Saving Euro Produced Sarkozy Rage as Merkel Bent Banks in Six-Day Marathon

The guardians of the euro arrived in Brussels last week knowing their efforts to quell the Greek debt crisis over the past two years had failed to build confidence.

Europe’s image is “disastrous,” Luxembourg Prime Minister Jean-Claude Juncker, who chairs the group of euro finance chiefs, said Oct. 21 as the six-day meeting marathon began.

By the time everyone headed home in the wee hours yesterday, Europe had its revamped plan to prevent a Greek default, safeguard banks and shield Italy from the contagion. In the meantime, tempers flared, threats were made and French President Nicolas Sarkozy’s simmering resentments toward his British and Italian counterparts boiled over.

“We have found a durable solution to the Greece crisis,” said Sarkozy at about 3:55 a.m. yesterday, hustling to the podium to hold the first post-summit press conference.

Even so, the timeline was defined by Germany, where lawmakers demanded the right to ratify the crisis plan, requiring both an Oct. 23 meeting and the gathering that started on Oct. 26.

German Chancellor Angela Merkel, shuttling between lawmakers in Berlin, conference rooms and her hotel in the cobblestoned center of Brussels, set the tone while en route. After receiving a flower bouquet from the women’s caucus of her Christian Democratic party in Wiesbaden, Germany on Oct. 22, she delivered a speech singling out Italy for its debt load, saying investors weren’t wrong to demand higher yields on debt from Prime Minister Silvio Berlusconi’s government.

Garden Party

That evening, she and Berlusconi huddled at a botanic garden outside Brussels, where she pressed the message that he had to do more to cut the EU’s second-highest debt after Greece.

Later that night, Merkel joined Sarkozy for a sitdown with European Central Bank President Jean-Claude Trichet, EU President Herman Van Rompuy, European Commission President Jose Barroso and EU Economic and Monetary Affairs Commissioner Olli Rehn. International Monetary Fund Managing Director Christine Lagarde was also there.

When it was over, Merkel sipped wine with aides including Deputy Finance Minister Joerg Asmussen, one of the negotiators on the Greek debt writedown, and spokesman Steffen Seibert in the bar of the Amigo Hotel past 1 a.m. Xavier Musca, Sarkozy’s chief economic adviser, stopped for a chat without sitting down.

Sunday Jog

Sarkozy began the next day with a run at 8 a.m. in the city’s Royal Park, texting on his cell phone as he jogged with four bodyguards in tow on the crisp fall Sunday.

French-German togetherness followed as Merkel gave Sarkozy a brown teddy bear by German stuffed-toy maker Margarete Steiff GmbH for Giulia, his newborn daughter. News photos showed Sarkozy talking on his cell phone while unwrapping the gift.
Berlusconi, faced with pressure from investors for budget cuts and from France to remove Lorenzo Bini Smaghi from the executive board of the ECB, wasn’t feeling much love.

The Italian premier, though, had previously declined to name Bini Smaghi to replace Italian Mario Draghi as head of the Bank of Italy.
“What should I do, should I kill him?” Berlusconi said he told Sarkozy when pressed about Bini Smaghi, whom France wants to replace with one of its own on the ECB board. Bini Smaghi must understand he can’t be a “cause of war” with France and will quit by the end of the year, Berlusconi said.

Smiling Leaders

By 5 p.m., Merkel and Sarkozy were having a laugh at Berlusconi’s expense at a Franco-German news conference. Asked by reporters whether the Italian leader reassured them, Sarkozy smiled and looked at Merkel, who broke into a grin. It was a talk “among friends” and she expected Berlusconi to deliver, Merkel said.
The incident was splashed across the front pages of Italian newspapers, with many running color photos of the French and German leaders smirking. The papers’ websites carried links of the video, which was played throughout the day on most of the country’s news programs.

Berlusconi said Merkel had apologized for the laughter at the press conference. Merkel spokesman Seibert denied the contrition and in a Twitter post said there was “no apology from the Chancellor because there was nothing to apologize for.”
Inside the meetings, British Prime Minister David Cameron felt Sarkozy’s wrath after pressing euro-area leaders to finally swat away the crisis. Sarkozy, his voice rising, replied that if the U.K. wanted to be involved it should have joined the euro, said two people familiar with the encounter over lunch.

Rising Anger

As policy makers left the building named after 16th-century Flemish philosopher Justus Lipsius with most of their business unfinished, they knew they were coming back on Oct. 26. The reason: Merkel needed lawmakers to approve options agreed to by the 17 euro-area leaders for boosting the effectiveness of the region’s rescue fund. It was part of the new master plan to avoid a Greek default, fortify banks and stop the crisis from engulfing Italy.

Hemmed in by Germany’s constitutional court and with voters fed up with bailouts for weaker euro countries, Merkel has made her concern for domestic sentiment a hallmark of Europe’s crisis response.

With the U.S. and other global partners pressing Europe to contain the debt crisis, Merkel lined up cross-party support for boosting the firepower of the European Financial Stability Facility after persuading the main opposition Social Democrats and Greens to back a motion that caps German guarantees.

“The world is watching Europe and Germany,” she said before lawmakers backed the plan.

Longest Day

Heading back to Brussels on Oct. 26, Seibert posted on Twitter, “it’s going to be a long day.”

He was right.

With the outlines of a deal set, Europe’s leaders summoned bankers at midnight to nail it down. Gathered in Van Rompuy’s office, the bankers, represented by Charles Dallara, managing director of the Institute of International Finance, were given the ultimatum: Take the package that involved a 50 percent writedown of Greek debt or face worse consequences.

The politicians had their answer two hours later.
“It was the fiercely delivered wish by Merkel, Sarkozy, Juncker, that if a voluntary agreement with the banks was not possible, we wouldn’t resist one second to move toward a scenario of the total insolvency of Greece,” Juncker told reporters. That “would have cost states a lot of money and would have ruined the banks.”

When markets in Europe and the U.S. opened a few hours later, leaders got the endorsement they were struggling for, with stocks and the euro soaring.
“We Europeans showed tonight that we reached the right conclusions,” Merkel said.(Bloomberg)

China Central Bank Staffer Jailed for Six Years for Leaking Economic Data

China sentenced two officials to jail for leaking secret economic data, state prosecutors said, as the government aims to crack down on selective disclosure in the world’s third-biggest market for equities.

Wu Chaoming, a researcher with the Finance Institute at the People’s Bank of China, was sentenced to six years in jail for intentionally revealing secret data to the securities industry, Li Zhongcheng, a state prosecutor, said in a statement. Sun Zhen, a former secretary to a deputy director in the National Bureau of Statistics, was sentenced to five years in jail for disclosing state secrets.

Indictments have also been filed in the cases of four suspects employed in the securities industry, according to Li. The government is seeking to reduce leaks of economic data such as inflation and gross domestic product figures that have given an unfair edge to some in the securities industry.

“The improvement is evident,” said Lu Ting, a Hong Kong- based economist at Bank of America Corp. unit Merrill Lynch. “It’s been very different in the past few months. There has been no leak. What circulated in the market turned out to be nothing more than rumor.”

Between June 2009 and January 2011, Sun violated provisions of the law on Guarding State Secrets by leaking 27 items of classified statistical data to employees of the securities industry, Li said. Wu leaked 25 items of classified statistical data 224 times to 15 people in the securities industry, Li said.

“There are still weak links that need to be strengthened” in terms of restricting how widely data is distributed and designating levels of secrecy, said Du Yongsheng, spokesman for the National Administration for Protection of State Secrets.

The severity of the sentence is a surprise, said Frances Cheung, a Hong Kong-based strategist at the Credit Agricole CIB.(Bloomberg)

Oil Declines a Second Day After China’s Economy Grows Slowest in Two Years

Oil dropped for a second day in New York after China said its economy grew at the slowest pace in two years and U.S. crude stockpiles were forecast to increase.

Futures fell as much as 0.5 percent, extending yesterday’s 0.5 percent decline, after China’s statistics bureau said the economy grew at 9.1 percent in the third quarter, less than forecast. An Energy Department report tomorrow may show U.S. crude stockpiles climbed for a second week, according to a Bloomberg News survey.
Crude for November delivery slid as much as 40 cents to $85.98 a barrel and was at $86.03 in electronic trading on the New York Mercantile Exchange at 1:36 p.m. Sydney time. The contract yesterday decreased 42 cents to $86.38, the lowest close since Oct. 13. Prices are down 5.9 percent this year.

Brent oil for December settlement dropped 32 cents, or 0.3 percent, to $109.84 a barrel on the London-based ICE Futures Europe exchange. The contract yesterday fell $2.07, or 1.8 percent, to $110.16.

Crude stockpiles probably rose by 2 million barrels last week, according to the median of nine analyst estimates in a Bloomberg News survey before the weekly Energy Department report tomorrow. All the respondents forecast and increase.

Fuel Supplies

Gasoline inventories probably declined 1 million barrels last week, according to the survey. Stockpiles of distillates, a category that includes heating oil and diesel, likely fell 1.5 million barrels, the survey shows.

Libya’s Ras Lanuf oil refinery, the country’s largest, will be ready to start operations next month after being shut in March amid fighting between forces loyal to Muammar Qaddafi and rebels seeking his ouster, acting Chief Executive Officer Abdo A. Ahmed said yesterday. The plant can process 220,000 barrels of crude a day.

Fighting in Libya reduced the availability of light, sweet crude, or oil with low density and sulfur content. The country’s output fell to 45,000 barrels a day in August, according to Bloomberg estimates. The North African nation pumped 100,000 barrels a day last month.

China’s gross domestic product increased less than the median estimate of 9.3 percent in a Bloomberg News survey of 22 economists. The country’s is the second biggest crude-consuming nation behind the U.S.(Bloomberg)

China Economy Grows at Slowest Pace in 2 Years

China’s economy grew 9.1 percent in the third quarter from a year earlier, the slowest pace since 2009, adding to concern that the global recovery is fading as Europe’s debt crisis deepens.

The gain was less than the median estimate of 9.3 percent in a Bloomberg News survey of 22 economists and follows a 9.5 percent increase in the previous three months. The statistics bureau released the data in Beijing today.

Asian stocks extended declines after China’s growth was limited by tighter credit and weaker demand from Europe, where German Chancellor Angela Merkel’s office said it saw no immediate fix for the crisis. Today’s data underlined the challenge facing Chinese Premier Wen Jiabao as he tries to slow inflation of more than 6 percent, with industrial production and retail-sales growth accelerating.
“This is not a bad number, and the markets are over- reacting a bit,” said Yao Wei, a Hong Kong-based economist at Societe Generale SA, who correctly forecast the size of the expansion. While today’s data is unlikely to trigger any “sudden change” in monetary policy, “looking ahead, the direction is easing,” she said.
The Shanghai Composite Index fell 1.2 percent as of 10:56 a.m. local time. The MSCI Asia Pacific Index sank 2 percent. The yuan weakened 0.1 percent to 6.3782 per dollar.

Investment Expands

Industrial production increased 13.8 percent in September from a year earlier, the statistics bureau said. That compared with the 13.4 percent median estimate in a Bloomberg survey and a gain of 13.5 percent the previous month.

Fixed-asset investment excluding rural households climbed 24.9 percent in the first nine months, compared with the 24.8 percent estimated by economists and a 25 percent gain through August. Retail sales expanded 17.7 percent after a 17 percent increase in August.

Companies including BASF SE, the world’s largest chemicals company, are expanding in China as higher wages and consumption boost demand. The German company and China Petroleum & Chemical Corp (600028) this month completed an expansion of an ethylene plant in the eastern city of Nanjing.

China’s economy grew 2.3 percent in the third quarter from the previous three months, seasonally adjusted, the statistics bureau said today. That compared with a revised 2.4 percent gain for the second quarter.

Asian ‘Balancing Act’

Asian policy makers face a “delicate balancing act” with inflation remaining elevated while Europe’s crisis threatens growth, the International Monetary Fund said last week.

China has raised interest rates five times over the past year, curbed lending and imposed limits on home purchases to rein in property and consumer prices. Home prices gained in fewer than half of the 70 Chinese cities monitored by the government in September from the previous month as sales eased following harsher policies to curb the risks of asset bubbles, statistics bureau data showed today.
While inflation held above 6 percent for a fourth month in September, Deutsche Bank AG economist Ma Jun forecasts the rate will drop to 4 percent in December and Morgan Stanley analysts estimate a decline to below 4 percent by the end of the year.

China’s money supply expanded at the slowest pace in almost a decade last month and new yuan lending was the smallest since December 2009, central bank data last week showed.

Small Companies 

 

A credit crunch in some parts of China prompted the State Council to unveil tax breaks and financial support for small businesses. The announcement followed a visit by Wen to Wenzhou city in eastern Zhejiang province amid reports of surging bankruptcies among private companies unable to repay debt to so- called underground lenders.

A property slump and slowing export growth are among the biggest risks to China’s growth, according to economists at UBS AG, Nomura Holdings Inc. (8604) and Societe Generale.

Home transactions fell an average 32 percent in 20 major cities over the week-long public holiday earlier this month, according to Soufun Holdings Ltd. (SFUN), and some banks are increasing interest rates on mortgages. Central bank data show new property loans fell 43 percent in the first half of the year to 791 billion yuan.
A drop in land prices in cities including Beijing and Guangzhou and falling land sales presage a slowdown in property investment, according to Nomura’s Hong Kong-based economist Zhang Zhiwei. Vincent Lo, chairman of Shanghai-based Shui On Land Ltd. (272), said last month one bank withdrew loan approvals for his company and other developers.

“The biggest risk now is whether the property market cools abruptly in the fourth quarter,” said Societe Generale’s Yao. “If it does, it may trigger policy loosening.”

Main Danger

UBS’s China economist Wang Tao sees a “global downturn or recession” as the main danger facing the world’s largest exporter in the next 12 months. GDP growth may drop to as low as 7.7 percent in the first quarter of 2012 as “a sharp deceleration” in foreign demand adds to weaker domestic production, according to Wang.

Overseas sales rose less than expected in September as shipment growth to Europe halved and the customs bureau warned of “severe challenges” as the global outlook dims.

That may weigh on China’s currency, which gained 18 percent against the dollar in the past four years, the most among 25 emerging-market currencies. Premier Wen pledged to maintain a “basically stable” exchange rate to protect exporters, the Xinhua news agency reported Oct. 15, citing remarks he made in the southern city of Guangzhou.

China’s economy expanded 10.4 percent last year. Growth will slow to 9.5 percent this year, six times the pace of the U.S. and euro area, according to International Monetary Fund estimates released last month. Expansion of 9 percent in 2012 will be eight times as fast as the group of 17 nations that share the European currency, it forecasts.(Bloomberg)

China Inflation Rises 6.1%, Matches Forecasts

China’s inflation exceeded 6 percent for a fourth month as officials across Asia struggle to cool prices even as growth slows.

Consumer prices increased 6.1 percent in September from a year earlier, the National Bureau of Statistics said today. That matched the median forecast in a Bloomberg News survey of 22 economists and followed a 6.2 percent gain in August.
Elevated inflation is limiting Premier Wen Jiabao’s room for easing monetary policy as Europe’s debt crisis cuts demand for exports and small businesses in China report a credit squeeze. Food costs drove price gains, with pork jumping 44 percent from a year earlier, while non-food and producer prices increased at a slower pace than in the previous month.

“It is too early to call a victory over inflation,” said Liu Li-Gang, a Hong Kong-based economist with Australia & New Zealand Banking Group Ltd., who previously worked for the World Bank. At the same time, “partial” easing, such as lowering reserve requirements for smaller banks, is possible to aid small and medium-sized businesses, he said.

Producer prices rose 6.5 percent in September from a year earlier, a separate report showed. That was less than the 6.9 percent median estimate in a Bloomberg survey of economists and also the smallest gain this year. In August, the increase was 7.3 percent.

Stocks Slide

The Shanghai Composite Index slid 0.6 percent as of 10:06 a.m. local time. The yuan rose 0.1 percent to 6.3784 per dollar in Shanghai. Today’s inflation number underscored pressure on the government to allow gains in the currency to counter inflation even as the outlook for exports dims.

Yum! Brands Inc., owner of the Taco Bell and KFC restaurant chains, said last week it expects food inflation in the “mid- teens” in China this quarter and plans to increase prices gradually to offset labor and commodity costs.

China’s food prices rose 13.4 percent in September from a year earlier, the same pace as in August, today’s report showed. Non-food inflation cooled to 2.9 percent from 3 percent.

Growth in the world’s second-biggest economy is already slipping, with analysts forecasting that data next week will show a 9.3 percent expansion in the third quarter, down from 9.5 percent in the previous three months.

India is also due to report inflation numbers today, with economists’ median forecast indicating a 9.75 percent increase in prices. China’s statistics bureau will release gross domestic product data on Oct. 18.

Property, Trade

Trade numbers reported yesterday showed growth in overseas sales weakened in September, underscoring the threat that Europe’s crisis poses to the world’s biggest exporting nation.

In Beijing, officials are also monitoring a slowdown in the housing market after increases in interest rates and bank reserve requirements and a campaign to rein in speculation. Home prices fell month-on-month for the first time in a year in September, according Soufun Holdings Ltd., China’s biggest real- estate website owner.

The State Council this week unveiled tax breaks to support small businesses after some manufacturers collapsed in the city of Wenzhou in Zhejiang province.
Inflation reached a three-year high of 6.5 percent in July and may moderate in coming months partly because of so-called base effects. The government’s full-year target is 4 percent.(Bloomberg)

Global Pain Hits Asia Markets Hardest

HONG KONG—Though the world's economic and financial problems are largely concentrated elsewhere, markets in Asia have been hit hard in recent weeks, falling more than those in the U.S. and Europe.

Driving the selloff are fears of global recession, worries about the fragility of the financial system and a cash crunch for some investors that led to forced selling.

The fall in Asian markets means they have now priced in all but a major shock to the global economy, and to some analysts appear cheap.

"The way markets are trading, people are anticipating some kind of falling off the cliff," says Wendy Liu, head of China research for Royal Bank of Scotland in Hong Kong. Ms. Liu sees no cliff. "These valuations don't come every year," she says.

Hong Kong's Hang Seng Index is down 23% this year, including a 12% drop in the past month, compared with 8% and 3%, respectively, for the Standard & Poor's 500-stock index in the U.S. The MSCI AC Asia ex Japan index, which tracks all Asia markets outside of Japan, is down 24% this year. Stocks in Eastern Europe and Latin America have also been hit.

The recent surge in the dollar means losses for U.S. investors were worse. The dollar has risen 7% against the Singapore dollar in the past month and 10% against the Korean won.

Markets, as they normally do, have acted ahead of the economic data, which are just starting to reflect a global slowdown. On Friday, Taiwan reported that exports in September grew modestly from the year before, but the government warned that trade momentum will likely tail off in coming months on the dour outlook in Europe and the U.S. There have been signs of similar reports of slowdowns in other important exporters including Singapore, considered a bellwether for global trade.

South Korean electronics giant Samsung Electronics Co. said Friday it expects to report a 14% decline from a year earlier in third-quarter operating profit, as the world's largest maker of flat panels and computer chips saw weak demand in those categories.

Still, Asia's economies are growing strongly, and until recently central banks were raising interest rates to combat inflation. The trend of rate increases has likely ended in most economies. Last week Australia joined Indonesia in signaling rate cuts could be coming.

"Markets in Asia are telling you there is going to be global recession," says Markus Rosgen, head of Asia Pacific Equity Strategy at Citigroup in Hong Kong. Based on price-to-book and trailing price-to-earnings ratios, stocks are pricing in a 33% drop in corporate earnings, he estimates. On average in Asia over the past 36 years, earnings drop 38% during global recessions.

That means markets could fall further should a recession prove particularly harsh. But if it's a mild slowdown, as many expect, there is substantial room for gains.
Behind the bull case is the expectation that Asian countries have the fiscal and monetary firepower to stimulate their economies. Adding to the optimism is the view that the region is somewhat less dependent on exports than in the past, though most dismiss the idea that economies and financial markets have "decoupled" from the West.

Late last week, the view that the slowdown would be mild took over, and Asian markets rallied strongly; the Hang Seng finished Friday up 9.5% from its Tuesday low.

The Hong Kong market has been a focus of investor concern. Shares of Chinese companies account for 70% of its trading volume, and there have been fears that relatively high inflation in China would prevent the government from stimulating the economy. A string of accounting scandals involving Chinese companies has added pressure, as have expectations of lower demand for exports.

Another factor hurting Hong Kong is that it's a deep and liquid market in a region where most stock exchanges are tiny by comparison. When investors can't sell assets fast enough in places such as the Philippines or Indonesia, they instead hedge their exposure by shorting Hong Kong.

"Hong Kong just gets it in the neck," says Citigroup's Mr. Rosgen.
The bad news has made valuations for Hong Kong stocks appetizing, says Haitong Securities strategist Edward Huang. Last Tuesday, when the Hang Seng finished at 16250, its lowest close since May 2009, the one-year trailing price-to-earnings ratio of the index was 7.49, its lowest level since the Asian financial crisis in the 1990s, when it hit seven.

Even after the late-week rebound, the ratio is less than eight—still a bargain, Mr. Huang says. Over the past 16 years, in weeks when the market traded at less than 9.47 times earnings, the total return over the following year has averaged 50%. Stocks have been lower a year later only 7% of the time.

One factor that could push stocks lower, at least temporarily, is liquidity. The recent selloff was driven in part by a scramble for dollars in global markets, which forced some investors to sell assets.

"The degree of selloff in emerging-market debt and equities and currencies suggests there is something more than a concern about slowing economies at play here," says Ewen Cameron Watt, portfolio manager and strategist at BlackRock in London. He says the dollar-liquidity squeeze by European banks turned investors into forced sellers. Another leg down in the European crisis would likely mean even more market pain in Asia and other emerging markets.

"In liquidation sales, things get cheap," he says.(Asia Wallstreet Edition)

Topix Drops Most in Two Months as U.S. Growth Concern Weighs on Exporters

Japanese stocks fell, with the Topix index set for its biggest drop since March, after U.S. consumer spending slowed and incomes unexpectedly dropped in the world’s biggest economy, damping the earnings outlook for Asia’s exporters.

Toyota Motor Corp. (7203), which counts North America as its largest market, slipped 3.3 percent. Canon Inc., the world’s biggest camera-maker, slid 3.2 percent. Mitsubishi UFJ Financial Group Inc., Japan’s No. 1 lender by market value, fell 4.2 percent. Mitsubishi Corp., the country’s top trading company, lost 6.2 percent after oil and metal prices slumped. Mitsui O.S.K. Lines Ltd. dropped 7 percent after reporting a loss.

The Topix lost 3.1 percent to 737.50 as of 12:37 p.m. in Tokyo, headed for its steepest decline since March 15. The Nikkei 225 (NKY) Stock Average fell 2.5 percent to 8,484.86. The measure tumbled 11 percent last quarter, its worst performance since the three months ended June 2010, amid concern the U.S. economy is slowing and Europe’s debt crisis will spill over into the banking system.
“Sentiment has gotten so bad that easily responds to any sort of negative news,” said Ayako Sera, a market strategist in Tokyo at Sumitomo Trust & Banking Co., which manages the equivalent of $323 billion. “There’s concern that overseas demand will shrink. So stocks sensitive to the global economy are declining.”

S&P Futures

Futures on the Standard & Poor’s 500 Index fell 0.6 percent today. The index fell 2.5 percent on Sept. 30 in New York, sending the measure to its biggest quarterly drop since 2008, after reports from China and Germany fueled concern the global economy is slowing.

Consumer spending in the U.S. slowed in August as incomes unexpectedly dropped for the first time in almost two years. Purchases rose 0.2 percent after a 0.7 percent increase in July, Commerce Department figures showed on Sept. 30. Economists had forecast incomes would rise 0.1 percent, according to a Bloomberg survey.
Toyota, the world’s biggest carmaker, fell 3.3 percent to 2,600 yen. Mitsubishi UFJ Financial lost 4.2 percent to 339 yen. The two companies were the biggest drags on the Topix index.

Canon, which receives about 81 percent of its sales from overseas, dropped 3.2 percent to 3,435 yen.

Eyes on America

Japanese stocks fell even after a report today showed the quarterly Tankan index of sentiment at large manufacturers rose to 2 in September from minus 9 in June, matching the median estimate of 23 economists surveyed by Bloomberg News. A positive number means optimists outnumber pessimists.
“The Tankan results were in-line with expectations, so it’s not really affecting stocks,” said Sumitomo Trust’s Sera. “Stocks are reacting more to what happened in America.”

Japanese trading companies extended last week’s declines after the price of oil and metals deepened losses. The Topix Wholesale Trade Index lost 5 percent after tumbling 3.4 percent last week.

Mitsubishi Corp., which gets about 43 percent of its revenue from commodities, lost 6.2 percent to 1,494 yen. Smaller Mitsui & Co. slumped 7.3 percent to 1,051 yen. Inpex Corp., Japan’s No. 1 energy explorer, dropped 3.5 percent to 467,000 yen.

Oil fell today from a one year-low in New York, extending declines after the worst quarter since 2008. Crude for November slid as much as 1.6 percent in electronic trading in New York. Prices on the London Metal Exchange fell 3.4 percent on Sept. 30.

Mitsui O.S.K. led shipping companies lower after reporting that profit fell. Japan’s second-biggest shipper fell 7 percent to 279 yen, headed for its lowest close since March 2003. The company’s lost 17 billion yen in the six months ended Sept. 30, missing a profit forecast of 1 billion yen, according to a preliminary earnings statement that cited a decline in freight rates and a stronger yen.(Bloomberg)

Asia Stocks Slump as U.S. Consumer Spending Adds to Global Economy Concern

Asian stocks fell, extending the regional benchmark index’s biggest quarterly decline in three years, after U.S. consumer spending slowed as incomes unexpectedly dropped, souring the earnings outlook for exporters.

Toyota Motor Corp. (7203), the world’s largest carmaker, fell 3.2 percent in Tokyo. Canon Inc., the biggest global camera-maker, lost 3.1 percent. James Hardie Industries SE (JHX), a building- materials supplier that gets almost 70 percent of its sales from the U.S., sank 3.5 percent in Sydney. BHP Billiton Ltd. (BHP), the world’s No. 1 mining company, dropped 2.6 percent after oil and metal prices slid. HSBC Holdings Plc (5), Europe’s biggest lender, led banking stocks lower.

“The U.S. is not falling into recession, but it’s definitely slowing down,” said Diane Lin, a fund manager with Sydney-based fund Pengana Capital Ltd., which manages about $1.1 billion in global assets. “We might face more risks, particularly in a market that hasn’t had enough of a correction.”

The MSCI Asia Pacific Index fell 3.1 percent to 109.65 as of 12:30 p.m. in Tokyo, ahead of a meeting of European finance ministers to weigh the threat of a Greek default. About 14 stocks fell for each that rose in the measure and all 10 industry groups declined. The gauge has dropped 20 percent this year amid concern the global economy is poised for another recession as Europe’s debt crisis worsens and U.S. economic growth slows.

Tankan Survey

Japan’s Nikkei 225 Stock Average fell 2.5 percent as the quarterly Tankan index showed that sentiment among Japan’s largest manufacturers remains worse than before the March earthquake. Australia’s S&P/ASX 200 slumped 2.5 percent as a gauge of Australian manufacturing fell for a third month in September. Hong Kong’s Hang Seng Index declined 4.3 percent.

Futures on the Standard & Poor’s 500 Index lost 0.5 percent today. In New York, the index fell 2.5 percent on Sept. 30, sending the measure to its biggest quarterly drop since 2008, after reports from China and Germany fueled concerns the global economy is slowing.

Consumer spending in the U.S. slowed in August as incomes unexpectedly dropped for the first time in almost two years, forcing households to dip into savings. Purchases rose 0.2 percent after a 0.7 percent increase in July, Commerce Department figures showed on Sept. 30. Incomes decreased 0.1 percent, the first decline since October 2009. Economists had forecast incomes would rise 0.1 percent, according to a Bloomberg survey.

Jobs, Manufacturing

Gains in U.S. payrolls in September were probably too small to reduce joblessness and manufacturing almost stalled as concern mounted that the global recovery was losing momentum, economists said before reports this week.

Toyota dropped 3.2 percent to 2,602 yen in Tokyo and Canon slid 3.1 percent to 3,440 yen. James Hardie declined 3.5 percent to A$5.55 in Sydney. In Hong Kong, Li & Fung Ltd., a supplier of toys and clothes to Wal-Mart Stores Inc., sank 5.3 percent to HK$12.52.

Banks in Asia also slumped. HSBC sank 3.9 percent to HK$58.55 in Hong Kong. Mitsubishi UFJ Financial Group Inc., Japan’s No. 1 listed lender by market value, declined 4.5 percent to 338 yen, while in Sydney, Commonwealth Bank of Australia (CBA), the nation’s biggest bank, slid 3.4 percent to A$44.01.

Debt Crisis

European officials gathering in Luxembourg today will grapple with how to shield banks from the debt crisis and consider a further boost to the region’s rescue fund. The Greek government said yesterday it approved 6.6 billion euros ($8.8 billion) of austerity measures as part of efforts to secure a pending aid payment and a second rescue package.

“To keep paying Greece money doesn’t actually solve a long-term problem,” said Pengana’s Lin.
Asian commodity stocks also sank. BHP Billiton retreated 2.6 percent to A$34.10 in Sydney. Rival Rio Tinto Group sank 3.1 percent to A$59.88. Aluminum Corp. of China Ltd., the nation’s largest producer of the light metal, slumped 4.3 percent to HK$3.33 in Hong Kong.

Oil fell today, extending declines after the worst quarter since 2008. Crude for November slid as much as 1.6 percent in electronic trading in the New York. A measure of primary metals traded in London fell 3.4 percent on Sept. 30, when copper futures declined for a third straight quarter, the longest slump since 2001.

Yearly Decline

“While a deceleration of the global economy has largely been priced into the markets, we’re not seeing anything to change this,” said Kenichi Hirano, general manager and strategist at Tachibana Securities Co. in Tokyo. “For this reason, we’ll likely see stocks move lower.”

The MSCI Asia Pacific Index declined 18 percent this year through Sept. 30, compared with a 10 percent drop by the S&P 500 and an 18 percent loss by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 11.5 times estimated earnings on average, compared with 11.4 times for the S&P 500 and 9.5 times for the Stoxx 600.

The Asia Pacific index tumbled 16 percent in the third quarter, the biggest drop since 2008, as concern mounted that Europe’s sovereign-debt crisis combined with a slowdown in the U.S. economy may drag the world back into recession.(Bloomberg)