The head of the world’s biggest bond fund said he sees a more than one-in-three chance that the euro zone will break apart in 2012-2013 and trigger a financial crisis akin to the one that devastated the global economy in 2008.
“It would be the equivalent of a sudden stop” in which financial markets seized up, Mohamed El-Erian, chief executive officer of Pacific Investment Management Co. in Newport Beach, California, said. “It would be really, really messy.”
The ECB will announce results of its first tranche of unlimited three-year loans today, a day after Spain sold more than its maximum target of bills, driving borrowing costs lower. A statement is due at 11:15 a.m. Frankfurt time. The European Central Bank will lend euro-area banks more than economists forecast for three years in its latest attempt to keep credit flowing to the economy during the sovereign debt crisis.
The Frankfurt-based ECB awarded 489 billion euros ($645 billion) in 1,134-day loans, more than economists’ median estimate of 293 billion euros in a Bloomberg News survey. The ECB said 523 banks asked for the funds, which will be lent at the average of its benchmark rate, currently 1 percent, over the period of the loans. They start tomorrow.
“This is basically free money,” said Jens-Oliver Niklasch, a strategist at Landesbank Baden-Wuerttemberg in Stuttgart. “The conditions are unbeatable. Everybody who can will try to get a piece of this cake.”
Oracle Corp’s earnings fell short of Wall Street’s forecasts for the first time in a decade as software and hardware sales sputtered, sending its shares down more than 10 percent and stoking fears a global recession will hurt tech spending. The rare slip-up by the world’s No. 3 software maker raised questions about the health of the technology sector as many companies in the industry gear up to close deals before the end of 2011.
Japan’s central bank offered a bleaker view of the economy and the government warned of worsening business sentiment as exports slumped, adding to evidence of the pain Europe’s debt crisis is inflicting on global growth and Japan’s recovery prospects. But in a sign Japan’s tattered finances leave it with little room for more fiscal stimulus, Rating and Investment Information Inc (R&I) stripped the country of its AAA status, the first downgrade by a domestic credit ratings agency.
That puts the onus on the Bank of Japan, which kept monetary settings unchanged at a rate review on Wednesday but cut its economic assessment and acknowledged that growth will stagnate at least until spring next year. BOJ Governor Masaaki Shirakawa said that while Japan’s economy was still headed towards a moderate recovery, Europe’s sovereign debt crisis and economic stagnation were hurting global growth including Japan.
“A delay in dealing with Europe’s crisis may have a severe impact on the global economy. We must prevent this from happening at all cost,” he told a news conference.
European stocks rose for a third day amid speculation that companies and the economy can weather the fallout from the sovereign-debt crisis as the European Central Bank provides funding for lenders. Asian shares and U.S. index futures gained.
The Stoxx Europe 600 Index advanced 0.5 percent to 239.72 as of 9:16 a.m. in London. The index gained 2 percent yesterday, the biggest advance since Nov. 30, as German business confidence unexpectedly rose for a second month. The gauge has still lost 13 percent this year amid mounting concern that policy makers will fail to stop at least one member of the euro area from defaulting.
The euro rose for a second day amid speculation the ECB’s loans will spur demand for sovereign bonds. The 17-nation currency gained 0.3 percent to $1.3123 at 9 a.m. in Frankfurt.
Market snapshot at 10:30 am GMT (UK time)
Asia Pacific markets experienced mixed fortunes in overnight/early morning trade; the Nikkei closed up 1.48%, the Hang Seng closed up 1.86% and the CSI closed down 1.6%. The ASX 200 closed up 2.13%. The KOSPI closed up 3.03% as jitters regarding N. Korea recede.
European indices have risen due to market optimism regarding the 3 year ECB lending programme. The STOXX 50 is up 1.44%, the UK FTSE up 0.71%, the CAC up 1.38%, the DAX up 1.37% and the ASE (Athens exchange) is currently the leader up 1.4%.
The SPX equity index future is currently up 0.7%, ICE Brent crude is up 0.31% at $107.06 a barrel. Comex gold is up $18.9 an ounce at 1635.9.
Economic calendar data releases to keep a weather eye on in the afternoon session
12:00 US – MBA Mortgage Applications W/e 16 Dec
15:00 US – Existing Home Sales November
The number of mortgage applications acts as a leading indicator for home sales. Consequently the report can be used as a guide of housing demand and thereby economic momentum. A high reading is seen as positive for the economy as a whole, as it implies increased household income and spending.