Asia stocks retreat as Spain optimism fades - My Fox Boston Asia stocks retreat as Spain optimism fades - My Fox Boston

Tuesday, June 12, 2012

Asia stocks retreat as Spain optimism fades - My Fox Boston

Asia stocks retreat as Spain optimism fades - My Fox Boston

Source: MarketWatch

SYDNEY -- Asian shares mostly fell Tuesday, giving back much of the steep gains made in the previous session, as initial euphoria over Spain's bank bailout gave way to uncertainty over the details.

With Wall Street equities tumbling overnight, Japan's Nikkei Stock Average fell 1.7 percent and South Korea's Kospi lost 1.3 percent, although Australian investors returned from a three-day weekend to push the S&P/ASX 200 index up 0.3 percent.

Japanese stocks had gained two percent Monday, while South Korean shares climbed 1.7 percent, after weekend news that Spain's banks could accept up to €100 billion (US$125 billion) in aid.

Opening later, Hong Kong's Hang Seng Index dropped 1.1 percent -- a day after it soared 2.4 percent on the Spanish boost -- and the Hang Seng China Enterprises Index lost 1.3 percent. Over on mainland China, the Shanghai Composite Index shed 0.6 percent.

European and US stock markets closed lower Monday as investors fretted about the finer points of the proposed aid package, pushing yields on Spanish bonds higher.

"Spain's bailout has opened a debate about the position of private-sector bondholders in the pecking order if Spain one day defaults. If Spain gets funds from the [European Stability Mechanism], then private bondholders are subordinate to European institutions," said Kathleen Brooks at

RBC Capital strategists said that the news of the bailout also raised other questions, such as the likely reaction of ratings agencies.

"The loans will add directly to the Spanish government's liabilities and so increase the debt-to-GDP ratio by around 10 percent, leaving further downgrades likely," they said.

Global growth concerns, meanwhile, sent benchmark US crude futures below $83 a barrel for the first time since October. As a result, energy firms were among the worst performers in Japan on Tuesday.

European concerns sent the euro falling below the ¥99 mark after spending much of the previous Japanese stock session above ¥100, with the move hurting exporters with large EU exposure.

The pain was felt in Seoul as well, with LG Electronics Inc. falling 2.3 percent and Samsung Electronics Co. losing 1.2 percent.

Large miners fell in Australia, reversing gains seen at the end of last week, with BHP Billiton Ltd. down 1.1 percent and Rio Tinto Ltd. falling 1.4 percent.

However, shares of Qantas Airways Ltd. jumped 6.9 percent after an Australian Financial Review report that the airline is preparing efforts to defend against a possible hostile takeover.

Read More: Asia stocks retreat as Spain optimism fades

Emerging Stocks Fall From Two-Week High on Europe; Bumi Slumps - Bloomberg

Emerging-market stocks fell, dragging the benchmark index from a two-week high, as surging Spanish and Italian bond yields renewed concerns Europe’s debt crisis will hurt exports from developing nations.

Samsung Electronics Co. (005930), which got 16 percent of its first- quarter revenue from Europe, led technology companies lower. China Shipping Container Lines Co. paced declines among industrial shares on concern trade flows to Europe will slow. PT Bumi Resources, Asia’s biggest exporter of power-station coal, sank 5.7 percent in Jakarta as Societe Generale SA cut its forecasts for coal prices, citing economic growth concerns.

The MSCI Emerging Markets Index fell 0.7 percent to 908.30 as of 12:39 p.m. in Hong Kong, after closing yesterday at the highest level since May 29. Spanish and Italian bond yields surged yesterday as investors turned their attention to debt auctions in Italy this week and elections on June 17 that may determine whether Greece stays in the euro. Europe is China’s largest export market, according to data from Shenyin Wanguo Securities Co.

“The European debt crisis is the biggest risk to the stock market now and will cut investors’ risk appetite,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “It looks like the problem is spreading to bigger countries such as Spain and Italy, which is the last thing investors want to see.”

The Hang Seng China Enterprises Index (HSCEI) of Chinese companies listed in Hong Kong and Taiwan’s Taiex Index dropped 0.7 percent. South Korea’s Kospi index declined 0.6 percent.

The MSCI Emerging Markets Index (MXEF) has fallen 0.9 percent this year, compared with the MSCI World Index, which is little changed. Shares in the emerging-markets index are trading at 9.9 times estimated earnings, cheaper than the MSCI World’s multiple of 11.7, according to data compiled by Bloomberg.

To contact the reporter on this story: Saeromi Shin in Seoul at

To contact the editor responsible for this story: Darren Boey at

Financial Guaranty Insurance to Be Taken Over by New York - Bloomberg

Financial Guaranty Insurance Co. said it has consented to a proceeding in which New York’s insurance regulator will take over the bond insurer.

Benjamin M. Lawsky, superintendent of the Department of Financial Services, is seeking a court order directing the department to take possession of FGIC’s assets and conduct its business, according to court papers provided by the department.

FGIC consented to the so-called rehabilitation proceeding, and Lawsky will file a plan “that will provide fair and equitable treatment of FGIC’s policyholders and other creditors,” the company said today in a statement.

FGIC Corp., the holding company for Financial Guaranty Insurance Co., filed for bankruptcy in 2010. Financial Guaranty Insurance Co. can’t file for Chapter 11 under federal bankruptcy law and can only be “rehabilitated or liquidated” under state insurance law, according to the court filing by the New York attorney general’s office, which represents the Department of Financial Services. The filing couldn’t immediately be confirmed in court records.

A hearing in state Supreme Court to consider the rehabilitation order is scheduled for June 28, FGIC said.

David Neustadt, a spokesman for the department, declined to comment.

To contact the reporter on this story: David McLaughlin in New York at

To contact the editor responsible for this story: John Pickering at

Business briefs for June 12 - Tampa Bay Online

Internet advertising spending hits $8.4B

An advertising industry group says revenue from Internet advertising in the U.S. hit $8.4 billion in the first three months of the year.

That's the highest for the first quarter, up 15 percent from $7.3 billion in the same period last year. The record for any quarter is $9 billion in 2011's final three months.

Record-setting numbers are a common occurrence, as more advertisers turn to websites and mobile apps, where they can target their pitches more precisely than traditional channels.

Stocks fall on anxiety over Europe

A burst of enthusiasm over a rescue of Spanish banks melted away within hours Monday, and investor anxiety about the troubled finances of Europe grew on both sides of the Atlantic.

On Wall Street, stocks opened sharply higher but sank all day. Selling accelerated in the last hour of trading, and the Dow Jones industrial average closed down 142 points.

More alarming, bond investors signaled that they are less confident about lending money to the governments of Spain and Italy, which investors fear will be next to seek help.

Chrysler adds to recall of Jeep Liberty SUVs

Chrysler has added more than 137,000 Jeep Liberty SUVs to a March safety recall, bringing the total number of vehicles affected to nearly 347,000.

The National Highway Traffic Safety Administration said the lower control arms in the rear suspensions of the Libertys can rust and break, possibly causing them to crash. The company says it knows of no crashes or injuries from the problem. The recall involves vehicles in states where salt is used to clear ice and snow from the roads.

Chrysler said Monday that it will inspect the parts and replace them for free.

Caterpillar advertises for replacement workers

Caterpillar has started advertising for replacement workers to fill in for striking workers at its plant in Joliet.

The International Association of Machinists and Aerospace Workers represents 780 workers at Joliet who went on strike May 1.

Caterpillar spokesman Jim Dugan says hiring the workers was part of Caterpillar's contingency plan in the event of a prolonged strike. Members of the Machinists union have overwhelmingly rejected two contract proposals from the company.

Directors at GM praise CEO Akerson

GM directors praised Dan Akerson's performance as chief executive officer while saying he must now fix the automaker's European operations and begin grooming a successor.

Akerson can stay on as long as he wants, directors Robert Krebs, Neville Isdell and Patricia Russo said last week in separate interviews before the company's annual meeting in Detroit. GM regained the title of world's largest automaker last year when it earned a record full-year profit of $9.19 billion.

Even with those successes under Akerson, GM's stock fell 45 percent in 2011. Shares, including the U.S. government's 32 percent stake, have declined 33 percent since the automaker's November 2010 initial public offering.

McDonald's sees sales drop 1.7% in Asia

Chinese consumers may be losing their appetite for American fast food.

On Friday, McDonald's Corp. reported that same-store sales fell 1.7 percent in Asia Pacific, the Middle East and Africa in May, the biggest decline since at least 2004.

The pullback at the world's largest restaurant chain coincides with a slowing Chinese economy. That has forced McDonald's and Yum! Brands Inc., which runs the KFC and Pizza Hut chains, to fight back with less-expensive menu items, said Steve West, an analyst at ITG Investment Research in St. Louis.

New York City pension funds sue Walmart

A group of New York City pension funds is suing current and former Walmart executives, saying they mishandled an alleged bribery scheme at the world's largest retailer.

The goal in such cases, known as "derivative actions," is not to reap big financial rewards but to change the way a company is run. The funds own 5.6 million shares of Wal-Mart Stores Inc.

This is the latest of at least a dozen such lawsuits filed against Walmart since The New York Times reported in late April that Walmart's Mexican unit allegedly paid millions of dollars in bribes to win favors.

Raw sugar prices expected to drop

Raw sugar may drop to 17 cents a pound over the remainder of this year, the lowest level since 2010, as global supply is set to beat demand for a third season, according to broker and researcher Kingsman SA.

Lower prices may extend a drop in global food costs. The surplus in the season from October will be 9.3 million metric tons, up from a previous forecast of 5.7 million tonssaid Nestle SA, the largest food company.

From staff and wire reports

US STOCKS-Spain bailout rally brief as Wall St slides - Reuters

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Are the financial markets really Europe’s savior? - Reuters Blogs

If the euro is saved, the much-maligned power of global financial markets will deserve much of the credit.

The conventional wisdom among many on the intellectual left is that unbridled financial players threaten to destroy the European Union, one of history’s noblest, war-ending projects. The truth, however, is something else. To be sure, speculators lack noble motives, and global capital is a blunt instrument that tends to overshoot. But markets are forcing European leaders to fix their fatally flawed monetary union, a union that can only last with deeper economic integration and greater political (and democratic) legitimacy.

Last weekend’s agreement by Spain to accept a bank bailout, based on a European aid package of $125 billion, is a dramatic case in point. Senior Obama administration officials, in a series of urgent conversations with their European counterparts, warned that Spain posed the possibility of a “Lehman moment,” with global reverberations that no one could predict. If European leaders didn’t demonstrate to markets that they would pool their resources to address the banking meltdown of Europe’s fourth-largest economy, the contagion could have spread, what remained of U.S. and global growth could have evaporated, and the European Union itself would have been endangered.

In retrospect, it may have been wiser to build Europe without a common currency, one senior Obama administration official told me, given all the historical and national differences. However, now that the euro is used by 17 countries and has become a global reserve currency, the euro zone can’t be dismantled without unacceptable European and global risk. Thus, U.S. officials had been urging European leaders to settle the Spanish bank crisis before the Greek election next Sunday, June 17, and the G-20 meeting June 18-19, to avoid convening on the brink of financial catastrophe.

In the end, however, it wasn’t President Obama who forced a Spain deal through his lobbying with the top three euro country leaders – Chancellor Angela Merkel, French President Fran├žois Hollande and Italian President Mario Monti. (Side note: One does wonder whether British Prime Minister David Cameron isn’t beginning to feel left out). Instead, it was the unrelenting pressure of European and global creditors and investors, who were withdrawing in droves from Spain, unsure whether a German-led Europe would provide the financial bazooka required.

The simple fact is that Europe some time ago ceased having a true monetary union. Although no country has withdrawn from the euro, markets have quit treating it as a trusted, common currency. As Irish economist Colm McCarthy writes: “Europe’s single financial market has been sundered through deposit flight and nation-by-nation re-matching of assets and liabilities.”

At an event jointly hosted by the Atlantic Council and Germany’s Suddeutsche Zeitung on Friday, IMF chief Christine Lagarde worried about political cycles running behind economic and market cycles, as “a movie we have watched one too many times.”

It looks something like this. Tensions escalate and, out of necessity, policy makers take action. But just enough for the danger to subside. Then the urgency is lost, momentum wanes, then the policy discourse begins to fracture, too focused on their own backyards and not enough on the big picture. And so tensions start to rise again.

But, with the passing of each cycle, we reach a higher and higher level of uncertainty, and the stakes rise. At this point, stability is at stake. Growth is at stake. In the case of Europe, the cycles are now threatening the very existence of the European project.

Markets tell politicians what they don’t want to hear. Economist Jean Pisani-Ferry says bond markets won’t be convinced until they see Europe has a banking union (Europe-wide banking supervision, deposit insurance, and crisis resolution), sufficient tax pooling (so that EU-level institutions can take charge of financial stability), and mutualization of enough of the costs of the crisis to convince markets that their bets against the euro are in vain.

Markets will continue to test Europe’s leaders until they are convinced they are committed to correcting their system’s flaws. And resisting markets is like complaining about the rain, and this one is a deluge. Global markets have a weight that no one anticipated when the Maastricht Treaty created the single currency in 1992.  Since then, global financial stock has quadrupled through 2010 to $212 trillion, from $54 trillion in 1990, according to the McKinsey Global Institute. More stunning yet, Lagarde says the total amount of outstanding OTC derivatives in 2011 was $648 trillion in 2011, compared with just $12.1 trillion in 1992.

Josef Ackermann, former Deutsche Bank chief executive and now chairman of Zurich Insurance Group, said at the Atlantic Council last week that markets have done Europe a favor by forcing upon it financial and structural reforms and greater discipline. “There’s no politician who stood up and said we have to change that – not one,” he said. Without markets shifting credit spreads, he believes Greek profligacy would have gone on for some more years. “We’ve completely changed the discipline of European countries going forward, and that’s a good thing.”

Beyond that, however, he says politicians need to do much more to convince voters of Europe’s value. “A fragmented Europe has no way for self-determination,” he warned. “We will have to accept what the United States, China, India, Brazil and other countries [dictate to] us. This cannot be the future of our children.”

If Europe manages this crisis successfully, Ackermann argues, it will instill a new self-confidence that will express itself globally as Europe jointly conquers a historic challenge. Conversely, it follows that failure could dramatically reduce Europe’s influence and unity for at least a generation to come.

PHOTO: A demonstrator hangs fake Euro notes on her leg during a protest against Spain’s bailout at La Constitucion square in Malaga, southern Spain, June 10, 2012. REUTERS/Jon Nazca

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