Euro Strengthens, Stocks Rise as Trichet Says No Greek Default
By Clyde Russell and Hanny Wan
April 9 (Bloomberg) -- The euro strengthened for a second day against the yen, stocks rose and prices to insure against corporate defaults in Asia fell after European Central Bank President Jean-Claude Trichet said Greece will be able to pay its debt. Greek bonds rose for the first time in two weeks.
The yen weakened against all 16 of its major counterparts, falling to 125.36 per euro at 5:12 p.m. in Tokyo from 124.75 in New York yesterday. The cost of protecting Japanese corporate bonds dropped by the most since April 5. The MSCI Asia Pacific Index rose 0.3 percent to 127.94 and the Stoxx Europe 600 increased 1 percent to 268.88 at 9:12 a.m. in London. Futures for the Standard & Poor’s 500 Index rose 0.2 percent.
Trichet said yesterday that “a default is not an issue for Greece,” calming investors who had driven credit-default swaps on Greece’s government debt to a record. Investors are seeking higher-yielding assets with emerging market stock funds taking in the most money in six months during the week ended April 7, according to EPFR Global.
“The momentum is in place,” said Danny Yan, a portfolio manager at Taifook Asset Management Ltd. in Hong Kong, which oversees $400 million. “Valuations aren’t demanding. I’m reducing cash and deploying it.”
Telecom companies and commodity producers were the biggest gainers on the MSCI Asia Pacific Index. The measure has climbed 12 percent from its 2010 low on Feb. 8 amid mounting confidence in the global economic recovery. South Korea’s Kospi index sank 0.5 percent, the first drop in seven days, while Hong Kong’s Hang Seng advanced 1.6 percent.
Macarthur Rejects Bid
Macarthur Coal Ltd., already a target of takeover offers from Peabody Energy Corp. and Noble Group Ltd., rose 8.3 percent to A$15.55 after receiving and then rejecting a A$3.71 billion ($3.4 billion) takeover offer from New Hope Corp. New Hope bid 2.7 of its shares for every 1 of Macarthur’s, valuing the company at A$14.58 per share.
Chinese demand for both coking and thermal coal is driving prices higher, with spot prices for power-station coal at Newcastle Port rising 53 percent over the past year.
Crude oil rose for the first time in three days, gaining 1 percent to $86.23 a barrel in New York, as concerns over a Greek default subsided and better-than-estimated retail sales in the U.S. bolstered optimism of a global economic recovery and increased fuel demand. Copper for three-month delivery on the London Metal Exchange increased 0.9 percent to $7,965 a ton.
Emerging Markets
Emerging-market equity funds attracted the most net inflows in six months amid a strengthening global economic recovery, EPFR Global said. Funds investing in emerging-market stocks drew a combined $3.27 billion in the week ended April 7, the most since the third week of October and taking net inflows for the year to $10.8 billion, according to Cambridge Massachusetts- based EPFR. The MSCI Emerging Markets Index rose 0.7 percent, gaining for the 10th day in 11 after posting its first drop in two weeks yesterday.
“We are watchful of inflation and we do recognize that there are some issues there,” Michael Dommermuth, head of Asia investments at MFC Global Investment Management, said in a Bloomberg Television interview today. “Long term, we’re very bullish on the market.”
STX Pan Ocean Co., South Korea’s biggest bulk carrier, fell 1.2 percent, declining for a sixth day, and Korea Line Corp., the second-biggest, lost 3.7 percent to a two-week low. The Baltic Dry Index, a measure of shipping costs for commodities, posted a fourth straight decline.
Won Nears High
South Korea’s won climbed 0.5 percent to 1,118.15 per dollar, approaching its highest level in 18 months, on signs investor demand for emerging-market assets is strengthening. Mounting speculation China, the biggest buyer of Korean exports, will let its currency gain is also supporting the won. U.S. Treasury Secretary Timothy F. Geithner met in Beijing yesterday with Chinese Vice Premier Wang Qishan amid rising pressure from American lawmakers for the yuan to be allowed to appreciate.
“One of the main reasons why we’re seeing the strength in the Korean won is because of capital inflows,” said Sam Hong, a currency dealer with Shinhan Bank in Seoul. “There’s also the possibility that the yuan will appreciate.”
Twelve-month non-deliverable yuan forwards strengthened 0.4 percent this week to 6.6223 per dollar, reflecting bets the currency will strengthen 3.1 percent in one year’s time, according to data compiled by Bloomberg. They were little changed today.
Euro Holds Gains
The euro held onto yesterday’s gain versus the greenback on speculation the ECB’s Trichet will reiterate that Greece can avoid default. He is scheduled to speak today and tomorrow at conferences in Italy.
Greek 10-year government bonds rose, reversing declines, sending the yield down 9 basis points to 7.28 percent in London.
Greece’s first-quarter budget deficit fell 40 percent to 4.3 billion euros ($5.7 billion) from 7.1 billion euros in the same period a year earlier, Finance Minister George Papaconstantinou said in an e-mailed statement yesterday.
“The comments from Trichet were quite supportive and we could see a bounce, but the underlying concerns will remain,” said Derek Mumford, a Sydney-based senior consultant at HiFX, a foreign-exchange risk management firm. “There are more problems down the line which will keep interest rates low and pressure the euro.”
Indicators of corporate credit risk also fell 2 basis points in Asia and Australia, according to prices from Morgan Stanley and CMA DataVision in New York. Investors use the default-swap indexes to hedge against losses on corporate debt or speculate on creditworthiness, and the swaps typically fall as investor confidence increases.
The Markit iTraxx Japan index declined 5 basis points to 94 basis points. The Markit iTraxx Australia index fell to 84.5 basis points, according to Westpac Banking Corp., while the Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan declined to 96 basis points, Royal Bank of Scotland Group Plc prices show. A basis point is 0.01 percentage point.
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