Bank of Japan Gov. Masaaki Shirakawa will visit Mexico from Thursday until Tuesday to attend a meeting of finance ministers and central bankers from the Group of 20 advanced and developing nations, the BOJ confirmed Friday.
Hiroshi Nakaso, an executive director at the BOJ, will accompany Shirakawa, the central bank said.
Friday, 24 February 2012
ECB's Nowotny: No Current Need For Further 3-Year Tenders After Feb
There is no current need for a further three-year tender after the European Central Bank's holds its second such refinancing operation at the end of this month, ECB Governing Council Member Ewald Nowotny said Friday.
"I believe the general feeling in ECB council is that we have set very considerable measures. Now it is about waiting and seeing what effect these measures have in connection with economic developments. I personally don't see any need [for a further three-year tender]," said Nowotny, adding, however, that the ECB never pre-commits to any course of action.
The central banker also said that the three-year tender had had a positive impact and its effect on banks had been structural and had not led to a wave of loans being given out.
He also said that the ECB's role was not to provide monetary financing directly to member states.
Nowotny, who is also the central bank governor of Austria, said that Austrian banks were not "addicted" to the ECB's liquidity measures.
While the governor views the second Greek bailout package as positive, he said it was important to consider growth measures for Greece. The goal should be to make Greece more attractive for foreign investors through infrastructure and administrative changes, he said.
Nowotny was speaking at a discussion in Vienna with financial journalists.
"I believe the general feeling in ECB council is that we have set very considerable measures. Now it is about waiting and seeing what effect these measures have in connection with economic developments. I personally don't see any need [for a further three-year tender]," said Nowotny, adding, however, that the ECB never pre-commits to any course of action.
The central banker also said that the three-year tender had had a positive impact and its effect on banks had been structural and had not led to a wave of loans being given out.
He also said that the ECB's role was not to provide monetary financing directly to member states.
Nowotny, who is also the central bank governor of Austria, said that Austrian banks were not "addicted" to the ECB's liquidity measures.
While the governor views the second Greek bailout package as positive, he said it was important to consider growth measures for Greece. The goal should be to make Greece more attractive for foreign investors through infrastructure and administrative changes, he said.
Nowotny was speaking at a discussion in Vienna with financial journalists.
MARKET TALK: Emerging-Market Currencies Hold Onto Gains
Emerging-market currencies hold onto gains in European trading, helped by upbeat global market sentiment. HUF, PLN and CZK all nudge higher against EUR, while ZAR firms against USD. "There are still some significant global risks to watch, however, including the implementation risks of the Greek deal, the market response to the ECB's LTRO next week, and the rising oil prices," says Societe Generale. In emerging markets, Colombia's interest-rate decision will be IN focus Friday, particularly since the central bank surprised markets last month with a rate increase. EUR/PLN currently trades at 4.1653, compared with 4.1675 late Thursday in New York; EUR/CZK trades at 24.991, versus 25.035; EUR/HUF trades at 288.60, compared with 288.88; USD/ZAR trades down at 7.5914; and USD/COP trades at 1776.7
FOCUS: Euro Zone Is Reason To Buy, Not Sell, The Pound
-- Recent data throw GBP fortunes up in the air
-- Crude oil price rise raises fresh inflation fears
-- UK should still be in better position to adjust policy
LONDON (Dow Jones)--The euro zone may still be casting a nasty dark shadow over sterling.
But there is still little reason to really sell the U.K. currency just now.
On the contrary, the recent decline in sterling, triggered by concern that the Bank of England is more dovish than originally thought, could well prove a good buying opportunity.
The fortunes of the pound, which had been doing so well for much of this year, have been thrown up in the air over the last week or two as investors reacted guardedly to news that the Bank of England had resorted to more quantitative easing at its policy meeting earlier this month.
Confidence in the currency was further undermined by news this week that two members of the bank's monetary policy committee would have preferred GBP75 billion of QE rather than the GBP50 billion authorized by the committee.
Given concerns over the debt crisis in the euro zone and the failure of a bailout package for Greece earlier this week to extract fears of a sovereign default, this caution was hardly surprising.
Now, with the European Union lowering its growth forecasts for the region as a whole to a contraction of 0.3%, confidence in the euro zone's ability to avoid a further crisis is likely to be even weaker.
Of course, this reflects on the U.K., which remains one of the euro zone's largest trading partners.
However, recent economic data show that despite all the gloom U.K. consumer activity remains higher than would be expected and that even the government's fiscal position is improving more rapidly than forecast.
The latest surprise on the upside came from John Lewis store sales Friday. Although the 9.6% increase in sales over the year to last week can be explained away for one reason or another, the underlying up trend in consumer confidence is unmistakable.
"Consumers may be perking up a bit and will prove more resilient than expected over the coming months," noted Howard Archer, chief U.K. economist at IHS Global Insight.
This was confirmed in the latest GDP figures, with consumer activity rising in the last quarter of 2011 for the first time since the third quarter of 2010.
Export growth of 2.3% on the quarter also lifted hope that the U.K. may prove more resilient to the euro zone that initially thought.
Perhaps of even more important for the international investor was the news this week that the government's austerity program may be starting to work.
Despite calls for Chancellor George Osborne to abandon his strategy and cut taxes, preliminary figures showed that public sector borrowing was less than expected and that the chancellor may actually have money to start easing the burden in his budget next month.
This could come at a highly opportune moment, especially if the rise in crude oil prices since the start of this year continues.
Higher energy prices wouldn't only damage growth prospects, they would also risk pushing inflation higher, just at the point at which U.K. price pressures have started to subside.
Sure, this wouldn't be particularly good news for the U.K. economy. But, it would probably be even worse for other weaker economies, such as that of the euro zone.
With the U.K. in a better position to adjust to these external changes, sterling should find that its safe haven status, which appeared to be coming under pressure in the last week or two, is restored.
-- Crude oil price rise raises fresh inflation fears
-- UK should still be in better position to adjust policy
LONDON (Dow Jones)--The euro zone may still be casting a nasty dark shadow over sterling.
But there is still little reason to really sell the U.K. currency just now.
On the contrary, the recent decline in sterling, triggered by concern that the Bank of England is more dovish than originally thought, could well prove a good buying opportunity.
The fortunes of the pound, which had been doing so well for much of this year, have been thrown up in the air over the last week or two as investors reacted guardedly to news that the Bank of England had resorted to more quantitative easing at its policy meeting earlier this month.
Confidence in the currency was further undermined by news this week that two members of the bank's monetary policy committee would have preferred GBP75 billion of QE rather than the GBP50 billion authorized by the committee.
Given concerns over the debt crisis in the euro zone and the failure of a bailout package for Greece earlier this week to extract fears of a sovereign default, this caution was hardly surprising.
Now, with the European Union lowering its growth forecasts for the region as a whole to a contraction of 0.3%, confidence in the euro zone's ability to avoid a further crisis is likely to be even weaker.
Of course, this reflects on the U.K., which remains one of the euro zone's largest trading partners.
However, recent economic data show that despite all the gloom U.K. consumer activity remains higher than would be expected and that even the government's fiscal position is improving more rapidly than forecast.
The latest surprise on the upside came from John Lewis store sales Friday. Although the 9.6% increase in sales over the year to last week can be explained away for one reason or another, the underlying up trend in consumer confidence is unmistakable.
"Consumers may be perking up a bit and will prove more resilient than expected over the coming months," noted Howard Archer, chief U.K. economist at IHS Global Insight.
This was confirmed in the latest GDP figures, with consumer activity rising in the last quarter of 2011 for the first time since the third quarter of 2010.
Export growth of 2.3% on the quarter also lifted hope that the U.K. may prove more resilient to the euro zone that initially thought.
Perhaps of even more important for the international investor was the news this week that the government's austerity program may be starting to work.
Despite calls for Chancellor George Osborne to abandon his strategy and cut taxes, preliminary figures showed that public sector borrowing was less than expected and that the chancellor may actually have money to start easing the burden in his budget next month.
This could come at a highly opportune moment, especially if the rise in crude oil prices since the start of this year continues.
Higher energy prices wouldn't only damage growth prospects, they would also risk pushing inflation higher, just at the point at which U.K. price pressures have started to subside.
Sure, this wouldn't be particularly good news for the U.K. economy. But, it would probably be even worse for other weaker economies, such as that of the euro zone.
With the U.K. in a better position to adjust to these external changes, sterling should find that its safe haven status, which appeared to be coming under pressure in the last week or two, is restored.
WSJ/The Source: Friday's Top Equity Rating Changes
It has been a busy Friday for equity-rating changes, with many of the investment houses focusing on the banks sector. The Stoxx Europe 600 banks index has risen around 4.6% this month and with the second longer-term refinancing operation (LTRO) from the European Central Bank due next week, there could be further gains. Here's what some of the big-brain analysts are saying about the banks:
Barclays Capital has downgraded the European banks sector to underweight from market weight. The brokerage thinks the imminent LTRO is already priced in, following the sector's stellar performance since November 2011. "In addition, risks from deleveraging, regulatory reform, and earnings downgrades remain," said BarCap. Also, BarCap has upgraded the retail sector to market weight from underweight. To balance the rotation, it has upgraded food & beverages to market weight. Overall for European equities, BarCap thinks, in the short term, the rally could continue through February as financial conditions continue to improve.
Meanwhile, BofA-Merrill Lynch has said investors need to focus on stock picking in the European banks sector. It thinks the scope for further re-rating across the entire sector is limited in the near term. The brokerage sees investment banks as best positioned to deliver positive earnings per share surprises in the near term and has consequently upgraded Deutsche Bank to buy from neutral. Along with Deutsche Bank, Credit Suisse, Barclays, Lloyds Banking Group and UniCredit are its top picks.
Sticking with the banks, Credit Agricole has been downgraded to sell from hold by Societe Generale following its fourth-quarter results, released on Feb. 23. Societe Generale said Credit Agricole's fourth quarter was affected by EUR2.5 billion of impairments and EUR500 million of deleveraging costs (after tax). But the loss was bigger than expected mainly due to higher impairment charges related to Greece.
That's enough with the banks today, so let's move on to basic resources. J.P. Morgan Cazenove has downgraded Anglo American to neutral from overweight on valuation grounds, after another round of earnings downgrades post results, primarily driven by a more conservative than expected outlook in the copper division. Elsewhere, JPM has cut Tullow Oil to neutral from overweight. It thinks Tullow is well placed to create more value in the longer term, especially in South America. However, in the short term, the brokerage is concerned that a substantial amount of exploration success is now priced in. At the same time, the brokerage has upgraded Enquest to overweight from neutral as its valuation looks more attractive, especially on a relative basis.
Barclays Capital has downgraded the European banks sector to underweight from market weight. The brokerage thinks the imminent LTRO is already priced in, following the sector's stellar performance since November 2011. "In addition, risks from deleveraging, regulatory reform, and earnings downgrades remain," said BarCap. Also, BarCap has upgraded the retail sector to market weight from underweight. To balance the rotation, it has upgraded food & beverages to market weight. Overall for European equities, BarCap thinks, in the short term, the rally could continue through February as financial conditions continue to improve.
Meanwhile, BofA-Merrill Lynch has said investors need to focus on stock picking in the European banks sector. It thinks the scope for further re-rating across the entire sector is limited in the near term. The brokerage sees investment banks as best positioned to deliver positive earnings per share surprises in the near term and has consequently upgraded Deutsche Bank to buy from neutral. Along with Deutsche Bank, Credit Suisse, Barclays, Lloyds Banking Group and UniCredit are its top picks.
Sticking with the banks, Credit Agricole has been downgraded to sell from hold by Societe Generale following its fourth-quarter results, released on Feb. 23. Societe Generale said Credit Agricole's fourth quarter was affected by EUR2.5 billion of impairments and EUR500 million of deleveraging costs (after tax). But the loss was bigger than expected mainly due to higher impairment charges related to Greece.
That's enough with the banks today, so let's move on to basic resources. J.P. Morgan Cazenove has downgraded Anglo American to neutral from overweight on valuation grounds, after another round of earnings downgrades post results, primarily driven by a more conservative than expected outlook in the copper division. Elsewhere, JPM has cut Tullow Oil to neutral from overweight. It thinks Tullow is well placed to create more value in the longer term, especially in South America. However, in the short term, the brokerage is concerned that a substantial amount of exploration success is now priced in. At the same time, the brokerage has upgraded Enquest to overweight from neutral as its valuation looks more attractive, especially on a relative basis.
INTERVIEW: Kogas To Hedge 100% Of LNG Import Settlements Worth $22Bln Via Forwards
State-run Korea Gas Corp. (036460.SE), the world's largest corporate buyer of liquefied natural gas, plans to continue to fully hedge its LNG import exposure, worth around $22 billion, by buying dollar forwards this year so it doesn't suffer from foreign exchange fluctuations, an executive at the company said Friday.
The state-run gas developer and supplier, also called Kogas, has a basic policy of hedging all its LNG exposure.
Kogas has a business plan for the year that's based on a foreign exchange rate of KRW1,050 to the dollar and oil prices of US$100 per barrel, Kim Hee-tae, the head of the company's finance department told Dow Jones Newswires in an emailed interview. The dollar was at KRW1,125.80 in late Asian trade Friday.
Kim didn't specify what type of oil price he was referring to. South Korea relies mostly on Dubai crude for domestic demands. Dubai crude was trading around $120 Thursday. Kogas is one of the biggest importers of LNG globally because South Korea relies heavily on overseas resources for its energy needs. As of end-2011, South Korea's oil-and-gas self-sufficiency ratio, which measures the ratio of resources owned by domestic firms to imports, was at 13.7%. For funding its overseas resource development projects, the company will first use corporate funds and sell foreign-currency denominated bonds to raise funds and will borrow in foreign currencies if it has to, he said.
Last month, another Kogas executive said the company plans to invest about $3 billion this year in overseas resources, with investment mostly directed towards LNG projects.
Kogas is mulling sales of various bonds, including global bonds, maple bonds, samurai bonds and Swiss-franc bonds, Kim added.
Analysts expect Kogas to continue to become a more active participant in global bond market as it seeks to expand resource development overseas. In January, Kogas raised around US$750 million from the sale of a 30-year dollar-denominated global bond to finance overseas resource projects.
Key overseas projects Kogas is participating in include the multi-billion Akkas gas field development in Iraq in which it is the major stakeholder and the Gladstone LNG project, in Queensland state. It also said last year it will participate in the Prelude gas development project in Australia through a stake investment.
The state-run gas developer and supplier, also called Kogas, has a basic policy of hedging all its LNG exposure.
Kogas has a business plan for the year that's based on a foreign exchange rate of KRW1,050 to the dollar and oil prices of US$100 per barrel, Kim Hee-tae, the head of the company's finance department told Dow Jones Newswires in an emailed interview. The dollar was at KRW1,125.80 in late Asian trade Friday.
Kim didn't specify what type of oil price he was referring to. South Korea relies mostly on Dubai crude for domestic demands. Dubai crude was trading around $120 Thursday. Kogas is one of the biggest importers of LNG globally because South Korea relies heavily on overseas resources for its energy needs. As of end-2011, South Korea's oil-and-gas self-sufficiency ratio, which measures the ratio of resources owned by domestic firms to imports, was at 13.7%. For funding its overseas resource development projects, the company will first use corporate funds and sell foreign-currency denominated bonds to raise funds and will borrow in foreign currencies if it has to, he said.
Last month, another Kogas executive said the company plans to invest about $3 billion this year in overseas resources, with investment mostly directed towards LNG projects.
Kogas is mulling sales of various bonds, including global bonds, maple bonds, samurai bonds and Swiss-franc bonds, Kim added.
Analysts expect Kogas to continue to become a more active participant in global bond market as it seeks to expand resource development overseas. In January, Kogas raised around US$750 million from the sale of a 30-year dollar-denominated global bond to finance overseas resource projects.
Key overseas projects Kogas is participating in include the multi-billion Akkas gas field development in Iraq in which it is the major stakeholder and the Gladstone LNG project, in Queensland state. It also said last year it will participate in the Prelude gas development project in Australia through a stake investment.
MARKET TALK: DATA PREVIEW: Swiss Feb KOF Index Seen Up At -0.11
The KOF barometer of leading Swiss indicators is estimated to have edged higher to -0.11 in February, from -0.17 in January, according to the average of forecasts from five economists compiled by Dow Jones Newswires. The KOF barometer is expected to bottom out after its recent downward trend, in line with the improving global business climate, but it's still indicating weaker Swiss economic momentum in the coming six months. The data are due Feb. 29 at 0800 GMT.
ECB Coeure: Euro Zone Economy To Recover Very Gradually In 2012
There are tentative signs of stabilization in the euro zone, European Central Bank Executive Board member Benoit Coeure said in a speech in Miami last Sunday, but released by the ECB Friday.
The central banker added that the economy in the 17-nation currency zone will likely recover very gradually this year. Furthermore, consumer price inflation will likely stay above the 2% benchmark for several months, but then fall back below the target. The Frankfurt-based central bank aims to keep inflation just below 2% over the medium term.
According to a first estimate from Eurostat, euro-zone GDP fell by 0.3% on the quarter in the last three months of last year. Still Coeure said: "There are tentative signs of a stabilisation in economic activity according to the most recent survey data."
Coeure added that the ECB expects "the euro area economy to recover very gradually in the course of 2012." Furthermore, euro-zone inflation "is likely to stay above 2% for several months to come, before declining to below 2%."
The central banker also said that the ECB's first allocation of liquidity at a three-year maturity in late December "is indeed flowing, or will flow, between economic agents." He also repeated that banks which borrow from the Eurosystem, the ECB and national central banks in the euro zone, aren't necessarily the same institutions that leave funds in the central bank's deposit facility.
In a discussion about the risks of zero or negative interest rates, Coeure said: "Overall, a switch to zero or negative interest rates bears some risks--mainly of a microeconomic nature. [These] would have to be weighed against potential benefits in terms of additional macroeconomic stimuli."
Furthermore, such steps would be warranted "only in the face of clear downward risks to price stability, which today are not present in the euro area. In particular, the discussion about deflation risks remains largely speculative," he said.
Coeure acknowledged that some economists have pushed for policy makers to lower the interest rate at which banks borrow from the central bank into negative territory. He said that a temporary situation of zero or negative rates "can have long-lasting implications for banks and their trading incentives." In theory, he added, everyone would want to borrow at zero or a negative rate without having to find a creditor to take the opposite side of the transaction.
But, "if the central bank offers this service systematically, banks can dismantle their trading platforms--which are costly to maintain--and become addicted to central bank credit," he warned.
He noted that in Japan within three months of the introduction of a zero interest rate policy, transaction volumes declined by about one-half and low turnover continued until the policy was discontinued at the end of 2006.
Coeure conceded that it was difficult to "disentangle" the effect of other factors on money market behavior. But, he said, "if a protracted period of zero or negative interest rates were to be experienced in the euro area, it would be particularly important not to lose the perspective, and the possibility, of restarting the interbank market at a later stage."
Furthermore, "the intermediation role taken by the central bank cannot, and should not forever take the place of money market activity," he said.
The central banker added that the economy in the 17-nation currency zone will likely recover very gradually this year. Furthermore, consumer price inflation will likely stay above the 2% benchmark for several months, but then fall back below the target. The Frankfurt-based central bank aims to keep inflation just below 2% over the medium term.
According to a first estimate from Eurostat, euro-zone GDP fell by 0.3% on the quarter in the last three months of last year. Still Coeure said: "There are tentative signs of a stabilisation in economic activity according to the most recent survey data."
Coeure added that the ECB expects "the euro area economy to recover very gradually in the course of 2012." Furthermore, euro-zone inflation "is likely to stay above 2% for several months to come, before declining to below 2%."
The central banker also said that the ECB's first allocation of liquidity at a three-year maturity in late December "is indeed flowing, or will flow, between economic agents." He also repeated that banks which borrow from the Eurosystem, the ECB and national central banks in the euro zone, aren't necessarily the same institutions that leave funds in the central bank's deposit facility.
In a discussion about the risks of zero or negative interest rates, Coeure said: "Overall, a switch to zero or negative interest rates bears some risks--mainly of a microeconomic nature. [These] would have to be weighed against potential benefits in terms of additional macroeconomic stimuli."
Furthermore, such steps would be warranted "only in the face of clear downward risks to price stability, which today are not present in the euro area. In particular, the discussion about deflation risks remains largely speculative," he said.
Coeure acknowledged that some economists have pushed for policy makers to lower the interest rate at which banks borrow from the central bank into negative territory. He said that a temporary situation of zero or negative rates "can have long-lasting implications for banks and their trading incentives." In theory, he added, everyone would want to borrow at zero or a negative rate without having to find a creditor to take the opposite side of the transaction.
But, "if the central bank offers this service systematically, banks can dismantle their trading platforms--which are costly to maintain--and become addicted to central bank credit," he warned.
He noted that in Japan within three months of the introduction of a zero interest rate policy, transaction volumes declined by about one-half and low turnover continued until the policy was discontinued at the end of 2006.
Coeure conceded that it was difficult to "disentangle" the effect of other factors on money market behavior. But, he said, "if a protracted period of zero or negative interest rates were to be experienced in the euro area, it would be particularly important not to lose the perspective, and the possibility, of restarting the interbank market at a later stage."
Furthermore, "the intermediation role taken by the central bank cannot, and should not forever take the place of money market activity," he said.
GLOBAL MARKETS: European Stocks Slightly Higher; Banks In Focus
--European stocks mildly higher; mixed results across Europe
--Greece concerns fade but analysts warn they could resurface
--Telecom Italia surges but Lloyds Banking Group slumps, weighing on FTSE 100
LONDON (Dow Jones)--European stocks posted mild gains Friday with positive earnings from Telecom Italia proving a welcome surprise, but Lloyds Banking Group shares slid after it posted less pleasing results.
Concerns about Greece have receded somewhat after it managed to negotiate its second bailout deal and investors are now looking ahead to the second longer term refinancing operation from the European Central Bank.
In addition, Greece's parliament Thursday approved the private sector involvement program which includes collective action clauses.
Nevertheless, market participants are keeping one eye on Greece. "Greece isn't quite out of the woods yet on its March redemptions, with questions remaining over the International Monetary Fund's contribution to the second bailout and with this contribution now tied into Germany's vote to ratify the second bailout next week," said Lee McDarby, head of dealing for the Corporate & Institutional Treasury desk at Investec Bank.
At 1035 GMT, the benchmark Stoxx Europe 600 index was 0.3% higher at 264.92, Frankfurt's DAX was up 0.8% at 6864.64 and Paris's CAC-40 was up 0.5% at 3464.78. Meanwhile, London's FTSE 100 was flat at 5938.94, underperforming its peers and barely changed after the second release of fourth-quarter gross domestic product data showed an unrevised 0.2% contraction.
At the same time, U.S. stock-index futures pointed to a slightly firmer open on Wall Street, with the DJIA front month futures contract up 0.2% at 13,001.00 and the S&P 500 front month futures contract up 0.3% at 1366.70.
Telecom Italia was one of the biggest gainers among the euro zone's blue-chip stocks, rising 5.9%. According to analysts, its full-year 2011 results were slightly above market expectations and in line with the company's guidance. Well-received sales and earnings before interest, taxes, depreciations and amortization were driven by business in both Brazil and Italy. Shares in rival Deutsche Telekom rose 1.2% while France Telecom increased by 0.9%.
In London, the focus was on Lloyds Banking Group, which was down 1.2% after reporting a full-year net loss of GBP2.8 billion. The bank was hit by impairment charges for mis-sold insurance and restructuring costs. In addition, the bank said 2014 return on equity targets will not be met and are deferred. "Surely this should not surprise?" said analysts at Investec.
Banks are of particular interest Friday as the Italian regulator is scheduled to lift the short-selling ban of Italian financial stocks, imposed in August 2011. The Italian regulator Consob has up to now expressed no desire to extend the ban.
In addition, Barclays Capital has downgraded the European banks sector Friday to underweight from market weight. With the second longer term refinancing operation imminent, the brokerage believes the news has already been priced in. The Stoxx Europe 600 banks index was up 1.2%.
On the economic front, Germany's economy contracted in the fourth quarter of 2011 by 0.2%, in line with expectations and unchanged from the first gross domestic product reading. Meanwhile, the French consumer confidence index rose slightly in February to 82 from 81 in January. "French consumer confidence seems to hold well despite the rise in unemployment," said Manuel Maleki, economist at ING Bank.
Earlier, Asian stock markets finished mostly higher. Japan's Nikkei Stock Average added and Australia's S&P/ASX 200 gained 0.5%. South Korea's Kospi Composite finished 0.6% higher, Hong Kong's Hang Seng Index finished up 0.1% and China's Shanghai Composite Index was up 1.3%.
Crude oil came off a little, after rising to a fresh nine-month high Thursday amid increasing concerns over Iran and despite a U.S. report that showed rising U.S. oil stockpiles and still slumping fuel demand. Traders worry that a standoff between Iran and the West ahead of the European Union's Iranian oil embargo could disrupt some of that country's 3.5 million barrels a day of production from hitting the market.
April Nymex crude oil futures were unchanged at $108.21 per barrel, while April Brent oil futures were also unchanged at $123.62.
In foreign exchange markets, the euro was at $1.3391 against the dollar, from $1.3370 late Thursday in New York. The dollar was at Y80.57, from Y80.00.
Spot gold was barely changed from its New York settlement on Thursday, at $1,779.20 per troy ounce.
The March bund contract was down eight ticks at 138.94.
--Greece concerns fade but analysts warn they could resurface
--Telecom Italia surges but Lloyds Banking Group slumps, weighing on FTSE 100
LONDON (Dow Jones)--European stocks posted mild gains Friday with positive earnings from Telecom Italia proving a welcome surprise, but Lloyds Banking Group shares slid after it posted less pleasing results.
Concerns about Greece have receded somewhat after it managed to negotiate its second bailout deal and investors are now looking ahead to the second longer term refinancing operation from the European Central Bank.
In addition, Greece's parliament Thursday approved the private sector involvement program which includes collective action clauses.
Nevertheless, market participants are keeping one eye on Greece. "Greece isn't quite out of the woods yet on its March redemptions, with questions remaining over the International Monetary Fund's contribution to the second bailout and with this contribution now tied into Germany's vote to ratify the second bailout next week," said Lee McDarby, head of dealing for the Corporate & Institutional Treasury desk at Investec Bank.
At 1035 GMT, the benchmark Stoxx Europe 600 index was 0.3% higher at 264.92, Frankfurt's DAX was up 0.8% at 6864.64 and Paris's CAC-40 was up 0.5% at 3464.78. Meanwhile, London's FTSE 100 was flat at 5938.94, underperforming its peers and barely changed after the second release of fourth-quarter gross domestic product data showed an unrevised 0.2% contraction.
At the same time, U.S. stock-index futures pointed to a slightly firmer open on Wall Street, with the DJIA front month futures contract up 0.2% at 13,001.00 and the S&P 500 front month futures contract up 0.3% at 1366.70.
Telecom Italia was one of the biggest gainers among the euro zone's blue-chip stocks, rising 5.9%. According to analysts, its full-year 2011 results were slightly above market expectations and in line with the company's guidance. Well-received sales and earnings before interest, taxes, depreciations and amortization were driven by business in both Brazil and Italy. Shares in rival Deutsche Telekom rose 1.2% while France Telecom increased by 0.9%.
In London, the focus was on Lloyds Banking Group, which was down 1.2% after reporting a full-year net loss of GBP2.8 billion. The bank was hit by impairment charges for mis-sold insurance and restructuring costs. In addition, the bank said 2014 return on equity targets will not be met and are deferred. "Surely this should not surprise?" said analysts at Investec.
Banks are of particular interest Friday as the Italian regulator is scheduled to lift the short-selling ban of Italian financial stocks, imposed in August 2011. The Italian regulator Consob has up to now expressed no desire to extend the ban.
In addition, Barclays Capital has downgraded the European banks sector Friday to underweight from market weight. With the second longer term refinancing operation imminent, the brokerage believes the news has already been priced in. The Stoxx Europe 600 banks index was up 1.2%.
On the economic front, Germany's economy contracted in the fourth quarter of 2011 by 0.2%, in line with expectations and unchanged from the first gross domestic product reading. Meanwhile, the French consumer confidence index rose slightly in February to 82 from 81 in January. "French consumer confidence seems to hold well despite the rise in unemployment," said Manuel Maleki, economist at ING Bank.
Earlier, Asian stock markets finished mostly higher. Japan's Nikkei Stock Average added and Australia's S&P/ASX 200 gained 0.5%. South Korea's Kospi Composite finished 0.6% higher, Hong Kong's Hang Seng Index finished up 0.1% and China's Shanghai Composite Index was up 1.3%.
Crude oil came off a little, after rising to a fresh nine-month high Thursday amid increasing concerns over Iran and despite a U.S. report that showed rising U.S. oil stockpiles and still slumping fuel demand. Traders worry that a standoff between Iran and the West ahead of the European Union's Iranian oil embargo could disrupt some of that country's 3.5 million barrels a day of production from hitting the market.
April Nymex crude oil futures were unchanged at $108.21 per barrel, while April Brent oil futures were also unchanged at $123.62.
In foreign exchange markets, the euro was at $1.3391 against the dollar, from $1.3370 late Thursday in New York. The dollar was at Y80.57, from Y80.00.
Spot gold was barely changed from its New York settlement on Thursday, at $1,779.20 per troy ounce.
The March bund contract was down eight ticks at 138.94.
MARKET TALK: Krone Sensitivity To Oil Seen Fading -BNP Paribas
The Norwegian krone's sensitivity to the price of oil is expected to fade, according to BNP Paribas. It adds that the fall in EUR/NOK since the beginning of the year has been closely tied to the rise in oil prices, with a 10% rise in the oil price causing a 2% fall in EUR/NOK. But with policy makers concerned about NOK strength and Norges Bank's selling of NOK for the oil fund, the impact of further rises in oil on the krone may be reduced. "The domestic headwinds to NOK suggest, however, that the currency is likely to underperform oil, and to take advantage of this, we recommend a long EUR/NOK position, but with the oil impact hedged with a long position in Brent oil," BNP Paribas adds. EUR/NOK trades at 7.4879.(
Greek Cabinet To Sign Off Debt Write-Down
ATHENS -- Greece's cabinet is due to meet at midday Friday to sign-off on a EUR100 billion debt write-down for the country that is part and parcel of a fresh multi-billion euro rescue plan Greece is seeking from its international creditors.
The cabinet will convene at 0930 GMT, according to a statement by the prime minister's office, and will also debate further measures Greece must take to implement the reform and austerity program demanded by those creditors.
The cabinet meeting comes one day after Greece's parliament approved legislation to implement the debt deal and which includes a controversial measure to strong-arm investors into the deal.
Specifically, the legislation retrofits outstanding Greek bonds with so-called collective-action clauses, or CACs, aimed at forcing losses on bondholders who may resist what is being billed as a "voluntary" debt restructuring.
Earlier this week, euro-zone finance ministers approved a fresh EUR130 billion bailout for Greece and the debt-restructuring program. The two deals are linked: Greece's European partners demanded that the country proceed with a debt restructuring before they would approve the new loan.
To secure that loan, Greek lawmakers are also scrambling to pass further cutbacks--ranging from pension cuts to lowering the minimum wage to reductions in defense and healthcare spending--by the middle of next week to meet the demands of the country's European partners and the International Monetary Fund.
Under the terms of the debt deal, Greece's private-sector creditors will waive 53.5% of the principal on the bonds they hold by swapping their old bonds with new ones, worth less than half the face value of the original bonds and carrying lower coupons. The deal aims to erase as much as 107 billion euros from Greece's sovereign debt burden and bring its debt ratio down to a more sustainable 120.5% of GDP by 2020 from more than 165% now.
European Union leaders will meet March 1-2 at a summit to give the final nod to the deal.
The Greek government is aiming for a minimum participation of least two-thirds of bondholders in the planned debt exchange, but there are hopes that the participation rate may reach 85% or more.
The public offer for the debt swap will be formally launched later Friday and will run for two weeks. By March 9, according to a government official, Greece will determine whether the take-up rate from investors is enough for the debt deal to proceed. If so, the actual exchange of the new bonds for the old will take place March 12.
Depending on the participation rate, Greece will then decide whether to activate the CACs to rope in any holdouts--a move that risks triggering default insurance contracts on Greek government bonds.
Credit default swaps are derivatives that function like a default insurance contract for debt. If a borrower defaults, sellers compensate buyers.
The new bonds issued by Greece will be governed by English--rather than Greek--law, because Greek lawmakers won't be able to review the legal terms of the deal. If the bonds were governed by Greek law, it would be easier for the Greek legislature to pass a law that simply amends the bonds.
The cabinet will convene at 0930 GMT, according to a statement by the prime minister's office, and will also debate further measures Greece must take to implement the reform and austerity program demanded by those creditors.
The cabinet meeting comes one day after Greece's parliament approved legislation to implement the debt deal and which includes a controversial measure to strong-arm investors into the deal.
Specifically, the legislation retrofits outstanding Greek bonds with so-called collective-action clauses, or CACs, aimed at forcing losses on bondholders who may resist what is being billed as a "voluntary" debt restructuring.
Earlier this week, euro-zone finance ministers approved a fresh EUR130 billion bailout for Greece and the debt-restructuring program. The two deals are linked: Greece's European partners demanded that the country proceed with a debt restructuring before they would approve the new loan.
To secure that loan, Greek lawmakers are also scrambling to pass further cutbacks--ranging from pension cuts to lowering the minimum wage to reductions in defense and healthcare spending--by the middle of next week to meet the demands of the country's European partners and the International Monetary Fund.
Under the terms of the debt deal, Greece's private-sector creditors will waive 53.5% of the principal on the bonds they hold by swapping their old bonds with new ones, worth less than half the face value of the original bonds and carrying lower coupons. The deal aims to erase as much as 107 billion euros from Greece's sovereign debt burden and bring its debt ratio down to a more sustainable 120.5% of GDP by 2020 from more than 165% now.
European Union leaders will meet March 1-2 at a summit to give the final nod to the deal.
The Greek government is aiming for a minimum participation of least two-thirds of bondholders in the planned debt exchange, but there are hopes that the participation rate may reach 85% or more.
The public offer for the debt swap will be formally launched later Friday and will run for two weeks. By March 9, according to a government official, Greece will determine whether the take-up rate from investors is enough for the debt deal to proceed. If so, the actual exchange of the new bonds for the old will take place March 12.
Depending on the participation rate, Greece will then decide whether to activate the CACs to rope in any holdouts--a move that risks triggering default insurance contracts on Greek government bonds.
Credit default swaps are derivatives that function like a default insurance contract for debt. If a borrower defaults, sellers compensate buyers.
The new bonds issued by Greece will be governed by English--rather than Greek--law, because Greek lawmakers won't be able to review the legal terms of the deal. If the bonds were governed by Greek law, it would be easier for the Greek legislature to pass a law that simply amends the bonds.
BOE's Lees Reappointed As Chairman Of Court Of Directors
The chairman of the Bank of England's court of directors, David Lees, has been reappointed, the BOE and the U.K. Treasury said Friday.
The court, which is similar to a company's board of directors, is responsible for managing the BOE's affairs, including determining its goals and strategy.
Lees' current term expires at the end of May and his reappointment is for a further three years. But he has signaled that he will step down at the end of 2013, once he has overseen the BOE taking on new powers for financial stability.
That change is part of a regulatory shakeup brought in by Prime Minister David Cameron's government, aimed at beefing up financial oversight following the financial crisis.
Lees' reappointment was recommended by Cameron and Chancellor of the Exchequer George Osborne, and approved by the Queen.
The court, which is similar to a company's board of directors, is responsible for managing the BOE's affairs, including determining its goals and strategy.
Lees' current term expires at the end of May and his reappointment is for a further three years. But he has signaled that he will step down at the end of 2013, once he has overseen the BOE taking on new powers for financial stability.
That change is part of a regulatory shakeup brought in by Prime Minister David Cameron's government, aimed at beefing up financial oversight following the financial crisis.
Lees' reappointment was recommended by Cameron and Chancellor of the Exchequer George Osborne, and approved by the Queen.
Irish Think Tank Sees Export Weighing On Growth
--ESRI estimates Irish GDP growth of 0.9% for last year, below prior forecast of 2.2%
--Predicts GDP growth of 0.9% for 2012
--Forecasts Irish export growth to slow to 3.4% this year from 4.4% in 2011
DUBLIN -- Ireland's leading think tank Friday predicted the Irish economy will continue to grow this year and in 2013, but its recovery from its debt crisis will be weighed by slowing demand from Europe for its exports and by the austerity of its bailout program at home.
"In the two regions that are of great importance in trade terms for Ireland -- the euro zone and the U.K. -- the country is facing weak or declining demand," said senior economist David Duffy at the Economic and Social Research Institute. "The overall picture is weak."
The ESRI has for some time been among the most optimistic that Ireland's export-focused economy would spur a strong recovery, but the euro-zone crisis, and now looming austerity in the U.K., have severely curtailed such hopes, it says.
In its latest quarterly report, the ESRI estimated Irish gross domestic product increased only 0.9% last year, down from the 2.2% growth it predicted in November, because the euro zone has slowed Ireland's export growth engine.
For 2012, it expects Irish GDP will expand by 0.9%, unchanged from its earlier forecast, as the economy continues to be held back by slowing export growth.
The ESRI expects Irish export growth will slow this year to 3.4% from 4.4% in 2011 and from the 6.3% growth posted in 2010. Exports will grow 3.8% in 2013, it says.
The Irish government can't do much to stimulate the economy because it faces having to bring in more spending cuts and tax increases. Consumer spending will contract through 2013, says the think tank.
Irish unemployment will fall only slightly to 14% this year from 14.2% last year, and will stay high at 13.7% in 2013. It would be higher again but for a net outward migration of people, it adds.
However, Duffy said a corner of sorts has been turned: the prospects are for the Irish economy to do better, not worse, than the think tank's current predictions.
Furthermore, the ESRI predicts that despite the euro-zone crisis, the Irish government will meet its obligation to its bailout lenders to reduce its budget deficit to 8.6% of GDP this year from about 9.8% last year.
Overwhelmed by the debts of its banks, Ireland was forced to turn to the European Union and International Monetary Fund for EUR67.5 billion in bailout loans in November 2010.
The ESRI predicts the country is on course to get back to market funding in 2013.
Meanwhile, the ESRI expects euro-zone leaders will continue to "muddle through" the debt crisis, with the bloc's economy likely to be weak for the next few years, and its banks needing to be recapitalized.
--Predicts GDP growth of 0.9% for 2012
--Forecasts Irish export growth to slow to 3.4% this year from 4.4% in 2011
DUBLIN -- Ireland's leading think tank Friday predicted the Irish economy will continue to grow this year and in 2013, but its recovery from its debt crisis will be weighed by slowing demand from Europe for its exports and by the austerity of its bailout program at home.
"In the two regions that are of great importance in trade terms for Ireland -- the euro zone and the U.K. -- the country is facing weak or declining demand," said senior economist David Duffy at the Economic and Social Research Institute. "The overall picture is weak."
The ESRI has for some time been among the most optimistic that Ireland's export-focused economy would spur a strong recovery, but the euro-zone crisis, and now looming austerity in the U.K., have severely curtailed such hopes, it says.
In its latest quarterly report, the ESRI estimated Irish gross domestic product increased only 0.9% last year, down from the 2.2% growth it predicted in November, because the euro zone has slowed Ireland's export growth engine.
For 2012, it expects Irish GDP will expand by 0.9%, unchanged from its earlier forecast, as the economy continues to be held back by slowing export growth.
The ESRI expects Irish export growth will slow this year to 3.4% from 4.4% in 2011 and from the 6.3% growth posted in 2010. Exports will grow 3.8% in 2013, it says.
The Irish government can't do much to stimulate the economy because it faces having to bring in more spending cuts and tax increases. Consumer spending will contract through 2013, says the think tank.
Irish unemployment will fall only slightly to 14% this year from 14.2% last year, and will stay high at 13.7% in 2013. It would be higher again but for a net outward migration of people, it adds.
However, Duffy said a corner of sorts has been turned: the prospects are for the Irish economy to do better, not worse, than the think tank's current predictions.
Furthermore, the ESRI predicts that despite the euro-zone crisis, the Irish government will meet its obligation to its bailout lenders to reduce its budget deficit to 8.6% of GDP this year from about 9.8% last year.
Overwhelmed by the debts of its banks, Ireland was forced to turn to the European Union and International Monetary Fund for EUR67.5 billion in bailout loans in November 2010.
The ESRI predicts the country is on course to get back to market funding in 2013.
Meanwhile, the ESRI expects euro-zone leaders will continue to "muddle through" the debt crisis, with the bloc's economy likely to be weak for the next few years, and its banks needing to be recapitalized.
European Consumers To Suffer From Record High Oil Prices
Oil prices have hit all time highs for consumers in the euro zone and U.K., but prices aren't expected to come down any time soon, as concerns over supply risks seem to far outweigh the risks of demand destruction, analysts said.
Straining tensions between Iran and the West are propping up oil prices at nine-month highs in dollar terms, but thanks to a weak exchange rate, prices have already reached record levels for holders of the euro and sterling.
Brent crude rose to a record high of EUR92.75 a barrel Wednesday and Thursday hit an all-time high of GBP78.53.
Normally when prices breach new highs, the event is followed by a flurry of analysis warning about demand destruction and anticipating an imminent pull-back in prices. Not so this time, as the market remains fixated on political game playing between Iran and the West as well as supply disruptions in South Sudan and Syria, which means European consumers are unlikely to get respite any time soon, analysts said.
"The focus is really a lot on the supply side," said Olivier Jakob, managing director of Swiss consultancy Petromatrix.
"On the global balances, as it stands, the prices should not be at the current levels, but the market assumes supply will not stay at current levels," he added.
Straining tensions between Iran and the West are propping up oil prices at nine-month highs in dollar terms, but thanks to a weak exchange rate, prices have already reached record levels for holders of the euro and sterling.
Brent crude rose to a record high of EUR92.75 a barrel Wednesday and Thursday hit an all-time high of GBP78.53.
Normally when prices breach new highs, the event is followed by a flurry of analysis warning about demand destruction and anticipating an imminent pull-back in prices. Not so this time, as the market remains fixated on political game playing between Iran and the West as well as supply disruptions in South Sudan and Syria, which means European consumers are unlikely to get respite any time soon, analysts said.
"The focus is really a lot on the supply side," said Olivier Jakob, managing director of Swiss consultancy Petromatrix.
"On the global balances, as it stands, the prices should not be at the current levels, but the market assumes supply will not stay at current levels," he added.
MARKET TALK: More 3-Yr LTROs Coming -Commerzbank
More 3-Year LTROs will follow the one scheduled for next week, says Commerzbank, noting that the ECB continues to react to uncertainties stemming from the sovereign debt crisis. "This backward-looking manner of reacting is likely to see risk premiums fluctuate in a broad sideways channel," says Commerzbank. Strains in peripheral bond markets have eased since the first LTRO in December and the second LTRO is scheduled for next week. With the ECB having already succeeded in pulling down yields, Commerzbank says investors should now position for a rise in peripheral yields.
UK 2011 GDP Revised Down To 0.8%
LONDON -- The U.K. economy expanded less than initially thought in 2011, fresh data showed Friday.
The Office for National Statistics said the economy expanded 0.8% in 2011, compared with a previous estimate of 0.9%.
The ONS said it revised down its estimates for growth in the first and third quarters, while the latest data confirmed its initial estimate that the economy shrank 0.2% in the final three months of the year.
The contraction in the fourth quarter was driven by falling output in the production and construction sectors and a fall in business investment. Business investment fell by GBP1.7 billion to GBP28.7 billion in the fourth quarter.
However, household consumption rose 0.5% as shoppers took advantage of sales. That's the first quarterly rise in consumption since the second quarter of 2010, the ONS said.
Despite the economy's weak performance in the fourth quarter, the U.K. now looks likely to avoid recession.
A survey of manufacturers by the Confederation of British Industry, published Thursday, was the latest in a series of positive business surveys that suggest economic output will rebound in the first three months of 2012.
The European Commission, the European Union's executive arm, said Thursday it estimates that U.K. gross domestic product will expand by 0.1% in each of the first two quarters of the year, and 0.6% for 2012 as a whole.
The Office for National Statistics said the economy expanded 0.8% in 2011, compared with a previous estimate of 0.9%.
The ONS said it revised down its estimates for growth in the first and third quarters, while the latest data confirmed its initial estimate that the economy shrank 0.2% in the final three months of the year.
The contraction in the fourth quarter was driven by falling output in the production and construction sectors and a fall in business investment. Business investment fell by GBP1.7 billion to GBP28.7 billion in the fourth quarter.
However, household consumption rose 0.5% as shoppers took advantage of sales. That's the first quarterly rise in consumption since the second quarter of 2010, the ONS said.
Despite the economy's weak performance in the fourth quarter, the U.K. now looks likely to avoid recession.
A survey of manufacturers by the Confederation of British Industry, published Thursday, was the latest in a series of positive business surveys that suggest economic output will rebound in the first three months of 2012.
The European Commission, the European Union's executive arm, said Thursday it estimates that U.K. gross domestic product will expand by 0.1% in each of the first two quarters of the year, and 0.6% for 2012 as a whole.
INTERVIEW: Slovak PM Says Europe Fiscal Pact To Tame Euro Crisis
-- Europe's latest deal on the Greek bailout coupled with fiscal compact enough to prevent the euro crisis from engulfing other governments, says Iveta Radicova
-- Not all European banks are safe from consequences of credit crisis
-- Only prudent banks deserve help from government funds
BRATISLAVA (Dow Jones)--Europe's latest agreement on the Greek bailout and fiscal rules are sufficient safeguards to prevent the euro-zone debt crisis from escalating further and engulfing other governments, Slovak Prime Minister Iveta Radicova told Dow Jones Newswires.
"Governments are certainly protected but not banks and I don't see any reason to protect all banks," Radicova said in an interview late Thursday.
"Each country will have to shore up its own banking sector," Radicova said, adding that she doubts it is worth channeling taxpayers' money to seriously overextended lenders.
Slovakia is one of the 17 European Union countries sharing the euro. In the past it criticized costly financial bailout packages for heavily indebted countries, which have included Greece, Portugal and Ireland.
Radicova said she was confident that national governments will adhere to budget austerity demands, set in the recently agreed EU fiscal compact, because they fear semi-automatic sanctions against them.
Radicova singled out this week's suspension of distributing EU funds to Hungary as a positive sign of the bloc's efforts to show that failing to meet rules can hurt.
Wednesday, the European Commission stopped more than EUR400 million in EU subsidies to Hungary, saying the government has failed to shore up its finances quickly enough.
"This is a first precedent which shows that countries which fail to meet agreed rules will face serious sanctions... Moreover there are clauses on losing a large portion of fiscal sovereignty for euro-zone countries which seek assistance from European mechanisms," Radicova said.
Last October, Radicova's center-right coalition government lost a parliamentary vote of confidence over its support for increasing the bailout fund for Greece when a junior government party refused to support the increased European Financial Stability Facility, through which countries such as Greece receive financial aid.
The lost confidence vote paved the way for early general elections, scheduled for March 10. The result also demonstrated a great deal of reluctance over bailout programs among voters in Slovakia, the second-poorest euro-zone country after Estonia.
Radicova's cabinet has carried out a series of fiscal spending cuts, including scaling back the public healthcare system, to bring its budget deficit to 4.6% of the country's gross domestic product in 2011, from 8% in both 2010 and 2009.
"But this is still above the 3% criterion," she said, referring to rules set out in the 1992 Maastricht Treaty, which laid the foundation for monetary union. Maastricht also set the ceiling for gross public debt at 60% of GDP.
Only four EU members meet both ceilings for budget deficits and debts.
"Therefore the scope and depth of the credit crisis is a result of debts and deficits of most of the countries that make up not only the euro zone but also the European Union," she said.
-- Not all European banks are safe from consequences of credit crisis
-- Only prudent banks deserve help from government funds
BRATISLAVA (Dow Jones)--Europe's latest agreement on the Greek bailout and fiscal rules are sufficient safeguards to prevent the euro-zone debt crisis from escalating further and engulfing other governments, Slovak Prime Minister Iveta Radicova told Dow Jones Newswires.
"Governments are certainly protected but not banks and I don't see any reason to protect all banks," Radicova said in an interview late Thursday.
"Each country will have to shore up its own banking sector," Radicova said, adding that she doubts it is worth channeling taxpayers' money to seriously overextended lenders.
Slovakia is one of the 17 European Union countries sharing the euro. In the past it criticized costly financial bailout packages for heavily indebted countries, which have included Greece, Portugal and Ireland.
Radicova said she was confident that national governments will adhere to budget austerity demands, set in the recently agreed EU fiscal compact, because they fear semi-automatic sanctions against them.
Radicova singled out this week's suspension of distributing EU funds to Hungary as a positive sign of the bloc's efforts to show that failing to meet rules can hurt.
Wednesday, the European Commission stopped more than EUR400 million in EU subsidies to Hungary, saying the government has failed to shore up its finances quickly enough.
"This is a first precedent which shows that countries which fail to meet agreed rules will face serious sanctions... Moreover there are clauses on losing a large portion of fiscal sovereignty for euro-zone countries which seek assistance from European mechanisms," Radicova said.
Last October, Radicova's center-right coalition government lost a parliamentary vote of confidence over its support for increasing the bailout fund for Greece when a junior government party refused to support the increased European Financial Stability Facility, through which countries such as Greece receive financial aid.
The lost confidence vote paved the way for early general elections, scheduled for March 10. The result also demonstrated a great deal of reluctance over bailout programs among voters in Slovakia, the second-poorest euro-zone country after Estonia.
Radicova's cabinet has carried out a series of fiscal spending cuts, including scaling back the public healthcare system, to bring its budget deficit to 4.6% of the country's gross domestic product in 2011, from 8% in both 2010 and 2009.
"But this is still above the 3% criterion," she said, referring to rules set out in the 1992 Maastricht Treaty, which laid the foundation for monetary union. Maastricht also set the ceiling for gross public debt at 60% of GDP.
Only four EU members meet both ceilings for budget deficits and debts.
"Therefore the scope and depth of the credit crisis is a result of debts and deficits of most of the countries that make up not only the euro zone but also the European Union," she said.
MARKET TALK: Colombia Expected To Raise Rates -JPMorgan
Colombia's central bank is expected to raise rates by 25bps to 5.25% later Friday, according to JPMorgan. "After the surprise rate increase in January, the market is also calling for a hike in today's meeting," say analysts at JPMorgan. Aside from the decision, market participants will be watching closely for what the central bank will say on FX intervention, given the bank resumed its $20 million spot dollar purchases at the start of February. "With COP hovering below 1.800 [versus the USD] and with other central banks in the region stepping up in terms of intervention, the market will scrutinize any news or comments on that measure." USD/COP currently trades at 1772.5 ahead of the decision
German 4Q GDP Down On Exports, Helped By Construction
-- Net exports, household consumption a drag on GDP
-- Construction activity, investment prop GDP up
-- Recovery seen in 1Q, helping Germany avoid a recession
FRANKFURT (Dow Jones)--Germany's economy contracted in the fourth quarter of last year due to falling exports and household consumption, data released Friday showed, while recent economic sentiment indicators signal that Europe's largest economy may avoid sinking into a recession in the first quarter of this year.
German gross domestic product contracted 0.2% in the fourth quarter of 2011 compared with the third quarter, according to price-, seasonally and calendar-adjusted figures, the country's Federal Statistics Office, Destatis, said. On a yearly basis, GDP rose 2.0% from a year earlier, in price- and calendar-adjusted terms. The data confirm preliminary estimates published by Destatis earlier this month, and meet the expectations of analysts surveyed by Dow Jones Newswires.
As exports fell faster than imports, net exports fell 0.3% in the fourth quarter from the previous quarter, and were the main reason for the quarterly GDP fall.
Household consumption fell slightly, by 0.2%. "The pronounced weakness in private consumption was a surprise and likely reflects a spike in household uncertainty associated with the intensification of the sovereign crisis late last year," said economist Thomas Harjes from Barclay's Capital.
Only investment increased significantly, by 1.0%, with construction sector investment seeing a particularly robust rise of 1.9%. Public consumption was close to stagnation, rising 0.1%.
Construction output rose the fastest in the last quarter from a year earlier, by 5.6%, while the manufacturing industry, excluding the construction sector, expanded at a 0.7% rate over the same period.
"Looking ahead, there are signs that domestic activity is improving, albeit at a modest pace," said Annalisa Piazza at Newedge in London.
Business confidence indicators such as the Ifo Thursday, the purchasing managers index Wednesday, and the ZEW index earlier this month showed some resilience of Germany to external shocks.
Along with other surveys, Ifo suggests that the GDP contraction of the fourth quarter is very likely to have been a one-quarter slip-up, rather than the beginning of a recession, Societe Generale economist Klaus Baader said.
"Indeed, at face value, the Ifo survey points to a re-acceleration in GDP growth even in year-on-year terms, which would require a quarterly expansion in excess of 1.3% quarter-on-quarter, which we regard as highly unlikely," Baader added, noting that he forecasts first-quarter GDP growth at 0.2%, with a risk to the upside.
The European Commission Thursday revised its growth outlook for the euro zone this year to an annual contraction of 0.3% from its earlier forecast for a GDP increase of 0.5%, including a slower growth rate for Germany. But the Commission noted that the slump of the first quarter was "a temporary interruption rather than signalling an entry into recession."
In the whole of last year, German GDP rose 3.1% after an increase of 3.6% in 2010, also under adjusted figures.
-- Construction activity, investment prop GDP up
-- Recovery seen in 1Q, helping Germany avoid a recession
FRANKFURT (Dow Jones)--Germany's economy contracted in the fourth quarter of last year due to falling exports and household consumption, data released Friday showed, while recent economic sentiment indicators signal that Europe's largest economy may avoid sinking into a recession in the first quarter of this year.
German gross domestic product contracted 0.2% in the fourth quarter of 2011 compared with the third quarter, according to price-, seasonally and calendar-adjusted figures, the country's Federal Statistics Office, Destatis, said. On a yearly basis, GDP rose 2.0% from a year earlier, in price- and calendar-adjusted terms. The data confirm preliminary estimates published by Destatis earlier this month, and meet the expectations of analysts surveyed by Dow Jones Newswires.
As exports fell faster than imports, net exports fell 0.3% in the fourth quarter from the previous quarter, and were the main reason for the quarterly GDP fall.
Household consumption fell slightly, by 0.2%. "The pronounced weakness in private consumption was a surprise and likely reflects a spike in household uncertainty associated with the intensification of the sovereign crisis late last year," said economist Thomas Harjes from Barclay's Capital.
Only investment increased significantly, by 1.0%, with construction sector investment seeing a particularly robust rise of 1.9%. Public consumption was close to stagnation, rising 0.1%.
Construction output rose the fastest in the last quarter from a year earlier, by 5.6%, while the manufacturing industry, excluding the construction sector, expanded at a 0.7% rate over the same period.
"Looking ahead, there are signs that domestic activity is improving, albeit at a modest pace," said Annalisa Piazza at Newedge in London.
Business confidence indicators such as the Ifo Thursday, the purchasing managers index Wednesday, and the ZEW index earlier this month showed some resilience of Germany to external shocks.
Along with other surveys, Ifo suggests that the GDP contraction of the fourth quarter is very likely to have been a one-quarter slip-up, rather than the beginning of a recession, Societe Generale economist Klaus Baader said.
"Indeed, at face value, the Ifo survey points to a re-acceleration in GDP growth even in year-on-year terms, which would require a quarterly expansion in excess of 1.3% quarter-on-quarter, which we regard as highly unlikely," Baader added, noting that he forecasts first-quarter GDP growth at 0.2%, with a risk to the upside.
The European Commission Thursday revised its growth outlook for the euro zone this year to an annual contraction of 0.3% from its earlier forecast for a GDP increase of 0.5%, including a slower growth rate for Germany. But the Commission noted that the slump of the first quarter was "a temporary interruption rather than signalling an entry into recession."
In the whole of last year, German GDP rose 3.1% after an increase of 3.6% in 2010, also under adjusted figures.
Asian Shares End Mostly Higher; Energy Plays Advance
Asian stock markets ended modestly higher after a choppy session on Friday, with some energy shares supported as oil prices continued to rise, while recent strength limited sharper gains.
Australia's S&P/ASX 200 index gained 0.5% and China's Shanghai Composite rose 1.3%, while South Korea's Kospi ended up 0.6% and Hong Kong's Hang Seng Index added 0.1%.
Japan's Nikkei Stock Average rose 0.5%.
"Asian markets have performed quite strongly over the past few weeks," said Conita Hung, head of equity markets at Delta Asian Financial Group in Hong Kong. "It's hard to enter into the markets at these levels," she said, adding selected stocks in "energy and raw materials were still gaining some support."
The performance in Asia comes after U.S. shares had advanced on Thursday, with the S&P 500 near 10-month highs, as better-than-expected jobs and home-price data buoyed sentiment.
A key index of German business confidence also beat expectations, shedding positive light on Europe's largest economy.
"Optimism keeps going with solid data in Europe and the US," Kintai Cheung, a strategist at Credit Agricole said. "As Greek crisis appears to be easing, more attention may shift to the tensions in Iran, which had pushed up oil prices sharply."
Surging oil prices helped boost some Asian energy shares. Benchmark crude-oil futures broke through $108 a barrel in electronic trading, after hitting a nine-month high in New York trading.
Tokyo-listed Inpex rose 5.1% and Japan Petroleum Exploration added 3.0%.
In Sydney, AGL Energy traded down 4.7% after the firm posted a drop in first-half net profit and said it will raise A$1.5 billion from share issues to help buy Tokyo Electric Power's interest in the Loy Yang power station. Shares of Tokyo Electric Power, better known as Tepco, lost 2.4% in Japan trading.
Newcrest Mining dropped 4.3% in Sydney after the gold miner said difficulties at its Lihir mine were expected to impair quarterly production.
But metals shares moved higher in Tokyo, with Nippon Steel gaining 3.5% and Sumitomo Metal Industries up 3.7%.
Among exporters making ground in Tokyo, Sony got a 3% bounce, Pioneer rose 2.5% and Mazda Motor climbed 0.7%.
J. Front Retailing rose 1.5% on a Nikkei business daily report that it would buy shopping-mall firm Parco Co., paying a sharp premium for some of the shares. Shares of Parco remained bid-only at the end of the morning trading session in Tokyo.
In Hong Kong, Esprit Holdings recovered from an earlier slump to end fractionally higher. Several brokers, including UBS and Citigroup downgraded the stock after the fashion retailer posted a 74% drop in first-half net profit on Thursday.
Property developers dragged in Hong Kong. Sino Land dropped 1.1% and Hang Lung Properties fell 1.0%.
"Most Hong Kong investors are waiting to see HBSC's result on Monday, they are sidelined ahead of the result which may have a major impact on the market," Delta Asian Financial Group's Hung said.
Australia's S&P/ASX 200 index gained 0.5% and China's Shanghai Composite rose 1.3%, while South Korea's Kospi ended up 0.6% and Hong Kong's Hang Seng Index added 0.1%.
Japan's Nikkei Stock Average rose 0.5%.
"Asian markets have performed quite strongly over the past few weeks," said Conita Hung, head of equity markets at Delta Asian Financial Group in Hong Kong. "It's hard to enter into the markets at these levels," she said, adding selected stocks in "energy and raw materials were still gaining some support."
The performance in Asia comes after U.S. shares had advanced on Thursday, with the S&P 500 near 10-month highs, as better-than-expected jobs and home-price data buoyed sentiment.
A key index of German business confidence also beat expectations, shedding positive light on Europe's largest economy.
"Optimism keeps going with solid data in Europe and the US," Kintai Cheung, a strategist at Credit Agricole said. "As Greek crisis appears to be easing, more attention may shift to the tensions in Iran, which had pushed up oil prices sharply."
Surging oil prices helped boost some Asian energy shares. Benchmark crude-oil futures broke through $108 a barrel in electronic trading, after hitting a nine-month high in New York trading.
Tokyo-listed Inpex rose 5.1% and Japan Petroleum Exploration added 3.0%.
In Sydney, AGL Energy traded down 4.7% after the firm posted a drop in first-half net profit and said it will raise A$1.5 billion from share issues to help buy Tokyo Electric Power's interest in the Loy Yang power station. Shares of Tokyo Electric Power, better known as Tepco, lost 2.4% in Japan trading.
Newcrest Mining dropped 4.3% in Sydney after the gold miner said difficulties at its Lihir mine were expected to impair quarterly production.
But metals shares moved higher in Tokyo, with Nippon Steel gaining 3.5% and Sumitomo Metal Industries up 3.7%.
Among exporters making ground in Tokyo, Sony got a 3% bounce, Pioneer rose 2.5% and Mazda Motor climbed 0.7%.
J. Front Retailing rose 1.5% on a Nikkei business daily report that it would buy shopping-mall firm Parco Co., paying a sharp premium for some of the shares. Shares of Parco remained bid-only at the end of the morning trading session in Tokyo.
In Hong Kong, Esprit Holdings recovered from an earlier slump to end fractionally higher. Several brokers, including UBS and Citigroup downgraded the stock after the fashion retailer posted a 74% drop in first-half net profit on Thursday.
Property developers dragged in Hong Kong. Sino Land dropped 1.1% and Hang Lung Properties fell 1.0%.
"Most Hong Kong investors are waiting to see HBSC's result on Monday, they are sidelined ahead of the result which may have a major impact on the market," Delta Asian Financial Group's Hung said.
Telefonica Sets Cautious Targets Despite Strong Growth
-- Cautious targets leave shares treading water
-- Net profit, revenue surpass expectations
-- Dividend plans unchanged
MADRID (Dow Jones)--Telefonica SA (TEF) delivered strong profit growth Friday helped by a strong contribution from its Latin American operations and tax benefits, but remained cautious regarding prospects for 2012.
The Madrid-based telecommunications company --Europe's second-largest by market value after U.K.-based Vodafone Group PLC (VOD)--said net profit reached EUR2.67 billion in the three months to Dec. 31, doubling from EUR1.33 billion in the same period of 2010 and significantly beating analyst expectations of EUR1.68 billion.
The result included a EUR952 million boost from a reversal of deferred tax liabilities due to the 2010 purchase of a controlling stake in Brazil's operator Vivo.
Telefonica also said it is anticipating an increase in 2012 revenue of just over 1%, adding that the erosion in its operating margin this year should be slower than last year.
Telefonica's client base rose 7%, largely through aggressive expansion in Latin American markets like Brazil and Mexico, an expensive move because of the need to subsidize handsets to attract customers.
The company, Spain's largest with a market value of EUR58 billion, also reiterated its commitment to distribute EUR1.5-a-share return to shareholders this year, just two months after it was forced to cut that from EUR1.75 a share--a positive sign, for a company that relies on a high dividend payout to attract foreign investors wary of holding Spanish shares.
Telefonica's Spanish unit, until 2008 the company's cash cow, posted a 7.6% fall in revenue last year and saw its operating result halved, due in part to costly layoffs in the unit. Spain's economy grew just 0.7% last year, after a two-year recession, but is expected to contract over 1% this year.
At 0851 GMT, Telefonica shares were up 0.1% at EUR12.89, roughly in line with the overall Spanish market.
"At the current prices and looking at fundamentals, the company remains attractive," the analysts of Banesto said. "However, the only catalysts (for the stock) would come from an improvement in the markets where it operates."
Banesto rates Telefonica at overweight, with a EUR18.33 target.
-- Net profit, revenue surpass expectations
-- Dividend plans unchanged
MADRID (Dow Jones)--Telefonica SA (TEF) delivered strong profit growth Friday helped by a strong contribution from its Latin American operations and tax benefits, but remained cautious regarding prospects for 2012.
The Madrid-based telecommunications company --Europe's second-largest by market value after U.K.-based Vodafone Group PLC (VOD)--said net profit reached EUR2.67 billion in the three months to Dec. 31, doubling from EUR1.33 billion in the same period of 2010 and significantly beating analyst expectations of EUR1.68 billion.
The result included a EUR952 million boost from a reversal of deferred tax liabilities due to the 2010 purchase of a controlling stake in Brazil's operator Vivo.
Telefonica also said it is anticipating an increase in 2012 revenue of just over 1%, adding that the erosion in its operating margin this year should be slower than last year.
Telefonica's client base rose 7%, largely through aggressive expansion in Latin American markets like Brazil and Mexico, an expensive move because of the need to subsidize handsets to attract customers.
The company, Spain's largest with a market value of EUR58 billion, also reiterated its commitment to distribute EUR1.5-a-share return to shareholders this year, just two months after it was forced to cut that from EUR1.75 a share--a positive sign, for a company that relies on a high dividend payout to attract foreign investors wary of holding Spanish shares.
Telefonica's Spanish unit, until 2008 the company's cash cow, posted a 7.6% fall in revenue last year and saw its operating result halved, due in part to costly layoffs in the unit. Spain's economy grew just 0.7% last year, after a two-year recession, but is expected to contract over 1% this year.
At 0851 GMT, Telefonica shares were up 0.1% at EUR12.89, roughly in line with the overall Spanish market.
"At the current prices and looking at fundamentals, the company remains attractive," the analysts of Banesto said. "However, the only catalysts (for the stock) would come from an improvement in the markets where it operates."
Banesto rates Telefonica at overweight, with a EUR18.33 target.
China Yuan Up Late On PBOC Guidance; Upside Capped
China's yuan was up against the U.S. dollar late Friday after the central bank guided its currency higher via the daily reference rate.
On the over-the-counter market, the dollar was at CNY6.2978 around 0830 GMT, down from Thursday's close of CNY6.2985. It traded in a CNY6.2940-CNY6.2998 range.
However, a Beijing-based trader at a local bank said the yuan's upside was capped by the central parity failing to fully reflect the euro's strength late Thursday.
The People's Bank of China set the dollar-yuan central parity rate at 6.2965, down from Thursday's 6.3031, following the dollar's weakness against the euro. The bloc currency hit $1.3379 overnight, its highest point since Dec. 12. At 0843 GMT, the euro was at $1.3385.
The yuan may level out over the next 12-18 months if the U.S. dollar remains stable and the European debt crisis doesn't worsen, the state-run China Securities Journal reported Friday, citing Li Daokui, an adviser to the country's central bank.
His comments come after China's foreign-exchange regulator Thursday said the market views the yuan as a "risk currency" rather than a safe-haven vehicle, signaling that perceptions of continued appreciation of the yuan need to be revised.
The yuan has risen 8.4% against the U.S. unit since June 2010, when China effectively ended its currency's two-year-long peg to the dollar and vowed to make the yuan more flexible. However, the Chinese unit is down 0.1% against the dollar so far this year.
Offshore, one-year dollar-yuan nondeliverable forwards fell to 6.2785/6.2835 from 6.2800/6.2850 late Thursday, and implying a 0.3% rise by the yuan against the dollar over the next year.
In the offshore yuan market in Hong Kong, where the Chinese currency floats freely, the dollar was at CNY6.2965 down from CNY6.3000 late Thursday.
On the over-the-counter market, the dollar was at CNY6.2978 around 0830 GMT, down from Thursday's close of CNY6.2985. It traded in a CNY6.2940-CNY6.2998 range.
However, a Beijing-based trader at a local bank said the yuan's upside was capped by the central parity failing to fully reflect the euro's strength late Thursday.
The People's Bank of China set the dollar-yuan central parity rate at 6.2965, down from Thursday's 6.3031, following the dollar's weakness against the euro. The bloc currency hit $1.3379 overnight, its highest point since Dec. 12. At 0843 GMT, the euro was at $1.3385.
The yuan may level out over the next 12-18 months if the U.S. dollar remains stable and the European debt crisis doesn't worsen, the state-run China Securities Journal reported Friday, citing Li Daokui, an adviser to the country's central bank.
His comments come after China's foreign-exchange regulator Thursday said the market views the yuan as a "risk currency" rather than a safe-haven vehicle, signaling that perceptions of continued appreciation of the yuan need to be revised.
The yuan has risen 8.4% against the U.S. unit since June 2010, when China effectively ended its currency's two-year-long peg to the dollar and vowed to make the yuan more flexible. However, the Chinese unit is down 0.1% against the dollar so far this year.
Offshore, one-year dollar-yuan nondeliverable forwards fell to 6.2785/6.2835 from 6.2800/6.2850 late Thursday, and implying a 0.3% rise by the yuan against the dollar over the next year.
In the offshore yuan market in Hong Kong, where the Chinese currency floats freely, the dollar was at CNY6.2965 down from CNY6.3000 late Thursday.
GLOBAL MARKETS: European Stocks Positive Overall; Earnings Mixed
--European stocks mildly higher; mixed results across Europe
--Greece concerns fade but analysts warn they could resurface
--Telecom Italia surges but Lloyds Banking Group slumps, weighing on London's FTSE 100
LONDON (Dow Jones)--European stocks posted mild gains Friday with positive earnings from Telecom Italia proving to be a welcome surprise, but Lloyds Banking Group shares slid after it posted less than pleasing results.
Concerns about Greece have receded somewhat after it managed to negotiate its second bailout deal and investors are now looking ahead to the second longer term refinancing operation from the European Central Bank.
In addition, Greece's parliament Thursday approved the private sector involvement program which includes collective action clauses. But Deutsche Bank strategist Jim Reid warned, "Greek developments still need close monitoring as we move on to the execution phase. Greece still has plenty to do before it gets the required funding to meet the March 20 redemptions of EUR14.5 billion."
The benchmark Stoxx Europe 600 index was 0.2% higher at 264.63. London's FTSE 100 was 0.1% higher at 5943.47, underperforming its peers. Frankfurt's DAX gained 0.9% to 6868.82 and Paris's CAC-40 was up 0.5% at 3463.38.
Telecom Italia was the biggest gainer among the euro zone's blue-chip stocks, rising 6.0%. It said gross operating profit rose a bit more than expected last year as its Latin American units offset a declining domestic business. Shares in rival Deutsche Telekom rose 1.0% while France Telecom increased by 0.7%.
In London, the focus was on Lloyds Banking Group which was leading the declines on the FTSE 100 index. Shares in the U.K. bank, which is 41% owned by the state, fell 3.0% after it reported a full-year net loss of GBP2.8 billion. The bank was hit by impairment charges for mis-sold insurance and restructuring costs. In addition, the bank said 2014 return on equity targets will not be met and are deferred. "Surely this should not surprise?" said analysts at Investec.
Banks are of particular interest Friday as the Italian regulator is scheduled to lift the short-selling ban of Italian financial stocks, imposed in August 2011. The Italian regulator Consob has up to now expressed no desire to extend the ban.
In addition, Barclays Capital has downgraded the European banks sector Friday to underweight from market weight. With the second longer term refinancing operation imminent, the brokerage believes the news has already been priced in. The Stoxx Europe 600 banks index was up 0.6%.
On the economic front, Germany's economy contracted in the fourth quarter of 2011 by 0.2%, in line with expectations and unchanged from the first gross domestic product reading. Meanwhile, the French consumer confidence index rose slightly in February to 82 from 81 in January. "French consumer confidence seems to hold well despite the rise in unemployment," said Manuel Maleki, economist at ING Bank.
Earlier, Asian stock markets finished mostly higher. Japan's Nikkei Stock Average added and Australia's S&P/ASX 200 gained 0.5%. South Korea's Kospi Composite finished 0.6% higher, Hong Kong's Hang Seng Index finished up 0.2% and China's Shanghai Composite Index was up 1.2%.
Crude oil continued to gain after rising to a fresh nine-month high Thursday amid increasing concerns over Iran and despite a U.S. report that showed rising U.S. oil stockpiles and still slumping fuel demand. Traders worry that a standoff between Iran and the West ahead of the European Union's Iranian oil embargo could disrupt some of that country's 3.5 million barrels a day of production from hitting the market.
April Nymex crude oil futures were up $0.56 at $108.39 per barrel and Brent oil futures were up $0.26 at $123.88.
In foreign exchange markets, the euro was at $1.3394 against the dollar, from $1.3370 late Thursday in New York. The dollar was at Y80.60, from Y80.00.
Spot gold was at $1,780.20 per troy ounce, up $1.00 from its New York settlement on Thursday. The March bund contract was down 0.15 at 138.87.
--Greece concerns fade but analysts warn they could resurface
--Telecom Italia surges but Lloyds Banking Group slumps, weighing on London's FTSE 100
LONDON (Dow Jones)--European stocks posted mild gains Friday with positive earnings from Telecom Italia proving to be a welcome surprise, but Lloyds Banking Group shares slid after it posted less than pleasing results.
Concerns about Greece have receded somewhat after it managed to negotiate its second bailout deal and investors are now looking ahead to the second longer term refinancing operation from the European Central Bank.
In addition, Greece's parliament Thursday approved the private sector involvement program which includes collective action clauses. But Deutsche Bank strategist Jim Reid warned, "Greek developments still need close monitoring as we move on to the execution phase. Greece still has plenty to do before it gets the required funding to meet the March 20 redemptions of EUR14.5 billion."
The benchmark Stoxx Europe 600 index was 0.2% higher at 264.63. London's FTSE 100 was 0.1% higher at 5943.47, underperforming its peers. Frankfurt's DAX gained 0.9% to 6868.82 and Paris's CAC-40 was up 0.5% at 3463.38.
Telecom Italia was the biggest gainer among the euro zone's blue-chip stocks, rising 6.0%. It said gross operating profit rose a bit more than expected last year as its Latin American units offset a declining domestic business. Shares in rival Deutsche Telekom rose 1.0% while France Telecom increased by 0.7%.
In London, the focus was on Lloyds Banking Group which was leading the declines on the FTSE 100 index. Shares in the U.K. bank, which is 41% owned by the state, fell 3.0% after it reported a full-year net loss of GBP2.8 billion. The bank was hit by impairment charges for mis-sold insurance and restructuring costs. In addition, the bank said 2014 return on equity targets will not be met and are deferred. "Surely this should not surprise?" said analysts at Investec.
Banks are of particular interest Friday as the Italian regulator is scheduled to lift the short-selling ban of Italian financial stocks, imposed in August 2011. The Italian regulator Consob has up to now expressed no desire to extend the ban.
In addition, Barclays Capital has downgraded the European banks sector Friday to underweight from market weight. With the second longer term refinancing operation imminent, the brokerage believes the news has already been priced in. The Stoxx Europe 600 banks index was up 0.6%.
On the economic front, Germany's economy contracted in the fourth quarter of 2011 by 0.2%, in line with expectations and unchanged from the first gross domestic product reading. Meanwhile, the French consumer confidence index rose slightly in February to 82 from 81 in January. "French consumer confidence seems to hold well despite the rise in unemployment," said Manuel Maleki, economist at ING Bank.
Earlier, Asian stock markets finished mostly higher. Japan's Nikkei Stock Average added and Australia's S&P/ASX 200 gained 0.5%. South Korea's Kospi Composite finished 0.6% higher, Hong Kong's Hang Seng Index finished up 0.2% and China's Shanghai Composite Index was up 1.2%.
Crude oil continued to gain after rising to a fresh nine-month high Thursday amid increasing concerns over Iran and despite a U.S. report that showed rising U.S. oil stockpiles and still slumping fuel demand. Traders worry that a standoff between Iran and the West ahead of the European Union's Iranian oil embargo could disrupt some of that country's 3.5 million barrels a day of production from hitting the market.
April Nymex crude oil futures were up $0.56 at $108.39 per barrel and Brent oil futures were up $0.26 at $123.88.
In foreign exchange markets, the euro was at $1.3394 against the dollar, from $1.3370 late Thursday in New York. The dollar was at Y80.60, from Y80.00.
Spot gold was at $1,780.20 per troy ounce, up $1.00 from its New York settlement on Thursday. The March bund contract was down 0.15 at 138.87.
MARKET TALK: USD/IDR Higher; 9050-9100 Range Tipped Monday
The USD/IDR is higher at 9,060 vs 9,040 late Thursday in Asia on persistent demand from importers, dealers say. Still, the pair manages to retreat from the 9,065 intraday high; three dealers say Bank Indonesia was suspected of selling around $50 million at 9,060. "We are also seeing some funds flowing out of local bond and stock markets as investors are worried about rising inflationay pressure. The government is considering hiking subsidized gasoline prices," a dealer says. Dealers tip the pair to trade in a 9,050-9,100 range Monday.
Singapore Dollar Lower Late On Downbeat Manufacturing Data
The Singapore dollar was weaker against its U.S. counterpart late Friday as investors took caution ahead of a Group of 20 nations meeting this weekend, while downbeat domestic economic data also sapped some confidence.
Analysts say markets are looking to the meeting of G-20 finance and monetary officials in Mexico for signs of support for the euro zone and its bid to prop up debt-stricken Greece.
Meanwhile the U.S. dollar drifted as high as S$1.2585 from S$1.2552 late Thursday after government data showed that Singapore's manufacturing output in January contracted 8.8% from a year earlier, much more than the median 0.7% contraction forecast by 11 economists polled by Dow Jones Newswires.
"I think people are preparing for the weekend, and looking for news from the G-20 on what role it or the (International Monetary Fund) could play to support the Greece bailout," said Selena Ling, head of treasury research at Oversea-Chinese Banking Corp.
For the rest of the session, she pegged resistance for the U.S. unit at S$1.2590, with support at S$1.2500.
"With inflation remaining high and signs of sequential growth bottoming, we think the (Monetary Authority of Singapore) will keep the (Singapore dollar's trade-weighted exchange rate) on a mild appreciation trend," Credit Suisse economist Wu Kun Lung said in a note.
"If the global growth indicators continue to pick up with no deterioration in the euro zone situation, and inflation continues to surprise on the upside, the market might start expecting the MAS to shift toward a more hawkish stance," Wu said.
Singapore government bonds rose especially, longer-dated notes, as some investors took caution and shifted their attention to safe-haven assets.
Analysts say markets are looking to the meeting of G-20 finance and monetary officials in Mexico for signs of support for the euro zone and its bid to prop up debt-stricken Greece.
Meanwhile the U.S. dollar drifted as high as S$1.2585 from S$1.2552 late Thursday after government data showed that Singapore's manufacturing output in January contracted 8.8% from a year earlier, much more than the median 0.7% contraction forecast by 11 economists polled by Dow Jones Newswires.
"I think people are preparing for the weekend, and looking for news from the G-20 on what role it or the (International Monetary Fund) could play to support the Greece bailout," said Selena Ling, head of treasury research at Oversea-Chinese Banking Corp.
For the rest of the session, she pegged resistance for the U.S. unit at S$1.2590, with support at S$1.2500.
"With inflation remaining high and signs of sequential growth bottoming, we think the (Monetary Authority of Singapore) will keep the (Singapore dollar's trade-weighted exchange rate) on a mild appreciation trend," Credit Suisse economist Wu Kun Lung said in a note.
"If the global growth indicators continue to pick up with no deterioration in the euro zone situation, and inflation continues to surprise on the upside, the market might start expecting the MAS to shift toward a more hawkish stance," Wu said.
Singapore government bonds rose especially, longer-dated notes, as some investors took caution and shifted their attention to safe-haven assets.
MARKET TALK: Morgan Stanley Short EUR/USD From 1.33
Morgan Stanley shorts EUR/USD at 1.33 for a downside target of 1.2390 and a stop at 1.3460. The bank says now that positioning is cleaner, the market should again focus on fundamentals and with harsh fiscal austerity and waning confidence, a number of European peripheral countries are at risk of a deep recession. This, says MS will pressure the euro lower. EUR/USD at 1.3386.
Greece Told To Change Spending, Tax, Wage Policies
European creditor countries have demanded 38 specific changes to Greek tax, spending and wage policies by the end of this month, the Financial Times reported Thursday on its website, citing documents obtained by the newspaper.
The reforms were spelled out in three memoranda with a combined 90 pages, and are Greece's price for a EUR130 billion ($173.4 billion) second bailout plan, the newspaper said.
It said the changes range from overhauling judicial procedures and centralizing health insurance to changing the way drugs are prescribed and setting minimum crude oil stocks.
"The program is much, much more ambitious than economic reform," the report quoted Mujtaba Rahman, Europe analyst at the Eurasia Group risk consultancy, as saying. "This is state building, as typically understood in traditional low-income contexts."
The reforms were spelled out in three memoranda with a combined 90 pages, and are Greece's price for a EUR130 billion ($173.4 billion) second bailout plan, the newspaper said.
It said the changes range from overhauling judicial procedures and centralizing health insurance to changing the way drugs are prescribed and setting minimum crude oil stocks.
"The program is much, much more ambitious than economic reform," the report quoted Mujtaba Rahman, Europe analyst at the Eurasia Group risk consultancy, as saying. "This is state building, as typically understood in traditional low-income contexts."
EuroCoin Improves Again But Continues To Signal Econ Contraction
The euro-zone economy shrank again in February, but at the slowest pace since September last year as businesses took a less bleak view of economic prospects, a measure of activity showed Friday.
The Centre for Economic Policy Research and the Bank of Italy's monthly EuroCoin indicator rose for a second straight month to -0.06 in February. That was up from -0.14 in January, and the strongest level since September last year when it was 0.03.
The EuroCoin indicator is intended to estimate quarter-on-quarter growth in gross domestic product, excluding erratic components, such as seasonal variations and short-run volatility.
"The result is due mostly to less pessimistic evaluations of firms and consumers," the CEPR said.
The euro-zone economy contracted 0.3% on the quarter in the final three months of 2011. That was the first contraction since the second quarter of 2009, and many economists expect it to be followed by a further contraction in the first three months of 2012--a view borne out by the EuroCoin measure remaining in negative territory in the first two months of the year.
But, after a likely brief recession--which in the U.K. is generally considered to be at least two straight quarters of economic contraction--there are hopes the 17-country economy can eke out growth by the second half of the year.
An agreement bringing an end to the tumultuous Greek debt-crisis discussions, which have weighed on business activity and confidence for some time, and progress on other euro zone-wide fiscal safety measures are likely to help bring much-needed economic expansion.
The Centre for Economic Policy Research and the Bank of Italy's monthly EuroCoin indicator rose for a second straight month to -0.06 in February. That was up from -0.14 in January, and the strongest level since September last year when it was 0.03.
The EuroCoin indicator is intended to estimate quarter-on-quarter growth in gross domestic product, excluding erratic components, such as seasonal variations and short-run volatility.
"The result is due mostly to less pessimistic evaluations of firms and consumers," the CEPR said.
The euro-zone economy contracted 0.3% on the quarter in the final three months of 2011. That was the first contraction since the second quarter of 2009, and many economists expect it to be followed by a further contraction in the first three months of 2012--a view borne out by the EuroCoin measure remaining in negative territory in the first two months of the year.
But, after a likely brief recession--which in the U.K. is generally considered to be at least two straight quarters of economic contraction--there are hopes the 17-country economy can eke out growth by the second half of the year.
An agreement bringing an end to the tumultuous Greek debt-crisis discussions, which have weighed on business activity and confidence for some time, and progress on other euro zone-wide fiscal safety measures are likely to help bring much-needed economic expansion.
MARKET TALK: USD/MYR Higher; Resistance At 3.0200 -Trader
The USD/MYR is higher at 3.0155 vs 3.0135 late Thursday in Asia, tracking the USD/SGD's rise after Fitch said it has downgraded three Australian Banks. "We're back into a risk-off trade again following the [Fitch] downgrade," a local trader says. Still, the pair may find resistance at 3.0200 as exporters are expected to sell near that level. She tips near-term support at 3.0000. The pair traded as low as 3.0070 earlier in the session.
DATA SNAP: Czech Confidence Edges Up In Feb, But Still Weak
The composite Czech confidence index edged slightly higher in February, the third consecutive monthly rise, but remained well off historic highs, data from the Czech Statistics Office, or CSU, showed Friday.
In its monthly survey, the CSU said its overall composite confidence index stood at 87.9 in February from 87.2 in January and 85 in December.
The index was at 94.2 in February 2011.
"The composite confidence indicator increased mainly due to increase in the entrepreneurs' confidence," the CSU said.
Overall business confidence was at 90.3 in February from 89.4 the previous month. It was 95.0 in February last year.
In the industrial sector alone, which is the backbone of the export-driven Czech economy, confidence rose slightly to 94.7 in February from 94.3 a month earlier, but was still well down from its level of 104.5 in February 2011.
The only monthly decrease came in consumer confidence, which edged down to 76.2 in February from 76.4 in the preceding month. Consumer confidence in February 2011 stood at 90.5.
The composite confidence index is a weighted average of seasonally adjusted confidence indicators for industry, construction, trade, services and consumers.
In its monthly survey, the CSU said its overall composite confidence index stood at 87.9 in February from 87.2 in January and 85 in December.
The index was at 94.2 in February 2011.
"The composite confidence indicator increased mainly due to increase in the entrepreneurs' confidence," the CSU said.
Overall business confidence was at 90.3 in February from 89.4 the previous month. It was 95.0 in February last year.
In the industrial sector alone, which is the backbone of the export-driven Czech economy, confidence rose slightly to 94.7 in February from 94.3 a month earlier, but was still well down from its level of 104.5 in February 2011.
The only monthly decrease came in consumer confidence, which edged down to 76.2 in February from 76.4 in the preceding month. Consumer confidence in February 2011 stood at 90.5.
The composite confidence index is a weighted average of seasonally adjusted confidence indicators for industry, construction, trade, services and consumers.
MARKET TALK: Malaysian Govt Bonds Steady; Tues Auction Eyed -Trader
Malaysian government bonds are nearly unchanged in low volume as investors proceed cautiously ahead of the weekend while waiting for an auction due Tuesday for more cues. Worries over Europe's debt crisis continue to linger and the market is still cautious whether Greece will be able to implement its austerity measures, says a local trader. "This discourages investors from taking excessive risk in emerging markets and many are in the market hunting for attractive yields," says the trader. Malaysia's central bank plans a MYR3.50 billion August 2017 Islamic bond auction on Tuesday, which will likely attract a bid-to-cover ratio of 2.5-3.0, he adds. The yield on September 2016 MGS is down 1 bp at 3.19% while September 2018 MGS yield is flat at 3.36%.
South Korea Won Up Late In Quiet Trading; Bonds Steady
The South Korean won was higher against the U.S. dollar late Friday as positive data from the U.S. and Germany on Thursday boosted hopes about the global economy.
Sentiment toward the local currency also got some support from the 0.6% gain in the local stock index Friday, though a lack of leads during the Asian session kept currency trading relatively light, traders said.
"The market didn't move much. Orders were largely mixed with dollar selling from exporters and buying from offshore players, and there was no momentum" to drive the local currency in a particular direction, said a trader at a local bank.
The dollar moved between KRW1,124.00 and KRW1,125.90 during the session. Trading volume was just $7.42 billion compared with last week's daily average of $12.64 billion.
For the last two weeks, the U.S. currency has been largely trapped in a band between KRW1,120 and KRW1,130, and the market hasn't really responded to any cues after the euro zone's long-awaited decision on the Greece bailout on Tuesday. Analysts say the dollar/won pair will likely continue to move without direction until clearer signals about the euro-zone debt situation and the global economy emerge.
"The market remains doubtful about whether Greece will be able to deal with the risk of default," said KEB Futures currency analyst Jung Kyung-parl.
Investors will likely keep their eyes on liquidity conditions in Europe as the European Central Bank is expected to announce a second long-term refinancing operation on Feb. 29, Jung said. "If the amount is smaller than EUR1 trillion, which is widely expected among market participants, risk appetite will probably weaken."
He tipped the dollar to move between KRW1,115 and KRW1,132 next week.
Korea government bonds were little changed, taking a breather after rising in the previous two days.
Data on jobless claims in the U.S. and business confidence in Germany weighed on bond prices, but "the downside will likely be limited amid deepening concerns about rising global oil prices" and their impact on the domestic economy, said Lee Kee-wook, a fixed-income analyst at KDB Daewoo Securities.
He added lead March futures are expected to trade in a 104.15-104.35 band for the near term.
The futures ended two ticks lower at 104.22 Friday.
Sentiment toward the local currency also got some support from the 0.6% gain in the local stock index Friday, though a lack of leads during the Asian session kept currency trading relatively light, traders said.
"The market didn't move much. Orders were largely mixed with dollar selling from exporters and buying from offshore players, and there was no momentum" to drive the local currency in a particular direction, said a trader at a local bank.
The dollar moved between KRW1,124.00 and KRW1,125.90 during the session. Trading volume was just $7.42 billion compared with last week's daily average of $12.64 billion.
For the last two weeks, the U.S. currency has been largely trapped in a band between KRW1,120 and KRW1,130, and the market hasn't really responded to any cues after the euro zone's long-awaited decision on the Greece bailout on Tuesday. Analysts say the dollar/won pair will likely continue to move without direction until clearer signals about the euro-zone debt situation and the global economy emerge.
"The market remains doubtful about whether Greece will be able to deal with the risk of default," said KEB Futures currency analyst Jung Kyung-parl.
Investors will likely keep their eyes on liquidity conditions in Europe as the European Central Bank is expected to announce a second long-term refinancing operation on Feb. 29, Jung said. "If the amount is smaller than EUR1 trillion, which is widely expected among market participants, risk appetite will probably weaken."
He tipped the dollar to move between KRW1,115 and KRW1,132 next week.
Korea government bonds were little changed, taking a breather after rising in the previous two days.
Data on jobless claims in the U.S. and business confidence in Germany weighed on bond prices, but "the downside will likely be limited amid deepening concerns about rising global oil prices" and their impact on the domestic economy, said Lee Kee-wook, a fixed-income analyst at KDB Daewoo Securities.
He added lead March futures are expected to trade in a 104.15-104.35 band for the near term.
The futures ended two ticks lower at 104.22 Friday.
MARKET TALK: China Bonds End Flat; Strong Stocks Weigh -Trader
China government bonds end flat as liquidity conditions remain tight, while the local stock market's recent strength prompts some funds to switch from fixed income assets to equities, says a Shanghai-based trader with a local brokerage. The benchmark Shanghai Composite Index ends up 1.4% at a 14-week high. The Shanghai exchange government bond index ends at 132.01, unchanged from Thursday's close; it's tipped to hover around 132.00 next week.
JP Morgan: Capital Inflows Could Push Baht Up Over Next 1-2 Years
Thailand's currency could strengthen over the next one to two years due largely to capital inflows, a J.P. Morgan executive said Friday.
"The geographic shift isn't just to Thailand but to the whole region. Investors from the U.S. down to Australia are looking to increase asset allocation in emerging markets," Angus St. John, executive director and head of Southeast Asia Worldwide Securities Services at J.P. Morgan in Singapore, told Dow Jones Newswires.
He said, "many stock markets in the region could benefit from the fund flows," and that he viewed the outlook for Thailand's stock market as sound.
Planned cross-border stock trading among Asean countries might not only encourage trading in the region, but also attract foreign funds, he said, speaking on the sidelines of an investment forum in Bangkok.
He also said many challenges are on the horizon for euro-zone nations, and that there are signs of improvement in the U.S. economy.
"The geographic shift isn't just to Thailand but to the whole region. Investors from the U.S. down to Australia are looking to increase asset allocation in emerging markets," Angus St. John, executive director and head of Southeast Asia Worldwide Securities Services at J.P. Morgan in Singapore, told Dow Jones Newswires.
He said, "many stock markets in the region could benefit from the fund flows," and that he viewed the outlook for Thailand's stock market as sound.
Planned cross-border stock trading among Asean countries might not only encourage trading in the region, but also attract foreign funds, he said, speaking on the sidelines of an investment forum in Bangkok.
He also said many challenges are on the horizon for euro-zone nations, and that there are signs of improvement in the U.S. economy.
Tuesday, 21 February 2012
World Trade Volumes Rose By 1.4% In December -CPB
World trade volumes rose for the second straight month in December, suggesting that global economic activity may already be stabilizing.
Figures released Tuesday by the Netherlands Bureau for Economic Policy Analysis, also known as the CPB, showed trade volumes rose 1.4% from November, having risen by 0.8% in that month.
The troubled euro-zone economy was a weak spot, with imports to its 17 members down 1.7% on the month, and exports down 1.2%. By contrast, U.S. imports rose by 1.5% and exports surged by 3.6%, reflecting the relative strength of the world's largest economy in the final months of 2011.
Exports from Asia, and imports to Africa and the Middle East also rose strongly.
"Emerging economies generally did better than advanced economies," the CPB said. "Japanese and euro area imports continued to decline."
The CPB's figures are closely watched by policymakers, including a number of central banks, because they provide the earliest available measure of global trade.
Growth in many economies slowed in the final months of last year as concerns about the impact of a possible default on its debts by the Greek government, or the breakup of the euro zone, weighed on business confidence and roiled financial markets.
The Organization for Economic Cooperation and Development Tuesday reported that the combined gross domestic product of its 34 members grew by just 0.1% in the fourth quarter, having expanded by 0.6% in the third.
World trade flows fell in September and October, but their rebound at the end of the year adds to some other evidence that suggests the slowdown won't be long lasting. The OECD's own leading indicator rose slightly in December, the first increase since February 2011. Surveys of purchasing managers at manufacturers and service providers pointed to an increase in activity in January, driven by the U.S., while share prices have risen in many parts of the world.
Figures released Tuesday by the Netherlands Bureau for Economic Policy Analysis, also known as the CPB, showed trade volumes rose 1.4% from November, having risen by 0.8% in that month.
The troubled euro-zone economy was a weak spot, with imports to its 17 members down 1.7% on the month, and exports down 1.2%. By contrast, U.S. imports rose by 1.5% and exports surged by 3.6%, reflecting the relative strength of the world's largest economy in the final months of 2011.
Exports from Asia, and imports to Africa and the Middle East also rose strongly.
"Emerging economies generally did better than advanced economies," the CPB said. "Japanese and euro area imports continued to decline."
The CPB's figures are closely watched by policymakers, including a number of central banks, because they provide the earliest available measure of global trade.
Growth in many economies slowed in the final months of last year as concerns about the impact of a possible default on its debts by the Greek government, or the breakup of the euro zone, weighed on business confidence and roiled financial markets.
The Organization for Economic Cooperation and Development Tuesday reported that the combined gross domestic product of its 34 members grew by just 0.1% in the fourth quarter, having expanded by 0.6% in the third.
World trade flows fell in September and October, but their rebound at the end of the year adds to some other evidence that suggests the slowdown won't be long lasting. The OECD's own leading indicator rose slightly in December, the first increase since February 2011. Surveys of purchasing managers at manufacturers and service providers pointed to an increase in activity in January, driven by the U.S., while share prices have risen in many parts of the world.
BIG PICTURE: Betting The Rent On Inflation's Future
-- The cost of shelter is pushing up core inflation to a multiyear high
-- Rental vacancy rates correlate strongly with shelter inflation
-- The Fed still has room, but is sure to be watching core inflation's trend
NEW YORK (Dow Jones)--As shelter goes, so goes core inflation.
When looking at inflation trends, economists and policymakers look at the core prices, which exclude volatile food and energy items. Friday's January consumer price index report showed yearly core inflation stood at 2.3%, the fastest pace since September 2008.
What's behind the acceleration? While some items like apparel and tobacco posted price gains, the cost of putting a roof over one's head is a primary catalyst.
The shelter category--a combination of rents, estimates of what homeowners would pay if they rented their own homes, plus hotel room rates--makes up about 40% of the core CPI. Given that large weighting, shelter prices will largely determine the course of core inflation this year.
The general expectation is that core inflation will moderate this year. If rents pop up, however, say good-bye to moderation.
That could make the Federal Reserve's decision-making harder this year if policymakers are confronted with rising core inflation at the same time the jobless rate remains high.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, notes there is a strong correlation between the change in vacancy rates and inflation for both rents and homeowners' equivalent rent.
The rental vacancy rate has fallen from a record high of 11.1% in the third quarter of 2009 to 9.4% in the fourth quarter of 2011.
Shepherdson says rents have not risen as fast as implied by the fall in vacancy rates so "the danger remains that they will now catch up, posing a risk of rapid near-term acceleration" in rent inflation.
Dan Greenhaus, chief global strategist at BTIG, agrees developments on the rental front must be watched to determine whether "a calm viewing of the inflation landscape is misguided."
Fed officials, who are tasked with holding down inflation while also supporting economic growth, will certainly be watching.
"While the Fed won't react to one data report, several months of strong reports would introduce more caution into their assessment of the need to ease further," said economists at Bank of America/Merrill Lynch.
Relief will come when the increased number of apartment buildings now under construction start taking in tenants. That probably won't happen this year, but should lift vacancy rates--and lower rent inflation--in 2013.
-- Rental vacancy rates correlate strongly with shelter inflation
-- The Fed still has room, but is sure to be watching core inflation's trend
NEW YORK (Dow Jones)--As shelter goes, so goes core inflation.
When looking at inflation trends, economists and policymakers look at the core prices, which exclude volatile food and energy items. Friday's January consumer price index report showed yearly core inflation stood at 2.3%, the fastest pace since September 2008.
What's behind the acceleration? While some items like apparel and tobacco posted price gains, the cost of putting a roof over one's head is a primary catalyst.
The shelter category--a combination of rents, estimates of what homeowners would pay if they rented their own homes, plus hotel room rates--makes up about 40% of the core CPI. Given that large weighting, shelter prices will largely determine the course of core inflation this year.
The general expectation is that core inflation will moderate this year. If rents pop up, however, say good-bye to moderation.
That could make the Federal Reserve's decision-making harder this year if policymakers are confronted with rising core inflation at the same time the jobless rate remains high.
Ian Shepherdson, chief U.S. economist at High Frequency Economics, notes there is a strong correlation between the change in vacancy rates and inflation for both rents and homeowners' equivalent rent.
The rental vacancy rate has fallen from a record high of 11.1% in the third quarter of 2009 to 9.4% in the fourth quarter of 2011.
Shepherdson says rents have not risen as fast as implied by the fall in vacancy rates so "the danger remains that they will now catch up, posing a risk of rapid near-term acceleration" in rent inflation.
Dan Greenhaus, chief global strategist at BTIG, agrees developments on the rental front must be watched to determine whether "a calm viewing of the inflation landscape is misguided."
Fed officials, who are tasked with holding down inflation while also supporting economic growth, will certainly be watching.
"While the Fed won't react to one data report, several months of strong reports would introduce more caution into their assessment of the need to ease further," said economists at Bank of America/Merrill Lynch.
Relief will come when the increased number of apartment buildings now under construction start taking in tenants. That probably won't happen this year, but should lift vacancy rates--and lower rent inflation--in 2013.
Lufthansa To Cancel 156 Flights
-- Lufthansa cancelling 156 flights Tuesday
-- It expects fewer cancellations Wednesday
-- The strike is set to continue through Friday
FRANKFURT -- German air carrier Deutsche Lufthansa (LHA.XE) said that it will cancel 156 flights Tuesday, but expects fewer cancellations Wednesday after Germany's GdF union extended its strike at Frankfurt airport.
Labor union GdF has extended its warning strike at Frankfurt airport through Friday evening, amid a labor dispute about better wages and conditions. The union had previous planned to strike until Wednesday morning.
German airport operator Fraport AG (FRA.XE) said around 187 of 1,200 scheduled flights would be cancelled Tuesday, after approximately 80% of flights were serviced Monday, with 240 cancellations. Some 200 of those cancellations were Lufthansa flights.
Fraport also said the strikes cost the company EUR3.5 million to EUR4 million in sales on Thursday and Friday last week, when the strike began.
Fraport has said it is well prepared for the situation and has found replacement personnel to fill gaps.
On Tuesday, a spokesman for Lufthansa confirmed the airline would cancel fewer flights on Tuesday, less than previously planned. On Monday, a Lufthansa spokeswoman said the cancellations affect domestic and intra-European flights, not intercontinental flights. Lufthansa cancelled 232 flights last Friday.
GdF represents around 190 Fraport employees at the airport operator's traffic operation center as well as apron controllers and apron supervision staff.
A union spokesman repeated Tuesday that the union has the financial strength to continue the strikes.
The union is prepared to return to the bargaining table, "but we can't start from square one again," union Chairman Markus Siebers said.
-- It expects fewer cancellations Wednesday
-- The strike is set to continue through Friday
FRANKFURT -- German air carrier Deutsche Lufthansa (LHA.XE) said that it will cancel 156 flights Tuesday, but expects fewer cancellations Wednesday after Germany's GdF union extended its strike at Frankfurt airport.
Labor union GdF has extended its warning strike at Frankfurt airport through Friday evening, amid a labor dispute about better wages and conditions. The union had previous planned to strike until Wednesday morning.
German airport operator Fraport AG (FRA.XE) said around 187 of 1,200 scheduled flights would be cancelled Tuesday, after approximately 80% of flights were serviced Monday, with 240 cancellations. Some 200 of those cancellations were Lufthansa flights.
Fraport also said the strikes cost the company EUR3.5 million to EUR4 million in sales on Thursday and Friday last week, when the strike began.
Fraport has said it is well prepared for the situation and has found replacement personnel to fill gaps.
On Tuesday, a spokesman for Lufthansa confirmed the airline would cancel fewer flights on Tuesday, less than previously planned. On Monday, a Lufthansa spokeswoman said the cancellations affect domestic and intra-European flights, not intercontinental flights. Lufthansa cancelled 232 flights last Friday.
GdF represents around 190 Fraport employees at the airport operator's traffic operation center as well as apron controllers and apron supervision staff.
A union spokesman repeated Tuesday that the union has the financial strength to continue the strikes.
The union is prepared to return to the bargaining table, "but we can't start from square one again," union Chairman Markus Siebers said.
Japan Fin Min Sees No Quick G-20 Deal On IMF Funding
-- Japan doubts any G-20 deal on IMF funding in Mexico.
-- Finance Minister Jun Azumi says Japan and China think Europe still has room to make efforts to solve the crisis on its own.
-- Talks over additional IMF funding may not move much forward until after a planned euro-zone summit on March 1-2, sources say.
TOKYO -- Japan's finance minister signaled Tuesday that Group of 20 finance officials won't forge any deal at a planned meeting this weekend on how much money member nations should additionally provide for the International Monetary Fund to help it fight Europe's debt crisis.
Talks over the IMF funding aren't expected to make much progress until after a planned euro-zone summit on March 1-2, at which leaders of the 17-nation euro bloc are due to discuss an increase in the size of their EUR500 billion European Stability Mechanism, people familiar with the matter told Dow Jones Newswires.
Their remarks add to signs that non-European members of the IMF may not commit extra cash to the fund's euro-zone rescue until Europe clearly pledges to reinforce its firewall.
"As for the IMF, the way I see it, we are not yet at a stage where we are moving in the same direction and are about to decide specific amounts" that G-20 leading industrial and developing nations will offer the IMF, Azumi said at a news conference.
IMF chief Christine Lagarde is seeking to raise $600 billion to boost the fund's resources over $1 trillion as a backstop to Europe's own firewall. But Azumi said that the coming G-20 meeting of finance ministers and central bank heads in Mexico City on Saturday and Sunday will be a place to "examine progress in the European situation."
Major IMF stakeholders including the U.S., Japan and China share a sense that Europe's crisis must be fixed soon to save a global economy reeling from the crisis. Japan in particular has suggested from time to time its willingness to eventually lend more to the IMF. But all three have balked at quickly signing off on Lagarde's plan, saying wealthy European nations still have resources of their own that they should commit to crisis steps before asking for major IMF aid.
Whether and by how much euro-zone economies would raise the ESM's EUR500-billion cap will hold the key to future discussions over the IMF plan, the people familiar with the issue said.
Relevent countries "would probably work out details (on any IMF plan) after looking at the review of the (EUR500 billion) cap" on the ESM, one of the people said. "It is not possible that the IMF issue will be decided first."
The final shape of any IMF funding plan may not emerge until around the fund's semiannual meeting scheduled for April 20-22, they said.
Azumi added that Japan and China "share the view that there remains sufficient room (for Europe) to make efforts."
Azumi emphasized that Japan will consult with other nations, such as the U.S. and China, in determining investment amounts for the IMF. This suggests that no independent aid from Japan to the IMF may be forthcoming, as the U.S. Treasury has been encouraging other countries--including Japan--to hold off on adding money to the IMF as a way to prod Europe to cough up more of its own resources
-- Finance Minister Jun Azumi says Japan and China think Europe still has room to make efforts to solve the crisis on its own.
-- Talks over additional IMF funding may not move much forward until after a planned euro-zone summit on March 1-2, sources say.
TOKYO -- Japan's finance minister signaled Tuesday that Group of 20 finance officials won't forge any deal at a planned meeting this weekend on how much money member nations should additionally provide for the International Monetary Fund to help it fight Europe's debt crisis.
Talks over the IMF funding aren't expected to make much progress until after a planned euro-zone summit on March 1-2, at which leaders of the 17-nation euro bloc are due to discuss an increase in the size of their EUR500 billion European Stability Mechanism, people familiar with the matter told Dow Jones Newswires.
Their remarks add to signs that non-European members of the IMF may not commit extra cash to the fund's euro-zone rescue until Europe clearly pledges to reinforce its firewall.
"As for the IMF, the way I see it, we are not yet at a stage where we are moving in the same direction and are about to decide specific amounts" that G-20 leading industrial and developing nations will offer the IMF, Azumi said at a news conference.
IMF chief Christine Lagarde is seeking to raise $600 billion to boost the fund's resources over $1 trillion as a backstop to Europe's own firewall. But Azumi said that the coming G-20 meeting of finance ministers and central bank heads in Mexico City on Saturday and Sunday will be a place to "examine progress in the European situation."
Major IMF stakeholders including the U.S., Japan and China share a sense that Europe's crisis must be fixed soon to save a global economy reeling from the crisis. Japan in particular has suggested from time to time its willingness to eventually lend more to the IMF. But all three have balked at quickly signing off on Lagarde's plan, saying wealthy European nations still have resources of their own that they should commit to crisis steps before asking for major IMF aid.
Whether and by how much euro-zone economies would raise the ESM's EUR500-billion cap will hold the key to future discussions over the IMF plan, the people familiar with the issue said.
Relevent countries "would probably work out details (on any IMF plan) after looking at the review of the (EUR500 billion) cap" on the ESM, one of the people said. "It is not possible that the IMF issue will be decided first."
The final shape of any IMF funding plan may not emerge until around the fund's semiannual meeting scheduled for April 20-22, they said.
Azumi added that Japan and China "share the view that there remains sufficient room (for Europe) to make efforts."
Azumi emphasized that Japan will consult with other nations, such as the U.S. and China, in determining investment amounts for the IMF. This suggests that no independent aid from Japan to the IMF may be forthcoming, as the U.S. Treasury has been encouraging other countries--including Japan--to hold off on adding money to the IMF as a way to prod Europe to cough up more of its own resources
FOCUS: This Bailout Isn't For Greece
-- Risk of Greek default, departure from euro remain high
-- Terms of rescue plan are too onerous
-- Gives Spain, Portugal and Italy more time to prepare
LONDON (Dow Jones)--Madrid, Rome and Lisbon shouldn't be congratulating Athens on the new Greek bail out.
They should be expressing their eternal gratitude.
This bail out isn't going to save Greece, it will save Spain, Italy and Portugal.
Just look at the terms of the this second bail out.
Not only is Greece being asked to plunge its already depressed economy into a nearly indeterminately long recession but it is being forced to give up even further sovereignty by having officials from the troika policing its treasury from now on.
Within hours of the agreement being reached after a marathon meeting in Brussels, the success of the bail out, designed to prevent Greece from defaulting on a March 20 loan repayment, is in doubt.
Despite plans for private-sector bondholders to take an even deeper loss on their holdings, there is no guarantee that all the bond holders will take the haircut voluntarily.
The fact the European Central Bank has negotiated its own rather privileged deal may only damage relations with private-sector bondholders even further.
The need for Germany, the Netherlands and Finland to seek parliamentary approval for their participation in the deal injects even more uncertainty given the widespread objection in these countries to pay for the debt crisis in the peripheral countries of the euro zone.
A report that Greek finances are already well out of kilter and that even a third bailout probably won't be enough to get the country back to the open market in the foreseeable future has contributed to the impression that even if the new package allows Greece to meet its March 20 payment, the risk of a default at a later stage hasn't been removed.
But, perhaps it is the reaction of the International Monetary Fund, one of the key players in the troika alongside the European Union and the ECB, that is most telling. The full extent of its participation in the rescue remains unclear as the international institution seeks greater clarification of how Greece intends to impose the new austerity measures.
As the Dutch Finance Minister Jan Kees de Jager said, he is "not completely sure" that Greece will keep its promises.
For the time being, the bailout will probably hold, but it may well only last until Greece holds its elections in April.
Then the Greeks will finally have their say--accept the bailout and the recession being imposed by Brussels or walk away from the euro and take control of their own destiny.
Given the recent level of civil unrest in Greece, few are probably keen to bet on the outcome of the elections. Yes, about 70% of Greeks say they still support the euro, but it is hard to see 70% of them supporting the parliamentary parties that have signed up to the terms of the bailout.
Or, at least those that signed up to the terms of the bailout and meant it.
Given this, there is a strong chance that Greeks will revolt, putting in place a government that is more likely to walk away from Brussels.
As Capital Economics said: "With the recession thwarting debt reduction efforts and public outrage growing, we still see Greece leaving the euro zone before the year is out."
This threat of a Greek departure may still send shivers through the capitals of other peripheral debtors.
But, given that this bailout should delay such an event by weeks, if not by months, will give Spain, Italy and Portugal more time to strengthen their defenses and make sure they are less prone to contagion if Greece decides to go it alone.
-- Terms of rescue plan are too onerous
-- Gives Spain, Portugal and Italy more time to prepare
LONDON (Dow Jones)--Madrid, Rome and Lisbon shouldn't be congratulating Athens on the new Greek bail out.
They should be expressing their eternal gratitude.
This bail out isn't going to save Greece, it will save Spain, Italy and Portugal.
Just look at the terms of the this second bail out.
Not only is Greece being asked to plunge its already depressed economy into a nearly indeterminately long recession but it is being forced to give up even further sovereignty by having officials from the troika policing its treasury from now on.
Within hours of the agreement being reached after a marathon meeting in Brussels, the success of the bail out, designed to prevent Greece from defaulting on a March 20 loan repayment, is in doubt.
Despite plans for private-sector bondholders to take an even deeper loss on their holdings, there is no guarantee that all the bond holders will take the haircut voluntarily.
The fact the European Central Bank has negotiated its own rather privileged deal may only damage relations with private-sector bondholders even further.
The need for Germany, the Netherlands and Finland to seek parliamentary approval for their participation in the deal injects even more uncertainty given the widespread objection in these countries to pay for the debt crisis in the peripheral countries of the euro zone.
A report that Greek finances are already well out of kilter and that even a third bailout probably won't be enough to get the country back to the open market in the foreseeable future has contributed to the impression that even if the new package allows Greece to meet its March 20 payment, the risk of a default at a later stage hasn't been removed.
But, perhaps it is the reaction of the International Monetary Fund, one of the key players in the troika alongside the European Union and the ECB, that is most telling. The full extent of its participation in the rescue remains unclear as the international institution seeks greater clarification of how Greece intends to impose the new austerity measures.
As the Dutch Finance Minister Jan Kees de Jager said, he is "not completely sure" that Greece will keep its promises.
For the time being, the bailout will probably hold, but it may well only last until Greece holds its elections in April.
Then the Greeks will finally have their say--accept the bailout and the recession being imposed by Brussels or walk away from the euro and take control of their own destiny.
Given the recent level of civil unrest in Greece, few are probably keen to bet on the outcome of the elections. Yes, about 70% of Greeks say they still support the euro, but it is hard to see 70% of them supporting the parliamentary parties that have signed up to the terms of the bailout.
Or, at least those that signed up to the terms of the bailout and meant it.
Given this, there is a strong chance that Greeks will revolt, putting in place a government that is more likely to walk away from Brussels.
As Capital Economics said: "With the recession thwarting debt reduction efforts and public outrage growing, we still see Greece leaving the euro zone before the year is out."
This threat of a Greek departure may still send shivers through the capitals of other peripheral debtors.
But, given that this bailout should delay such an event by weeks, if not by months, will give Spain, Italy and Portugal more time to strengthen their defenses and make sure they are less prone to contagion if Greece decides to go it alone.
UPDATE: Pimco Reducing Emerging-Market Exposure Over Short Term
-- Pimco is cutting exposure to emerging markets over the short term, its Asia CEO says
-- The Chinese yuan may appreciate slower, trade in a wider range ahead, he adds
-- Some market participants voice concerns about investing in Indonesia
(Updates to wrap together several earlier items.)
SINGAPORE (Dow Jones)--Pacific Investment Management Co. is reducing exposure to emerging markets over the short term, due to concerns about "material" risks to the outlook in 2012, an official at the investment management firm said in an interview.
At a conference in Singapore Tuesday, Pimco Asia Chief Executive Officer Brian Baker also said that the Chinese yuan may appreciate at a slower pace and trade in a wider range ahead.
Some other participants at the forum additionally expressed more cautious views about investing in Indonesia.
Pimco's Baker cited several key risks in 2012: a default in Europe or break-up of the euro zone; geopolitical issues, such as the Arab Spring; the possibility of a hard landing in China; and the risk of developed-world central banks losing credibility.
"We as a firm, because of our concerns about the potential volatility that we see in 2012... are derisking our portfolios, which would include reducing our emerging-market exposures over the short term," Baker said in an interview on the sidelines of Euromoney's Asia Forex Forum.
Baker also said that the world's largest bond investor didn't see any asset bubbles right now, and that market prices reflected economic or policy factors, rather than rational ones.
Gold prices are being driven by low real yields in government debt and its safe-haven role in investor portfolios, he said.
"With rates so low and people who have cash not earning much in bank deposits, commodities and gold are a store of value, and perhaps can be used as a better store of value than paper assets."
He added that Pimco was "constructive" on Australian bonds, but that the country's economy was slowing and that the Reserve Bank of Australia would likely cut interest rates further.
Some investors at the forum expressed caution on Indonesia, which was raised to investment grade by Fitch Ratings and Moody's Investors Service in December and January, respectively.
The country's central bank cut its benchmark policy rate by 25 basis points to 5.75% Feb. 9, drawing criticism from some economists, who questioned whether it was moving too quickly.
Joel Kim, head of Asia Pacific fixed income at Blackrock Inc. (BLK), said Bank Indonesia's recent actions raised questions about whether it is flirting with a return of inflation.
Indonesia is "a market we're a bit cautious about. We'd probably put our money in other markets right now," Kim said, adding that he sees more potential for growth in the medium-term in Korea, or possibly in Malaysia.
Peter Redward, principal at consultancy Redward Associates, echoed that sentiment.
"I was quite bullish on Indonesia at the start of this year. All of my analysis was that Indonesia should've performed as well as Malaysia and Singapore, and it just didn't," he said.
-- The Chinese yuan may appreciate slower, trade in a wider range ahead, he adds
-- Some market participants voice concerns about investing in Indonesia
(Updates to wrap together several earlier items.)
SINGAPORE (Dow Jones)--Pacific Investment Management Co. is reducing exposure to emerging markets over the short term, due to concerns about "material" risks to the outlook in 2012, an official at the investment management firm said in an interview.
At a conference in Singapore Tuesday, Pimco Asia Chief Executive Officer Brian Baker also said that the Chinese yuan may appreciate at a slower pace and trade in a wider range ahead.
Some other participants at the forum additionally expressed more cautious views about investing in Indonesia.
Pimco's Baker cited several key risks in 2012: a default in Europe or break-up of the euro zone; geopolitical issues, such as the Arab Spring; the possibility of a hard landing in China; and the risk of developed-world central banks losing credibility.
"We as a firm, because of our concerns about the potential volatility that we see in 2012... are derisking our portfolios, which would include reducing our emerging-market exposures over the short term," Baker said in an interview on the sidelines of Euromoney's Asia Forex Forum.
Baker also said that the world's largest bond investor didn't see any asset bubbles right now, and that market prices reflected economic or policy factors, rather than rational ones.
Gold prices are being driven by low real yields in government debt and its safe-haven role in investor portfolios, he said.
"With rates so low and people who have cash not earning much in bank deposits, commodities and gold are a store of value, and perhaps can be used as a better store of value than paper assets."
He added that Pimco was "constructive" on Australian bonds, but that the country's economy was slowing and that the Reserve Bank of Australia would likely cut interest rates further.
Some investors at the forum expressed caution on Indonesia, which was raised to investment grade by Fitch Ratings and Moody's Investors Service in December and January, respectively.
The country's central bank cut its benchmark policy rate by 25 basis points to 5.75% Feb. 9, drawing criticism from some economists, who questioned whether it was moving too quickly.
Joel Kim, head of Asia Pacific fixed income at Blackrock Inc. (BLK), said Bank Indonesia's recent actions raised questions about whether it is flirting with a return of inflation.
Indonesia is "a market we're a bit cautious about. We'd probably put our money in other markets right now," Kim said, adding that he sees more potential for growth in the medium-term in Korea, or possibly in Malaysia.
Peter Redward, principal at consultancy Redward Associates, echoed that sentiment.
"I was quite bullish on Indonesia at the start of this year. All of my analysis was that Indonesia should've performed as well as Malaysia and Singapore, and it just didn't," he said.
UBS Currency Strategist: Favor US Dollar Among G-3 Currencies
UBS AG (UBS) favors the U.S dollar among G-3 currencies this year as the world's biggest economy is picking up, though Tuesday's decision on a bailout package for Greece will give the euro a temporary boost, according to Mansoor Mohi-uddin, managing director and chief currency strategist.
"The U.S dollar is our preferred currency for 2012. (But) in the near term, investors will get more optimistic about the euro zone," Mohi-uddin told Dow Jones Newswires by telephone Tuesday.
However, the euro zone will continue to adopt austerity steps and further interest rate cuts can't be ruled out, he said.
"At the same time, the U.S. economy is picking up (and) the Fed may not wait until 2014 and may start thinking about raising interest rates," he said.
However, the announcement of a Greek deal has clearly helped sentiment, he said.
"It takes away one of the risks that we have been worried about. But over the medium term, I'm worried that structural issues in the euro zone, and to some extent even in the U.S.... can easily come back," he said at an industry conference. "I wonder how much more we have to go before investors become cautious again."
He added that fiscal austerity measures being forced by Germany on other euro-zone nations can't be sustained because of the political conditions in the region and "eventually, something will give."
"The U.S dollar is our preferred currency for 2012. (But) in the near term, investors will get more optimistic about the euro zone," Mohi-uddin told Dow Jones Newswires by telephone Tuesday.
However, the euro zone will continue to adopt austerity steps and further interest rate cuts can't be ruled out, he said.
"At the same time, the U.S. economy is picking up (and) the Fed may not wait until 2014 and may start thinking about raising interest rates," he said.
However, the announcement of a Greek deal has clearly helped sentiment, he said.
"It takes away one of the risks that we have been worried about. But over the medium term, I'm worried that structural issues in the euro zone, and to some extent even in the U.S.... can easily come back," he said at an industry conference. "I wonder how much more we have to go before investors become cautious again."
He added that fiscal austerity measures being forced by Germany on other euro-zone nations can't be sustained because of the political conditions in the region and "eventually, something will give."
DATA SNAP: UK Posts Biggest Public-Sector Surplus In Three Years
The U.K. government enjoyed its biggest surplus in four years in January, making it increasingly likely that Chancellor of the Exchequer George Osborne will undershoot his borrowing target for the year.
Public sector net borrowing was negative in January--meaning a surplus--to the tune of GBP7.8 billion, the Office for National Statistics said Tuesday.
That is the biggest surplus since January 2008, thanks to annual growth in receipts outstripping a rise in government spending.
For the financial year to date, borrowing was GBP93.5 billion. That is down GBP15.7 billion on the comparable period last year.
With only two months left in the financial year, the figure is significantly below the government's GBP127 billion full-year forecast.
Undercutting the borrowing target would give Osborne ammunition to argue that his program of spending cuts to pare back the national debt is working.
Osborne has come under pressure to ease back on the austerity program to boost growth as the economy has weakened. The Chancellor will reveal new plans to support growth in his Budget statement in late March.
Economists were expecting a public sector net surplus of GBP6.4 billion, according to a Dow Jones Newswires survey last week.
Public sector net borrowing was negative in January--meaning a surplus--to the tune of GBP7.8 billion, the Office for National Statistics said Tuesday.
That is the biggest surplus since January 2008, thanks to annual growth in receipts outstripping a rise in government spending.
For the financial year to date, borrowing was GBP93.5 billion. That is down GBP15.7 billion on the comparable period last year.
With only two months left in the financial year, the figure is significantly below the government's GBP127 billion full-year forecast.
Undercutting the borrowing target would give Osborne ammunition to argue that his program of spending cuts to pare back the national debt is working.
Osborne has come under pressure to ease back on the austerity program to boost growth as the economy has weakened. The Chancellor will reveal new plans to support growth in his Budget statement in late March.
Economists were expecting a public sector net surplus of GBP6.4 billion, according to a Dow Jones Newswires survey last week.
ROUNDUP: What Analysts Think Of The Greek Deal
As euro-zone finance ministers reached an ambitious EUR130 billion rescue deal for Greece after a marathon 12-hour discussion which ended early Tuesday, many bank analysts are cautious about the outlook for the beleaguered country and that of the region's currency, the euro.
Here's a round up of what they think, roughly ordered from the most positive views to the most pessimistic:
HSBC: The end of the process has been reached and it blows away all those conspiracy theories about a Greek default and/or a euro-zone break up. While the news isn't necessarily a reason to buy the euro, it certainly isn't a reason to sell it either. It will be interesting to see the U.S. reaction later. A key level to break today would be $1.3320. What the euro bears will be worrying about now is implementation risk, but overall this is a win for the bulls.
BARCLAYS CAPITAL: So many hurdles remain. The focus will now be on the implementation of the private-sector involvement and the participation rate which, if not enough, could lead to a credit event. The details of the deal will be resolved over the next few weeks and an orderly Greek default cannot be completely ruled out. Watch euro-area yields for signs of whether investors think the problems are contained in Greece, and expect the 100-day moving average of $1.3310 to hold for the euro for now.
CITIGROUP: The majority of the good news does seem already priced in as the outcome was pretty much discussed last week. The euro's reaction so far could be little more than short covering but there's a decent chance the market will continue its joy into U.S. open. However, there are uncertainties remaining with respect to implementation and how it will play out.
CREDIT AGRICOLE: Suspects the deal has been priced in and room for further euro appreciation is set to be limited in the short term. It is cautious of buying into the euro rally at current levels and doubts that it has room to rally further. Given the euro-zone economy is sliding into recession, the relative rise in U.S. bond yields compared with bunds will create headwinds to any further euro appreciation.
CREDIT SUISSE: Market response has been pretty muted following a 0.8% rally in Asian hours. Caution is warranted on the euro's direction as focus will likely quickly shift to the PSI process and the likely need for a non-voluntary participation.
ING: It looks like a deal, it walks like a deal, it almost is a deal, but the crisis marathon is not over yet. While Greece should be saved, at least for the next couple of months, the feeling of relief is not likely to last for long. So far, the return of economic growth in Greece is largely based on the principle of wishful thinking. The combination of more austerity, social unrest and European impatience could become explosive, with a high risk that the Greek crisis could still derail.
MORGAN STANLEY: Last night's agreement was in line with what the market expected. Given that the agreement was priced in by the market, the euro is likely to start running out of steam. There are the implementation risks to worry about and also the political situation in Greece in the run up to the elections. Key euro levels to break today would be the 100-day moving average of $1.3310. It would have to break through that for the euro to recover but again but it's unlikely.
RABOBANK: Agreement between creditors and the Greek government, as important as it is, is an early step in the entire process of bringing Greece's public finances onto a sustainable footing. Implementation of the agreed measures by the Greek government will likely hit periodic hurdles along the way, just as the first support package has, as payments have become due. A break of $1.33 in the euro is crucial if the euro is going to rally. Look to the European bond markets for further judgement in the merits of the agreement.
BNY MELLON: Greece now faces an austerity programme that will not only very likely exacerbate an already severe recession but may very well still leave it requiring an additional bailout in the years ahead. This point will no doubt not be lost on politicians from [the] New Democracy and PASOK [parties] as they watch their ratings slump and voters turn to the anti-bailout leftist parties ahead of the April election. This, and the fact that there is a risk that Greece may not be able to return to the markets at any point in the foreseeable future will also weigh heavily on the thoughts of Dutch, German and Finnish politicians in the weeks ahead.
CAPITAL ECONOMICS: In all, if no new hurdles arise (a big if), the latest deal should prevent a disorderly Greek default on 20th March when EUR14.4 billion of debt matures. But with the recession thwarting debt reduction efforts and public outrage growing, we still see Greece leaving the euro zone before the year is out.
Here's a round up of what they think, roughly ordered from the most positive views to the most pessimistic:
HSBC: The end of the process has been reached and it blows away all those conspiracy theories about a Greek default and/or a euro-zone break up. While the news isn't necessarily a reason to buy the euro, it certainly isn't a reason to sell it either. It will be interesting to see the U.S. reaction later. A key level to break today would be $1.3320. What the euro bears will be worrying about now is implementation risk, but overall this is a win for the bulls.
BARCLAYS CAPITAL: So many hurdles remain. The focus will now be on the implementation of the private-sector involvement and the participation rate which, if not enough, could lead to a credit event. The details of the deal will be resolved over the next few weeks and an orderly Greek default cannot be completely ruled out. Watch euro-area yields for signs of whether investors think the problems are contained in Greece, and expect the 100-day moving average of $1.3310 to hold for the euro for now.
CITIGROUP: The majority of the good news does seem already priced in as the outcome was pretty much discussed last week. The euro's reaction so far could be little more than short covering but there's a decent chance the market will continue its joy into U.S. open. However, there are uncertainties remaining with respect to implementation and how it will play out.
CREDIT AGRICOLE: Suspects the deal has been priced in and room for further euro appreciation is set to be limited in the short term. It is cautious of buying into the euro rally at current levels and doubts that it has room to rally further. Given the euro-zone economy is sliding into recession, the relative rise in U.S. bond yields compared with bunds will create headwinds to any further euro appreciation.
CREDIT SUISSE: Market response has been pretty muted following a 0.8% rally in Asian hours. Caution is warranted on the euro's direction as focus will likely quickly shift to the PSI process and the likely need for a non-voluntary participation.
ING: It looks like a deal, it walks like a deal, it almost is a deal, but the crisis marathon is not over yet. While Greece should be saved, at least for the next couple of months, the feeling of relief is not likely to last for long. So far, the return of economic growth in Greece is largely based on the principle of wishful thinking. The combination of more austerity, social unrest and European impatience could become explosive, with a high risk that the Greek crisis could still derail.
MORGAN STANLEY: Last night's agreement was in line with what the market expected. Given that the agreement was priced in by the market, the euro is likely to start running out of steam. There are the implementation risks to worry about and also the political situation in Greece in the run up to the elections. Key euro levels to break today would be the 100-day moving average of $1.3310. It would have to break through that for the euro to recover but again but it's unlikely.
RABOBANK: Agreement between creditors and the Greek government, as important as it is, is an early step in the entire process of bringing Greece's public finances onto a sustainable footing. Implementation of the agreed measures by the Greek government will likely hit periodic hurdles along the way, just as the first support package has, as payments have become due. A break of $1.33 in the euro is crucial if the euro is going to rally. Look to the European bond markets for further judgement in the merits of the agreement.
BNY MELLON: Greece now faces an austerity programme that will not only very likely exacerbate an already severe recession but may very well still leave it requiring an additional bailout in the years ahead. This point will no doubt not be lost on politicians from [the] New Democracy and PASOK [parties] as they watch their ratings slump and voters turn to the anti-bailout leftist parties ahead of the April election. This, and the fact that there is a risk that Greece may not be able to return to the markets at any point in the foreseeable future will also weigh heavily on the thoughts of Dutch, German and Finnish politicians in the weeks ahead.
CAPITAL ECONOMICS: In all, if no new hurdles arise (a big if), the latest deal should prevent a disorderly Greek default on 20th March when EUR14.4 billion of debt matures. But with the recession thwarting debt reduction efforts and public outrage growing, we still see Greece leaving the euro zone before the year is out.
Norges Bank Governor: NOK Strength Is Important Variable
The strength of the Norwegian krone is an important variable for central bank policy, Norges Bank Governor Oystein Olsen said Tuesday, as the Norwegian krone hovers close to its strongest level ever against the euro and against the currencies of Norway's main trading partners.
"If the krone remains at the present level or strengthens further in coming weeks, we will see change in one important variable compared with October," Olsen said at a meeting with the Foreign Press Association in Norway.
"The krone exchange rate is important," Olsen said. "Future levels and developments in the krone affect our policy."
On February 17, the Norwegian krone reached its strongest level against the euro in nine years, trading at 7.4878, increasing the worries for parts of the Norwegian industry.
Olsen also said that there is a risk for investors moving into the krone.
"I have repeatedly reminded investors we are not like the Swiss franc," Olsen said, adding that the Norwegian krone is fluctuating, and that it might be hard to sell the krone if it weakens.
"I don't give advice to investors, just remind them the door is narrow," he said.
The Governor said that European financial markets and the funding situation for Norwegian banks has improved since the fall of 2011.
"We might be on a more positive track now, but uncertainties remain," Olsen said, adding that the central bank is ready to provide liquidity should funding to Norwegian banks dry up.
"But if banks need long-term help, "it's the government's role," he said.
Asked how much leeway Norges Bank has to lower interest rates with the key interest rate currently at 1.75%, Olsen replied: "But it's not zero."
"If the krone remains at the present level or strengthens further in coming weeks, we will see change in one important variable compared with October," Olsen said at a meeting with the Foreign Press Association in Norway.
"The krone exchange rate is important," Olsen said. "Future levels and developments in the krone affect our policy."
On February 17, the Norwegian krone reached its strongest level against the euro in nine years, trading at 7.4878, increasing the worries for parts of the Norwegian industry.
Olsen also said that there is a risk for investors moving into the krone.
"I have repeatedly reminded investors we are not like the Swiss franc," Olsen said, adding that the Norwegian krone is fluctuating, and that it might be hard to sell the krone if it weakens.
"I don't give advice to investors, just remind them the door is narrow," he said.
The Governor said that European financial markets and the funding situation for Norwegian banks has improved since the fall of 2011.
"We might be on a more positive track now, but uncertainties remain," Olsen said, adding that the central bank is ready to provide liquidity should funding to Norwegian banks dry up.
"But if banks need long-term help, "it's the government's role," he said.
Asked how much leeway Norges Bank has to lower interest rates with the key interest rate currently at 1.75%, Olsen replied: "But it's not zero."
MARKET TALK: Most Thai Govt Bonds Tad Up; Wed Auctions Eyed
Thai government bonds mostly edge higher in lackluster trade amid an absence of fresh leads. "Investors now have a plenty of investment options as many corporates are offering bonds, so their interest in the government papers wanes," says a bond dealer. Investors are eyeing results of the government bond sale of THB16 billion due May 2015 and THB7.5 billion due June 2041 on Wednesday for potential trading cues. They will also focus on the Constitutional Court's ruling Wednesday as to whether two executive decrees, one which authorizes the government to borrow an additional THB350 billion for flood prevention measures, violates the constitution. Yields are expected to stick in a tight 2-3 bps range. The bid/offer yields for bonds due December 2015 are at 3.175%/3.165% from 3.18%/3.16% late Monday, the June 2017 yield is at 3.23%/3.21% from 3.24%/3.20% and the December 2021 yield is at 3.37%/3.32% from 3.36%/3.32%.
GLOBAL MARKETS: European Stocks Down; Cautious About Greek Deal
--European stocks down, losses small as Greek details digested
--Euro rises against the dollar but investors feel second bailout not the last
--Peripheral 10-year government bond yields muted; banks stocks up for now
LONDON (Dow Jones)--European stocks fell into the red Tuesday and investors remained cautious, despite Greece managing to secure a rescue package totaling EUR130 billion.
Although Greece seems to be out of the woods for now, many investors are concerned that the general election, expected in April, may bring in a government unwilling or unable to implement stringent austerity measures.
In addition to this, the U.K.'s Financial Times reports that Greece may still need a third bailout as the forced austerity could cause debt levels to rise, and its debt restructure could prevent Greece from ever returning to financial markets.
"The crisis marathon is not over," warned Carsten Brzeski, economist at ING Bank NV. "The combination of more austerity, social unrest and European impatience could become explosive, with a high risk that the Greek crisis could still derail."
Brzeski added that the second bailout package has again bought time for other 'peripheral' euro-zone countries to show that they are different to Greece and to put all available "anti-contagion firewalls" into place.
The benchmark Stoxx Europe 600 index was down 0.1% at 267.82. London's FTSE 100 was 0.1% lower at 5940.80, Frankfurt's DAX was down 0.1% at 6938.10 and Paris's CAC-40 was also down 0.1% at 3469.35. Greece's ATHEX Composite index shed early gains and was down 1.7% at 811.33.
At this stage 10-year government bond yields have had a fairly muted reaction to the Greek deal. The Italian 10-year yield was down 6 basis points at 5.412%, Spain was 5.8 points lower at 5.086% and Portugal was up 1.10 points at 11.828%.
Investors in bank stocks seemed to be undecided about the Greek deal. The Stoxx Europe 600 banks index was up 0.6% at 160.90, though the index has been chugging up and down between small losses and gains throughout the early morning session. Investors are digesting details of the deal including plans for Greece's creditors to take a deeper write-down on the face value of privately-held Greek debt of 53.5%, to help bring the country's debt closer to sustainable levels. Originally, a 50% writedown had been expected.
Meanwhile, earnings and corporate news was relatively thin on the ground, but there were some company reports of note.
TNT Express released its fourth-quarter results, saying it will focus on its European business and seek partnerships for its loss-making operations in Brazil and China. The results follow an unsolicited offer from United Parcel Service Inc. On Monday, TNT shares soared above 60% in Amsterdam after the company rejected the EUR4.9 billion offer. The company said it was remaining in talks about a deal. TNT shares were 1.8% lower at 0900 GMT.
Elsewhere, Tullow Oil was down 3.8% and the biggest faller on London's FTSE 100 after its announcement that the Jupiter-1 exploration well offshore Sierra Leone has successfully encountered hydrocarbons. Analysts had concerns though that this discovery does not yet appear economic on a standalone basis and that more work is required to understand its commercial potential.
Earlier, Asian stock markets closed mostly up Tuesday. Australia's S&P/ASX 200 rose 0.8% after earlier touching a high of 4298.50. Japan's Nikkei Stock Average closed down 0.2%, South Korea's Kospi Composite lost 0.3%, China's Shanghai Composite Index finished flat and Hong Kong's Hang Seng Index gained 0.3%.
In foreign exchanges, the euro was up against the dollar, although trading was cautious. Commerzbank said scepticism was justified and added that even with the Greek bailout, the majority of market players are finding it hard to believe that Greece will get through to 2020 without a further default.
At 0900 GMT, the single currency was at $1.3275 against the dollar, from $1.3240 late Monday in New York. The dollar was at Y79.78, from Y79.64.
Elsewhere spot gold was at $1,741.20 per troy ounce, up $7.45 from its previous settlement. April Nymex crude oil futures were at $105.31 per barrel, up $0.92 from the previous settlement and April Brent was up $0.08 at $120.13. The March bund was down 0.09 at 137.88, off opening lows.
The economic calendar is fairly light Tuesday. U.K. public finance data for January are at 0930 GMT. Euro-zone consumer confidence is at 1500 GMT. U.S. markets will re-open on Tuesday following Monday's public holiday. Spain is due to sell EUR1.5 billion to 2.5 billion of T-bills at around 0930 GMT.
--Euro rises against the dollar but investors feel second bailout not the last
--Peripheral 10-year government bond yields muted; banks stocks up for now
LONDON (Dow Jones)--European stocks fell into the red Tuesday and investors remained cautious, despite Greece managing to secure a rescue package totaling EUR130 billion.
Although Greece seems to be out of the woods for now, many investors are concerned that the general election, expected in April, may bring in a government unwilling or unable to implement stringent austerity measures.
In addition to this, the U.K.'s Financial Times reports that Greece may still need a third bailout as the forced austerity could cause debt levels to rise, and its debt restructure could prevent Greece from ever returning to financial markets.
"The crisis marathon is not over," warned Carsten Brzeski, economist at ING Bank NV. "The combination of more austerity, social unrest and European impatience could become explosive, with a high risk that the Greek crisis could still derail."
Brzeski added that the second bailout package has again bought time for other 'peripheral' euro-zone countries to show that they are different to Greece and to put all available "anti-contagion firewalls" into place.
The benchmark Stoxx Europe 600 index was down 0.1% at 267.82. London's FTSE 100 was 0.1% lower at 5940.80, Frankfurt's DAX was down 0.1% at 6938.10 and Paris's CAC-40 was also down 0.1% at 3469.35. Greece's ATHEX Composite index shed early gains and was down 1.7% at 811.33.
At this stage 10-year government bond yields have had a fairly muted reaction to the Greek deal. The Italian 10-year yield was down 6 basis points at 5.412%, Spain was 5.8 points lower at 5.086% and Portugal was up 1.10 points at 11.828%.
Investors in bank stocks seemed to be undecided about the Greek deal. The Stoxx Europe 600 banks index was up 0.6% at 160.90, though the index has been chugging up and down between small losses and gains throughout the early morning session. Investors are digesting details of the deal including plans for Greece's creditors to take a deeper write-down on the face value of privately-held Greek debt of 53.5%, to help bring the country's debt closer to sustainable levels. Originally, a 50% writedown had been expected.
Meanwhile, earnings and corporate news was relatively thin on the ground, but there were some company reports of note.
TNT Express released its fourth-quarter results, saying it will focus on its European business and seek partnerships for its loss-making operations in Brazil and China. The results follow an unsolicited offer from United Parcel Service Inc. On Monday, TNT shares soared above 60% in Amsterdam after the company rejected the EUR4.9 billion offer. The company said it was remaining in talks about a deal. TNT shares were 1.8% lower at 0900 GMT.
Elsewhere, Tullow Oil was down 3.8% and the biggest faller on London's FTSE 100 after its announcement that the Jupiter-1 exploration well offshore Sierra Leone has successfully encountered hydrocarbons. Analysts had concerns though that this discovery does not yet appear economic on a standalone basis and that more work is required to understand its commercial potential.
Earlier, Asian stock markets closed mostly up Tuesday. Australia's S&P/ASX 200 rose 0.8% after earlier touching a high of 4298.50. Japan's Nikkei Stock Average closed down 0.2%, South Korea's Kospi Composite lost 0.3%, China's Shanghai Composite Index finished flat and Hong Kong's Hang Seng Index gained 0.3%.
In foreign exchanges, the euro was up against the dollar, although trading was cautious. Commerzbank said scepticism was justified and added that even with the Greek bailout, the majority of market players are finding it hard to believe that Greece will get through to 2020 without a further default.
At 0900 GMT, the single currency was at $1.3275 against the dollar, from $1.3240 late Monday in New York. The dollar was at Y79.78, from Y79.64.
Elsewhere spot gold was at $1,741.20 per troy ounce, up $7.45 from its previous settlement. April Nymex crude oil futures were at $105.31 per barrel, up $0.92 from the previous settlement and April Brent was up $0.08 at $120.13. The March bund was down 0.09 at 137.88, off opening lows.
The economic calendar is fairly light Tuesday. U.K. public finance data for January are at 0930 GMT. Euro-zone consumer confidence is at 1500 GMT. U.S. markets will re-open on Tuesday following Monday's public holiday. Spain is due to sell EUR1.5 billion to 2.5 billion of T-bills at around 0930 GMT.
PBOC Suspends Open-Market Operation
-- China's central bank suspends its routine open market operation Tuesday, traders say
-- Move is likely aimed at helping ease the liquidity squeeze in the banking system
-- Interbank fund costs fall after operation is suspended
SHANGHAI -- China's central bank suspended its routine open market operation Tuesday, in a move apparently aimed at helping ease the liquidity squeeze in the banking system, traders participating in the operations said.
The People's Bank of China didn't offer any bills or repurchase agreements Tuesday, traders said.
The PBOC carries out open market operations Tuesdays and Thursdays, offering bills and repos to control liquidity in the money market.
Liquidity conditions in the banking sector have been tight since last week due to a large share offering by China Communications Construction Co. that locked up around CNY180 billion worth of subscription funds.
On Friday, the central bank took a rare and routine-breaking step by offering 14-day reverse repos to a group of unidentified financial institutions, a move clearly intended to ease liquidity conditions and drive down borrowing costs.
Furthermore, the central bank said Saturday it will lower banks' reserve requirement ratio by 0.5 percentage point, effective Feb. 24, to help boost liquidity and support the economy. The move is expected to release around CNY400 billion of liquidity.
The interbank seven-day weighted average repo, a benchmark gauge of short-term funding costs, ended up 7 basis points at 5.38% Monday after surging 168 basis points in the last week. At 0220 GMT, the repo rate eased to 4.99%.
-- Move is likely aimed at helping ease the liquidity squeeze in the banking system
-- Interbank fund costs fall after operation is suspended
SHANGHAI -- China's central bank suspended its routine open market operation Tuesday, in a move apparently aimed at helping ease the liquidity squeeze in the banking system, traders participating in the operations said.
The People's Bank of China didn't offer any bills or repurchase agreements Tuesday, traders said.
The PBOC carries out open market operations Tuesdays and Thursdays, offering bills and repos to control liquidity in the money market.
Liquidity conditions in the banking sector have been tight since last week due to a large share offering by China Communications Construction Co. that locked up around CNY180 billion worth of subscription funds.
On Friday, the central bank took a rare and routine-breaking step by offering 14-day reverse repos to a group of unidentified financial institutions, a move clearly intended to ease liquidity conditions and drive down borrowing costs.
Furthermore, the central bank said Saturday it will lower banks' reserve requirement ratio by 0.5 percentage point, effective Feb. 24, to help boost liquidity and support the economy. The move is expected to release around CNY400 billion of liquidity.
The interbank seven-day weighted average repo, a benchmark gauge of short-term funding costs, ended up 7 basis points at 5.38% Monday after surging 168 basis points in the last week. At 0220 GMT, the repo rate eased to 4.99%.
MARKET TALK: EUR/NOK Higher After Norges Bank Comments
The euro/Norwegian krone rate moves higher after comments by the Norges Bank and the central bank's governor, who says there are no new signals on the bank's interest-rate path, but cautions that if NOK strengthens significantly, that would be a change in variables. EUR/NOK hits the day's high at 7.5334, from 7.5129 previously. It's now trading at 7.5219
MARKET TALK: Skepticism About EUR Justified -Commerzbank
Commerzbank says skepticism about EUR is justified even after European finance ministers agreed Greece's EUR130B bailout package overnight, as the level of involvement from the IMF looks set to be smaller than last time and as profits achieved by the ECB being passed on is an other step towards central banks providing nationals with finances. "[This is] not sending out a positive signal for the European currency," Commerzbank says, adding that even with the bailout, the large majority of market players is finding it hard to believe Greece will get through to 2020 without a further default. EUR/USD at 1.3265, down from a post-agreement high of 1.3293.
MARKET TALK: Morgan Stanley Looks To Sell M/USD M/JPY
Morgan Stanley looks to sell USD/JPY on moves towards 80.40, the 50% retracement level of last year's April-to-October downtrend. MS is skeptical that the latest BOJ action is enough "to meaningfully turn the trend in JPY." The bank notes domestic investors have little incentive to lift hedged positions as local yields remain at rock-bottom levels while foreign assets, especially euro-zone ones, are likely to be repatriated while uncertainty lingers. USD/JPY at 79.7620.
Asian Shares End Mixed; Greek Deal Reached; Earnings Lift Sydney
Asian stock markets ended mixed Tuesday as reaction to European approval for new aid to Greece was muted by widespread anticipation of the deal, though some positive earnings reports lifted the Sydney market.
Japan's Nikkei Stock Average slipped 0.2% and South Korea's Kospi closed flat, but Hong Kong's Hang Seng Index rose 0.3% after moving in and out of positive territory during the session.
Australia's S&P/ASX 200 index rose 0.8%, while the Shanghai Composite Index added 0.8%.
European finance ministers concluded a marathon meeting early Tuesday with agreement on the terms of a new bailout deal for Greece, totalling EUR130 billion ($171.9 billion).
Greece needed the additional funds in order to make a EUR14.5 billion bond redemption on March 20.
While some Asian markets received a boost immediately after news of the Greek deal broke, those gains quickly faded.
"The market reaction to the Greek deal has been fairly muted because it was expected, it was more or less a done deal," said Yoji Takeda, head of Asian equities for RBC Global Asset Management in Hong Kong.
"After some pretty sharp movements over the last month, people are taking profits," Takeda said.
Many blue-chip Japanese exporters lost ground after a strong rally on Monday. Sony dropped 1.4%, Sharp lost 2%, and Citizen Holdings fell 2.9%.
Car makers were especially weak, with Mazda Motor Corp. suffering from reports that it would need to issue new stock in order to shore up its finances.
Shares of Mazda dropped 9.9%, while Nissan Motor lost 1.5%, and Mitsubishi Motors finished down 2%.
In Hong Kong, telecom plays were among the outperformers, with China Telecom rising 4.1% on news it would begin offering Apple Inc.'s popular iPhone 4S next month.
Rival iPhone carrier China Unicom Hong Kong Ltd. added 2.3%, while China Mobile closed 1% higher.
In Seoul, Samsung Electronics added 0.4% a day after saying it would spin off its liquid-crystal display business into a separate company.
Meanwhile, Korea's key shipbuilding sector weighed on the market, as Hyundai Mipo Dockyard fell 2.8%, Daewoo Shipbuilding & Marine Engineering dropped 2.7%, and Hanjin Heavy Industries & Construction fell 2.2%.
Resource stocks diverged across Asia, showing particular weakness in Hong Kong.
Shares of Chinese oil giant Cnooc fell 2.9%, while China Petroleum & Chemical Corp., or Sinopec, dropped 1% after Citigroup downgraded its shares to neutral from buy.
Aluminum Corp. of China and Jiangxi Copper each finished down 1.2%, and Angang Steel fell 0.5%.
In Sydney, however, miners moved higher, with Rio Tinto rising 1.7%, and Alumina closing with a 3.7% gain.
Australia's OneSteel jumped 12.3% after first-half underlying profit slightly beat expectations.
The firm also said it expects iron-ore production to almost double and that its steel business would improve as well.
"This is a stock that has been beaten down - in line with BlueScope - on expectations that it would have to tap the market because of its debt position, and they haven't done that," Sydney-based City Index chief market analyst Peter Esho said.
Shares in BlueScope Steel climbed 6.9%.
Mining-services firms MacMahon Holdings Ltd. and Downer EDI Ltd. gained 7.3% and 5.9%, respectively, receiving market approval of their own first-half profit results.
Over in Shanghai, real-estate shares and financials were among the best performers.
Gemdale rose 1.7%, and Poly Real Estate Group added 2%, while Bank of China improved by 1.7%, and China Life Insurance advanced 1.6%.
Japan's Nikkei Stock Average slipped 0.2% and South Korea's Kospi closed flat, but Hong Kong's Hang Seng Index rose 0.3% after moving in and out of positive territory during the session.
Australia's S&P/ASX 200 index rose 0.8%, while the Shanghai Composite Index added 0.8%.
European finance ministers concluded a marathon meeting early Tuesday with agreement on the terms of a new bailout deal for Greece, totalling EUR130 billion ($171.9 billion).
Greece needed the additional funds in order to make a EUR14.5 billion bond redemption on March 20.
While some Asian markets received a boost immediately after news of the Greek deal broke, those gains quickly faded.
"The market reaction to the Greek deal has been fairly muted because it was expected, it was more or less a done deal," said Yoji Takeda, head of Asian equities for RBC Global Asset Management in Hong Kong.
"After some pretty sharp movements over the last month, people are taking profits," Takeda said.
Many blue-chip Japanese exporters lost ground after a strong rally on Monday. Sony dropped 1.4%, Sharp lost 2%, and Citizen Holdings fell 2.9%.
Car makers were especially weak, with Mazda Motor Corp. suffering from reports that it would need to issue new stock in order to shore up its finances.
Shares of Mazda dropped 9.9%, while Nissan Motor lost 1.5%, and Mitsubishi Motors finished down 2%.
In Hong Kong, telecom plays were among the outperformers, with China Telecom rising 4.1% on news it would begin offering Apple Inc.'s popular iPhone 4S next month.
Rival iPhone carrier China Unicom Hong Kong Ltd. added 2.3%, while China Mobile closed 1% higher.
In Seoul, Samsung Electronics added 0.4% a day after saying it would spin off its liquid-crystal display business into a separate company.
Meanwhile, Korea's key shipbuilding sector weighed on the market, as Hyundai Mipo Dockyard fell 2.8%, Daewoo Shipbuilding & Marine Engineering dropped 2.7%, and Hanjin Heavy Industries & Construction fell 2.2%.
Resource stocks diverged across Asia, showing particular weakness in Hong Kong.
Shares of Chinese oil giant Cnooc fell 2.9%, while China Petroleum & Chemical Corp., or Sinopec, dropped 1% after Citigroup downgraded its shares to neutral from buy.
Aluminum Corp. of China and Jiangxi Copper each finished down 1.2%, and Angang Steel fell 0.5%.
In Sydney, however, miners moved higher, with Rio Tinto rising 1.7%, and Alumina closing with a 3.7% gain.
Australia's OneSteel jumped 12.3% after first-half underlying profit slightly beat expectations.
The firm also said it expects iron-ore production to almost double and that its steel business would improve as well.
"This is a stock that has been beaten down - in line with BlueScope - on expectations that it would have to tap the market because of its debt position, and they haven't done that," Sydney-based City Index chief market analyst Peter Esho said.
Shares in BlueScope Steel climbed 6.9%.
Mining-services firms MacMahon Holdings Ltd. and Downer EDI Ltd. gained 7.3% and 5.9%, respectively, receiving market approval of their own first-half profit results.
Over in Shanghai, real-estate shares and financials were among the best performers.
Gemdale rose 1.7%, and Poly Real Estate Group added 2%, while Bank of China improved by 1.7%, and China Life Insurance advanced 1.6%.
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