barrel on the New York Mercantile Exchange. The July contract has fallen for nine consecutive days, losing 13 percent since May 10. Prices slipped 7.1 percent this week.
The U.S. dollar weakened against 11 of 16 major counterparts, with the Brazilian real, New Zealand dollar and Australian dollar climbing at least 1.7 percent. The yen fell against 15 of 16 major currencies, while lose 2.4 percent against the South Korean won.
The MSCI Asia Pacific Index of stocks slumped 1.3 percent. Honda Motor Co., which gets about 81 percent of its sales from overseas, declined 2.5 percent in Tokyo. Sonic Healthcare Ltd., which provides medical tests, tumbled 20 percent in Sydney after saying earnings will be less than forecast.
The cost to protect against defaults on U.S. corporate bonds retreated, trading in a benchmark credit derivatives index shows. The Markit CDX North America Investment Grade Index Series 14, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, slipped 6.3 basis points to a mid-price of 119.33 basis points.
Stocks Gain as Euro Rebounds From Four-Year Low; Oil Retreats
By Rita Nazareth and Whitney Kisling
May 17 (Bloomberg) -- U.S. stocks rose, with the Dow Jones Industrial Average reversing a 184-point drop, as the euro’s rebound from a four-year low bolstered optimism that the shared European currency will weather the region’s debt crisis.
The Dow gained 5.67 points, or 0.1 percent, to 10,625.83, and the Standard & Poor’s 500 Index increased 0.1 percent to 1,136.94, recovering from a 1.8 percent slide. The euro climbed 0.3 percent to $1.2397 at 4:38 p.m. in New York after sinking as low as $1.2235. Stocks had fallen around the world as oil dipped below $70 a barrel, copper dropped the most in 15 months and Chinese equities plunged on concern growth will slow.
The European Central Bank revealed details of how it would absorb excess liquidity from bond purchases, reducing investor concern that it would engage in a policy of quantitative easing. Companies from Universal Health Services Inc. to hedge-fund operator Man Group Plc announced takeovers worldwide amounting to $4.76 billion today, also boosting confidence among traders.
“It was quite a remarkable turnaround,” said John Carey, Boston-based money-manager at Pioneer Investment Management, which oversees about $230 billion. “The fact that the euro has reversed its earlier losses is a hopeful sign given there’s so much concern about the European debt situation. The market was oversold. The economic recovery is still in place. M&A deals are an indication of that.”
The ECB said it will invite banks to deposit cash with it for one week to prevent its purchases of government bonds from swelling the money supply and fueling inflation. The unprecedented buying of government and corporate debt is aimed at stabilizing financial markets after Greece’s fiscal crisis spread to Portugal and Spain, driving up bond yields and threatening the euro.
Revealing details of its “sterilization” plan, the Frankfurt-based central bank said it will take term deposits for the first time tomorrow to mop up 16.5 billion euros ($20.4 billion) of bond purchases settled up to May 14. The cash will be collected in a variable-rate tender with a maximum bid rate of 1 percent and the deposits will be eligible as collateral in refinancing operations, the ECB said. It conduct another such operation next week.
Goldman Sachs Group Inc. Chief Global Economist Jim O’Neill said it is “ridiculous” to suggest that the euro area will break up within the next year and predicted the currency’s decline may be almost over.
“The simple misconception is people trying to equate pure economic logic with social political reality,” O’Neill said in an interview from his office in London today. “The Germans and French are passionately committed to it whether the rest of us think it’s crazy or not.”
GLG, Pactiv Deals
Sprint Next Corp. climbed 3 percent to help lead telephone companies to the biggest gain among 10 industries in the S&P 500 after saying “steep” revenue declines have ended. GLG Partners rallied 50 percent as Man Group agreed to buy the hedge-fund firm for $1.6 billion. Pactiv Corp. surged 19 percent after a person with knowledge of the discussions said Apollo Global Management LLC is in talks to buy the maker of Hefty trash bags.
The earlier slump in stocks was led by energy shares as oil dipped below $70 a barrel for the first time this year amid concern Europe’s debt crisis will derail the economic recovery. The S&P 500 has lost 6.6 percent from its high for the year on April 23 as credit-ratings downgrades of Greece, Portugal and Spain added to concern that European governments will struggle to fund budget deficits.
Most Since June
Purchases of U.S. equities, notes and bonds totaled $140.5 billion in March, more than double economists’ projections, after net buying of $47.1 billion in February, the Treasury Department said today. Treasury purchases rose by the most since June as China, the largest lender to the U.S., added to its holdings for the first time since September.
European finance ministers, meeting in Brussels today, are under pressure to show they can reduce deficits fast enough to satisfy investors and then police budgets effectively once targets are met. Spain and Portugal have already announced budget cuts. European leaders agreed last week to a $1 trillion financial lifeline meant to instill confidence with investors.
“It’s a wait-and-see attitude,” said Stanley Nabi, New York-based vice chairman of Silvercrest Asset Management Group, which manages $9 billion. “What’s the end game in Europe and the euro zone? American investors are watching the developments in Europe, which are not very steady. There’s a great deal of concern still on the effect of all that on the global recovery.”
The Euro Stoxx 50 Index, a measure of stocks in the 16 nations using the euro, rose 0.1 percent after falling as much as 1.1 percent.
Credit Suisse Group AG today advised investors to favor European stocks in global holdings, citing low valuations and a weakening euro. Goldman Sachs strategists wrote in a report that European stocks are “down but not out” as profits increase in the region. UBS AG and Deutsche Bank AG issued recommendations to increase investments in Germany, Europe’s largest market, because shares in the country are more geared to global growth than to Europe’s most-indebted economies.
Analysts lifted profit estimates for the next year for Euro Stoxx 50 companies by 2.5 percent in April, the most since 2006, according to data compiled by Bloomberg. The projection has climbed 1.6 percent to 274.57 euros a share this month.
The MSCI Asia Pacific Index of equities lost 2.8 percent.
Treasuries fell. U.S. 10-year note yields earlier touched the lowest level in more than a week. As of 4:12 p.m. in New York, the yield increased 4 basis points, or 0.04 percentage point, 3.49 percent. The two-year yield increased 2 basis points to 0.80 percent, after declining 3 basis points last week
The Geography of Chinese Power
How Far Can Beijing Reach on Land and at Sea? Robert D. Kaplan May/June 2010
Summary: Thanks to the country’s favorable location on the map, China's influence is expanding on land and at sea, from Central Asia to the South China Sea and from the Russian Far East to the Indian Ocean.
The English geographer Sir Halford Mackinder ended his famous 1904 article, "The Geographical Pivot of History," with a disturbing reference to China. After explaining why Eurasia was the geostrategic fulcrum of world power, he posited that the Chinese, should they expand their power well beyond their borders, "might constitute the yellow peril to the world's freedom just because they would add an oceanic frontage to the resources of the great continent, an advantage as yet denied to the Russian tenant of the pivot region." Leaving aside the sentiment's racism, which was common for the era, as well as the hysterics sparked by the rise of a non-Western power at any time, Mackinder had a point: whereas Russia, that other Eurasian giant, basically was, and is still, a land power with an oceanic front blocked by ice, China, owing to a 9,000-mile temperate coastline with many good natural harbors, is both a land power and a sea power. (Mackinder actually feared that China might one day conquer Russia.) China's virtual reach extends from Central Asia, with all its mineral and hydrocarbon wealth, to the main shipping lanes of the Pacific Ocean. Later, in Democratic Ideals and Reality, Mackinder predicted that along with the United States and the United Kingdom, China would eventually guide the world by "building for a quarter of humanity a new civilization, neither quite Eastern nor quite Western."
China's blessed geography is so obvious a point that it tends to get overlooked in discussions of the country's economic dynamism and national assertiveness. Yet it is essential: it means that China will stand at the hub of geopolitics even if the country's path toward global power is not necessarily linear. (China has routinely had GDP growth rates of more than ten percent annually over the past 30 years, but they almost certainly cannot last another 30.) China combines an extreme, Western-style modernity with a "hydraulic civilization" (a term coined by the historian Karl Wittfogel to describe societies that exercise centralized control over irrigation) that is reminiscent of the ancient Orient: thanks to central control, the regime can, for example, enlist the labor of millions to build major infrastructure. This makes China relentlessly dynamic in ways that democracies, with all of their temporizing, cannot be. As China's nominally Communist rulers -- the scions of some 25 dynasties going back 4,000 years -- are absorbing Western technology and Western practices, they are integrating them into a disciplined and elaborate cultural system with a unique experience in, among other things, forming tributary relationships with other states. "The Chinese," a Singaporean official told me early this year, "charm you when they want to charm you, and squeeze you when they want to squeeze you, and they do it quite systematically."
China's internal dynamism creates external ambitions. Empires rarely come about by design; they grow organically. As states become stronger, they cultivate new needs and -- this may seem counterintuitive -- apprehensions that force them to expand in various forms. Even under the stewardship of some of the most forgettable presidents -- Rutherford Hayes, James Garfield, Chester Arthur, Benjamin Harrison -- the United States' economy grew steadily and quietly in the late nineteenth century. As the country traded more with the outside world, it developed complex economic and strategic interests in far-flung places. Sometimes, as in South America and the Pacific region, for example, these interests justified military action. The United States was also able to start focusing outward during that period because it had consolidated the interior of the continent; the last major battle of the Indian Wars was fought in 1890.
China today is consolidating its land borders and beginning to turn outward. China's foreign policy ambitions are as aggressive as those of the United States a century ago, but for completely different reasons. China does not take a missionary approach to world affairs, seeking to spread an ideology or a system of government. Moral progress in international affairs is an American goal, not a Chinese one; China's actions abroad are propelled by its need to secure energy, metals, and strategic minerals in order to support the rising living standards of its immense population, which amounts to about one-fifth of the world's total.
Robert D. Kaplan
Already the world’s preeminent energy and trade interstate seaway, the Indian Ocean will matter even more as India and China enter into a dynamic great-power rivalry in these waters.
Geithner Says Europe Will Manage Crisis as U.S. Keeps Growing
By Ian Katz and Rich Miller
May 14 (Bloomberg) -- Treasury Secretary Timothy F. Geithner voiced confidence that Europe will resolve the debt crisis wracking the region and said the U.S. economy is strong enough to withstand any fallout.
“Europe has the capacity to manage through this,” Geithner said in an interview today on Bloomberg Television’s “Political Capital With Al Hunt,” airing this weekend. “And I think they will.”
Geithner, 48, said he doesn’t think the European turmoil will hurt U.S. growth because “our economy is getting stronger. We’re seeing a lot of strength, improvement and confidence.”
U.S. stocks fell and the euro slumped on concern that Europe wouldn’t be able to contain the crisis. The Standard & Poor’s 500 Index declined 1.9 percent today, while the euro fell below $1.24 for the first time since November 2008.
The Treasury secretary said the almost $1 trillion package that Europe put together with the International Monetary Fund was “an enormously important step” that will help countries in the region cut budget deficits.
Geithner also said a Republican proposal to bar U.S. support for IMF loans to European countries is “absolutely not” reasonable. “We have a big stake in helping Europe manage through these things,” he said. “We’re going to do it in a way that’s sensible for the American economy, the American taxpayer.” The U.S. holds a 17 percent stake in the IMF.
Geithner praised Senate legislation to overhaul financial regulation and said it would help prevent a repeat of the 2008 U.S. meltdown.
“This is a very strong, the strongest set of reforms we’ve seen the U.S. consider since the Great Depression,” he said. “It’s time to get this done. We want to bring it to earth now so that we can get on to other challenges.”
Geithner said he’s confident top Senate negotiators will modify language in the legislation that would separate commercial banks from their swaps trading desks.
Democratic Senators Blanche Lincoln of Arkansas and Christopher Dodd of Connecticut are working through “the concerns a lot of people have about that specific provision,” he said. “I’m very confident they’ll work out an appropriate solution that preserves the key thing, which is we bring these markets out of the dark, make them safer, more stable,” he said.
Geithner responded to Republican criticism that the legislation doesn’t deal with mortgage-financing companies Fannie Mae and Freddie Mac, which were seized by the government in September 2008 because of their losses. He said the Treasury will “move very quickly” after the financial bill passes to build consensus on reforms of the two companies and the housing- finance market.
The Senate this week rejected an amendment offered by Senator John McCain, an Arizona Republican, to end government support for the two mortgage-finance companies after two years.
Geithner said the U.S. economy was recovering from the financial crisis “more quickly and stronger than many people expected. We can take a lot of comfort and encouragement from the signs of strength that we’re seeing here in the United States.”
Payrolls in the U.S. surged in April by the most in four years, led by gains in private employment that signal the economy is less dependent on government support. The jobless rate rose to 9.9 percent from 9.7 percent as thousands of jobseekers entered the workforce
Private employers added 231,000 workers across the economy, from manufacturing to construction to services. General Electric Co. and Berkshire Hathaway Inc. are among companies adding staff in response to growing sales, indicating gains in consumer spending may spur more hiring.
Responding to skepticism in financial markets about Europe’s efforts to tackle its debt, Geithner said, “it’s very natural that people want to see what Europe does. By acting, they will have the chance to earn people’s confidence over time.”
Asked if he agreed with former Federal Reserve Chairman and Obama economic adviser Paul Volcker that there is a risk of “disintegration” of the euro, Geithner said Europe is “committed to fix this problem.”
“I don’t talk about markets and, of course, I choose my words on these things very carefully,” he said when asked if he concurred with Volcker.
Geithner, who is scheduled to meet with Chinese Vice Premier Wang Qishan in Beijing on May 24-25, said he is “confident” China will allow the value of the yuan to rise against the dollar.
“It is in China’s interest that they move to let their exchange rate start to gradually reflect market forces,” Geithner said.
London Financial Vacancies Fell by 12% Last Month, Survey Shows
By Ambereen Choudhury
May 13 (Bloomberg) -- Job vacancies at London financial- services companies fell 12 percent in April on concern about the outcome of Britain’s general election and European budget deficit cuts.
ロンドン金融街の求人が１２％減った。最近の総選挙が連立与党（David Cameron）となり、金融規制が話題だからだ。イギリスの失業率も、１６年間連続で上がっている。全英の給料が９％減った。一方で、ＥＵは＄１トリリオンの国債危機期きんんを立てた。これらの情勢は全て、財政緊縮（Austerity)へ向かっているのである。伊勢平次郎 ルイジアナ
The number of new job vacancies in the City, as London’s main financial district is known, and elsewhere in the British capital fell to 5,569 in April from 6,332 a month earlier, recruitment consultant Morgan McKinley said in a statement today. The number of people seeking new jobs climbed 33 percent to 11,910, the survey showed.
“The month-long general election campaign fueled debate about possible regulation and policy changes within the financial services market,” Andrew Evans, managing director of Morgan McKinley’s financial-services unit, said in the statement. “The likelihood of a hung parliament and economic uncertainty in the eurozone, as well as the Easter break, added to the reduction in recruitment activity.”
U.K. unemployment climbed to a 16-year high in the first quarter, according to the Office for National Statistics figures yesterday. The report comes a day after Conservative leader David Cameron became prime minister of a coalition government which included Britain’s third party, the Liberal Democrats. European Union officials this week agreed to a $1 trillion rescue package for the region’s most indebted nations to stem a sovereign debt crisis that hammered the euro and government bonds.
Financial firms in the U.K. are still cutting jobs. Royal Bank of Scotland Group Plc, Britain’s biggest government-owned bank, plans to cut 2,600 jobs at its insurance and consumer banking divisions, according to a person with knowledge of the plan, on May 10. The bank has previously reduced its staff by 26,000 according to data compiled by Bloomberg.
Average City salaries fell 9 percent in April from the previous month to 50,734 pounds ($75,791), the survey showed. The average time taken to find a new post in April fell by seven days to 53 days, the survey showed.
The fall in vacancies follows three consecutive months of financial services job increases, Morgan McKinley said.
May 2010- JAPAN TRIP
1) 5/21(Fri) 伊勢爺 ニューオーリンズ~アトランタ～成田
2) 5/22(Sat) 伊勢爺 成田着 築地宿泊（１）
3) 5/23(Sun) クリステイン成田到着(夕方) 築地宿泊（２）
4) 5/24(Mon) 東京～名古屋（新幹線） セントレア～那覇 （１）
5) 5/25(Tue) 那覇（２） 取材・米空軍広報官と面会。
6) 5/26(Wed) 那覇 ～セントレア 近鉄・名古屋～賢島 （１）
7) 5/27(Thu) 賢島（２） 墓参
8) 5/28(Fri) 賢島～名古屋（新幹線）～横浜 宿泊（１）
9) 5/29(Sat) クリステイン成田出発 伊勢爺ひとり 築地（１）
10) 5/30(Sun) 伊勢爺ひとり 築地（２）
11) 5/31(Mon) 伊勢爺 成田～アトランタ～ニューオーリンズへ
（お知らせ） あまりにも多忙なため、隼同志の会合は今回はありません。紳士淑女の各位に、東京からお電話します。伊勢平次郎 ルイジアナ
EU to Set Up Fund to Prevent Spread of Greek Crisis
By James G. Neuger and Gregory Viscusi
May 8 (Bloomberg) -- European leaders agreed to set up an emergency fund to halt the spread of Greece’s fiscal woes, seeking to prevent a sovereign debt crisis from shattering confidence in the 11-year-old euro.
Jolted into action by the sliding currency and soaring bond yields in Portugal and Spain, leaders of the 16 euro countries said the workings of the financial backstop will be hammered out before the markets open on May 10.
“We will defend the euro, whatever it takes,” European Commission President Jose Barroso told reporters early today after the leaders met in Brussels.
Europe’s failure to contain Greece’s fiscal crisis triggered a 4.3 percent drop in the euro this week and led the U.S. and Asia to rally around in a bid to prevent a global sovereign-debt crisis from pitching the world back into a recession.
European officials declined to disclose the size of the stabilization fund, to be made up of money borrowed by the European Union’s central authorities with guarantees by national governments. Finance ministers will meet at 4 p.m. tomorrow in Brussels to flesh out the details.
“When the markets re-open Monday, we will have in place a mechanism to defend the euro,” French President Nicolas Sarkozy said. “If you don’t think that’s significant, you haven’t been to many EU summits.”
Barroso said he wouldn’t push the independent European Central Bank to, for example, buy government bonds. ECB President Jean-Claude Trichet accelerated the market selloff on May 6 by rejecting that measure.
With the euro facing its stiffest test since its debut in 1999, the summit -- called to discuss longer-term efforts to coordinate economic policies -- turned into a crisis-management session that dragged past midnight.
The euro slid to $1.2715 from $1.3293 during the week, and is down 15 percent since late November. European stocks sank the most in 18 months, with the Stoxx Europe 600 Index tumbling 8.8 percent to 237.18.
The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of safer German bonds rose to euro-era highs yesterday. The premium on 10-year government bonds jumped as high as 973 basis points for Greece, 354 basis points for Portugal and 173 basis points for Spain.
Europe came under pressure on a hastily arranged conference call of Group of Seven finance chiefs yesterday. All agreed on “the need for a clear, timely and strong response,” Canadian Finance Minister Jim Flaherty, who chaired the call, told reporters in Ottawa. “We hope to see a strong, early policy response in Europe.”
The spreading contagion also drew the attention of President Barack Obama, who said in Washington that U.S. regulators will examine the “unusual market activity” that on May 6 briefly drove the Dow Jones Industrial Average down by almost 1,000 points, erasing more than $1 trillion in wealth before the market bounced back.
In Brussels, German Chancellor Angela Merkel stepped up German calls for a closer monitoring of government finances and more rigorous enforcement of the deficit-limitation rules, originally drafted by Germany in the 1990s.
Europe will send “a very clear signal against those who want to speculate against the euro,” Merkel said.
With the euro region’s overall deficit forecast at 6.6 percent of gross domestic product in 2010 and 6.1 percent in 2011, the vow to bring budget shortfalls back below the euro’s 3 percent limit echoes promises that have been regularly broken ever since governments in 1999 set a three-year deadline for achieving balanced budgets.
Plans for a European credit-rating authority are already under consideration at the EU Commission, the bloc’s Brussels- based executive agency. It also is investigating whether ratings companies such as Standard & Poor’s wield too much power over investors’ perceptions of governments.
Asked whether steps to stem speculation against government bonds would include restrictions on short sales or credit default swaps, Barroso said “some of the points you have mentioned will be contemplated.”
The political leadership of the $12 trillion economy also signed off on a 110 billion-euro ($140 billion) aid package for Greece negotiated by finance ministers last week. So far nine governments have cleared the way for funds to be sent to Athens.
Germany, the biggest contributor with as much as 22.4 billion euros over three years, fell in line yesterday with endorsements in the lower and upper houses of parliament. A group of German academics filed a lawsuit to try to halt the payout.
A day after whisking a three-year, 30 billion-euro program of deficit cuts through parliament, Greek Prime Minister George Papandreou ruled out further belt-tightening steps for the time being, saying the point of the summit was to “reaffirm our confidence in our economies and our common currency and this I believe is a very important message for the global economic recovery.”
Europe’s unprecedented lending pledge has “proven insufficient to stop market contagion to the rest of the euro- zone periphery,” Michael Saunders and other economists at Citigroup Inc. said in an e-mailed note before the summit. “Different kinds of solutions are necessary to fix the underlying problems of the rest of the euro periphery other than Greek-style packages, and these are unlikely to come in the very short term.”
U.S. Stocks Plunge Most in Year as ’Panic Selling’ Grips Market
By Michael P. Regan and Rita Nazareth
May 6 (Bloomberg) -- U.S. stocks tumbled the most in a year on concern Europe’s debt crisis will halt the global recovery. The selloff briefly erased more than $1 trillion in market value as the Dow Jones Industrial Average fell almost 1,000 points, a 9.2 percent plunge that was its biggest intraday percentage loss since 1987 and largest point drop ever, before paring the drop.
The Dow average ended down 347.8 points, or 3.2 percent, at 10,520.32. The Standard & Poor’s 500 Index fell as much as 8.6 percent, its biggest intraday plunge since December 2008, before closing down 3.2 percent at 1,128.15. It was the biggest percentage drop on a closing basis since April 20, 2009, for both measures. The Nasdaq OMX Group Inc. said it will cancel trades of stocks that moved more than 60 percent during the plunge. Futures on the Dow and S&P 500 expiring next month lost 0.2 percent at 7:58 p.m. in New York, while futures on Japan’s Nikkei 225 Index plunged 4.2 percent in Singapore.
“It’s panic selling,” said Burt White, chief investment officer at LPL Financial in Boston, which oversees $379 billion. “There’s concern that the European situation might cool down global growth and freeze the credit markets.”
Computerized trades sent to electronic networks turned an orderly decline into a rout today, according to Larry Leibowitz, the chief operating officer of NYSE Euronext. While the first half of the Dow’s plunge probably reflected normal trading, the selloff snowballed because of orders sent to venues with no investors willing to match them, Leibowitz said in an interview on Bloomberg Television.
“If you look at the charts you can see fairly clearly where the trades came in,” he said from New York. “It’s that V-shaped drop where it came down and snapped right back up. You had some very high-cap stocks trading down 50 percent or large percentages in a split instant because there really was no liquidity in electronic markets.”
New York Stock Exchange spokesman Rich Adamonis said “there were a number of erroneous trades” during the tumble. The NYSE told CNBC that there were no system errors as speculation of bad trades swirled through the market.
Citigroup Inc. said it found “no evidence” of erroneous trades after CNBC said the bank made a potentially bad transaction amid the Dow’s plunge of as much as 9.2 percent, its biggest intraday drop since Oct. 19, 1987. CNBC cited “multiple sources.” CME Group Inc., the world’s largest derivatives exchange, said in a statement that Citigroup’s stock-index futures trades today do not appear to be irregular or unusual.
The Nasdaq said after markets closed that it will cancel all trades of stocks that moved more than 60 percent from their price at, or immediately prior to, 2:40 p.m., when the slide started. The cancellation applies to trades executed between 2:40 p.m. and 3 p.m.
Procter & Gamble Co. said it’s looking into electronic trading of its stock to determine whether it was made in error. Its shares sank as much as 37 percent and closed down 2.3 percent.
The euro tumbled the most since the collapse of credit markets in 2008, dropping 1.5 percent to $1.2620 at 5:10 p.m. in New York and touching a 14-month low of $1.2529, even as Greece’s parliament approved austerity measures demanded by the European Union and International Monetary Fund as a condition of its 110 billion euro ($139 billion) bailout.
European Central Bank President Jean-Claude Trichet held interest rates at a record low of 1 percent today and said the bank didn’t discuss whether to purchase government bonds to stem the region’s debt crisis, defying market speculation that he would take such measures.
‘Fix This Instantly’
“The ECB can fix this instantly by doing what the Fed has done -- instantly providing liquidity by buying bad fixed-income instruments and paying cash in U.S. dollars,” said David Kovacs, head of quantitative strategies at Turner Investment Partners in Berwyn, Pennsylvania, which manages $18 billion. “The reason the market is horrified now is Trichet said it’s not even being discussed. Smart investors are basically selling risk assets.”
The MSCI Asia Pacific Index joined the MSCI World Index and the Stoxx 600 Index in wiping out its advance for 2010. The Dow and S&P 500 briefly erased their yearly gains before paring losses.
Bank of America Corp., Hewlett-Packard Co. and American Express Co. tumbled more than 4.3 percent to help lead declines in the Dow as all 30 of its companies dropped at least 1.6 percent. The 998.5-point slide was the Dow’s largest intraday decrease in points ever, according to News Corp.’s Dow Jones & Co. unit.
General Electric Co., the world’s biggest maker of jet engines, power-generation equipment and locomotives, fell as much as 17 percent before ending down 4.4 percent. Apple Inc. tumbled as much as 22 percent, the most since 2000, and ended down 3.8 percent.
Technology stocks and industrial companies in the S&P 500 had the biggest intraday declines on record, losing as much as 10 percent and 11 percent, respectively. Both groups ended down less than 3.4 percent.
The benchmark index for U.S. stock options surged as much as 63 percent, the most since February 2007, to 40.7 before paring its advance to 32 percent and closing at an almost one- year high of 32.8. The VIX, as the Chicago Board Options Exchange Volatility Index is known, measures the cost of using options as insurance against declines in the S&P 500.
The S&P 500 moved in an 8.73 percent range between today’s intraday high and low, the widest since Nov. 20, 2008, when the VIX closed at a record 80.86.
About 19.3 billion shares changed hands on U.S. exchanges, the most since October 2008 and more than double 2010 average. Almost 10 stocks fell for each that rose on U.S. exchanges.
The MSCI World Index of stocks in 23 developed nations sank 2.8 percent and has plunged 6.4 percent in the past three days, its biggest retreat since in 14 months. The gauge ended at its lowest level since February, while the S&P 500 and the Dow closed at the lowest since March 4.
The benchmark 10-year Treasury note yield plunged as much as 28 basis points to touch 3.26 percent, the lowest level since Dec. 2, before trading at 3.40 percent, down 14 basis points.
The Dollar Index, which measures the currency against six major trading partners, jumped as much as 1.4 percent.
Bonds of debt-laden European nations tumbled. The yield on Spain’s 10-year note surged 24 basis points, or 0.24 percentage point, to 4.42 percent, the highest since June. Italy’s 10-year yield jumped 22 basis points to 4.27 percent.
The 10-year Greek bond yield surged 1.14 percentage points to 11.31 percent, the highest in Bloomberg data going back to 1998. The nation’s two-year debt surged 1.46 percentage points to 16.36 percent, also a record in Bloomberg data.
German bunds gained, sending the yield premium investors demand to own Greek and Spanish 10-year debt instead of Europe’s benchmark bond to records.
A 110 billion-euro ($140 billion) aid package to avoid a default by Greece has failed to prevent bond yields from rising, driving up borrowing costs for countries including Spain and Portugal. Sovereign debt contagion may spread across Europe, affecting the banking systems of Portugal, Spain and Italy, as well as Greece, Moody’s Investors Service said in a report.
“It’s all about Europe,” said Tom Wirth, senior investment officer for Chemung Canal Trust Co., which manages $1.6 billion in Elmira, New York. “There’s a perception that what’s going on in Europe will be dragging the region back into a recession. The question is how much of that is going to be contagious to the rest of the world.”
Spanish Bond Sale
Spain paid the highest yield since 2008 to sell five-year bonds. The Treasury sold 2.35 billion euros of the notes in an auction in Madrid to yield 3.532 percent. That was 0.716 percentage point more than it paid on similar securities in the most recent sale, nine weeks ago.
Prime Minister Jose Luis Rodriguez Zapatero this week railed at investors who dumped Spanish bonds on concern that the rescue plan for Greece may not insulate other euro-region governments from the crisis. The premier is trying to reduce a budget deficit that’s almost four times the European Union’s limit and regain the confidence of fund managers.
ECB President Jean-Claude Trichet resisted pressure from investors to take new steps to fight the euro-area’s spreading fiscal crisis.
“We call for decisive actions by governments to achieving a lasting and credible consolidation of public finances,” Trichet told reporters today after the ECB’s Governing Council met in Lisbon. Spain and Portugal are “not Greece,” he said.
Turmoil in financial markets also battered the market for initial public offerings.
Ron Burkle’s Americold Realty Trust postponed the largest U.S. initial public offering of 2010, while Hong Kong’s Swire Properties Ltd. shelved its sale as the biggest stock-market slump in a year roiled IPOs.
Americold, the warehouse operator owned by Burkle’s Yucaipa Cos., pulled its $660 million sale after slashing the midpoint price by 33 percent yesterday, according to Bloomberg data and a filing with the Securities and Exchange Commission.
Swire Properties, landlord to Time Warner Inc. in Hong Kong, dropped its plan to raise as much as HK$20.8 billion ($2.7 billion). Smile Brands Group Inc., the Santa Ana, California- based provider of support services to dental groups, also shelved its $132 million IPO today.
Crude oil fell to an 11-week low in New York, retreating 3.6 percent to $77.11 a barrel.
Gold rallied 2.6 percent to top $1,200 an ounce, approaching a record.
アテネ。ECB がギリシア財政破綻救助の条件に財政緊縮を要求した。予算のカットを恐れた公務員は暴れた。ECB Must Resist Quantitative-Easing Siren Call
By RICHARD BARLEY And SIMON NIXON
The European Central Bank has already performed one screeching U-turn, announcing it would accept Greek bonds as collateral even if all major rating agencies downgrade it to junk. Now the market is questioning whether the ECB will be forced to break the final taboo: printing money to buy government bonds directly. That would be a disastrous step, for the ECB, the euro and the euro zone. The central bank should resist it, even if the result is the breakup of the single currency.
.ECB President Jean-Claude Trichet said over the weekend there was "absolutely no decision" on buying government bonds—which only served to stoke the speculation. Despite a €110 billion ($145 billion) package for Greece, the market stepped up the pressure on Tuesday, with Portuguese and Spanish bonds hit again. Of course, this may simply reflect execution risk; the market may calm once the package is activated. But if it doesn't, euro-zone policy makers will find themselves desperately short of options. Given the political difficulties in agreeing on the Greek package, it is hard to see the euro zone agreeing on a similar deal for other nations.
Until now, the ECB has supported government-bond markets by offering unlimited liquidity to the banking system at low rates. Banks used some of this liquidity to take advantage of steep government-bond yield curves, providing banks with an apparently risk-free profit and governments with a ready source of demand for their bonds. But if the euro-zone crisis intensifies, banks are unlikely to keep buying bonds from governments perceived to present default risk.
Besides, the ECB would face a major credibility crisis if it started buying government bonds now, since the ECB has already announced it is scaling back its liquidity programs. And unlike the U.S. Federal Reserve and Bank of England's quantitative-easing programs, which were presented as monetary-policy operations designed to ward off deflation, any ECB step down this path would be an unambiguous exercise in debt monetization.
In any case, there are good reasons why the ECB has so far resisted direct quantitative easing. Not only is it prohibited under its mandate, but it would undermine the ECB's independence and the euro zone's separation of monetary and fiscal policy. Any decision by the ECB to buy bonds of certain nations would risk a fiscal transfer over the heads of sovereign powers that would be politically controversial.
Purchases of European government bonds would be the final desperate step in a process that has seen the debt crisis move from subprime U.S. borrowers at the outer reaches of the financial system to its heart in just three years. It would be an admission that the single-currency experiment had failed. If the crisis gets to that point, better to face up to the failure.
China May ‘Crash’ in Next 9 to 12 Months, Faber Says
May 3 (Bloomberg) -- Investor Marc Faber said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst.
The Shanghai Composite Index has failed to regain its 2009 high while industrial commodities and shares of Australian resource exporters are acting “heavy,” Faber said. The opening of the World Expo in Shanghai last week is “not a particularly good omen,” he said, citing a property bust and depression that followed the 1873 World Exhibition in Vienna.
“The market is telling you that something is not quite right,” Faber, the publisher of the Gloom, Boom & Doom report, said in a Bloomberg Television interview in Hong Kong today. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”
An index tracking Chinese stocks traded in Hong Kong dropped 1.8 percent today, the most in two weeks, after the central bank raised reserve requirements for the third time this year. The Shanghai Composite has slumped 12 percent this year, Asia’s worst performer, as policy makers seek to rein in a lending boom that’s spurred record gains in property prices. China’s markets are shut for a holiday today.
Copper touched a seven-week low and BHP Billiton Ltd., the world’s biggest mining company, fell the most since February on concern spending in the world’s third-largest economy will slow and after Australia boosted taxes on commodities producers. Rio Tinto Ltd., the third-largest, slid as much as 6 percent.
Faber joins hedge fund manager Jim Chanos and Harvard University’s Kenneth Rogoff in warning of a crash in China.
China is “on a treadmill to hell” because it’s hooked on property development for driving growth, Chanos said in an interview last month. As much as 60 percent of the country’s gross domestic product relies on construction, he said. Rogoff said in February a debt-fueled bubble in China may trigger a regional recession within a decade.
The government has banned loans for third homes and raised mortgage rates and down-payment requirements for second-home purchases. Prices rose 11.7 percent across 70 cities in March from a year earlier, the most since data began in 2005.
The government has stopped short of raising interest rates to contain property prices. Within an hour of the central bank announcement on reserve ratios, Finance Minister Xie Xuren said that officials remained committed to expansionary policies to cement the nation’s recovery.
Stocks ‘Fully Priced’
The nation’s economy grew 11.9 percent in the first quarter, the fastest pace in almost three years. The government projects gross domestic product growth for the year of about 8 percent.
The clampdown on property speculation may prompt investors to turn to the nation’s stock market, Faber said. Still, shares are “fully priced” and Chinese investors may instead become “big buyers” of gold, he said.
BlackRock Inc. is among money managers reducing their holdings on Chinese stocks on expectations that economic growth has peaked. The BlackRock Emerging Markets Fund has widened its “underweight” position for China versus the MSCI Emerging Markets Index to about 7.5 percent from 4.6 percent at the end of March, the fund’s London-based co-manager Dan Tubbs said.
Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd, the nation’s three largest banks, are trading near their lowest valuations on record as rising profits are eclipsed by concern bad loans will increase.
Citigroup Inc. warned in March that in a “worst case scenario,” the non-performing loans of local-government investment vehicles, used to channel money to stimulus projects, could swell to 2.4 trillion yuan by 2011.
Housing prices nationwide may fall as much as 20 percent in the second half of the year on government measures to curb speculation, BNP Paribas said April 23. Under a stress test conducted by the Shanghai branch of the China Banking Regulatory Commission in February, local banks’ ratio of delinquent mortgages would triple should home prices in the country’s commercial center decline 10 percent.
Shanghai is projecting as many as 70 million visitors to the $44 billion World Expo, more than 10 times the number who traveled to the 2008 Beijing Olympics. More than 433,000 people visited the 5.3 square-kilometer (3.3 square-mile) park on its first weekend.
Greek bailout fails to give world markets a lift
By PAN PYLAS
The Associated Press
Monday, May 3, 2010; 7:32 AM
LONDON -- World markets fell Monday even after Greece's 15 partners in the eurozone and the International Monetary Fund agreed to bail out the highly indebted country.
In Europe, Germany's DAX was 23.92 points, or 0.4 percent, at 6,111.78 while France's CAC-40 fell 31.04 points, or 0.8 percent, at 3,785.95. The FTSE 100 index of leading British shares was closed for the May Day bank holiday.
The modest pullback during early trading came in the wake of Sunday's agreement by the eurozone and the IMF to offer Greece euro110 billion ($145 billion) over three years to give it some breathing to deal with its massive debts. In return, the country pledged to push through a further euro30 billion of austerity measures through to 2012, cutting wages and pensions and increasing sales taxes.
The Greek cabinet has accepted the proposals and the eurozone's governments are looking to formally clear the funds before Greece's next euro8.5 billion debt repayment on May 19. French finance minister Christine Lagarde goes later Monday to France's lower house of parliament to present a budget amendment allowing the government to release funds.
The toughest approval process is expected to be Germany where Chancellor Angela Merkel's government will face tough questioning from lawmakers and a challenge in the constitutional court, said Mitul Kotecha, an analyst at Credit Agricole. As the eurozone's biggest economy, Germany's contribution to the bailout package is the most sizable at euro22 billion.
Though the markets expect even this hurdle to be clear, the crisis is far from over. Questions likely to dominate include the ability of the Greek government to push through its severe austerity program given growing opposition on the streets and a recession likely to be caused by measures.
"Implementation risk is high," Kotecha said.
That certainly seems to be the view in the Athens markets, where the benchmark composite index was trading 1.4 percent lower at 1,844.70.
One of the aims of the package is to prevent the debt crisis spreading to other countries within the eurozone - last week's decision by Standard & Poor's to cut its credit ratings on Portugal and Spain proved to be the catalyst to finally get the Germans four-square behind a more comprehensive Greek bailout package.
So-called contagion around the eurozone raised questions about the future of the euro currency - Merkel said the bailout of Greece was the "only possibility we have to ensure the stability of the euro."
The jury is out, though, whether the package can ensure stability for the euro over the medium-term, especially as questions about the institutional framework remain unresolved following four months of indecision - by late morning London time, the euro was down 0.8 percent at $1.3232.
"The damage done to the market in the last few weeks will likely leave its mark and this will be reflected in greater skepticism than would have been otherwise from market participants about the potential success of the deal," said Jacques Cailloux, chief eurozone economy at Royal Bank of Scotland.
"Markets will likely focus on the implementation risks surrounding the program, ranging from the approval procedures of the tranches to the response of the population to the new austerity measures," Cailloux added.
A further element of the response to the Greek debt crisis that has raised eyebrows in the markets is the European Central Bank's decision to suspend its rating limits on Greek debt until further notice.
In a statement Monday, the central bank for the 16 countries that use the euro said the suspension of the minimum credit rating includes all existing and new debt instruments "issued or guaranteed by the Greek government."
That means that Greek debt can as collateral in ECB lending operations despite its poor credit ratings. Last week, Standard & Poor's cut its rating on Greece to junk status, raising market fears that if the other two leading agencies Moody's and Fitch did the same, then Greek debt would have been ineligible.
Cailloux think that the decision by the bank puts it "one set closer to the nuclear option" - the actual purchase of Greek bonds in the markets by the bank in the name of maintaining financial stability.
Cailloux thinks the purchase of government bonds by the ECB is "technically possible" and would probably be "the only response that would have a long lasting and decisive impact on the market" especially as it would support liquidity in the secondary market over the coming two years when Greece is not expected to tap investors.
Wall Street was poised to open modestly higher later, with Dow futures up 18 points, or 0.2 percent, at 10,978 and the broader Standard & Poor's 500 futures rising 3 points, or 0.3 percent, to 1,186.40.
Earlier in Asia, Hong Kong's Hang Seng index led the retreat, falling 297.23 points, or 1.4 percent, to 20,811.36 while South Korea's benchmark dropped 1.2 percent to 1,721.21.
Trading volumes were light in Asia as the two biggest markets, Japan and China, were closed for holidays. Markets in Thailand and the Philippines were also closed.
Investors will be interested to see how markets respond Tuesday to the decision by the People's Bank of China to raise the deposit reserve requirement ratio for most banks by half a percentage point, starting May 10. This is the third time this year that the central bank has raised the deposit reserve minimum in an effort to curb inflation and surging property prices.
China’s Reserve-Ratio Rise May Not Be Enough to Whip Inflation
By Bloomberg News
May 3 (Bloomberg) -- China’s third increase of bank reserve ratios this year left benchmark interest rates and the yuan’s peg to the dollar unchanged, risking the need for more concerted effort to contain property prices and inflation in coming months.
The requirement will increase 50 basis points effective May 10, the People’s Bank of China said on its Web site yesterday. The current level is 16.5 percent for the biggest banks and 14.5 percent for smaller ones.
The latest move adds to a government crackdown on property speculation after record price increases in March and came on a holiday weekend, with Chinese markets shut today. Within an hour of the central bank announcement, Finance Minister Xie Xuren said that officials remained committed to expansionary policies to cement the nation’s recovery.
“Beijing still prefers to fine-tune credit conditions and the property market rather than using blunter instruments that impact the entire economy like higher lending rates and a stronger currency,” said Brian Jackson, a Hong Kong-based strategist at Royal Bank of Canada. The danger is that the approach “will not be enough to keep these price pressures under control, which would then force policy-makers to tighten more aggressively later on.”
Yesterday’s move removes 300 billion yuan ($44 billion) from the financial system and may push back an interest-rate increase until “early June,” according to Deutsche Bank AG.
The Shanghai Composite Index has tumbled 12 percent this year on concern that government measures to cool the property market and the economy will hurt profits.
Inflows of speculative capital from investors betting on yuan gains may have driven yesterday’s move, said Lu Zhengwei, a Shanghai-based economist at Industrial Bank Co.
Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong, said “China has been inundated with hot money on the back of yuan revaluation speculation.”
Non-deliverable yuan forwards indicate the government will end the peg to the dollar, letting the currency gain 3.2 percent within 12 months.
In March, a $22.5 billion jump in foreign-exchange reserves, the biggest gain in four months, suggested investors could be showing a renewed appetite for bets on the currency. Exports and company profits are rebounding and the economy expanded 11.9 percent in the first quarter from a year earlier.
Baoshan Iron & Steel Co., the nation’s largest publicly traded steelmaker, estimates first-half profit may increase as much as 10-fold, while Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. posted the largest first- quarter profits among the world’s banks.
Still, Chinese policy makers have expressed caution about the outlook for the domestic and global economies as Europe, the nation’s biggest export market, grapples with a debt crisis. The emergency in Greece makes an interest-rate increase “less and less likely” this quarter and could delay gains in the yuan, Bank of America-Merrill Lynch said last week.
“The foundation of the recovery in the Chinese economy is not very solid, so we will continue to adopt a moderately loose monetary policy and an expansionary fiscal policy,” Xie, the finance minister, said in Tashkent, Uzbekistan, yesterday.
Speculation that China was poised to let the yuan gain intensified last month after U.S. Treasury Secretary Timothy F. Geithner delayed a report that could name the nation a currency manipulator and had an unscheduled meeting in Beijing with Chinese Vice Premier Wang Qishan. The currency trades at about 6.83 per dollar.
Central Bank’s Trigger
Manufacturing accelerated in April and material costs jumped, a May 1 report showed, underscoring the risk of overheating in the fastest-growing major economy. Those data, and possibly strong loan growth in April, may have triggered yesterday’s move, said Liu Li-Gang, a Hong Kong-based economist at Australia and New Zealand Banking Group Ltd.
Reserve-ratio increases and the targeting of a 22 percent reduction in new loans this year are among efforts to wind back stimulus that has driven the nation’s recovery from the financial crisis. Measures to cool the real-estate market have included a ban on loans for third-home purchases and raising mortgage rates and down-payment requirements for second-home purchases.
In March, property prices rose 11.7 percent across 70 cities from a year earlier, the most since data began in 2005. The inflation rate was 2.4 percent, compared with a government target for the year of about 3 percent.
Inflation Eroding Savings
In February, consumer prices rose 2.7 percent, the most in 16 months, topping the one-year deposit rate of 2.25 percent. The benchmark one-year lending rate is 5.31 percent.
PBOC Deputy Governor Zhu Min said March 25 that rate rises were a “heavy-duty weapon” and alternative measures were working well.
China faces a complex economic environment this year amid a weak global recovery and domestic challenges including managing inflation expectations and risks from local-government borrowing and property loans, banking regulator Liu Mingkang said April 30.
Investor Marc Faber said April 21 that China’s “excessive” credit expansion and surging real-estate prices are “danger signals” and “there are some symptoms of a bubble building.”
China appears heading for an “asset boom, bubble and bust” that probably won’t be thwarted by tighter economic policy, Citigroup Inc. economists said in a March report. It may take as long as two years for the bubble to form and at least three years for it to burst, London-based Willem Buiter, a former Bank of England policy maker, and Shen Minggao in Hong Kong estimated.
Premier Wen Jiabao’s government is aiming to slow credit growth to 7.5 trillion yuan ($1.4 trillion) this year from a record 9.59 trillion yuan in 2009. In the first three months of 2010, banks lent 35 percent of the full-year target.
--Kevin Hamlin, Li Yanping, Sophie Leung, Feiwen Rong, Shamim Adam. Editors: Chris Anstey, Paul Panckhurst.