Euro Area Industrial Production Falls More Than Expected

“Euro-area industrial output fell more than economists forecast in January, adding to signs that the region’s recession extended into the first quarter.

Factory production in the 17-nation euro zone dropped 0.4 percent from December, when it rose a revised 0.9 percent, the European Union’s statistics office in Luxembourg said today. The median forecast in a Bloomberg News survey of 32 economists was for a 0.1 percent decline. Production fell 1.3 percent in January from a year earlier.

The euro-region economy is struggling to regain momentum after five straight quarters of contraction, with unemployment at a record 11.9 percent. The economy will shrink again in the first three months of 2013 before returning to growth, according to a separate Bloomberg survey, while the European Central Bankhas forecast a 0.5 percent contraction this year.

“The euro zone’s economic recovery is likely to be excruciatingly slow,” Nick Kounis, head of macro research at ABN Amro Bank NV in Amsterdam, said before the data were released. “With growth so weak and inflation likely to continue to fall toward low levels, we think there is room for more stimulus and the ECB should be more proactive.”

Manufacturing Index

Euro-area manufacturing remained weak in February, according to Markit Economics Ltd. Itsmonthly factory index held at 47.9 last month, below the 50 mark that divides contraction from expansion. The gauge has been below that level for more than a year and a half.

“The underlying trend for the European economy is still one of contraction,” Kounis said. “Business surveys which are a little more forward looking are starting to edge toward levels consistent with stabilization, but they are still away from that.”

Industrial output in Germany, Europe’s largest economy, slipped 0.4 percent in January after a 0.8 percent gain in December, today’s report showed. France reported a decline of 1.2 percent, while Spanish output rose 0.6 percent. The statistics office didn’t report data for Italy….”

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“The International Monetary Fund’s No. 2 official urged policy makers to clean up banks and strengthen oversight of their financial systems or risk stalling a recent rally in global markets.

With the world economy still subdued, further repair of banks’ balance sheets is necessary, which may require more capital for some lenders and closure for others, David Lipton, the fund’s first deputy managing director, said in a speech in Washington yesterday. He also called for unwinding of excessive public and private debt.

“If these medium-term challenges are not adequately addressed, the recent rally in global markets may prove unsustainable,” Lipton said, according to his prepared remarks. “And the still fragile confidence in banks and the wider financial system could turn into fear, which could trigger a renewed sense of crisis.”

The MSCI World Index (MXWO) of stocks has risen about 7 percent this year as equity markets in the U.S., Japan and Europe rallied.

Still, the Washington-based IMF earlier this year cut its global growth forecast for 2013. Recently it said it would lower its prediction for the U.S., where $85 billion in federal government spending cuts have started to take effect.

Speaking to members of the Chartered Financial Analyst Society of Washington, Lipton said the global financial system is not yet safe, even if it is in a better shape than five years ago.

‘Enough Holes’….”

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“OPEC’s biggest oil producers are in talks to supply extra crude to India as the nation prepares to halt purchases from Iran because of global sanctions, four people with knowledge of the matter said.

Indian refiners, which are waiting for an order from the oil ministry on whether to stop buying Iranian cargoes, are discussing annual term contracts with Saudi Arabia, Iraq and Kuwait for the year starting April 1, the people said this week, asking not to be identified because the information is confidential. While the volume hasn’t been set, the Indian companies have been told there is enough supply to cover the loss of Iranian crude, the people said.

The assurances reduce the risk of disruptions to oil supplies forAsia’s third-largest economy as it seeks to cut fuel subsidies and narrow its budget deficit. They are also evidence of how global penalties against Iran because of its nuclear program are squeezing the nation’s revenues. At current prices, Iran stands to lose about $11.5 billion in sales annually if India stops buying its oil.

“This shows how pressure on Iran is increasing, and why Iran’s tone is much more conciliatory in recent times,” said Ehsan Ul-Haq, a senior market consultant at KBC Energy Economics in Walton-on-Thames, England. “Iran might be willing to accept a few more conditions now because otherwise it will find it difficult to meet its budget obligations.”

Good Faith…”

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“China should be on “high alert” over inflation after February’s figures exceeded forecasts, central bank Governor Zhou Xiaochuan said, signaling a heightened focus on controlling prices.

Monetary policy is “no longer relaxed” and is “relatively neutral” as demonstrated by a 13 percent target for money-supply growth that’s tighter than expansion in the last two years, Zhou, head of the People’s Bank of China, said at a press conference today during the annual gathering of China’s National People’s Congress.

Zhou’s comments add to signs that officials are tightening policies even as the recovery in the world’s second-biggest economy shows signs of weakness. While the central bank has leftinterest rates and lenders’ reserve requirements unchanged since July last year, the government this month intensified a campaign to control home prices.

“The central bank has always attached great importance to consumer prices,” Zhou said. “Therefore we will use monetary policy and other measures to hopefully stabilize prices and inflation expectations.”

China’s new leaders including Li Keqiang, set to become premier this week, inherit the task of sustaining a recovery from the slowest growth in 13 years while reining in asset prices and credit. February inflation, distorted by the weeklong Lunar New Year holiday, accelerated to a 10-month-high of 3.2 percent.

Tighter Policy…”

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“Shanghai said it’s increasing the frequency of water quality checks after the number of dead pigs found upriver from China’s largest commercial city more than doubled from the previous tally to almost 6,000.

The government pulled 5,916 hogs from the Huangpu River as of 3 p.m. yesterday and said the discovery of new carcasses has slowed, according to a statement on its website. It’s accelerating construction of barriers along parts of the river to prevent more pigs from floating downstream, after preliminary investigations showed the hogs originated from neighboring Zhejiang province.

The discovery of the hogs is the latest safety scare in China, where leaders have come under criticism for the handling of public health and environmental issues. The government announced a plan March 10 for a regulator with broader authority to ensure food and drug safety and said the agriculture ministry will oversee the quality of farm products, underpinning its pledge to crack down on violations and better protect consumers.

“The impact on sentiment is big when you see floating pigs along this river,” Jean-Yves Chow, an analyst at Rabobank International, said in an interview in Hong Kong. “It’s come to a situation where the government has to do what they need to make some improvements and create transparency among farmers.”

Shanghai Bund

The Shanghai government said March 10 it’s investigating why so many dead pigs were found in the river. People in the Zhejiang city of Jiaxing have been dumping pigs in the river since March 4, the official Xinhua News Agency said, citing the Shanghai information office. Xinhua said authorities in Jiaxing acknowledged dead pigs had been dumped into the water…..”

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“Chinese stocks fell, dragging the benchmark index to a two-month low, as real estate and construction companies tumbled on concern policy makers will step up property curbs.

Sina.com reported the southern city of Shenzhen banned developers from raising home prices, citing discussions with property companies. Poly Real Estate Group Co. and Gemdale Corp. declined more than 3 percent. Sany Heavy Industry Co. (600031), the nation’s biggest maker of construction machinery, lost 2.1 percent. CSR Corp. (601766) and China CNR Corp., the nation’s top train makers, slumped at least 3.7 percent on concern the dismantling of the rail ministry will curb state spending.

“Property curbs and the central bank’s possible attitude towards tightening liquidity make investors nervous,” said Wang Weijun, a strategist at Zheshang Securities Co. inShanghai. “There’s concern the economic recovery will falter.”

The Shanghai Composite Index (SHCOMP) dropped 1 percent to 2,263.97 at the close, capping a five-day, 3.6 percent losing streak that’s the longest in four months. The gauge also erased its gain for the year. The CSI 300 Index declined 1.1 percent to 2,527.49. The Hang Seng China Enterprises Index (HSCEI)retreated 2.2 percent in Hong Kong, taking its loss from a Feb. 1 high to 9.6 percent. The Bloomberg China-US 55 Index (CH55BN) fell 1.7 percent in New York yesterday.

The Shanghai Composite Index has lost 7 percent since this year’s high on Feb. 6 amid concern the government will tighten monetary policy at the same time as economic expansion slows. Data over the weekend showed inflation accelerated in February, while industrial output had the weakest start to a year since 2009 and lending and retail sales growth slowed.

Zhou Comments…”

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“Credit markets are in uncharted territory as the global recovery is threatened by a mismatch between companies hoarding cash and record government debt, said Australia’s top-ranked bond manager.

“It’s pretty clear that the credit cycle is still broken,” Jeff Brunton, head of credit at AMP Capital Investors, said in an interview in Sydney this week. “I’ve been doing this for 20-odd years and it just feels very, very different to a normal cycle.”

Global growth may be a below-average 2.4 percent this year, forecasts compiled by Bloomberg show, even as central banks pour unprecedented sums of cash into the financial system. While AMP expects the rally that’s taken corporate borrowing costs to a five-year low to hold, it’s also buying derivatives to protect against risk aversion as policy makers grapple with a European backlash against austerity, Brunton said.

The AMP Capital Corporate Bond (AMPACBD) fund has delivered the best return among Australian fixed-income peers over the decade to Jan. 31, offering an average annual gain of 7.2 percent, according to Morningstar Inc. rankings. Over the same period, investors in Aussie corporate notes earned an annualized 7 percent, a better performance than any other developed market tracked by Bank of America Merrill Lynch indexes.

While more corporate borrowers are increasing profits, governments in the developed world remain mired in debt. Officials from Madrid to Washington and London are faced with the dilemma of trying to improve stagnant economies while combating deteriorating finances with austerity measures.

‘Rocky Path’ …”

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“China’s new leaders may further loosen interest-rate controls this year while allowing limited changes to one-child and household-registration policies that threaten to restrain growth, a survey of analysts shows.

Twelve of 16 analysts expect China to relax or remove the cap on deposit rates or the floor on lending rates, according to a Bloomberg News survey conducted ahead of Xi Jinping’s appointment as president tomorrow. A majority sees at least minor changes to the birth and registration policies.

Reduced restrictions on banks competing for deposits may boost returns to China’s savers, aiding efforts to switch the economy’s engine of growth to consumer spending from exports and investment. Xi and incoming Premier Li Keqiangmay be more cautious on changes to the one-child policy and the so-called hukou system, which denies education and social welfare benefits to millions of migrant workers in cities.

“Financial-market reforms should continue because there aren’t so many political or technical stumbling blocks,” saidLouis Kuijs, chief China economist at Royal Bank of Scotland Plc in Hong Kong and a former World Bank researcher. Hukou changes are “more complicated” and the one-child policy is so entrenched in Communist Party thinking that “it’s not so easy” to leave behind, he said.

China’s leaders, set to complete a once-a-decade handover of power at the meeting of the National People’s Congress in Beijing that ends March 17, are trying to support a rebound in growth from a 13-year-low without spurring excessive inflationor risks in the financial system.

Flexible Rates…”

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While the Yen and commodities strengthen, global equities continue a second day of downside. Equity investors were nervous that Asia has rallied to fast too soon. In Japan investors were worried that some of Samurai Abe’s dovish electives  might not get approval.

In Europe industrial production fell 0.1%; more importantly Europe waits to see what will come of Italy’s long term  bond auction given the recent sovereign debt rating downgrade.

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World Markets

Currencies

Commodities

USD Libor

Euribor

Yields for Italy, Spain, France,  and Germany …

“Kyle Bass, addressing Chicago Booth’s Initiative on Global Markets last week, clarified his thesis on Japan in great detail, but it was the Q&A that has roused great concern. “The AIG of the world is back – I have 27 year old kids selling me one-year jump risk on Japan for less than 1bp – $5bn at a time… and it is happening in size.” As he explains, the regulatory capital hit for the bank is zero (hence as great a return on capital as one can imagine) and “if the bell tolls at the end of the year, the 27-year-old kid gets a bonus… and if he blows the bank to smithereens, ugh, he got a paycheck all year.” Critically, the bank that he bought the ‘cheap options’ from recently called to ask if he would close the position –“that happened to me before,” he warns, “in 2007 right before mortgages cracked.” His single best investment idea for the next ten years is, “Sell JPY, Buy Gold, and go to sleep,” as he warns of the current situation in markets, “we are right back there! The brevity of financial memory is about two years.”

Click the image below for the full presentation (unembeddable)….”

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“The U.S. Department of Agriculture is considering buying 400,000 tons of sugar—enough for 142 billion Hershey‘s HSY +0.08% Kisses—to stave off a wave of defaults by sugar processors that borrowed $862 million under a government price-support program.

The action aims to prop up tumbling U.S. sugar prices, which have fallen 18% since the USDA made the nine-month operations-financing loans beginning in October. The purchases could leave the price-support program with an $80 million loss, its biggest in 13 years, said Barbara Fecso, an economist at the USDA, in an interview.

The move would benefit companies that turn sugar beets and sugar cane into granulated sweetener, a business plied by American Crystal Sugar Co., Amalgamated Sugar Co. and U.S. Sugar Corp. The USDA wouldn’t say how many companies have received loans, or identify them. U.S. Sugar said it doesn’t have any USDA loans outstanding. American Crystal and Amalgamated didn’t respond to requests for comment.

Higher prices would hit food companies including candy giants Mars Inc., Hershey Co. and Nestlé SA, NESN.VX +0.67% and could ultimately boost retail food prices, at a time when many consumers are financially stretched….”

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“The National Consumers League wants the Federal Trade Commission to open an investigation on Herbalife.

“Herbalife’s business practices have recently come under intense investor scrutiny, and NCL is now calling on federal regulators to examine both the claims lodged against Herbalife and Herbalife’s responses,” wrote the NCL in a press release.

The recent scrutiny was triggered by Bill Ackman and his hedge fund Pershing Square Capital.

Ackman has accused Herbalife of being an illegal pyramid scheme, and he’s convinced the stock will go to $0.

Pershing Square was quick to file its response, which Business Insider has obtained.

Pershing Square Capital Management, L.P. Issues Statement Regarding National Consumers League’s Call for FTC Investigation into Herbalife….”

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“Both the stock market rally and economic recovery are missing what historically has been a key element – a house call from “Dr. Copper.”

The industrial metal has earned its nickname for being a reliable barometer on growth and, in turn, a sign to investors that it’s safe to buy the types of industrial stocks normally associated with a robust market.

But copper has dipped 5 percent just in the past month and is down 10 percent over the year, suggesting that either the market rally and hopes for future growth may be too high, or that the “doctor” may be guilty of malpractice.

“You want to have confirmation, particularly on a macro scale, for (gross domestic product) globally,” said Quincy Krosby, chief market strategist at Prudential Annuities. “Very often you’ll see the industrial metals start to move before money goes into the industrial sectors and subsectors.”

Industrial stocks, though, are on fine footing, as is the broader market, despite copper’s weakness….”

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“Republicans on Tuesday debuted their full 2014 budget, an ambitious proposal that would seek to balance the budget within a decade, but which is also almost certain to never become law.

Rep. Paul Ryan, R-Wis., the Republican budget chief and 2012 vice presidential nominee, called his third budget an “invitation” to President Barack Obama and Senate Democrats to begin bargaining toward a deal to balance the budget.

“This is not only a responsible, reasonable, balanced plan,” Ryan said, “it’s also an invitation. This is an invitation to the president of the United States, to the Senate Democrats to come together to fix these problems.”

But just as Obama has made new overtures to Ryan and other Capitol Hill Republicans in hopes of breaking the fiscal logjam in Congress, Ryan produced a new budget that offers up few concessions to Democrats, and doubles down upon many of the policies on which Republicans campaigned during last fall’s election….”

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“The Dow Jones Industrial Average is at an all-time high, the jobless rate has fallen to a four-year low and the housing market is seeing a recovery. But for many lower income and middle class Americans, the improving economy has yet to take hold.

Instead, they are anxious enough about higher gasoline prices and a payroll tax increase to slash their spending.

An online poll of 1,538 people conducted March 4-8 by Reuters/Ipsos found that two-thirds of adults say they are cutting their monthly spending and almost all of the rest say their spending is little changed.

The biggest reason given by those who said they are cutting spending—72 percent of those polled—was increasing savings and paying off debts. The second biggest was higher gas prices, cited by 63 percent.

Of those cutting back specifically because of gas prices or tax increases, 81 percent said they are cutting down on meals at restaurants, 73 percent are reducing entertainment costs such as movies and concerts and 62 percent are spending less on travel and vacations.

At the same time, affluent consumers are showing signs of increased confidence, according to at least one recent survey. This bifurcation may play into concerns about income inequality and could add to pressure on President Barack Obamaand Democrat lawmakers in Congress to resist any budget deficit cutting deal that reduces spending on the social safety net and doesn’t include further taxes on the wealthy….”

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“CANBERRA (Reuters) – BHP Billiton Ltd said it was co-operating in an investigation into possible violations of anti-corruption laws, and said in response to media reports that it believed its sponsorship of the 2008 Beijing Olympics had complied with all applicable laws.

The Australian Financial Review said on Wednesday that allegations BHP provided inducements,hospitality and gifts to Chinese and other foreign officials were the subject of an investigation by theU.S. Department of Justice and the Australian Federal Police (AFP).

The U.S. Justice Department told the AFR, in response to a freedom of information request, it was conducting “law enforcement proceedings” involving BHP, which supplied materials for the gold, silver and bronze medals used in Beijing….”

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“SEATTLE (Reuters) – Boeing Co got approval from U.S. transport regulators on Tuesday to start testing a redesigned battery for the 787 Dreamliner, putting it one step closer to getting the troubled airplane back into regular service.

Also on Tuesday, sources told Reuters the planemaker was close to signing a $15 billion deal to sell about 170 single-aisle 737 planes to budget Irish carrier Ryanair.

Boeing’s shares closed up 1.5 percent, hitting an almost five-year high, and extended gains in after-hours trade.

Late on Tuesday, the U.S. Federal Aviation Administration said it approved Boeing’s battery certification plan and will permit two aircraft limited flights to test the new design.

Regulators grounded the 50 Dreamliners in use by airlines on January 16 after lithium-ion batteries burned aboard two planes, banning airlines from flying the 787 and stopping Boeing from delivering them. Although its factories continue to make the 787, Boeing is losing an estimated $50 million a week while the planes are grounded.

“We won’t allow the plane to return to service unless we’re satisfied that the new design ensures the safety of the aircraft and its passengers,” U.S. Transportation Secretary Ray LaHood said in a statement.

Boeing’s new battery – which it presented to the FAA in late February – is designed to minimize the chances of a short circuit, insulates the cells within the battery better and adds a new containment and venting system to prevent damage even if the battery catches fire…..”

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