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Wall Street finds profits again, now by reducing mortgages

Louise Story / NYT — Sun, 22 Nov 2009 16:42:00 GMT

As millions of Americans struggle to hold on to their homes, Wall Street has found a way to make money from the mortgage mess.

Investment funds are buying billions of dollars’ worth of home loans, discounted from the loans’ original value. Then, in what might seem an act of charity, the funds are helping homeowners by reducing the size of the loans.

Got lucky: Steven and Marisela Alva were grateful for new loan terms on their home in California. J. Emilio Flores / NYT

But as part of these deals, the mortgages are being refinanced through lenders that work with US government agencies such as the Federal Housing Administration (FHA). This enables the funds to pocket sizeable profits by reselling new, government-insured loans to other federal agencies, which then bundle the mortgages into securities for sale to investors.

While homeowners save money, the arrangement shifts nearly all the risk for the loans to the government—and, ultimately, taxpayers—at a time when Americans are falling behind on their mortgage payments in record numbers.

For instance, a fund might offer to pay $40 million (Rs186.4 crore) for a $100 million block of mortgages from a bank in distress. Then the fund could arrange to have some of those loans refinanced into mortgages backed by an agency such as FHA and then sold to an agency such as Ginnie Mae, a government-owned corporation within the department of housing and urban development, which guarantees investors the timely payment of principal and interest on mortgage-backed securities backed by federally insured or guaranteed loans. The trick is to persuade the homeowners to refinance those mortgages, by offering to reduce the amounts the homeowners owe.

The profit comes when the refinancings reach at least the $40 million that the fund paid for the block of loans.

The strategy has created an unusual alliance between Wall Street funds that specialize in troubled investments—the industry calls them “vulture” funds—and American homeowners.

But the transactions also add to the potential burden on government agencies, particularly FHA, which has lately taken on an outsize role in the housing market and, some fear, may eventually need to be bailed out at taxpayer expense.

These new mortgage investors thrive in the shadows. Typically, the funds employ intermediaries to contact homeowners and arrange for mortgages to be refinanced.

Homeowners often have no idea who their Wall Street benefactors are. Federal housing officials, too, are in the dark.

Policymakers have encouraged investors and banks to put more consumers into government-backed loans. The total value of these transactions from hedge funds is small compared with the overall housing market.

Housing experts warn that the financial players involved—the investment funds, their intermediaries and certain FHA-approved lenders—have a financial incentive to put as many loans as possible into the government’s hands.

“From the borrower’s point of view, landing in a hedge fund or private equity fund that’s willing to write down principal is a gift,” said Howard Glaser, a financial industry consultant and former official at the department of housing and urban development.

He went on: “From the systemic point of view, there is something disturbing about investors that had substantial short-term profit in backing toxic loans now swooping down to make another profit on cleaning up that mess.”

Steven and Marisela Alva say they do not know who helped them with their mortgage. All they know is that they feel blessed.

Last December, the couple got a letter saying that a firm had purchased the mortgage on their home in Pico Rivera, California, from Chase Home Finance for less than its original value. “We want to share this discount with you,” the letter said.

“I couldn’t believe it,” said Alva, a 62-year-old janitor and father of three. “I kept thinking to myself, ‘Something is wrong, something is wrong. This sounds too good.’”

But it was true. The balance on the Alvas’ mortgage was ultimately reduced to $314,000 from $440,000.

The firm behind the reduction remains a mystery. The Alvas’ new loan, backed by FHA, was made by Primary Residential Mortgage, a lender based in Utah. But the letter came from a company called MCM Capital Partners.

In the letter, MCM said the couple’s loan was owned by something called MCMCap Homeowners’ Advantage Trust III. But MCM’s co-founders said in an interview that MCM does not own any mortgages. They would not reveal the investor that owned the Alvas’ loan because they had agreed to keep that client’s identity confidential.

Michael Niccolini, an MCM founder, said: “We are changing people’s lives.”

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What if a recovery is all in your head?

Recession Theory | Robert J. Shiller — Sun, 22 Nov 2009 16:33:00 GMT

Beyond fiscal stimulus and government bailouts, the economic recovery that appears under way may be based on little more than self-fulfilling prophecy.

Consider this possibility: After all these months, people start to think it’s time for the recession to end. The very thought begins to renew confidence, and some people start spending again—in turn, generating visible signs of recovery. This may seem absurd, and is rarely mentioned as an explanation for mass behaviour late in a recession, but economic theorists have long been fascinated by such a possibility.

The notion isn’t as farfetched as it may appear. As we all know, recessions generally last no more than a couple of years. The current recession began in December 2007, according to the National Bureau of Economic Research, so it is almost two years old. According to the standard schedule, we’re due for recovery. Given this knowledge, the mere passage of time may spur our confidence, though no formal statistical analysis can prove it.

Certainly, people did not always believe that there is a regular “business cycle” that starts and stops in a definite pattern. The idea began to spread in the popular consciousness in the 1920s and reached full bloom in the 1930s—with one major complication, the Great Depression, which received its name in midcourse, from a 1934 book with that title by Lionel Robbins.

“There have been many depressions in modern economic history, but it is safe to say that there has never been anything to compare with this,” Robbins wrote. In his narrative, the Great Depression was an extreme event, compared with ordinary depressions.

“Recession”, a kinder, gentler term, began to be used around the time of the 1937-38 contraction to refer to a normal downturn in the business cycle. In January 1938, The Chicago Daily Tribune offered a wry definition of a recession, calling it “a new word for depression, coined by those who don’t like to admit that we’re still in one”.

People joked so much about the euphemism that in 1938 US president Franklin D. Roosevelt said, “It makes no difference to me whether you call it a recession or a depression.”

The proliferation of the idea of a more or less predictable business cycle intersected with a rapidly growing public interest in psychology. Choice of words can matter greatly for the psychologically aware, and the new word “recession” had a much softer sound than its predecessor. Recessions, as the term came to be used, implied timetables that mark their expected end. Uttering the word does not risk damaging confidence, at least not fundamentally. A diagnosis of a recession can be shrugged off as something from which you will recover, as though your doctor had just diagnosed an illness as a common cold. A depression came to be another matter entirely.

Back in 1931, for example, The New York Times attributed the emerging economic cataclysm to a “mood of pessimism which had been carried to grotesque extremes”. In 1932, it compared reckless talk about “depression” to shouting “fire” in a crowded theatre.

Roosevelt is widely remembered for saying, in 1933, that “the only thing we have to fear is fear itself”. But he was only repeating an oft-told message.

It wasn’t until 1948 that sociologist Robert K. Merton wrote an article titled The Self-Fulfilling Prophecy, using the Great Depression as his first example. He is often credited with having invented the “self-fulfilling prophecy” phrase, but by the 1930s the idea was already as commonplace as the breakfast toast made with modern electric toasters.

In important ways, we are still using that 1930s pattern of thinking. We are instinctively fearful of reckless talk about depressions, and we try to support one another’s confidence. But the economy has still not recovered, by any means.

Coueism has been discredited generally, as has much of the old business-cycle theory, but they live on in our popular notions about recessions. We may hope that our resorting to euphemism and belief in timetables of business-cycle recoveries work better to restore confidence than they did in the 1930s.

The problem might be put this way: There is still a nagging doubt afloat that the current event is really just another example in that long sequence of recessions. In which mental category does the current contraction belong: recession or depression? We may still be at a tipping point. To the extent that the theory of the self-fulfilling prophecy is correct, there is a case for continued vigilance, to ensure that adverse events don’t encourage widespread talk of the second category.

Robert J. Shiller is professor of economics and finance at Yale and co-founder and chief economist of MacroMarkets Llc.

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The markets have gone ahead before time: Parekh

Menaka Doshi / CNBC-TV18 — Sun, 22 Nov 2009 15:31:00 GMT

The hot topic in global markets for many days has been the dollar carry trade.

Economists around the world have been apprehensive of how the dollar carry trade is driving up asset classes around the world and whether emerging economies such as India need to impose any kind of capital controls. Carry trade involves transactions in which investors borrow in a low interest currency and use the money to invest in higher-yielding assets in other countries. In India, the stock market has doubled since March. Experts such as Housing Development Finance Corp. Ltd (HDFC) chairman Deepak Parekh fear that an asset bubble may be in the making. In an interview, Parekh spoke on the dollar carry trade, how long the dollar was expected to remain weak, the impact that would have on asset prices, and the outlook for interest rates. Edited excerpts:

How long do you expect the dollar to remain weak and what impact would that have on asset prices hereon?

Rate outlook: HDFC chairman Deepak Parekh says interest rates will remain more or less flat in the next six months or so.

I think everyone around the world is saying that the future course is the dollar will weaken. Which means the rupee should strengthen. It has already strengthened 10% from 50 odd to 46. More money is coming in because who can absorb large investments. Mind you this has happened; the markets have gone ahead before time.

Hard infrastructure (growth) is still not happening, otherwise credit growth should not be so low. Credit growth in these six months is the biggest concern I have. It is one of the few six months where the deposit growth is almost twice the credit growth, which has never happened... That is not a good sign.

You talk to the infrastructure companies, Larsen and Toubro or Siemens, all these companies, they say order books are full, order books are high but lifting is not happening. So we are not building new steel plants fast, we have not started building cements plants. Ultra mega power plants are going very slowly due to bureaucratic reasons; tying up loose ends. Tying up of loose ends takes years, not months but years. That will be our downfall if we do not change.

What is the point of having cheap money accessible to huge amount of foreign funds when you can’t build a steel plant? The Tatas have been trying to build a steel plant in Orissa for how many years. Three steel plants can come up in that time. We do not have the luxury to wait and someone should realize that this is not the way to go about.

Are you worried about what the dollar carry trade inflow will mean if we are not able to absorb it in a truly constructive fashion? If we are not able to absorb it, do we need to look at other ways of stemming this inflow?

Money will go wherever they see reasonable returns. Money will go wherever there is safety. India is a safe country to invest and India will give returns. Look at what has happened in Brazil. They put a capital tax when you invest because they had a similar problem. We are more or less at the same level. Huge amount of inflows went into Brazil. Two-three months ago they put a capital tax. The inflow into Brazil has not slowed, because people have surplus money, people have to invest. Where do you invest? They are willing to pay the tax and invest.

If you check the Brazilian inflow has slowed down marginally. That is all. So even if you put capital controls or put caps or something you will also find, unless you want to insulate yourself and become a domesticated inward looking economy, you have to face it.

What is it that the economy is facing?

Asset bubbles like real estate, stock market bubble, too much money in futures and exchange, and too much money on derivative transactions. So there are risks involved. People who are doing that have to live with the risks.

Are you saying that there is very little that we can do to be able to regulate it then?

No, it is a pity that we are unable to use the money... We are a capital-starved country.

If we are able to move growth up to, let us say, around 7% levels next year, do you think some of this money will be efficiently, constructively deployed?

I am sure they can be. Just build roads.

But you are not seeing signs of it as yet?

I do not see signs. Just build roads across the country, that will bring economic development.

How do you see the next six months working out in terms of interest rates?

I think the interest rates are stable today. Chances of going down are limited. I would say that chances of marginally increasing are there because of inflationary pressures, not because of liquidity issues. There is still enormous liquidity in the system. So technically rates should not go up and may not even go up in the next six months because you still see around Rs1 lakh crore every day in reverse repo and that is not the only surplus money banks are having.

Banks invest in higher SLR (statutory liquidity ratio, or investment in government bonds and approved securities) than mandatorily required. Banks have money in mutual funds which are temporarily parked in liquid funds. So you have to take a combination of all that to see what is the surplus money in the system.

So I feel that in the next six months or so, interest rates will more or less remain flat. If at all they have to be increased they will be marginal, half a percent or so, not more.

Not pressurized a little more by inflation, fuelled by all this liquidity supply?

Even then I do not think that they can go up significantly because the demand pick-up is still slow. If the credit growth is twice the speed of deposit growth maybe you will see a little larger impact on interest rates. But at the moment I do not see interest rates going up in the first quarter.

The credit growth is poor only because companies are not investing as fast as they need to in asset building right now?

Not investing. Yes.

Any reason why—is it because we are just about finishing the process of inventory restocking as people called it? We are still waiting for demand on the ground to pick up. Is that what companies are telling you?

I do not think so. Companies are not saying that. Companies are saying that we are not yet getting our act together, getting all permissions to start a large project.

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ADRs gain $217 mn in a week on Wall St rise

PTI — Sun, 22 Nov 2009 06:29:00 GMT

New York: The cumulative valuation of the 16 Indian stocks trading on American bourses rose by $217 million last week, although a host of them witnessed a decline in their market capitalisation.

For the week ended 20 November, Indian entities listed on the New York Stock Exchange and Nasdaq added $217 million to their valuation, although the loss suffered by 10 companies eroded some of the gains posted by the remaining six entities.

As many as 10 companies, including private sector lender ICICI Bank and copper producer Sterlite Industries, together lost $1.27 billion from their market capitalisation.

IT major Wipro, which led the gains among the Indian stocks, saw its market capitalisation rising by $921 million to $30 billion last week.

Meanwhile, ICICI Bank was the major loser during the week. The company has witnessed a value erosion of $467 million to its valuation to $21.17 billion.

ADRs are bought and sold on American bourses just like stocks and are issued by banks or brokerage firms.

However, among the 16 companies which trades as American Depository Receipts (ADRs), private sector lender HDFC Bank was another major gainer with its valuation jumping by $288 million to $19.02 billion.

HDFC Bank is followed by IT bellwether Infosys Technologies, whose valuation increased by $206 million to $29.23 billion.

On the other hand, Sterlite Industries saw its market capitalisation falling by $242 million to $1.56 billion.

Apart from ICICI Bank, Sterlite Industries, IT firms-- Mahindra Satyam (earlier known as Satyam Computer Services) and Patni Computer Systems too witnessed a significant erosion to their valuations.

Mahindra Satyam’s valuation fell by $169 million to $3.46 billion, while Patni Computer Systems plunged by $159 million to $1.24 billion.

Outsourcing firm Genpact and telecom major Tata Communications Ltd’s market-cap declined by $87 million and $68 million respectively.

The other losers include--internet firms-- Sify Technologies, and Reddif.com, telecom major Mahanagar Telephone Nigam Ltd, pharma major Dr Reddy’s Laboratories, valuations slipped in the range of $5 million to $38 million.

While, auto maker Tata Motors’ market-capitalisation rose by $54 million, BPO companies-- WNS Holdings ($10 million), EXLService Holdings ($11 million).

On Friday the US markets ended in the negative zone, with Dow Jones Industrial Average ending down 14.28 points at 10,318.16 and the S&P 500 falling 3.52 points to 1,091.38.

India or China: whose household is wealthier?

Simply Economics | Manas Chakravarty — Fri, 20 Nov 2009 16:10:00 GMT

Plenty of research has been done on the inequality of per capita income between countries and also on income inequality within a country. The Gini coefficient is often used to measure the level of inequality, with a low number indicating low inequality while a high number indicates a high degree of inequality.

The index lies between 0 and 100 with 0 denoting absolute equality and 100 absolute inequality. The United Nation’s latest Human Development Report, for instance, puts the Gini index for India in 2007 at 36.8, better than China’s 41.5. The richest 10% of the Indian population gets 31.1% of the country’s income, while the poorest 10% get 3.6%. But economists such as Pranab Bardhan, professor at the University of California at Berkeley, have for long pointed out that while income inequality may be comparatively low in India, inequalities in wealth are far harsher. But data on wealth are much harder to get.

Graphics: Naveen Kumar Saini / Mint

Economists James B. Davies of the University of Western Ontario, Edward N. Wolff of New York University and Susanna Sandstrom and Anthony B. Shorrocks, both of World Institute for Development Economics Research of the United Nations University at Helsinki, have now tried to fill in this huge hole in research, by taking on the daunting task of estimating the level and distribution of global household wealth.

They used data on national wealth distribution available for 20 rich countries, accounting for 59% of the world’s population. For countries on which no direct data are available, the researchers used national household balance sheet data, survey data and what they call “regression-based imputations”. They agree that there are significant gaps in the data and data quality in many countries leaves a lot to be desired. But then, that’s entirely to be expected given the magnitude of the task.

Illustration: Jayachandran / Mint

What do they find? Unsurprisingly, the US is the world’s richest nation with wealth per adult of $201,319 in the year 2000, in purchasing power parity (PPP) terms. According to the authors’ calculations, mean wealth per Indian adult in 2000 was $12,021 in PPP terms.

For China, wealth per adult was estimated at $19,056 in 2000. That makes an average Chinese one a half times as wealthy as an average Indian. But if we take gross domestic product (GDP) per adult instead of per adult wealth, then the income of an average Chinese was only 1.18 times as much as that of an average Indian in 2000. The study says that India’s share of global GDP was 5.9% in 2000, while its share of global wealth was 4.2%.

Even more interesting are the estimates of wealth inequalities within countries. In India, for example, the top 10% of the population had 52.9% of the country’s wealth in 2002-03, while the top 1% had 15.7%. China was more egalitarian, with the top 10% owning 41.4% of the nation’s wealth. The Gini coefficient for wealth in India is 0.669, against 0.550 for China. Wealth is distributed very unevenly in the US, with the top 10% getting 69.8% of the country’s wealth and the top 1% own 32.7%. The Gini index for the US is a very high 0.801.

In contrast, the very poor own very little. In India, for instance, the bottom 10% of the population own a meagre 0.2% of the country’s wealth and the bottom 20% own just 1%. Despite China’s pretensions to communism, it is only marginally better, with the bottom 10% getting a mere 0.7% of the country’s wealth.

The researchers find that the top 10% of households in the world own 71% of global wealth. The inequality in wealth distribution is much higher than for income distribution. North America, with 5.2% of the world population, owns 26.8% of the world’s wealth and Europe, with 12% of the world’s people, owns 28.2% of global wealth.

Aren’t more people from the emerging countries joining the global rich? The researchers say “The popular press sometimes suggests that high wealth individuals from emerging market economies—especially China, India and Russia—are already strongly represented among the world’s rich. Our figures indicate that at least as of the year 2000 the emerging market economies did not supply a significant share of the top 1% of global wealthholders. With the possible exception of China they appear unlikely to do so for some time.”

European shares rebound, snapping 3-day losing run

Reuters — Fri, 20 Nov 2009 11:27:00 GMT

London: European shares rebounded on Friday from the previous session’s sharp falls and snapped a three-day losing run, lifted by banks and oil producers but Fiat fell on a UBS downgrade.

By 2:31pm, the FTSEurofirst 300 index of top European shares was up 0.4% at 1,014.88 points after losing 1.6% on Thursday to hit a one-week closing low.

“We’re still stuck in a tight range, and this could last until December,” said David Thebault, head of quantitative sales trading at Global Equities in Paris.

“Recent US housing data and default rates are grim and that could seriously revive fears over banks’ balance sheets and dampen hopes of an end-of-year rally.”

Banks were in demand, rebounding from Thursday’s weakness. HSBC, BNP Paribas, Royal Bank of Scotland, Societe Generale and UBS were up 0.2-1.2%.

However Credit Suisse said in a note that it had a “small underweight” of continental European banks, citing their sensitivity to falls in credit spreads, though leeway for further spread declines is limited.

Sweden’s SEB lost 1.4% after Morgan Stanley cut its rating to “underweight” from “overweight”.

Oil producers advanced, with crude prices ticking higher. BP , Total and Royal Dutch Shell put on 0.5-0.6%.

The pan-European benchmark has lost 0.4% so far this week. The index has rallied 57% since hitting a trough in early March and is up 22% for the year.

Across Europe on Friday, Britain’s FTSE 100, Germany’s DAX and France’s CAC 40 were all up 0.6%.

The VDAX-NEW volatility index eased 3.8%. The lower the index, the higher the market’s appetite for risky assets like equities.

Fiat topped the fallers in the pan-European index, down 2.6% after UBS downgraded the carmaker to “neutral” from “buy”.

Also in the auto sector, Volkswagen put on 1.2% and Porsche added 0.2% after Volkswagen and its supervisory board approved final details of a 49.9% stake in the sports car maker and an eventual tie-up with Porsche’s parent company.

Capgemini added 1% after its chief executive Paul Hermelin said late on Thursday that the IT services company could use its strong cash position to make acquisitions or pay an extra dividend.

Also on the upside, Cable & Wireless climbed 2% after JPMorgan upgraded the telecoms operator to “overweight” from “neutral”.

UBS cut its rating on Enel to “neutral” from “buy”. Enel shares were down 1.5%.

Wall St drops on fresh recovery concerns

Reuters — Fri, 20 Nov 2009 04:14:00 GMT

New York: US stocks slid on Thursday as another batch of economic data pointed to the fragility of the recovery and a brokerage’s dim view on the semiconductor sector hit technology shares.

The benchmark S&P 500 suffered its worst one-day percentage fall in three weeks as investors feared that weakness in housing and labor markets would persist, making current stock valuation seem unjustified.

“There’s this feeling that the economy has lost momentum from the third quarter,” said Bruce Zaro, chief technical strategist at Delta Global Advisors in Boston. “The market gained traction to the downside when the disappointing economic indicators came out.”

Bank of America-Merrill Lynch cut its 2010 growth outlook for the semiconductor industry on concerns about a rising inventory glut. It downgraded 10 stocks, including Intel Corp,Texas Instruments Inc and Marvell Technology Corp.

The downgrades were a setback for those betting that the technology sector would fare better than others as the recovery takes hold. Chips are essential to a broad range of products, including computers and mobile devices.

Investors have ridden the tech wave since the S&P 500 hit a 12-year closing low on 9 March. Shares of Dow component Intel fell 4.1% to $19.30 on Nasdaq. The PHLX Semiconductor Index dropped 3.4%.

On the economic front, the Conference Board’s index of U.S. leading economic indicators, a gauge of the U.S. economy’s prospects, rose 0.3% to 103.8, the highest since September 2007. But the increase fell short of Wall Street’s expectation for a rise of 0.5%.

There was also more disconcerting news in housing. A record one in seven U.S. mortgages were in foreclosure or at least one payment was past due in the third quarter, according to fresh data signaling that the housing market’s recovery will be tepid at best.

The U.S. dollar’s gain was another headwind for stocks as it pressured prices of natural resources like crude oil and gold, pushing down shares of companies such as Alcoa and U.S. Steel Corp. The S&P materials index shed 1.5% as the U.S. dollar index rose 0.2%.

The Dow Jones industrial average shed 93.87 points, or 0.90%, to end at 10,332.44. The Standard & Poor’s 500 Index slid 14.90 points, or 1.34%, to 1,094.90. The Nasdaq Composite Index dropped 36.32 points, or 1.66%, to 2,156.82.

Bank of America-Merrill Lynch said notions of a strong rebound for the semiconductor industry next year may not be realistic.

Texas Instruments shares fell 3.4% to $24.88 on the New York Stock Exchange, while Marvell Technology Corp shares declined 5.1% to $15.27 on Nasdaq.

The stock of iPod and iPhone maker Apple Inc slid 2.7 % to $200.51 and was a top drag on Nasdaq.

Tech news took an even gloomier tone after the closing bell as computer maker Dell Inc reported a slide in quarterly profit. Dell’s revenue missed Wall Street’s expectations as sales to large business continued to struggle.

Dell’s stock fell 6.6% to $14.82 in after-hours trading. On Nasdaq, it had closed at $15.87.

Thursday’s market sell-off was broad-based, with all but four of the Dow’s 30 stocks ending lower. Among other hard-hit sectors were financials, industrials and consumer discretionaries.

An S&P index of energy shares slid 2.1% after US front-month crude futures, which expire on Friday, fell $2.12 lower, or 2.7%, to settle at $77.46 a barrel on the New York Mercantile Exchange.

The rising greenback hurt the prices of other commodities.

Alcoa, an aluminum producer, lost 3.9% to $13.22 on the NYSE.

Financials also took a hard knock, with the KBW bank indexdown 2%, while the Dow Jones home construction index declined 1.7%.

Health insurance stocks fell a day after US Senate Majority Leader Harry Reid released an $849 billion healthcare reform bill that analysts said would extend coverage to tens of millions of the uninsured.

Goldman Sachs said in a note the bill may cause problems for managed-care companies regarding profit margin regulation.

The Morgan Stanley Healthcare Payor index fell 1.2%. Even so, the benchmark S&P 500 is up 61.8% from its 12-year closing low of 9 March.

On the New York Stock Exchange, volume was anemic, with only about 1.08 billion shares changing hands, below last year’s estimated daily average of 1.49 billion. On the Nasdaq, volume was active with about 2.27 billion shares traded, slightly below last year’s daily average of 2.28 billion.

Declining stocks outnumbered advancers on the NYSE by a ratio of about 4 to 1. On the Nasdaq, seven stocks fell for every two that rose.

Asian stocks ease; dollar gains against most currencies

Kevin Yao and Kevin Plumberg / Reuters — Thu, 19 Nov 2009 16:32:00 GMT

Singapore / Hong Kong: Asian stocks eased on doubts about the pace of economic recovery, while the Indonesian rupiah and the Indian rupee fell on concerns over official steps to curb capital flows after Brazil’s latest move to limit the rise of its currency.

Gold edged lower, taking a breather from the previous session’s jump to new peaks above $1,150 (Rs53,360) per ounce, as the dollar gained some ground against the euro and other major currencies.

After gains of nearly 70% in Asian equities so far this year, investors are likely prone to taking profits before year-end.

A six-month low in US housing construction in October and news this week that Mitsubishi UFJ Financial Group Inc., Japan’s largest bank, will have to raise $11 billion in new shares to meet stricter capital requirements have underscored how the climb back from the worst economic crisis in generations will be slow.

“With the capital raisings, the yen’s strength and politics, there is three times the pain,” said Tomomi Yamashita, a fund manager at Shinkin Asset Management,

The Nikkei share average fell 1.3% to the lowest since 21 July, also on concerns over the government’s fiscal policies.

The MSCI index of Asia Pacific stocks outside Japan fell about 0.6% but still hovered near a 15-month high reached on Tuesday.

Korean shares outperformed the region with a 1% jump as heavy foreign and programme buying sent technology, banking and auto issues higher, with investors increasingly believing a rebound was due after the Kospi’s recent underperformance.

Shares in Shanghai, Sydney and Singapore also rose, but Hong Kong, Taipei and Mumbai fell.

The dollar rebounded against the euro, and the yen gained against high-yield currencies as investors, spooked by weaker equities performance and fears of capital controls in emerging markets, unwound positions in riskier assets.

The high-yielding Australian and New Zealand dollars fell sharply as traders took profit from riskier carry trades, with the kiwi dollar losing 2% against the yen.

The Australian dollar fell 1% to $0.9186, with the currency remaining under pressure after expectations for a December rate hike recently cooled.

Market fears over possible capital curbs by Indonesia have eased after the central bank played down the threat of immediate curbs, but investors sentiment was hurt by Brazil’s move to curb capital inflows, traders said.

Brazil took another step on Wednesday to try to contain the appreciation of its currency, unveiling a 1.5% tax on certain trades involving American Depositary Receipts issued by Brazilian companies.

The Indonesian rupiah fell a percent to around 9,500 per dollar, prompting the central bank to intervene to support the unit, which remained the best performing currency in Asia this year.

Taiwan has banned foreigners from investing in time deposits and South Korea announced measures on Thursday aimed to tightening controls over currency liquidity to make the banking system less vulnerable to the capital flight.

Asian Stocks ease, dollar up as risk shunned

Reuters — Thu, 19 Nov 2009 10:23:00 GMT

Hong Kong: Asian stocks eased on doubts about the pace of economic recovery, while the Indonesian rupiah and the Idian rupee fell on concerns over official steps to curb capital flows after Brazil’s latest move to limit the rise of its currency.

Gold edged down as the dollar gained some ground against the euro and other major currencies, taking a breather after hitting a record above $1,150 per ounce the previous day.

After gains of nearly 70% in Asian equities so far this year, investors are likely prone to taking profits before year-end.

A six-month low in US housing construction in October and news this week that Mitsubishi UFJ Financial Group, Japan’s largest bank, will have to raise $11 billion in new shares to meet stricter capital requirements have underscored how the climb back from the worst economic crisis in generations will be slow.

“With the capital raisings, the yen’s strength and politics, there is three times the pain,” said Tomomi Yamashita, a fund manager at Shinkin Asset Management,

The Nikkei share average fell 1.3% to the lowest since 21 July, also on concerns over the government’s fiscal policies.

The MSCI index of Asia Pacific stocks outside Japan fell almost 0.3% but still hovered near a 15-month high reached on Tuesday, The Thomson Reuters index of regional shares was down around 0.5%.

US stocks futures were down 0.3%, indicating a lower open later in the day.

The dollar rebounded the against the euro and the yen gained against high-yield currencies as investors, spooked by weaker equities performance and fears of capital controls in emerging markets, unwound positions in riskier assets.

The high-yielding Australian dollar eased 0.3% to $0.9260 after touching the highest since 1 August, 2008 on Monday, above $0.9400.

Market fears over possible capital curbs by Indonesia have eased after the central bank on Wednesday played down the threat of immediate curbs, but investors sentiment was hurt by Brazil’s move to curb capital inflows, traders said.

Brazil took another step on Wednesday to try to contain the appreciation of its currency, unveiling a 1.5% tax on certain trades involving American Depositary Receipts issued by Brazilian companies.

The Indonesian rupiah fell 1% to 9,510 per dollar, prompting the central bank to intervene to support the unit, which remained the best performing currency in Asia.

The Indian rupee slipped 0.7% to 46.51 per dollar as investors worried that authorities there may start looking at steps to temper surging capital inflows.

But analysts believe most Asian countries will refrain from imposing harsh measures to stem hot money inflows that could distort policy signals, but market jitters could persist.

“Few things scare a foreign investor more than the thought that the rules could be changed on them after they have invested and they will be either unable to access their funds easily or will be suddenly driven out,” said Westpac strategist Sean Callow.

“Given that it is so widely expected that USD/Asia will decline for many months and quarters to come, investors will wonder why would the flurry of restrictions and proposals end here?” he added.

US crude for December delivery was down 0.3% to $79.40 a barrel, after being unable to settle above $80 for a 10th consecutive session.

Wall St dips as tech outlook and housing take toll

Reuters — Thu, 19 Nov 2009 04:13:00 GMT

New York: US stocks broke three days of gains on Wednesday following worrisome outlooks from two major software makers and a surprising drop in home construction last month.

But stocks sharply cut the session’s losses just before the closing bell as many investors pointed to a strong uptrend in equities that have pushed major indexes to 13-month highs in recent days. The S&P 500 has ended down only three times in the last two weeks

Business software maker Autodesk Inc was cautious about the outlook for the current quarter, while sector peer Salesforce.com Inc reported a slowdown in new business. The news was a setback to investors looking for signs of a pickup in demand.

The government said housing starts declined to their lowest level in six months, weighed down by a sharp fall in construction activity for both single-family and multi-family dwellings, a sign the housing market is still under pressure.

Henry Smith, chief investment officer at Haverford Trust Co in Philadelphia, said that despite these setbacks, the equity market was experiencing tailwinds from low interest rates, government stimulus spending and signs of economic recovery.

“We are of the continued belief that right now, the tailwinds propelling the market are still outweighing the headwinds,” he said.

The Dow Jones industrial average dropped 11.11 points, or 0.11%, to 10,426.31. The Standard & Poor’s 500 Index dipped just 0.52 of a point, or 0.05%, to finish at 1,109.80. The Nasdaq Composite Index lost 10.64 points, or 0.48%, to end at 2,193.14.

Autodesk shares slid 10.4% to $24.20 and weighed on the Nasdaq, a day after the company, which licenses software to companies on a per-user basis, warned its recovery could be hindered by more job losses. Meanwhile, Salesforce fell 3.1% to $63.61 on the New York Stock Exchange.

“Technology has been a strong area of the market, and those two results broke the momentum,” said Nick Kalivas, vice president of financial research and senior equity index analyst at MF Global in Chicago.

The Dow Jones US Home Construction index climbed 0.8%, bolstered by a Citigroup upgrade of Pulte Homes Inc “buy” from “hold.” Pulte rose 4.6% to $10.04.

While the decline in new construction raised concerns about the recovery, it could bode well for removing remaining inventory from the market, something analysts say must happen for the housing sector to recover.

Losses were kept in check by advances in the financial sector. The S&P financial index added 0.9% after hedge fund billionaire John Paulson said Bank of America Corp stock could double in two years. Bank of America’s shares rose 3.7% to $16.35.

Paulson made his comments in an investor note that was reported by Bloomberg News.

Analysts said the inverse correlation between the dollar and equities - which has helped to boost natural resource stocks by lifting the price of dollar-denominated commodities - appeared to break down.

A bevy of mining and energy shares declined, even as the dollar fell and gold hit a record high above $1,150 an ounce. Freeport McMoRan Copper & Gold Inc was off 0.8% at $84.69, while ConocoPhillips slipped 0.2% to $53.58.

Oil rose 0.7%, while the dollar fell 0.4% to a basket of currencies.

Volume was light, with about 1.06 billion shares changing hands on the New York Stock Exchange, below last year’s estimated daily average of 1.49 billion. On the Nasdaq, about 2 billion shares traded, below last year’s daily average of 2.28 billion.

On the NYSE, declining stocks outnumbered advancers by about 8 to 7. On the Nasdaq, eight stocks fell for every five that rose.

Wall St gains on broker views, but retailers sink

Reuters — Wed, 18 Nov 2009 04:47:00 GMT

New York: US stocks rose to fresh 13-month highs on Tuesday as upbeat broker views on improving prospects for two Dow components offset disappointing holiday spending outlooks from Target and Home Depot.

Even so, the underlying tone was negative as investors fretted about the strength of the recovery and the recent rally, and more stocks fell than rose.

Weak outlooks for the key holiday season weighed on investor psychology since consumer spending accounts for about two-thirds of US economic activity and is a key factor in corporate profits.

“The news from retailers wasn’t particularly good,” said Eric Kuby, chief investment officer at NorthStar Investment Management Corp in Chicago. “It seems to me the major flavor for today is once again, the market participants questioning the strength of the recovery.”

The Dow Jones industrial average rose 30.46 points, or 0.29%, to close at 10,437.42. The Standard & Poor’s 500 Index edged up 1.02 points, or 0.09%, to 1,110.32. The Nasdaq Composite Index added 5.93 points, or 0.27%, to 2,203.78.

The three major US stock indexes initially started lower and then spent the bulk of the session near breakeven until the last half-hour of trading, when gains in the technology and energy sectors helped spur some upward momentum.

In Nasdaq trading, shares of software maker Microsoft Corp gained 2% to $30 - an 18-month closing high - after Morgan Stanley raised its price target on the stock and said it was upbeat on the prospects for Windows 7 and the company’s holiday season.

Shares of Exxon Mobil rose 0.8% to $75.03 after Barclays raised its recommendation on the stock to “overweight” from “equal-weight.” Both Microsoft and Exxon are components of the 30-stock Dow Jones industrial average.

But shares of Home Depot fell 2.4% to $26.99 after the leading US home improvement chain gave a forecast that suggested weaker results at the end of the year and predicted no meaningful recovery until the second half of 2010.

Target Corp, the No. 2 US discounter, forecast a holiday quarterly profit that could fall short of Wall Street’s estimates, saying early November results showed tepid consumer demand.

The stock dropped 3% to $48.77, while the S&P consumer discretionaries index shed 0.7%. The S&P retail index dropped 1.4%.

“The consumer is a bit restrained. We’re still in a very tough economy, with a 26-year high in unemployment and consumer credit being reduced. So retailers have to work really hard to get through this holiday season in a profitable fashion,” added Kuby at NorthStar.

Data showing that US industrial output rose less than expected in October was another headwind, overshadowing news that the Producer Price Index, a gauge of wholesale inflation, was tame last month.

With Tuesday’s slim gain, the S&P 500 is up 64.1% from its 12-year closing low of March 9.

Volume was anemic, with only about 972 million shares changing hands on the New York Stock Exchange, sharply below last year’s estimated daily average of 1.49 billion. On the Nasdaq, about 1.92 billion shares traded, below last year’s daily average of 2.28 billion.

On the NYSE, declining stocks outnumbered advancers by a ratio of about 6 to 5. On the Nasdaq, about seven stocks fell for every six that rose.

Banks, policymakers spar over new rules being pushed by G-20

Huw Jones and Eva Kuehnen / Reuters — Tue, 17 Nov 2009 16:56:00 GMT

London/Frankfurt: Big banks stepped up warnings on Tuesday that tightening capital rules too soon could stall economic recovery, but policymakers said the bailed out sector cannot rely on taxpayers again in future.

Regulators are drafting tough rules that will force banks to hold far more capital and lessen the need for the kind of public rescues seen during the credit crunch.

Bankers said the new rules spearheaded by the Group of Twenty (G-20) leading countries also need better coordination and timing to avoid a patchwork of implementation emerging.

Policy debate: Stephen Green, chairman of HSBC Holdings Plc, says cumulative enhancement of capital ratios at the wrong stage of the economic cycle could cause a new credit crunch. Charles Pertwee / Bloomberg

“There is once again a real danger that the cumulative impact of doctrinaire policy could have some perverse and unintended effects on the economy and for wider society,” said Stephen Green, chairman of HSBC Holdings Plc, Europe’s biggest bank.

“Cumulative enhancement of capital ratios at the wrong stage of the economic cycle could easily withdraw credit from the economy and cause a new credit crunch. This in turn would interrupt and delay a fragile economic recovery,” Green said.

Banks, despite public outrage at bonuses and huge bailouts that have wrecked government finances, appear more willing to question new rules that are expected to dampen profitability.

This is in spite of the G-20 reassuring them that the bulk of new requirements will not take effect until the end of 2012 so that economic recovery has enough time to find its feet.

The Basel Committee on Banking Supervision, a global body that is mapping out new bank capital rules, will also test their combined impact next year before fixing tougher levels.

Major banks such as HSBC face a plethora of changes, ranging from higher and better quality basic capital to new caps on leverage and possible liquidity and capital surcharges because of their sheer size and cross-border reach.

Britain’s government is due on Wednesday to unveil plans for a sweeping new law to crack down on bank bonuses, beef up enforcement of financial rules and make it easier for investors to group together to seek compensation.

Andrew Bailey, chief cashier at the Bank of England, told a banking conference in Spain the sector cannot justify relying on public money to douse the fire during a crisis.

“And we also cannot allow conditions to exist where risks are taken on the basis that this backstop exists,” Bailey said.

“Regulation seeks to re-build fire prevention systems with action on capital and liquidity requirements. Prevention might also involve re-drawing the financial landscape, its structure,” Bailey added.

Some policymakers fear that topping up capital and liquidity levels won’t be enough to avoid a public bailout in future and that big banks should be split up to ringfence deposits.

The Financial Services Forum of top banks urged the US Congress on Monday not to pursue big bank break-up legislation, saying it could lead to long-term damage to the economy.

Spain’s Banco Santander SA echoed this on Tuesday.

“Limiting or penalizing the size of banks through greater regulatory capital requirements will not solve the problem,” Santander chairman Emilio Botin said.

Bankers said not all countries are singing from the same regulatory hymn sheet despite the G-20’s coordinating efforts.

“We’re at risk of pursuing so many different complicated subjects that we make slow progress on all of them. I would be prioritizing capital and liquidity,” Peter Sands, chief executive of Standard Chartered told the Financial Times.

HSBC’s Green said more capital for bank trading books would certainly happen in Europe as Brussels and Basel are pressing so hard, but he said it was uncertain if it will be implemented more broadly across G-20.

Credit Agricole SA, France’s biggest retail bank, said changes in rules for banker pay had been felt in London more than anywhere else.

“There is an impact, but a small one,” Credit Agricole chief executive George Pauget said at the Reuters Finance Summit on Monday. “It’s mainly in London, where it can be difficult to hire specialists in specific businesses. We’ll see rules converging, but before that it can cause some difficulties,” he said.

A top European Union insurance watchdog urged regulators to stand firm.

“This is the moment of truth. There are clear measures in there, in the list of G-20 recommendation, and surely they need to come to life on both sides of the Atlantic,” Gabriel Bernardino, chairman of pan-EU insurance regulatory body, CEIOPS, told a financial conference in Frankfurt.

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Global equities off 2009 highs, dollar edges up

Natsuko Waki / Reuters — Tue, 17 Nov 2009 15:48:00 GMT

London: World stocks slipped on Tuesday from the previous day’s 2009 high, and oil and gold fell as investors locked in gains from a strong rally.

Wall Street looked set for modest losses at the open and the dollar edged higher from its 15-month lows.

Expectations that the US Federal Reserve would keep interest rates near zero for some time had been weighing on the dollar, fuelling gains in dollar-priced raw materials and related commodity shares.

Hitting a record: Gold prices in Mumbai surged on Tuesday by Rs200 and touched an all-time high of Rs17,300 per 10g on frantic buying by jewellers for the ongoing marriage season. Rupak De Chowdhuri / Reuters

On Tuesday, investors stepped back from risky trades, mindful that a period of consolidation was probable given that world stocks, measured by MSCI, rallied around 75% from their March troughs.

“Despite the fundamentals remaining upbeat, a degree of consolidation is likely...as equity traders pause for breath,” IG Markets analyst Ben Potter noted.

“There is, however, little to suggest that this will turn into any full-blown bout of profit taking... The overall view seems to remain that with the economic recovery under way and government stimulus attempts ongoing, there are few reasons out there to be avoiding stocks.” The MSCI World equity index fell 0.4%, having hit its highest since September 2008 on Monday.

The FTSEurofirst 300 index fell 0.3%, after hitting a 13-month high in the previous session.

Emerging stocks market fell 0.4%.

US crude oil fell more than 0.5% to $78.28 (Rs3,625 ) a barrel, while gold lost more than three quarters of a per cent to around $1,129 per ounce after hitting record highs above $1,143 on Monday.

In Mumbai, however, gold prices surged by Rs200 and touched an all-time high of Rs17,300 per 10g on frantic buying by jewellers for the ongoing marriage season.

Marketmen said gold spurted on buying by stockists and jewellery fabricators as they enlarged their positions to meet seasonal demand.

The dollar rose 0.7% against a basket of major currencies, just above Monday’s 15-month lows.

Fed chairman Ben Bernanke, in a rare comment on the US dollar’s value, acknowledged the currency’s slump was causing some prices to rise, although other factors were restraining inflation.

He also said tight credit and a weak job market would weigh on the economy’s recovery, repeating the Fed’s pledge to keep interest rates exceptionally low for an extended period.

“The chairman’s rhetoric signals that the dollar decline is well on the radar of the Fed and US authorities may be more prone to acquiesce to stronger rhetoric opposing dollar weakness. This is something to watch at forthcoming G-7, G-20, etc. meetings,” Citigroup said in a note to clients.

“While verbal support may moderate the pace of dollar decline, it is unlikely to affect a structural trend that reflects well-entrenched fundamentals. In addition, current dollar short positioning is not particularly stretched and investors may continue to look to sell on rallies.”

The Bund future gained 11 ticks, underpinned by cautious comments from European Central Bank officials who have stressed a slow and steady exit policy from their extraordinary stimulus measures.

PTI contributed to this story.

Asia stocks retreat, dollar pressured

Reuters — Tue, 17 Nov 2009 05:56:00 GMT

Singapore: Asian stocks surrendered early gains on Tuesday as investors took profits from recent gains, while the dollar was pinned near 15-month lows after Federal Reserve Chairman Ben Bernanke repeated the central bank was likely to keep interest rates at very low levels for some time.

Gold eased off record highs set on Monday but held near $1,140 an ounce, with investors still regarding it as an attractive alternative investment given persistent US dollar weakness and despite bullion’s already strong run-up this year.

The dollar edged up against a basket of major trading-partner currencies, off 15-month lows hit overnight, but its broad downtrend was seen as intact on a growing view that US interest rates are likely to stay low for a while.

Markets showed little reaction to talks between US President Barack Obama and Chinese President Hu Jintao in Beijing. Both leaders agreed to work to ease trade and economic frictions between the two giants but appeared to break no new ground on the contentious issue of the value of the yuan.

Obama nudged Hu to allow the yuan currency to appreciate but the Chinese leader had no public comment on either the yuan or the dollar.

Asian stock markets erased early gains by midday, with the yen’s strength against the ailing dollar weighing on shares of Japanese exporters and offsetting gains in commodities-linked shares after a surge in oil and gold prices overnight.

The Nikkei average fell 0.7%, while the MSCI index of Asia Pacific stocks traded outside Japan shed 0.4% after earlier hitting its highest level since late July last year.

A global equities rally is showing signs of losing steam as it extends into a ninth month. Investors are growing cautious about the prospect for further significant gains amid forecasts for only a sluggish economic recovery next year.

Bernanke’s remarks on rates and better-than-expected U.S. retail sales data had fueled broad gains on Wall Street overnight, with the Dow Jones industrial average rising 1.3% and the S&P 500 climbing 1.5%.

Bernanke acknowledged in a speech that the dollar’s slump was raising some prices but said other factors restraining inflation were winning the day, helping reinforce the market’s already benign view toward US interest rates.

Gold took a breather after a record-setting rally and was quoted at $1,137.60/8/40 an ounce in early Tuesday trade, off a fresh high of $1,143.25 set on Monday, although bullion continued to be supported by the dollar’s weak outlook.

Spot gold prices have surged some 29% so far this year.

US crude futures dipped below $79 a barrel, after settling more than 3% higher the previous day, as investors awaited industry data on US stockpiles later in the day to gauge oil demand.

Wall St leaps as Bernanke pledges lower rates

Reuters — Tue, 17 Nov 2009 03:16:00 GMT

New York: US stocks rose broadly on Monday, sending indexes to fresh 13-month closing highs, after Federal Reserve chairman Ben Bernanke reinforced expectations that interest rates would stay low to spur growth.

Bernanke repeated that the Fed was likely to keep interest rates exceptionally low for “an extended period,” a pledge that weighed on the US dollar and drove investors to snap up shares of natural resource companies as prices of global commodities -- from gold to wheat -- shot higher.

In a speech before the Economic Club of New York, Bernanke said the recovery would not be as robust as previously hoped, and rising unemployment and tight bank lending were significant headwinds.

The S&P materials and energy indexes each climbed more than 2.3%. Individual stock standouts included Exxon Mobil Corp, up 2.7% to $74.43 amid higher crude oil prices, and Caterpillar Inc up 2.8%.

“The overriding message from Bernanke is that interest rates will stay low and remain low for the near to medium term. It seems that the market likes that,” said Dennis Cajigas, senior market strategist at Lind-Waldock, a retail brokerage firm in Chicago.

“Investors essentially are borrowing against low rates in the dollar and putting that money in areas that they feel will react well against inflation, such as crude oil, energy, gold, commodities (and) stocks because the expected return should be higher over time.”

In the last hour of trading stocks briefly pared gains as Meredith Whitney, a prominent analyst, said in a CNBC television interview the stock market run-up was not supported by fundamentals.

The Dow Jones industrial average gained 136.49 points, or 1.33%, to 10,406.96. The Standard & Poor’s 500 Index <.SPX> shot up 15.82 points, or 1.45%, to 1,109.30 -- its first close above the psychologically important 1,100 level for the first time since October 2008.

The Nasdaq Composite Index jumped 29.97 points, or 1.38%, to 2,197.85.

The benchmark S&P 500 is now up 64% since the 12-year closing low of 9 March.

Caterpillar, whose fortunes are closely tied to the commodities industries, was one of the biggest boosts to the Dow, along with Boeing Co, up 3.6% to $52.48.

Shares of AK Steel Holding Corp rose 7.9% to $18.77, while gold miner Newmont Mining Corp added 2.8% to $52.39. The ARCA gold bugs index jumped 3.3% after COMEX December gold hit a record above $1,140 an ounce.

On Nasdaq, Intel Corp shares rose 2.2% to $20.25 after the chipmaker raised its quarterly dividend by more than 12.5%. The semiconductor index climbed 2%.

Monday’s economic data showed October retail sales rose a brisk 1.4% last month but were much less impressive with auto sales stripped out. In addition, September figures were revised to show a larger drop overall than earlier reported.

Even though Bernanke made a rare statement on foreign exchange markets, saying the Fed was watching the US dollar closely, the greenback found very little reprieve.

The United States and China failed to reach an agreement over currencies at a summit of the Asia Pacific Economic Cooperation forum in Singapore.

Bernanke, commenting on the dollar’s decline, said the Fed is attentive to changes in the US currency, and the Fed’s mandate will help ensure the greenback remains strong.

“If you take away stimulus, this economy falls apart. He knows it. He’s boxed in here, he can’t raise rates. It’s impossible,” said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. “So what do we do? We continue to buy equities because that’s what the trade is.”

Volume was moderate, with about 1.15 billion shares changing hands on the New York Stock Exchange, below last year’s estimated daily average of 1.49 billion. On the Nasdaq, about 2.13 billion shares traded, below last year’s daily average of 2.28 billion.

Advancing stocks outnumbered decliners on the NYSE by a ratio of about 9 to 2, while on the Nasdaq, nearly seven stocks rose for every two that fell.

Wall St falls on energy shares, consumer worries

AP — Fri, 13 Nov 2009 05:41:00 GMT

New York: The Dow industrials six-day winning streak came to a halt on Thursday as a drop in oil prices pulled energy stocks lower and a guarded outlook from Wal-Mart fanned worries about consumer spending.

Stocks were also undermined by a US dollar rally, as its safe-haven appeal rose after several policymakers around the world warned the economic recovery was fragile.

With earnings season coming to a close, and looking beyond the Federal Reserve’s meeting last week, investors searched for new catalysts to determine the market’s direction.

“As the S&P 500 has gone above 1,100, it has had a hard time holding on to gains,” said Quincy Krosby, market strategist at Prudential Financial in Shelton, Connecticut.

Both the Dow industrials and the S&P 500 hit 13-month closing highs on Wednesday.

Oil futures settled down 3% below $77 per barrel as data confirmed crude and refined product inventories rose last week. The S&P energy sector index fell 2%, with shares of Hess Corp down 2.5% to $55.95 and Occidental Petroleum Corp down 1.6% to $81.81.

The Dow Jones industrial average fell 93.79 points, or 0.91%, to 10,197.47. The Standard & Poor’s 500 Index dropped 11.27 points, or 1.03%, to 1,087.24. The Nasdaq Composite Index lost 17.88 points, or 0.83%, to 2,149.02.

“In order to get to the next level up, (the market) does need a strong catalyst, and most of the time the stronger dollar has been a negative,” Krosby said.

Shares of insurers and banks were among top laggards, with the S&P financial sector index down 1.8%.

Wal-Mart, the world’s largest retailer, reported a higher quarterly profit and its shares rose 0.5 percent to $53.24, but it forecast earnings for the key holiday quarter that could miss Wall Street’s consensus estimate.

Concern about consumer spending weighed on the S&P retail index, which fell 0.8 percent.

After the market’s close, shares of Walt Disney Co jumped 3.6% to $30.10 after the media company posted a rise in quarterly earnings and its revenue was higher than expected.

Advance Micro Systems Inc rose 21.8% to $6.48 and was the among the most traded stocks during the regular session on the New York Stock Exchange after it agreed with fellow chipmaker Intel Corp to settle all outstanding legal disputes. Intel will pay AMD $1.25 billion as part of the settlement.

Network equipment maker 3Com Corp gained 31.1% to $7.46 a day after Hewlett-Packard Co said it has agreed to buy the company for $2.7 billion. Hewlett-Packard shed 0.6 percent to $49.70.

Volume was light on the New York Stock Exchange with 1.05 billion shares changing hands, below last year’s estimated daily average of 1.49 billion. On the Nasdaq, about 2.24 billion shares traded, slightly below last year’s daily average of 2.28 billion.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 4 to 1, while on the Nasdaq nearly 10 stocks fell for every three that rose.

Asian markets mostly lower after Wall Street fall

AP — Fri, 13 Nov 2009 05:34:00 GMT

Beijing: Asian markets were mostly lower Friday amid investor uncertainty about the global outlook after Wall Street fell on weak energy demand.

Markets in Tokyo, Shanghai and Seoul declined, while Hong Kong and Taipei traded slightly higher after major US indexes slid by about 1% overnight.

Investors are trying to sort out conflicting signs from last week’s upbeat US growth data, lower oil prices and a weaker dollar, said Andrew Orchard, Asian strategist for Royal Bank of Scotland in Hong Kong.

“We’re in a bit of a holding pattern. We have conflicting forces,” Orchard said.

In Japan, Tokyo’s Nikkei 225 was down fell 32.37 points, or 0.3%, to 9,772.12. China’s benchmark Shanghai Composite Index dropped 1 percent to 3,141.87 while the Shenzhen Composite Index for China’s smaller second exchange lost 0.7% to 1,133.29.

Elsewhere, Seoul’s Kospi was off 0.3% at 1,570.42. Singapore’s market declined 0.4%, while Sydney shed 0.8% to 4,710.3.

Hong Kong’s market was up 0.1% to 22,421.77.

Wall Street was poised to trade sideways Friday, with Dow S&P futures little changed.

On Thursday, a government report showing a jump in US energy inventories caused stocks to slide on concern gasoline demand was falling due to the struggling economy.

The Dow Jones industrial average lost 0.9%, or 93.79 points, to 10,197.47. That was its biggest drop since 30 October and only its second this month.

That overshadowed an unexpectedly strong jobs report by the Labour Department, which said new unemployment claims fell last week to the lowest level since January.

The US government said last week the economy grew at a 3.5% annual rate in the July-September quarter, its strongest performance in two years.

“The surprise on growth in the US should have people a bit more optimistic,” said RBS’s Orchard. “That has been a bit of a surprise.”

Also Thursday, the S&P 500 index fell 11.27, or 1%, to 1,087.24, after two days of gains. The Nasdaq fell 17.88, or 0.8 percent, to 2,149.02.

Oil eased to just above $76 a barrel in Asia, with benchmark crude for December delivery down 15 cents at $76.79 in electronic trading on the New York Mercantile Exchange. The contract tumbled $2.34 to settle at $76.94 on Thursday.

Gold prices slipped 80 cents, or about 0.1 percent, to $1,105.8 an ounce.

The dollar fell to 90.21 yen from 90.36 yen, while the euro gained to $1.4861 from $1.4858.

Asian stocks fall on fear of stimulus withdrawal

Jonathan Burgos and Kotaro Tsunetomi / Bloomberg — Thu, 12 Nov 2009 17:30:00 GMT

Singapore: Asian stocks fell, dragging the MSCI Asia Pacific Index down for the first time in five days, as Chinese Premier Wen Jiabao said the global economy faces a slow and bumpy recovery.

China Mobile Ltd and Industrial and Commercial Bank of China Ltd fell at least 1.5% in Hong Kong. Hisamitsu Pharmaceutical Co. and Tsumura and Co. sank more than 7% in Tokyo as a government committee recommended lowering drug expenses. Rio Tinto Group, the world’s No. 3 mining company, climbed 1.8% in Sydney as metal prices advanced. Honda Motor Co., Japan’s second biggest car maker, rose 1.8% after Goldman Sachs recommended buying the stock.

The MSCI Asia Pacific Index dropped 0.4% to 118.31 as of 7:14pm in Tokyo, with two stocks falling for each one that advanced. The gauge has lost 2.4% from a 13-month high on 20 October amid concern the withdrawal of government stimulus measures will cause the global recovery to falter.

Decoding: A man looks at stock quotes on an electronic screen at a brokerage house in Shanghai, China, on Thursday. Aly Song / Reuters

Concerns about whether the recovery is sustainable or not are weighing on shares, said Hiroshi Morikawa, a senior strategist in Tokyo at MU Investments Co., which manages the equivalent of $14 billion (Rs65,100 crore).

Japan’s Nikkei 225 Stock Average fell 0.7% as the country’s producer prices declined for a tenth month. Australia’s S&P/ASX 200 Index lost 0.2% even as the government reported an unexpected increase in jobs last month. The Kospi index dropped 1.4% in South Korea, where the nation’s central bank left its benchmark interest rate at a record low.

Low borrowing costs?

Changes to MSCI Inc.’s global indexes moved some stocks. Yangzijiang Shipbuilding Holdings Ltd surged 6.1% in Singapore and Greentown China Holdings Ltd gained 6.6% in Hong Kong after they were added. Guangshen Railway Co., which was removed, fell 3.2% in Hong Kong.

Futures on the Standard & Poor’s 500 Index slipped 0.4%. The measure advanced 0.5% to a 13-month high in New York on Wednesday, as China’s industrial production surged and as Federal Reserve policymakers signalled interest rates will remain at a record low.

San Francisco Fed Bank president Janet Yellen raised the prospect of a jobless recovery in a speech in Phoenix, while Dennis Lockhart, who heads the Atlanta Fed, predicted a relatively subdued pace of growth this quarter and beyond.

China will maintain a moderately loose monetary policy and a proactive fiscal stance and continue to fine-tune its 4 trillion yuan ($586 billion) stimulus plan, Wen said in a televised speech. Hong Kong’s Hang Seng index sank 1%, while China’s Shanghai Composite Index dropped 0.1%.

Japanese drug makers

China Mobile, the world’s largest cellphone operator by users, lost 1.5% to HK$74.35. Industrial and Commercial Bank, the nation’s biggest lender, fell 1.6% to HK$6.67.

A gauge of healthcare stocks on the MSCI Asia Pacific Index lost 1.3%, the most of 10 industry groups. Hisamitsu Pharmaceutical, which makes anti-inflammatory plasters, sank 7.4% to 2,860 yen. Tsumura dropped 7% to 2,855 yen. Takeda Pharmaceutical Co., Asia’s largest drug maker, lost 1.4% to 3,520 yen.

The Government Revitalization Unit, tasked with cutting waste from the national budget, said branded-drug prices are too high and should be lowered to the levels of generic medicines to trim medical expenses, according to the minutes of the committee’s meeting on Wednesday.

The MSCI Asia Pacific Index’s rally since March has driven the average price of stocks in the gauge to 22 times estimated profit, compared with 17 times for the S&P 500 and 15 times for the Dow Jones Stoxx 600 Index.

Global revival

The gauge has surged 68% from a more than five-year low on 9 March on signs stimulus policies introduced around the world were starting to revive the global economy. The gauge fell 1.3% last month, the first monthly decline since February, as Australia’s central bank raised interest rates, while India’s shifted policy focus toward stemming inflation.

The Bank of Korea on Thursday maintained its seven-day repurchase rate at a record low of 2% as it sought to strengthen the economy before increasing borrowing costs.

Australia’s unemployment rate rose to 5.8% last month from 5.7% in September, government data released on Thursday showed. Employers added 24,500 workers in October, compared with economists’ expectations for a decline of 10,000. In Sydney, Rio Tinto climbed 1.8% to A$69.84. BHP Billiton Ltd, the world’s biggest mining company, advanced 1.2% to A$39.55. Mitsui and Co., which gets 30% of sales from commodities, rose 1.5% to 1,197 yen in Tokyo.

Record gold prices

Gold added 0.5% in New York to $1,120.60 an ounce today, after earlier reaching a record $1,120.90. It was the ninth day of gains for the precious metal’s futures. The London Metals Index, a measure of six metals including copper and zinc, added 0.2% on Wednesday.

Honda Motor climbed 1.8% to 2,905 yen as Goldman Sachs added the stock to its conviction buy list. The company said on Wednesday it is developing a small car for India, which prefers compact cars.

FamilyMart Co., a Japanese convenience-store operator, rose 1.6% to 2,525 yen. The Nikkei newspaper said the company and its top shareholder, Itochu Corp., plan to purchase Am/pm Japan Co., a competitor, for about 10 billion yen ($111 million).

In Singapore, Yangzijiang Shipbuilding, a China-based shipbuilder, surged 6.1% to S$1.05 after the company was included in MSCI’s indexes. Greentown China, a real estate developer, gained 6.6% to HK$12.36 in Hong Kong. Guangshen Railway lost 3.2% to HK$3.36.

MSCI changes

MSCI is raising the number of Chinese and Brazilian stocks in its global standard indexes following a semi-annual review, reflecting a rally in the world’s two largest developing markets.

Emerging markets’ contribution to global gross domestic product has been increasing substantially in recent years but from an indexes point of view, they still have a very small weighting overall, said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which holds $75 billion in assets. That’s a trend that we’re likely to see over the coming years.

Adjustments in the MSCI indexes may cause shares chosen for inclusion to advance and those slated for deletion to drop as funds mirroring the benchmarks buy and sell stocks in accordance with those changes. The company estimates more than $3 trillion in funds are benchmarked against its indexes globally.

World economy faces bank, bubble risks, says Zoellick

Shamim Adam / Bloomberg — Wed, 11 Nov 2009 16:04:00 GMT

Singapore: The global economy faces risks next year as rising unemployment may hurt banks and asset bubbles in Asia could undermine confidence, World Bank president Robert Zoellick said on Wednesday.

The good news is financial markets have broken the fall and there is a sense of revival in those markets, Zoellick said in a speech in Singapore. “Most expectations are for a relatively slow growth process. I am actually relatively comfortable about the prospects this year but as I look at 2010 we anticipate some risks,” he said.

The recovery won’t be symmetrical around the world, Zoellick said. Governments around the world should follow through with their current stimulus measures even as new stimulus packages may not be necessary, he said at a separate roundtable in Singapore.

Asian nations may still have time before they need to begin tightening policy even as the region, which is expected to grow faster than other parts of the world, may face inflationary pressures, Zoellick said.

The region must be vigilant on asset bubbles, and solutions won’t be easy to determine, he said. Policymakers should consider using other tools before raising interest rates to contain asset price surges, he added.

The global recovery in part has been fuelled by confidence, which may be undermined by asset bubbles, Zoellick said. Banks also face renewed risks as global unemployment rates rise, making it more difficult for consumers to repay loans, he said.

Asia stocks up 4th day; China data supportive

Reuters — Wed, 11 Nov 2009 04:37:00 GMT

Hong Kong: Asian stocks rose for a fourth day on Wednesday as reports showed Chinese factory output jumped to a 19-month high in October, while the ailing US dollar hovered near a 15-month low.

The Australian dollar slid briefly below $0.93 as other data showed new loans from Chinese banks were halved compared with September, leading dealers to take profits just before the currency could retest its October highs.

Nevertheless, other indications of China’s economy were within expectations and gave no sign that the recovery that has led the global economy is petering out.

“China’s recovery has extended into Q4 and this momentum looks set to continue into 2010,” said Brian Jackson, strategist with Royal Bank of Canada in Hong Kong.

“Growth is still heavily reliant on policy stimulus, easy liquidity and government-directed investment, but we expect to see stronger external demand in the months ahead.”

In the near term, further gains in equities may be getting more difficult as the year end approaches and some investors look to take profits from this year’s strong rally. Asian and global stocks had gained about 4% in the last week alone.

US markets also struggled to build on gains overnight, mostly closing slightly lower.

The MSCI index of Asia Pacific stocks outside Japan was up 0.4 % on Wednesday, with the materials and consumer staples sectors outperforming, while Japan’s Nikkei rose 0.2 %.

The Thomson Reuters index of regional shares was down 0.15 %.

Hong Kong’s Hang Seng index rose 1.2 % to within striking distance of its October high.

Shares of HSBC were the top boost to the index, surging 4.7 % after Europe’s top lender said overnight it saw its first improvement in three years in US consumer credit.

In currency markets, the US dollar remained under pressure, though some analysts began to anticipate a corrective move higher as market participants begin to price in the fading effect of stimulus spending around the world.

“The USD correction, when it happens, is likely to be particularly vicious versus the Australian dollar (AUD), New Zealand dollar (NZD), Canadian dollar (CAD), South African rand (ZAR), and Brazilian real (BRL) given market positioning and valuations,” Standard Chartered strategists said in a note.

The ICE Futures US dollar index, a measure of its value against six other major currencies, slipped 0.1 % to its lowest since August 8.

The index is down 7.7 % so far this year.

Oil edged above $79 a barrel, after dipping a day earlier, as signs of robust economic growth in China offset mildly bearish US industry data showing surprise increases in crude and distillate stockpiles.