Stocks may be the best of a bad bunch - Financial Times Stocks may be the best of a bad bunch - Financial Times

Wednesday, June 13, 2012

Stocks may be the best of a bad bunch - Financial Times

Stocks may be the best of a bad bunch - Financial Times

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World stocks struggle as crisis fears weigh - The Guardian


AP Business Writer= BRUSSELS (AP) — European stocks slipped Wednesday as concern that the continent's debt crisis is infecting the world economy offset hopes the U.S. might unveil more stimulus measures.

While stocks opened initially up in Europe, the bad news from the continent quickly set in. Investors are nervously awaiting Greek elections on Sunday, when a party that's threatening to renege on the country's bailout terms could come away the big winner. That might force the country out the euro.

Attention is also focused on Spain, where borrowing costs rose to euro-era highs on Tuesday, increasing concerns that it could need a bailout. The country agreed last weekend to take a rescue package to help it shore up its banks, but investors worry the government may have trouble repaying the loans.

The debt crisis is not just rattling financial markets, but also affecting households and businesses by creating uncertainty over the future of the economy. The latest report from Eurostat, the EU statistics agency, showed industrial production in April among the 17 countries that use the euro slipped 0.8 percent. Analysts noted that even that poor showing is worse than it seems because a cold Spring pushed up energy demand.

"Each day brings us closer to the Greek elections, an event that might be seen in years to come as the moment when the single European currency truly began to fall apart," said Chris Beauchamp, a market analyst with IG Index. "It all remains up in the air, and it is this uncertainty that is holding markets in check."

In Europe, stocks initially eked out small gains on the back of comments by a Federal Reserve official in support of more measures to stimulate the economy. But they were quickly erased.

France's CAC-40 dropped 0.5 percent to 3,033, while the DAX in Germany fell the same rate to 6,129. The FTSE index of leading British shares moved down 0.1 percent to 5,469.

The euro was volatile, but moved up 0.4 percent to $1.2550.

The U.S. was set to open lower, with Dow futures down 4 points at 12,510 and S&P 500 futures 2 points lower at 1,318.10..

Earlier in Asia, stocks had an equally choppy session.

Japan's Nikkei 225 index gained 0.6 percent to close at 8,587.84, after machinery orders rose 5.7 percent to the highest level in four years, Kyodo reported.

South Korea's Kospi swung temporarily into negative territory in early trading before closing 0.2 percent higher at 1,859.32. Hong Kong's Hang Seng also briefly dipped before rising 0.8 percent to 18,026.52.

Australia's S&P/ASX 200 fell 0.2 percent to 4,063.80. Benchmarks in New Zealand and Singapore fell but Taiwan's rose.

Mainland Chinese shares rose on hopes authorities would bring in more economy-boosting measures. The benchmark Shanghai Composite Index added 1.3 percent to 2,318.92 while the smaller Shenzhen Composite Index gained 1.8 percent to 959.11. Shares in biotechnology, insurance and power-related companies led the gains.

Amid concerns for the economy, which drives down energy demand, benchmark oil for July delivery fell 6 cents to $82.26 per barrel in electronic trading on the New York Mercantile Exchange.


Kelvin Chan in Hong Kong and Fu Ting in Shanghai contributed to this report.

Free money fattens the Swiss bankroll - Sydney Morning Herald

Who said there was no such thing as free money?

The flight of capital in global markets has become so extreme that you actually have to pay to park your money in Switzerland, in Swiss sovereign bonds that is.

While bonds around the world offer a yield, a return on investment, the picturesque tax haven in the middle of Europe now boasts a ''negative yield'' on its sovereign debt.

Putting this in perspective, the yield on a Greek bond is 30 per cent - compared with below zero. And it still looks pricey.

The countdown is on for the Greek elections this Sunday. And as the world contemplates a possible Hellenic exit from the eurozone, or a ''Grexit'', as market parlance would have it, the region's bond markets have hit their tipping point once again.

Sharemarkets, having briefly and perversely rallied on news of the €100 billion ($125.6 billion) bailout of Spain's banks early this week - something that should have been bad news as Spain had been consistently denying its banks needed help - fell on Tuesday but recovered last night.

When the sharemarket and the bond market start telling you different things, though, it is usually the bond market which has it right. Equities are plodding along yet bonds are warning of danger ahead.

It may be that the strength in equities is precisely due to the fact that bond yields in what are deemed the safer countries are so low (about 1.65 per cent in both the US and Britain and 1.2 per cent in Germany).

And it may also be that investors are simply fed up with super-low yields. At least quality industrial shares carry a decent dividend yield, albeit with less security and greater exposure to economic downturns than bonds.

The third point in favour of shares is, as many see it, the inevitability of further radical central bank stimulus: money printing, QE3, LTRO, assorted programs to appease equity markets and ''kick the can down the road''.

This latest pricing in credit markets indicates a law of diminishing returns, though, when it comes to stimulus, and kicking that old can down that old road.

Switzerland, which has retained its currency though the 20-year euro experiment, this week for the first time ever, boasts a negative yield curve on its six-month to five-year paper.

No yield at all in other words - just the ''sleep at night'' factor; that if things turned really pear shaped in the impending contagion from a Greek exit and further wobbles in Spain, your money could be parked in Swiss francs until it was safe to bring it out.

However, the amusing paradox is that the Swiss franc protects an investor against a fall in the euro, or a default in a southern European bond, but it also allows the Swiss to pay their own sovereign debt by … you guessed it … issuing more sovereign debt.

There is a catch. Last September, as Europeans were fleeing the euro in the last holus-bolus flight to safety, the Swiss National Bank was forced to peg its currency.

The franc was running so hot that it was threatening to demolish the country's high-quality export sector and its tourism. After all, why go skiing in Switzerland when to do so next door in Italy, Austria and France was half the price?

The currency fix didn't entirely quell the tide of capital, though. Hence the negative yield. This week, two-year rates are costing investors 36 basis points.

Meanwhile, below the Pyrenees, Spain's 10-year debt sank to its lowest price, which means its highest yield, in 15 years at 6.83 per cent.

At that rate, it is too expensive for the embattled government in Madrid to issue bonds and refinance. The cost of Italy's debt, likewise, became prohibitive, hitting six-month highs above 6 per cent.

The spectre of contagion once again haunts Europe and there is still another $1 trillion to borrow and refinance this year. Italy, the second-largest debtor in the eurozone, has more than €9 billion to raise in the next couple of days.

And as the calls go out from banks and markets for QE3, for another round of free money to prop up stockmarkets, it is ever apparent the benign effects of central bank stimulus diminishes with each program.

More and more people are questioning the Keynesian logic of splashing the cash around. The more compelling logic would be that splashing the cash about has failed. The result has been to pile debt upon debt.

Perhaps when they let Greece go - and it might take Spain and the rest of the periphery to be cleaned out, too - nature and markets can take their course.

In the meantime, if there is another enormous stimulus, it will provide at least short-term relief for the sharemarkets. And for Australia it might turn out to be fleetingly positive, putting a floor under commodity prices as markets opt, however briefly, to park their money in hard assets.

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