Asian stocks headed lower Thursday, stung by a pessimistic assessment of the U.S. economy by the Federal Reserve.
Japan’s Nikkei 225 slumped 1.6 percent to 8,598.32 while South Korea’s Kospi index slid 2.6 percent to 1,806.62. Benchmarks in New Zealand, Singapore and Taiwan were also lower.
Hong Kong’s Hang Seng index plummeted 3.6 percent to 18,138.32, with blue chip property developers among the biggest losers. China Resources Land Ltd. tumbled 10.1 percent while China Overseas Land & Investment slid 7.9 percent. China Vanke Co. lost 3.8 percent.
Australia’s S&P ASX 200 was 2.2 percent down at 3,984.40, with energy shares plummeting amid fears of a global economic slowdown. BHP Billiton, the world’s largest mining company, lost 3.3 percent. Rival Rio Tinto Ltd. plunged 5 percent. OZ Minerals dropped 6.3 percent.
Falling gold prices hit precious metal stocks. Hong Kong-listed Zijin Mining Group, China’s No. 1 gold miner, lost 4.9 percent. Newcrest Mining, Australia’s biggest gold miner, fell 2.2 percent.
Ben Potter of IG Markets in Melbourne, Australia said in a report that he expects “a session of heavy selling as the world reacts to the Fed’s downbeat outlook for the US economy.”
In a highly anticipated move, the Fed on Wednesday announced it would buy Treasury bonds to help the U.S. economy. But Wall Street stocks fell anyway because the U.S. central bank made it clear that a full U.S. economic recovery was likely years away.
The Dow Jones industrial average lost 2.5 percent to close at 11,124.84. The Standard & Poor’s 500 index fell 2.9 percent to 1,166.76. The Nasdaq composite fell 2 percent to 2,538.19.
The Fed said after a two-day meeting that it would buy long-term Treasurys and sell short-term ones to help the economy regain momentum. It surprised investors when it said it would include more 30-year bonds in its purchases than expected.
The Fed said it would buy $400 billion in 6-year to 30-year Treasurys by June 2012. Over the same period, it planned to sell $400 billion of Treasurys maturing in 3 years or less. The move is intended to drive down interest rates on long-term government debt, and could lower rates on mortgages and other loans.
The inclusion of more 30-year bonds than expected means the Fed saw the need to keep very long-term rates lower for an extended period. Many analysts viewed the move as an acknowledgment that the U.S. economy’s problems are long-term.
The Fed also bleakly stated that the economy has “significant downside risks” and that a number of problems won’t be easily solved, including high unemployment and a depressed housing market.
Meanwhile, the price of oil continued its slide on expectations that there’ll be less demand for energy because of the U.S. economy.
Benchmark crude for October delivery was down 99 cents per barrel to $84.92 on the New York Mercantile Exchange. The contract fell $1.00 to settle at $85.92 on the Nymex on Wednesday.
In currency trading, the dollar rose to 76.76 yen from 76.56 yen late Wednesday in New York. The euro fell to $1.3564 from $1.3667.
The Federal Reserve is running out of options to try to boost a slumping economy and lower unemployment. So policymakers are expected to reach 50 years back into their playbook for their next move.
Most economists expect the Fed to announce a plan Wednesday to shift money in its $1.7 trillion portfolio out of short-term securities and into longer-term holdings.
The plan could lower Treasury yields further. Ultimately, it could reduce rates on mortgages and other consumer and business loans, too.
Fed Chairman Ben Bernanke is expected to advocate the move despite criticism from within the Fed and from Republican lawmakers and presidential candidates.
On Monday, the four highest-ranking Republicans in Congress sent Bernanke a letter cautioning the Fed against taking further steps to lower interest rates. Their letter suggested that lower rates could escalate the risk of high inflation.
The plan the Fed is considered most likely to unveil Wednesday has been dubbed “Operation Twist” and dates to the early 1960s. The Fed used a similar program then to “twist” long-term rates lower relative to short-term rates.
Expectations that the Fed will do so again, along with renewed fears of another recession, have led investors to buy up U.S. Treasurys. Treasury yields have dropped in response.
The yield on the 10-year Treasury note last week touched a historic low of 1.87 percent. On Tuesday, it finished slightly higher, 1.93 percent.
Once the Fed announced last month that it would expand its September meeting from one to two days, most economists have predicted that policymakers would unveil some new step. Chairman Ben Bernanke has said that the Fed is considering a range of options.
The central bank is under pressure to revive an economy that has limped along for more than two years since the recession officially ended. In the first six months of this year, the economy grew at an annual rate of just 0.7 percent. In August, the economy didn’t add any jobs, and consumers didn’t increase their spending on retail goods.
Most economists foresee growth of less than 2 percent for the entire year. Many say the odds of another recession are about one in three.
The Fed has offered its own bleak outlook. At its August meeting, it said the economy will likely struggle for at least two more years. As a result, it said it planned to keep short-term rates near record lows until mid-2013, as long as the economy remained weak.
The decision to do so highlighted a rift within the central bank. Three members dissented from the Fed’s decision _ the most negative votes in nearly two decades. The three, all regional Fed bank presidents, said the Fed’s policies have increased the risk of inflation.
Bernanke has also faced criticism from congressional Republicans and GOP presidential candidates. Some have argued that the Fed’s $600 billion bond-buying program, which ended in June, weakened the value of the dollar against other currencies and contributed to a spike in oil and commodity prices.
Texas Gov. Rick Perry, who is seeking the GOP nomination for president, went so far as to say Bernanke would be “almost treasonous” to launch more bond buying.
Bernanke has said that the Fed could consider another round of bond purchases. It could also provide more specific guidance on future interest rate moves.
Or it could reduce the 0.25 percent interest the Fed pays banks on their reserves at the central bank. Doing so would reduce the banks’ incentive to keep money at the Fed and might make them more likely to lend.
But many analysts expect the Fed to opt for Operation Twist over those other actions.
President Barack Obama has unveiled a $447 billion jobs program made up of a combination of tax cuts and increased government spending. But the proposal faces an uncertain fate in Congress, where Republicans are focused on efforts to trim soaring budget deficits.
No pain, no gain. That’s the mantra of the high-yield bond investor who is willing to assume the default risk of a bond if its yield and price seem worth the wager.
Relentlessly bad news and constant warnings about debt risk here and abroad, coupled with the recent extreme volatility of the junk bond market, mean even more courage is required in 2011.
Junk bonds remain a viable market for yield-seekers, but only for a small portion of an individual’s portfolio. Anyone who believes the economy will worsen shouldn’t consider them at all because debt of companies with subpar credit is not for the faint of heart.
The average high-yield bond mutual fund has a one-year total return of 13 percent and a three-year annualized total return of 10 percent, according to Lipper Inc. Funds provide a diversified portfolio of the bonds of hundreds of companies, so you aren’t saddled with one company’s uncertainties.
Some experts see potential for a junk-bond rally based on recent investor overreaction, but that is not a sure thing. Although merger-and-acquisition financing has driven this year’s market, some planned high-yield issues were pulled back, and investors continue to exit the market.
There are, however, good things to say about companies issuing high-yield bonds.
“In spite of all the bad macroeconomic news, when high-yield companies are viewed at the fundamental corporate level, things still look good,” noted Michael Kessler, credit strategist with Barclays Capital in New York. “The ratings momentum this year has been overwhelmingly positive, and more companies are getting upgraded than downgraded.”
Far more companies have gone from being junk issuers to investment grade than the other way around, Kessler said. The recession was very severe and default rates went up a lot, so companies that survived were those that “got religion” quickly, he believes.
They made progress on the strength and liquidity of balance sheets.
The rating of bonds by credit-rating agencies, in descending order, is AAA, AA, A, BBB, BB, B, CCC, CC, C and D, with anything BB or worse generally considered a junk bond. Kessler believes investors interested in individual junk bonds should seek out only those in which the company could potentially be upgraded to investment grade or is significantly reducing its debt.
“While I personally don’t love the high-yield bond sector right now, if the economy rebounds from its recent soft patch and shows improvement, it should do just fine,” said Mark Salzinger, editor and publisher of The Investor’s ETF Report (www.noloadfundinvestor.com), based in Brentwood, Tenn. “A mild slowdown wouldn’t be a big deal for exchange-traded funds, and the yield advantage will win out over fears that credit will go down.”
If a “really bad” recession unfolds, high-yield bonds “will get killed,” Salzinger warned, because their yield won’t be high enough to offer any kind of protection in a truly difficult period.
With that caveat in mind, Salzinger believes high-yield still has some worthwhile exchange-traded funds (ETFs, which trade on an exchange):
MARKHAM
House Speaker John Boehner says the pact he’s reached with President Barack Obama and other leaders of Congress on lifting the debt limit and taming the budget “isn’t the greatest deal” but lives up to the GOP’s principles on taxes and spending.
The agreement pairs spending cuts demanded by Republicans with an immediate increase in the government’s borrowing cap that’s needed to avoid a first-ever default after Tuesday.
Boehner said the deal with Obama _ which contains no tax increases and sets the stage for more than $2 trillion in spending cuts _ shows how Republicans have changed the terms of debate in Washington.
The Ohio Republican says he wants to bring the measure to a vote as soon as possible.
A few thousand protesters rallied in Cairo and other Egyptian cities Friday to press the country’s military rulers for faster change, but searing summer heat and a growing weariness among some Egyptians with continual protest diminished the large numbers seen in past weeks.
The smaller number came a day after the prime minister replaced nearly half his Cabinet in a nod to demands from the protesters that most activists dismissed as not going far enough.
Still, a die-hard core of several hundreds activists who have been camped out in Cairo’s Tahrir Square for more than two weeks in continual protest insisted they would go on.
More than five months after mass street demonstrations drove President Hosni Mubarak from power, many Egyptians worry that their “revolution” has stalled.
While Mubarak, his sons and a number of his associates are behind bars, protesters see traces of his regime throughout the government. Some have also come to distrust the military council that assumed power after Mubarak’s fall, accusing it of dragging its feet on trials of former regime officials and those accused of killing protesters during the uprising.
“The military council is against the revolution, and we’re here to put pressure on them to stay with the revolution,” said Ahmed al-Sharawi, 21, an engineering student who has been camped out in Tahrir. “If we go home, the revolution will fail,” he said.
Others come to the square for different reasons, not least the carnival-like atmosphere that has taken over.
Activists have blocked traffic on all streets leading in, turning the large interchange at Cairo’s heart into a pedestrian-zone _ a rare luxury in this overcrowded city of 18 million, famous for it reckless drivers and traffic jams.
Inside, vendors have wheeled in carts or set up shop on the sidewalks, selling pretzels, fruit, plastic guns and revolution-themed T-shirts, headbands and wall clocks. Cold drinks are the biggest seller, necessary in a season when midday temperatures regularly top 100 Fahrenheit (38 Celsius).
In the southern city of Luxor, usually hotter than Cairo, activists postponed midday protests for what they called “the Friday of decisiveness” until evening because of the heat.
Also limiting the protests’ size was the decision by the Muslim Brotherhood, Egypt’s best organized political force, not to participate.
Some who come for the atmosphere in Tahrir oppose the sit-in.
“I don’t like the way the tents look,” said Haisam al-Halawani, 28, who strolled in Friday afternoon with his wife Rasha. “Sure, people should come and say what they want, but then they should go home. We don’t need all these tents.”
Still, the pair visits the square weekly, to people-watch, listen to speeches and have a snack and a cold drink.
Al-Halawani agrees with many of the protesters’ demands, especially that former regime officials face prosecution, but he said the protesters expect too much, too fast.
“Not everything will change in one day,” he said.
In another square across town, a few hundred protesters calling themselves “the silent majority” held a counter-demonstration in support of the military council.
Inside the Tahrir tent camp, al-Sharawi, the engineering student, listed the reasons he’s been sleeping in a tent in a traffic circle for more than two weeks: He distrusts the military, wants to see former regime officials tried and said the Cabinet is stocked with Mubarak associates.
But when asked about the new Cabinet sworn in the day before, whose members have few links to Mubarak, he confessed ignorance.
“I haven’t read about that yet,” he said. “I was just going to look for a newspaper.”
He and his fellow tent-dweller Mohammed Shaban rejected the idea that other Cairenes say blocking traffic impedes work.
“If they want to work, they need to protest with us so we can get all our demands and go home,” said Shaban, 22.
In the meantime, the men live on pita bread and preserved cheese, do their laundry in a bucket and wash at a nearby mosque.
“We were in the army, where they give you a cup of water and say, Take a bath! So we’re used to it,” said al-Sharawi, recalling the compulsory stint in the military that Egyptian young men must serve.
They say they’ll remain until “the revolution” is complete.
“Other people bring KFC with them when they protest,” he said. “Not us. We don’t want food or money. If we get all of our demands, Egypt will be richer than America.”
About 50 Yemeni soldiers are missing after battling Islamic militants in the south of the country, a military official said Saturday.
The soldiers have been missing since Thursday, following fierce clashes with the al-Qaida-linked group Ansar al-Sharia in the southern city of Zinjibar, said the official, who spoke on condition of anonymity because he was not authorized to speak to reporters. On Thursday, 15 soldiers and eight Islamic militants were killed in fighting in Zinjibar, the official said.
He said he had no further information on the fate of the missing soldiers.
Elsewhere in Yemen, gunmen blew up an unused oil pipeline in the central province of Marib, the latest in a series of attacks on the same target in recent weeks, officials said Saturday. The attack occurred Thursday, they said.
Yemeni authorities stopped producing oil in May because of repeated attacks and labor unrest.
Yemen’s growing turmoil, including the government’s battle against al-Qaida’s most dangerous wing in the south of the country, come at a time when the weakened regime of President Ali Abdullah Saleh faces an array of opponents. Government forces do not appear to have the will to fight the Islamists, raising fears that al-Qaida is making significant gains.
Recent advances made by the militants in the increasingly lawless south are a clear attempt to exploit the power vacuum and turmoil caused by a popular uprising against Saleh that began in February. The revolt gained momentum when a coterie of the president’s close aides, military commanders and Cabinet ministers joined the protesters.
Government troops and warplanes have so far targeted only two southern cities, Zinjibar and Jaar, in Abyan province.
Yemen’s president, meanwhile, remains in Saudi Arabia, where he is being treated for injuries sustained in a June 3 attack on his palace in the Yemeni capital of Sanaa. Saleh suffered serious burns and other wounds.
Yemeni officials said Saturday that after undergoing two surgeries, Saleh remains bedridden and has trouble breathing and talking. Only relatives and his top adviser are allowed to visit him, one official said.
Earlier this week, a Yemeni TV network sent a crew to the Saudi capital to record an audio message from Saleh to the Yemeni people, but authorities prevented them from entering the hospital, a Yemeni official in Riyadh said.
“They were only allowed to film the hospital from outside,” the official said, citing an example of the Saudi restrictions on Saleh’s visitors.
Over the past week, Yemeni ruling party officials in Sanaa have suggested Saleh may deliver an audio message on state TV to assure his people. However, a week passed without word from Saleh.
“If he (Saleh) delivered a speech through an audio message, people would not believe it is him because they will not recognize his voice,” said another official, adding that Saleh’s voice box was harmed.
All three officials spoke on condition of anonymity because of the sensitive nature of the issue.
The president has not been seen in public since the attack. On June 5, hours before he flew to Saudi Arabia, he aired a brief audio message, blaming an “armed gang of outlaws” for the attack on his palace.
Saudi Arabia has been pressing Saleh to step down within 30 days and hand power to his vice president, in exchange for immunity from prosecution. A national unity government would run the country until elections are held, according to the deal brokered by the six-nation Gulf Cooperation Council.
The United States, in favor of peaceful power transfer, fears that al-Qaida’s branch in Yemen could further exploit Yemen’s turmoil to strengthen its presence there. Al-Qaida-linked groups have already used Yemen as a base for plotting two attempted anti-U.S. attacks.
A private research group forecasts that the economy will grow modestly over the next few months after a late-spring slump.
The Conference Board said Friday that its index of leading economic indicators rose 0.8 percent last month. That’s a rebound from April, when the index dropped 0.4 percent _ the first decline since June 2010. A string of declines would indicate that a recession was coming.
The May report showed marked improvement in most areas measured. And it suggests the economy will regain some of the momentum it lost this spring, when high gas prices cut into consumer spending and businesses pulled back on hiring.
Eight of the 10 measures the Conference Board uses to calculate the index increased. In April, only four showed improvement.
Still, Conference Board economist Ken Goldstein cautioned that economic growth will be “choppy” through summer and fall. The weak housing market remains weak. And even though there has been some relief in recent weeks from the high gas and food costs, prices remain elevated.
The Conference Board is a private research group based in New York. It uses data that has mostly already been released about real estate, manufacturing, employment, consumer confidence and financial markets in calculating the leading indicator index payday loans for bad credit. The Conference Board also includes its own estimates about manufacturers’ new orders and the country’s money supply.
A lot of economic data over the past month had disappointed investors and led many economists to lower their growth expectations for this year. Economists recently surveyed by The Associated Press cut their growth outlook to a 2.6 percent annual rate, down from an estimate of 2.9 percent in April. In January, they had forecast 3.2 percent growth for the year.
Some economists say the disruption to the manufacturing sector from Japan’s earthquake will ease and job creation will pick up again in the second half of the year. A survey of CEOs of the country’s biggest companies showed more than 60 percent of them planned to spend more on equipment over the next six months, a sign of confidence. More than half expected their U.S. work forces would grow.
President Barack Obama will announce new steps Monday to reduce government waste, arguing that inefficiency, fraud and abuse are especially troubling during tough economic times.
Obama was to sign an executive order creating the Campaign to Cut Government Waste. According to a draft of the order obtained by The Associated Press, Obama will call for a new oversight board to work with federal agencies to cut back on waste and improve their performance. The order also requires cabinet secretaries to hold regular meetings with Vice President Joe Biden to report progress.
Monday’s announcement comes as the White House grapples for ways to both boost sluggish economic growth and quell public anger over the mounting deficit.
“As we work to tackle the budget deficit, we need to step up our game,” Obama said in a video message to be released Monday guaranteed high risk personal loans.
“No amount of waste is acceptable _ not when it’s your money; not at a time when so many families are already cutting back,” he said.
Biden and other administration officials were to discuss plans to cut back on waste
In prepared remarks for Monday’s event, budget director Jacob Lew said wasting taxpayer dollars through inefficiency “is particularly offensive at a time of such fiscal challenges.”
One of the campaign’s first steps will be targeting waste and duplication among federal websites. The administration will halt the creation of new websites, as well as shut down or consolidate one-fourth of the 2,000 government websites in the next few months.
World markets snapped out of the doldrums Tuesday despite fears that Europe’s debt crisis was spreading to larger economies.
Oil prices rose to near $99 a barrel after Goldman Sachs raised it crude forecasts due to concerns that the shutdown of output from Libya will drain spare OPEC supplies. In currencies, the dollar slipped against the yen and the euro.
European markets were higher in early trading. Britain’s FTSE 100 rose 0.5 percent to 5,867.94. Germany’s DAX gained 0.5 percent to 7,158.02, and France’s CAC-40 was 0.4 percent higher to 3,921.15.
Wall Street was poised to rise after sinking Monday. Dow Jones industrial futures rose 30 points to 12,392, and S&P 500 futures were 3.9 points higher at 1,319.10.
A choppy day of trading in Asia ended with key benchmarks higher.
Japan’s Nikkei 225 rose 0.2 percent to close at 9,477.17 after ending the morning session down. Shares of Toshiba rose 2.1 percent, a day after the company announced it will move into the wind power business through an alliance with Korea’s Unison Co. Ltd., a wind power equipment manufacturer.
Hong Kong’s Hang Seng was marginally higher to 22,730.78 after emerging from the red in the morning.
South Korea’s Kospi rose 0.3 percent to 2,061.76, with Kia Motors Corp., the country’s second-largest auto maker, gaining 1.9 percent and Hynix Semiconductor, a world leader in memory chip making, rising 1.3 percent.
Australia’s S&P/ASX 200 lost 0.3 percent to 4,628.80, with some mining shares hit by worries that a slowdown in Chinese manufacturing would lead to falling demand for commodities. Energy Resources of Australia Ltd. fell 2.3 percent. BHP Billiton Ltd., the world’s largest mining company, lost 0.1 percent.
Taipei-based Foxconn Technology Co. Ltd., the world’s biggest contract electronics manufacturer, was down 2.6 percent after an explosion at one of the company’s factories in China that makes the iPad 2 killed three employees and injured 15 on Friday.
Mainland Chinese shares were mixed as weak economic indicators and pessimistic forecasts for the near-term outlook weighed on sentiment fast cash without a hassle.
The benchmark Shanghai Composite Index lost 0.3 percent to 2,767.06, the lowest close in four months, while the Shenzhen Composite Index of China gained 0.1 percent to 1,150.91. Shares in precious metals, nonferrous and biotechnology companies gained.
“Funds are in short supply and investors are fretting over slowing economic growth and inflation,” said Peng Yunlang, an analyst based in Shanghai.
Europe’s debt crisis shook markets Monday as fears over the solvency of Greece combined with concerns that Spain, or even Italy, may be dragged into the turmoil that has already seen three countries that use the euro common currency bailed out.
Late last week, Fitch ratings agency downgraded Greece’s debt further into junk status. Then Standard & Poor’s said Saturday that Italy was in danger of having its debt rating lowered if it could not reduce its borrowing and improve economic growth. On Monday, Fitch cut Belgium’s outlook.
The turmoil was felt on Wall Street, where stocks took a pounding Monday. The Dow Jones industrial average fell 1.1 percent to close at 12,381.26. The Standard & Poor’s 500 index fell or 1.2 percent to 1,317.37 The Nasdaq composite index fell 1.6 percent to 2,758.9.
Benchmark crude for July delivery was up $1.14 to $98.87 per barrel in electronic trading on the New York Mercantile Exchange. The contract lost $2.40, or 2.4 percent, to settle at $97.70 on Monday.
Goldman Sachs said the civil conflict in Libya, which has shut down almost all the country’s 1.6 million barrels a day of oil production, will eventually push prices higher.
The euro rose to $1.4095 from $1.4060 in late trading Monday in New York. The euro had dipped below $1.40 earlier in the day for the first time since March. The dollar slipped to 81.93 yen from 81.97 yen.
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