Overnight Markets- Leading News -Update 1

 

Dutch crisis puts eurozone debt rescue plans at risk

http://www.telegraph.co.uk/finance/financialcrisis/9219903/Dutch-crisis-puts-eurozone-debt-rescue-plans-at-risk.html

Netherlands Leads Rise in Sovereign Credit Risk on Deficit Woes

The Netherlands led an increase in the cost of insuring against default on European sovereign debt to the highest in four weeks as the government offered to resign after lawmakers split over austerity plans.

Credit-default swaps on Dutch bonds jumped 11.5 basis points to 130 at 3:20 p.m. in London, according to data compiled by Bloomberg, the highest in five months. Corporate credit risk also rose as reports showed manufacturing contracted in the euro area and China.

Dutch Prime Minister Mark Rutte offered his cabinet’s resignation after losing support of Geert Wilders’s Freedom Party in his coalition following disagreement over deficit reduction plans. His government’s fall could stifle policy making as euro-region debt rose last year to the highest since the start of the single currency, European Union figures showed.

“There is a danger that we will see a move to more radical, less Europe-friendly policies in the Netherlands,” said Elisabeth Afseth, an analyst at Investec Bank Plc in London. “A change in the Dutch government raises concern as to whether they will get the budget through and whether they lose their triple A rating which is causing the widening at the moment.”

The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments jumped four basis points to 285. An increase signals worsening perceptions of credit quality.

The debt of the 17 euro nations climbed to 87.2 percent of gross domestic product in 2011 from 85.3 percent the previous year, official European Union figures showed. That’s the highest since the euro was introduced in 1999. Greece topped the list with debt at 165.3 percent of GDP, while Estonia had the least at 6 percent of GDP….

http://www.bloomberg.com/news/2012-04-23/sovereign-corporate-bond-risk-rises-credit-default-swaps-show.html

Bubba Continues To be Bubba

Jens Weidmann is no longer his master’s voice.

Almost a year into his new job as the head of Germany’s Bundesbank, Weidmann, 44, has matured from Chancellor Angela Merkel’s discreet right-hand man at global economic meetings into one of the few European policy makers warning that governments are failing to do what’s needed to rescue the euro.

Weidmann’s public criticism of measures such as the “fiscal compact” — hailed by its architects as the first step to economic union — has pitted him against Merkel and European Central Bank President Mario Draghi as they struggle to hold the 17-nation euro region together. With Europe in recession and rising Spanish bond yields threatening to reignite the debt crisis after a three-month lull, the Bundesbank’s youngest-ever president says greater fiscal and monetary rectitude is the only way to win back investors’ trust.

“When he was appointed, the press pounced on him and cried ‘Merkel’s man’ because he had worked for her for a few years,” said Manfred Neumann, the professor of international economics at Bonn University who supervised Weidmann’s 1997 doctoral thesis and says he still talks with his former student. “He has shown that he isn’t.”

Weidmann’s arrival on the 12th floor of the Bundesbank’s landmark building in Frankfurt on May 1, 2011, may have been more of a homecoming than a departure…

http://www.bloomberg.com/news/2012-04-22/bundesbank-s-weidmann-says-what-no-eu-politician-wants-to-hear.html

Italian Worker Confidence Plummets

http://www.bloomberg.com/news/2012-04-23/italy-consumer-confidence-plunges-to-record-low-in-april.html

Dollar Pegging Singapore Inflation rises to 5.2 pc

http://www.bloomberg.com/news/2012-04-23/singapore-inflation-quickens-justifying-central-bank-tightening.html

I drive a Mercedes Chancellor

Fabian Bimmer/Reuters

Prime Minister Wen Jiabao of China and Chancellor Angela Merkel of Germany on Sunday.

By

BRUSSELS — As Prime Minister Wen Jiabao of China tours Europe this week, it is no accident that Germany occupies a special place on his itinerary.

After all, Germany is the one European Union country that has a trade surplus with China. And it has also been a focus of Chinese investment in Europe — so much so that analysts say some Germans are growing wary as Chinese businesses have been snapping up German engineering companies.

Mr. Wen, making his sixth visit in eight years, and the German chancellor, Angela Merkel, on Sunday opened the annual trade fair in Hanover, billed as the world’s leading showcase for industrial technology.

They plan to witness the signing of an economic agreement at the Volkswagen headquarters, in Wolfsburg, on Monday. According to German media reports, the deal will include the opening of a new car plant in the far western Chinese region of Xinjiang.

Mr. Wen’s agenda, as with a follow-up trip planned by his likely successor, Vice Prime Minister Li Keqiang, seems aimed at presenting an aura of business as usual, even as trade tensions flare with the West and the Communist Party at home is embroiled in its biggest scandal in years, involving the deposed Politburo member Bo Xilai.

“We shouldn’t be complacent about the stability of China’s leadership,” said Kerry Brown, head of the Asia program at the Royal Institute of International Affairs in London.

To do business and expand access to markets, “you need more predictability in the system,” he said in an interview. “There’s too much uncertainty at the moment.”

One thing that does seem certain is that neither Mr. Wen nor Mr. Li will be bringing open checkbooks to help shore up Europe’s shakiest economies.

While China has offered moral support and promised to help in global efforts to back the euro zone, Mr. Wen has not made specific promises to invest in a European bailout fund or in bonds from the hardest-hit countries.

Instead, the Chinese seem to be going for German bonds, or bunds, helping to drive Berlin’s borrowing costs to record lows, despite the mounting cost of rescuing its euro zone partners.

“It can be summarized as helping Germany to help the euro zone,” Jonathan Holslag, a researcher at the Brussels Institute of Contemporary China Studies, said in a telephone interview from Washington, where he testified Thursday before the U.S.-China Economic and Security Review Commission.

China’s leaders, Mr. Brown said, “don’t understand the logic of putting hard-earned Chinese money into supporting the social welfare system of Europe.”…

http://www.nytimes.com/2012/04/23/business/global/china-invests-in-germany-amid-uncertainty.html?_r=1&ref=business

China factory activity stabilizing: HSBC Flash PMI

(Reuters) – China’s factories posted their best performance this year as a measure of new business rose from multi-month lows, a private sector purchasing managers survey showed on Monday, though overall activity still contracted for a sixth successive month.

Readings for output and export orders also perked up as the HSBC Flash Purchasing Managers Index (PMI) painted a picture of a stabilizing factory sector and supported the view that China’s growth rate bottomed out in the first quarter of the year.

“The index pointed to a slower pace of deterioration than in March, largely reflecting slower rates of decline of manufacturing production and new orders,” said Markit Economic Research, which publishes the index.

The overall index, the earliest indicator of China’s industrial activity, recovered slightly to 49.1 in April from a final reading of 48.3 in March, but still below the 50 level — signifying contracting economic activity.

It was the strongest flash, or preliminary, readout for four months, and if confirmed would also mark a four-month peak for the final reading.

The HSBC manufacturing PMI index has not been consistently above 50 since June 2011, although it is far above readings in the low-40s struck during the depth of the global financial crisis in late 2008 and early 2009…..

http://www.reuters.com/article/2012/04/23/us-china-economy-pmi-idUSBRE83M02920120423

Sarkozy Promises Le Pen Voters Heaven

(Reuters) – French President Nicolas Sarkozy appealed directly to far right voters on Monday with pledges to get tough on immigration and security, after a record showing in a first round election by the National Front made them potential kingmakers.

Polls show center-right leader Sarkozy on course to become the first French president to lose a bid for re-election in more than 30 years, trailing Socialist challenger Francois Hollande ahead of a May 6 run-off.

Hollande piped Sarkozy in Sunday’s 10-candidate first round by 28.6 percent to 27.2 percent, but National Front leader Marine Le Pen stole the show, surging to 17.9 percent, the biggest tally a far-right candidate has ever managed.

Her performance mirrored advances across the continent by anti-establishment Eurosceptical populists from Amsterdam and Vienna to Helsinki and Athens as the euro zone’s grinding debt crisis deepens anger over government spending cuts and unemployment.

“National Front voters must be respected,” Sarkozy told reporters as he left his campaign headquarters in Paris. “They voiced their view. It was a vote of suffering, a crisis vote. Why insult them? I have heard Mr. Hollande criticizing them.”

The unpopular Sarkozy, the first sitting president to be forced into second place in the first round of a re-election bid, now faces a difficult balancing act to attract both the far-right and centrist voters he needs to stay in office.

The weak showing by Sarkozy spooked investors already nervous about European governments’ ability to service their debts, helping to send French stocks and bonds lower.

Returning to the campaign trail on Monday, Sarkozy hammered home promises to toughen border controls, tighten security on the streets and keep industrial jobs in France – signature issues for Le Pen at a time of anger over immigration, violent crime and unemployment running at a 12-year high.

After five turbulent years leading the world’s fifth economy, Sarkozy could go the way of 10 other euro zone leaders swept from office since the start of the crisis in late 2009.

Hollande has vowed to change the direction of Europe by tempering austerity measures with higher taxes on the rich and more social spending. Polls published on Sunday predicted he would win the run-off with between 53 and 56 percent of votes.

But the strong showing of Le Pen, gravel-voiced 43-year-old daughter of National Front founder Jean-Marie Le Pen, offered Sarkozy a glimmer of hope by suggesting there are more votes up for grabs on the right than had been thought.

“Marine Le Pen’s breakthrough throws the second round wide open,” read the front page of right-leaning Le Figaro, while left-wing Liberation read: “Hollande leads. Le Pen the killjoy”.

HIGH TURNOUT

Hollande blamed Sarkozy for fuelling the rise in the far right and said he would make no attempt to seek National Front votes. “Since some voters supported them out of anger, I will listen to them…but I will not court the far right,” he said.

On a strong turnout of 80.2 percent, more than a third of voters cast ballots for protest candidates outside the mainstream, foreshadowing a possible reshaping of France’s political balance of power at parliamentary elections in June.

Le Pen’s focus is now on securing a strong National Front showing in the parliamentary vote, and she is keeping her distance from Sarkozy, describing him as doomed.

“Faced with an outgoing president who will leave a much weakened party, we are the only true opposition to the neo-liberal left,” she told cheering supporters on Sunday.

She said she would give her view on the runoff at a May Day rally in Paris next week. Leading National Front figures, including Le Pen’s partner and party vice-president Louis Aliot, suggested that she would not formally endorse either candidate.

It is hardly the first time Sarkozy has appealed to National Front voters before a runoff – the tactic him win his first mandate in 2007. Le Pen’s strategy director Florian Philippot said it would not work twice: “The French no longer fall for this electioneering game Sarkozy plays.”

Financial market analysts say whoever wins in two weeks’ time will have to impose tougher austerity measures than either candidate has admitted during the campaign, cutting public spending as well as raising taxes to cut the budget deficit….

http://www.reuters.com/article/2012/04/23/us-france-election-idUSBRE83I0EZ20120423

Draghi’s ECB Rejects Geithner-IMF Push for Measures

European Central Bank officials led by President Mario Draghi resisted calls from the International Monetary Fund and U.S. Treasury to do more to stem the debt crisis roiling the euro-area economy.

As talks of global finance chiefs ended yesterday in Washington, euro-area central bankers from Draghi to Bundesbank President Jens Weidmann argued they have done enough by cutting interest rates and issuing more long-term bank loans.

Budget cuts by governments and surging unemployment are curbing the pace of Europe’s economic recovery as officials across the region battle the sovereign-debt crisis. Manufacturers from Europe to China have been buffeted as the fiscal squeeze has crimped demand.

“Not only does it look highly likely that the euro zone suffered further economic contraction in the first quarter of 2012 after gross domestic product fell 0.3 percent quarter-on- quarter in the fourth quarter of 2011, but the April purchasing managers’ surveys suggest that a third quarter of GDP contraction is firmly on the cards for the second quarter of 2012,” said Howard Archer, an economist at IHS Global Insight in London.

The euro pared losses after the report was released, trading at $1.3151 at 11:32 a.m. in Brussels, down 0.5 percent. The Stoxx Europe 600 Index was down 2 percent to 252.75….

http://www.bloomberg.com/news/2012-04-22/draghi-s-ecb-rejects-geithner-imf-push-for-measures.html

European Services, Manufacturing Shrink for Third Month: Economy

Euro-area services and manufacturing output declined for a third month in April as the economy struggled to rebound from a fourth-quarter contraction.

A euro-area composite index based on a survey of purchasing managers in both industries fell to 47.4, a five-month low, from 49.1 in March, London-based Markit Economics said in an initial estimate today. Economists had forecast an increase to 49.3, according to the median of 17 estimates in a Bloomberg News survey. A reading below 50 indicates contraction.

Budget cuts by governments and surging unemployment are curbing the pace of Europe’s economic recovery as officials across the region battle the sovereign-debt crisis. Manufacturers from Europe to China have been buffeted as the fiscal squeeze has crimped demand.

“Not only does it look highly likely that the euro zone suffered further economic contraction in the first quarter of 2012 after gross domestic product fell 0.3 percent quarter-on- quarter in the fourth quarter of 2011, but the April purchasing managers’ surveys suggest that a third quarter of GDP contraction is firmly on the cards for the second quarter of 2012,” said Howard Archer, an economist at IHS Global Insight in London.

The euro pared losses after the report was released, trading at $1.3151 at 11:32 a.m. in Brussels, down 0.5 percent. The Stoxx Europe 600 Index was down 2 percent to 252.75…

Chinese Manufacturing

A gauge of euro-area manufacturing tumbled to 46 in April, a 34-month low, from 47.7 in March, Markit said. A measure of services dropped to a five-month low of 47.9 from 49.2.

The economy of the 17-nation euro area shrank 0.3 percent in the fourth quarter and the European Central Bank predicts a contraction of 0.1 percent for this year as a whole. Officials are counting on low interest rates, emergency crisis measures and export demand from outside the region to aid the recovery.

In Asia, China’s manufacturing may shrink for a sixth month in April, maintaining pressure on officials to adopt more policies to stimulate economic growth.

The 49.1 preliminary reading of the purchasing managers’ index from Markit and HSBC Holdings Plc today compares with a final 48.3 in March. The contraction, if confirmed in the final reading due May 2, would be the longest since the global financial crisis and may spur the government to lower banks’ reserve requirements a third time since November.

ECB Stimulus

U.S. companies, by contrast, are growing more upbeat about the country’s economy this year and plan to take on more workers as demand improves, a survey showed.

Some 78 percent of businesses, the most in a year, project the world’s largest economy will expand more than 2 percent in 2012, according to the National Association for Business Economics’ April survey released today in Washington. The share is up from 65 percent in the group’s January report.

In response to Europe’s fiscal crisis, the ECB left its benchmark rate at a record low of 1 percent this month and has pumped about 1 trillion euros ($1.3 trillion) into the banking system to secure the supply of credit to households and companies.

Volkswagen AG (VOW), Europe’s largest carmaker, last week predicted a “very demanding” 2012 as the debt crisis threatens economic stability. Still, Chief Executive Officer Martin Winterkorn said he’s “convinced” the company “can approach the coming months with confidence.”

German business and investor confidence has beaten forecasts every month this year, suggesting the strength of Europe’s largest economy may have been underestimated.

Today’s survey “signaled a faster rate of economic contraction in the euro zone during April, extending what appears to be a double-dip recession into a third consecutive quarter,” said Chris Williamson, Markit’s chief economist.

“With price pressures easing,” he said, the report “suggests that policymakers will worry about growth rather than inflation in coming months.”

http://www.bloomberg.com/news/2012-04-23/euro-area-services-manufacturing-contract-more-than-estimated.html

Europe’s Austerity Backlash Gains Steam in Challenge to Merkel

Europe’s backlash against austerity gained momentum, in a challenge to German Chancellor Angela Merkel’s budget-cutting prescriptions for resolving the debt crisis.

French President Nicolas Sarkozy lost the first round of his re-election bid and a revolt against extra spending cuts in the traditionally budget-conscious Netherlands propelled Prime Minister Mark Rutte’s coalition toward an early breakup.

Together with anti-austerity rumblings in a campaign for elections in Greece, the shift in grass-roots sentiment at the heart of Europe generated fresh doubts about the German-driven strategy for getting to grips with the two-year-old crisis.

“We have organized the track of discipline, that’s very good and we have to continue on that, but we need desperately also to organize the second track, the track of growth, solidarity, investment,” former Belgian Prime Minister Guy Verhofstadt, now a member of the European Parliament, said on Bloomberg Television’s “The Pulse.”

The euro fell as bond investors moved money into Germany and out of the Netherlands, Belgium, Spain and Italy amid concern that a consensus over the crisis response is fraying. The yield on Germany’s five-year bond fell to a euro-era low of 0.62 percent while the premium that investors demand to hold Dutch bonds over bunds rose to the highest since 2009.

Political tensions coincided with a report of a greater- than-expected decline in services and factory output in April, equipping opponents of austerity with evidence that budget- cutting zeal may cast the 17-nation euro region into recession…

http://www.bloomberg.com/news/2012-04-23/europe-s-austerity-backlash-gains-steam-in-challenge-to-merkel.html

Euro-Region Debt Rises to Highest in Currency’s History

The debt of the euro region rose last year to the highest since the start of the single currency as governments increased borrowing to plug budget deficits and fund bailouts of fellow nations crippled by the fiscal crisis.

The debt of the 17 euro nations climbed to 87.2 percent of gross domestic product in 2011 from 85.3 percent the previous year, official European Union figures showed today. That’s the highest since the euro was introduced in 1999. Greece topped the list with debt at 165.3 percent of GDP, while Estonia had the least at 6 percent of GDP.

Euro-region nations are on the hook for the bulk of the 386 billion euros ($508 billion) in bailouts for Greece, Ireland and Portugal after those nations were forced to seek rescues when their borrowing costs become unsustainable. Concern that Spain and Italy may follow has led their bonds to decline for six weeks, pushing yields toward the 7 percent level that triggered the other aid programs.

“The different debt trajectories of the euro-area countries crystallize the process of great divergence between the periphery and the core of the euro area and even more markedly between Germany and the rest of the region,” Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London, said by phone…

http://www.bloomberg.com/news/2012-04-23/euro-region-debt-jumps-to-highest-in-history-of-single-currency.html

Hollande-Sarkozy: French presidential election headed to runoff

The French presidential election appears to be headed to a runoff.

Exit polls cited by French television in Sunday’s first round of voting show President Nicolas Sarkozy losing by a thin margin to Socialist challenger Francois Hollande. According to CNN, Sarkozy captured 25.5 percent of the vote, while Hollande took 28.4 percent.

Marine Le Pen, an extreme conservative, came in third with about 20 percent, exit polls showed. Jean-Luc Melenchon, a liberal, was in fourth with 11.7 percent; Francois Bayrou finished fifth.

If no candidate wins an absolute majority, French law requires a runoff between the top two candidates.

The runoff is scheduled for May 6.

“We must bring together the left, and before we bring together the left, we must bring together the Socialists,” Hollande told reporters early Sunday. “It’s a process, and I think that I have the capacity to do it.”..

http://news.yahoo.com/blogs/envoy/hollande-sarkozy-french-presidential-election-headed-runoff-192327554.html

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