Sept. 7 (Bloomberg) -- Asian stocks rose for a third day, led by technology companies and automakers, as a $1.8 billion bid for Chartered Semiconductor Ltd. fueled merger speculation.
Chartered was halted from trading in Singapore. Toshiba Corp. climbed 3.9 percent in Tokyo after the Nikkei newspaper said the company will contract out production to cut costs. Canon Inc., which gets 28 percent of its sales from the Americas, gained 2.3 percent, while Toyota Motor Corp., the world’s No.1 automaker, rose 1 percent after the U.S. government said companies had cut fewer jobs than estimated in August.
The MSCI Asia Pacific Index gained 0.6 percent to 113.43 as of 10:24 a.m. in Tokyo, taking a three-day advance to 0.9 percent. Stocks on the gauge are priced at 1.5 times book, lower than 2.1 times for the Standard & Poor’s 500 Index in the U.S. and 1.6 times for Europe’s Dow Jones Stoxx 600 Index.
“Investors are focusing on the relative cheapness of equities,” said Hiroichi Nishi, an equities manager at Tokyo- based Nikko Cordial Securities Inc.
Japan’s Nikkei 225 Stock Average gained 0.9 percent. Australia’s S&P/ASX 200 Index rose 0.3 percent. New Zealand’s NZX 50 Index added 0.6 percent.
Futures on the S&P 500 were little changed. The stock gauge climbed 1.3 percent on Sept.4 after a Labor Department report showed U.S. companies cut fewer jobs last month than economists had estimated. The unemployment rate rose to 9.7 percent, the highest level in 26 years.
U.S. Jobs Report
Finance ministers and central bankers from the Group of 20 nations concluded talks in London on Sept. 5, agreeing to rein in bank bonuses and force lenders to hold more capital to avoid a repeat of the global financial crisis.
Technology companies accounted for 15 percent of the MSCI Asia Pacific Index’s gain today as Advanced Technology Investment Co., owned by the government of Abu Dhabi, said it plans to acquire Chartered Semiconductor for S$2.5 billion ($1.8 billion) in cash.
BHP Billiton Ltd. and Rio Tinto Group, the world’s biggest and third-biggest mining companies, are considering a A$1 billion ($853 million) merger of their Canadian diamond operations, the Australian reported, without saying where it got the information.
Rio Tinto gained 1.2 percent to A$55.89 in Sydney, while BHP was little changed at A$36.59.
Toshiba, Japan’s largest chipmaker, climbed 3.9 percent to 484 yen. The company will contract out production of large-scale integrated circuits to overseas chipmakers as part of efforts to cut production costs, the Nikkei newspaper said. Keisuke Ohmori, a spokesman for Toshiba, said that no decision had been made.
Canon rose 2.3 percent to 3,550 yen. Toyota, which gets 31 percent of its revenue in North America, added 1 percent to 3,890 yen.
Monday, September 07, 2009
Friday, September 04, 2009
Intensified Doha talks to resume this month
NEW DELHI (Reuters) - Key trade ministers agreed on Friday to relaunch the World Trade Organisation's Doha talks with intensified negotiations later this month, Commerce Minister, Anand Sharma, said on Friday.
WTO members' chief negotiators will meet in Geneva from Sept. 14, in the run-up to the Pittsburgh G20 summit, to grapple with outstanding issues in the talks, now in their eighth year, with the aim of completing the round by 2010, he said.
"We have reached an agreement to intensify the negotiations," Sharma told a news conference after two days of talks hosted by an India keen to throw off its reputation as the spoiler of the talks and underline its leadership role.
"There has been a breakthrough in this meeting... The impasse in resuming the negotiations have been broken."
Political leaders have called repeatedly in recent months to conclude the Doha round, launched in 2001 to help developing countries grow by opening trade, to help pull the world out of the economic crisis and fight protectionism.
"What India has done is to weave these strands together into a single initiative translating into action," Sharma said.
OPEN ISSUES
The Delhi meeting did not look at any of the specific issues that remain open, such as a safeguard to help farmers in poor countries cope with a flood of imports, or proposals to eliminate duties entirely in some industrial sectors.
That will be up to the negotiators, but Sharma expressed confidence that such issues could be resolved around the negotiating table if countries were willing.
The talks will resume on the basis of the draft negotiating texts issued in December 2008.
That should provide comfort to WTO members from Brazil to the European Union who had feared that the United States wanted to unpick what has already been agreed over the past seven years, jeopardising the emerging deal.
Both Sharma and U.S. Trade Representative Ron Kirk said it would be wrong to throw away the work achieved so far, but stressed that the texts were drafts and could be improved.
Kirk noted that the texts were still full of blanks, where WTO members had not yet found common ground.
"Obviously we've got to put some meat on the bones in that case. It has never been our argument that we should start all over again or reopen them, but we have to have some idea of what those gaps and blanks are," he told Reuters.
Ministers also reiterated that the talks had to be multilateral, since any deal must be signed off by all 153 WTO members.
But Sharma said ministers had agreed there was a role for one-on-one contacts or talks in small groups to help countries understand better what their partners wanted and could offer.
For the United States, these bilateral contacts are the key to taking the stalled talks forward, Kirk told a news conference.
WTO members' chief negotiators will meet in Geneva from Sept. 14, in the run-up to the Pittsburgh G20 summit, to grapple with outstanding issues in the talks, now in their eighth year, with the aim of completing the round by 2010, he said.
"We have reached an agreement to intensify the negotiations," Sharma told a news conference after two days of talks hosted by an India keen to throw off its reputation as the spoiler of the talks and underline its leadership role.
"There has been a breakthrough in this meeting... The impasse in resuming the negotiations have been broken."
Political leaders have called repeatedly in recent months to conclude the Doha round, launched in 2001 to help developing countries grow by opening trade, to help pull the world out of the economic crisis and fight protectionism.
"What India has done is to weave these strands together into a single initiative translating into action," Sharma said.
OPEN ISSUES
The Delhi meeting did not look at any of the specific issues that remain open, such as a safeguard to help farmers in poor countries cope with a flood of imports, or proposals to eliminate duties entirely in some industrial sectors.
That will be up to the negotiators, but Sharma expressed confidence that such issues could be resolved around the negotiating table if countries were willing.
The talks will resume on the basis of the draft negotiating texts issued in December 2008.
That should provide comfort to WTO members from Brazil to the European Union who had feared that the United States wanted to unpick what has already been agreed over the past seven years, jeopardising the emerging deal.
Both Sharma and U.S. Trade Representative Ron Kirk said it would be wrong to throw away the work achieved so far, but stressed that the texts were drafts and could be improved.
Kirk noted that the texts were still full of blanks, where WTO members had not yet found common ground.
"Obviously we've got to put some meat on the bones in that case. It has never been our argument that we should start all over again or reopen them, but we have to have some idea of what those gaps and blanks are," he told Reuters.
Ministers also reiterated that the talks had to be multilateral, since any deal must be signed off by all 153 WTO members.
But Sharma said ministers had agreed there was a role for one-on-one contacts or talks in small groups to help countries understand better what their partners wanted and could offer.
For the United States, these bilateral contacts are the key to taking the stalled talks forward, Kirk told a news conference.
Indian Stocks Rise, Led by Commodities Producers, Automakers
Sept. 4 (Bloomberg) -- Indian stocks rose, led by commodities suppliers and consumer goods makers, after metals rose on speculation that an economic recovery will increase demand and a government agency said monsoon rainfall increased.
Sterlite Industries (India) Ltd., the nation’s biggest copper producer, rose 4 percent as the metal climbed. Mahindra & Mahindra Ltd., India’s largest maker of tractors, jumped 6.7 percent after a soybean processors group said widespread monsoon showers in July aided sowing. Maruti Suzuki India Ltd., the maker of half the cars sold in the nation, climbed to a record on the expectation that the company will sell more cars in the festival season starting this month.
“There has been a good run-up in the automobile stocks; but still there is some steam left,” said Ajay Argal, who helps manage about $9.2 billion in assets at Birla Sun Life Asset Management Co. in Mumbai. “Sales may go up in the festival season. We are positive on the auto sector.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 290.79, or 1.9 percent, to 15,689.12, paring its weekly loss to 1.5 percent. Twenty eight stocks gained while two fell. The S&P CNX Nifty Index on the National Stock Exchange gained 1.9 percent to 4,680.40. The BSE 200 Index gained 1.6 percent to 1,931.20.
Sterlite Industries (India) Ltd., the nation’s biggest copper producer, rose 4 percent to 670.05 rupees. Hindalco Industries Ltd., the No. 1 aluminum producer, added 2.1 percent to 105.2 rupees.
December-delivery copper on the Shanghai Futures Exchange added 2.6 percent. Three-month delivery copper advanced 1.3 percent on the London Metal Exchange at 4:35 p.m. in India. Aluminum rose 0.4 percent.
Hero Honda
Mahindra & Mahindra surged 6.7 percent to 867.45 rupees. Maruti Suzuki gained 2.6 percent to 1,546.6 rupees. Hero Honda Motors Ltd., the country’s biggest motorcycle maker, advanced 4.1 percent to 1,610.9 rupees. Mahindra & Mahindra and Maruti are among the top three gainers on the Sensex this year to date.
Mahindra’s August sales, excluding tractors, soared 14.8 percent from a year earlier. Maruti Suzuki’s sales in the same period jumped 42 percent to a record. Hero Honda sold 36 percent more motorcycles in August compared with the same period a year earlier.
The September-to-November festival season is traditionally a time when employers pay bonuses. Manufacturers and retailers count on spending during festivities up to Diwali in October to buoy profit. Sales in the period account for about 50 percent of second-half revenue, according to Godrej Consumer Products Ltd., a household goods maker. LG Electronics Inc. said last month it expects Indian sales to rise 30 percent this festival season.
Hindustan Unilever Ltd., the local unit of the world’s second-largest consumer-goods maker, added 2 percent to 273.05 rupees.
Gas Prices
Oil & Natural Gas Corp., the country’s biggest energy producer, jumped 3.3 percent to 1,178.2 rupees. India may increase the price of natural gas extracted from fields awarded to state explorers by 44 percent, easing revenue losses for Oil & Natural Gas.
A proposal to increase the price of the gas to $2.60 per million British thermal units from $1.80 currently will be submitted to the Cabinet soon, V.L.V.S.S. Subba Rao, joint adviser of finance in the oil ministry, told reporters in New Delhi today. The price, effective April 1, 2009, is linked to India’s wholesale price index, he said.
Overseas funds sold a net 5.74 billion rupees ($117 million) of Indian stocks on Sept. 2, the Securities and Exchange Board of India said on its Web site. The funds have bought 393.1 billion rupees of the nation’s stocks this year to date, compared with a record net sales of 530 billion rupees for the whole of 2008.
The following stocks were among the most active on the exchange:
Amtek Auto Ltd. (AMTK IN): The Indian maker of automotive parts advanced to its highest level in almost a year in Mumbai trading after saying it will raise $175 million by selling securities, in a filing to the Bombay Stock Exchange yesterday. Amtek shares gained 14 percent to 182.05 rupees.
JSW Steel Ltd. (JSTL IN) gained 3.1 percent to 692.7 rupees. The country’s third-largest steelmaker raised prices of flat products, used to make automobiles, by 2.5 percent to 4 percent, director Jayant Acharya said in a text message.
Steel Authority of India Ltd. (SAIL IN) climbed 2.6 percent to 164.3 rupees. The nation’s second-biggest steelmaker yesterday said sales in August rose 20 percent from a year earlier to 1.1 million metric tons.
Sterlite Industries (India) Ltd., the nation’s biggest copper producer, rose 4 percent as the metal climbed. Mahindra & Mahindra Ltd., India’s largest maker of tractors, jumped 6.7 percent after a soybean processors group said widespread monsoon showers in July aided sowing. Maruti Suzuki India Ltd., the maker of half the cars sold in the nation, climbed to a record on the expectation that the company will sell more cars in the festival season starting this month.
“There has been a good run-up in the automobile stocks; but still there is some steam left,” said Ajay Argal, who helps manage about $9.2 billion in assets at Birla Sun Life Asset Management Co. in Mumbai. “Sales may go up in the festival season. We are positive on the auto sector.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 290.79, or 1.9 percent, to 15,689.12, paring its weekly loss to 1.5 percent. Twenty eight stocks gained while two fell. The S&P CNX Nifty Index on the National Stock Exchange gained 1.9 percent to 4,680.40. The BSE 200 Index gained 1.6 percent to 1,931.20.
Sterlite Industries (India) Ltd., the nation’s biggest copper producer, rose 4 percent to 670.05 rupees. Hindalco Industries Ltd., the No. 1 aluminum producer, added 2.1 percent to 105.2 rupees.
December-delivery copper on the Shanghai Futures Exchange added 2.6 percent. Three-month delivery copper advanced 1.3 percent on the London Metal Exchange at 4:35 p.m. in India. Aluminum rose 0.4 percent.
Hero Honda
Mahindra & Mahindra surged 6.7 percent to 867.45 rupees. Maruti Suzuki gained 2.6 percent to 1,546.6 rupees. Hero Honda Motors Ltd., the country’s biggest motorcycle maker, advanced 4.1 percent to 1,610.9 rupees. Mahindra & Mahindra and Maruti are among the top three gainers on the Sensex this year to date.
Mahindra’s August sales, excluding tractors, soared 14.8 percent from a year earlier. Maruti Suzuki’s sales in the same period jumped 42 percent to a record. Hero Honda sold 36 percent more motorcycles in August compared with the same period a year earlier.
The September-to-November festival season is traditionally a time when employers pay bonuses. Manufacturers and retailers count on spending during festivities up to Diwali in October to buoy profit. Sales in the period account for about 50 percent of second-half revenue, according to Godrej Consumer Products Ltd., a household goods maker. LG Electronics Inc. said last month it expects Indian sales to rise 30 percent this festival season.
Hindustan Unilever Ltd., the local unit of the world’s second-largest consumer-goods maker, added 2 percent to 273.05 rupees.
Gas Prices
Oil & Natural Gas Corp., the country’s biggest energy producer, jumped 3.3 percent to 1,178.2 rupees. India may increase the price of natural gas extracted from fields awarded to state explorers by 44 percent, easing revenue losses for Oil & Natural Gas.
A proposal to increase the price of the gas to $2.60 per million British thermal units from $1.80 currently will be submitted to the Cabinet soon, V.L.V.S.S. Subba Rao, joint adviser of finance in the oil ministry, told reporters in New Delhi today. The price, effective April 1, 2009, is linked to India’s wholesale price index, he said.
Overseas funds sold a net 5.74 billion rupees ($117 million) of Indian stocks on Sept. 2, the Securities and Exchange Board of India said on its Web site. The funds have bought 393.1 billion rupees of the nation’s stocks this year to date, compared with a record net sales of 530 billion rupees for the whole of 2008.
The following stocks were among the most active on the exchange:
Amtek Auto Ltd. (AMTK IN): The Indian maker of automotive parts advanced to its highest level in almost a year in Mumbai trading after saying it will raise $175 million by selling securities, in a filing to the Bombay Stock Exchange yesterday. Amtek shares gained 14 percent to 182.05 rupees.
JSW Steel Ltd. (JSTL IN) gained 3.1 percent to 692.7 rupees. The country’s third-largest steelmaker raised prices of flat products, used to make automobiles, by 2.5 percent to 4 percent, director Jayant Acharya said in a text message.
Steel Authority of India Ltd. (SAIL IN) climbed 2.6 percent to 164.3 rupees. The nation’s second-biggest steelmaker yesterday said sales in August rose 20 percent from a year earlier to 1.1 million metric tons.
Indian Stocks Rise, Led by Commodities Producers, Automakers
WASHINGTON (Reuters) - U.S. employers in August likely cut jobs by the least amount in a year, a sign of healing in the labor market as the economy starts to claw out of the worst recession in 70 years, according to a Reuters survey.
Analysts said much of the slowdown in the pace of layoffs was due to a rebound in manufacturing, with automakers increasing output to meet a surge in demand, triggered by the "cash-for-clunkers" program.
The unemployment rate was forecast to have inched up in August after dipping slightly the previous month, as the economy's improving prospects lured discouraged job seekers back into the labor market.
The survey of 81 economists forecast employers cut 225,000 jobs in August, which would be the least amount for any month since August 2008, after laying off 247,000 workers in July. They saw the unemployment rate edging up to 9.5 percent from 9.4 percent, which was the first dip since April 2008.
The Labor Department will release the August employment report on Friday at 8:30 a.m. (1230 GMT).
"Job losses are tapering off, you are hearing less announcements of layoffs by large companies. The auto industry is producing more cars and the trend that started in July will be carried over into August," said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.
The government's "cash-for-clunkers" program, which gave drivers a discount to trade in old gas guzzlers for fuel efficient vehicles, unleashed a surge in demand for autos, prompting General Motors, among others, to raise production.
The No. 1 U.S. carmaker said last month it would bring back about 1,350 hourly workers in the U.S. and Canada to assembly plants. Analysts said the incentive, which ended last week, had helped to stabilize employment in manufacturing.
They expected companies, who they said probably overreacted to the slump in demand by aggressively axing jobs, to start hiring new workers as they rebuild inventories that have been reduced to record low levels.
CUT TO THE BONE
"We believe that firms cut their staffing levels to the bone early in 2009 and will be forced to rehire quickly as activity begins to rise," said Stephen Stanley, chief economist at RBS in Greenwich, Connecticut.
"Already, there have been scattered anecdotes that companies are bringing laid-off workers back, most prominently in the auto industry and we look for these stories to become increasingly frequent going forward."
The Institute for Supply Management survey for August, released on Tuesday, showed manufacturing employment still contracting, but the index was at its highest in a year.
Labor market stability is crucial for the economy's recovery from a devastating recession that started in December 2007. While data continue to suggest a recovery is underway, high unemployment is casting doubts over its sustainability.
Unemployment is putting pressure on household incomes, restraining their capacity to spend. Consumer spending accounts for about 70 percent of U.S. economic activity.
Analysts reckon payrolls should start to grow late this year or in early 2010.
"It's absolutely necessary, otherwise this will end up being a false start," said PNC Financial Services' Hoffman.
"If not late this year, but early next year we will actually start to see some increases in payrolls. That will help to reinforce, what is still going to be a weak, but sustained recovery in the U.S. and probably global as well."
Even with the economy expected to return to growth in the second half of this year and the pace of job losses to slow down significantly, unemployment was expected to rise to as high as 10 percent by December.
August's employment report also will be scrutinized for signs of improvement in the average workweek and hourly earnings. The average workweek closely correlates with overall output and could shed light on when firms will start hiring.
The average workweek is expected to be unchanged at 33.1 hours in August, after gaining slightly in July. Average hourly earnings were expected to rise for a second straight month in August, reflecting the government minimum wage increase.
"The workweek typically begins to rise as payroll losses moderate coming out of a recession, but back-to-back gains are unusual unless gross domestic product growth is strong," said Abiel Reinhart, an economist at JP Morgan in New York.
Analysts said much of the slowdown in the pace of layoffs was due to a rebound in manufacturing, with automakers increasing output to meet a surge in demand, triggered by the "cash-for-clunkers" program.
The unemployment rate was forecast to have inched up in August after dipping slightly the previous month, as the economy's improving prospects lured discouraged job seekers back into the labor market.
The survey of 81 economists forecast employers cut 225,000 jobs in August, which would be the least amount for any month since August 2008, after laying off 247,000 workers in July. They saw the unemployment rate edging up to 9.5 percent from 9.4 percent, which was the first dip since April 2008.
The Labor Department will release the August employment report on Friday at 8:30 a.m. (1230 GMT).
"Job losses are tapering off, you are hearing less announcements of layoffs by large companies. The auto industry is producing more cars and the trend that started in July will be carried over into August," said Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.
The government's "cash-for-clunkers" program, which gave drivers a discount to trade in old gas guzzlers for fuel efficient vehicles, unleashed a surge in demand for autos, prompting General Motors, among others, to raise production.
The No. 1 U.S. carmaker said last month it would bring back about 1,350 hourly workers in the U.S. and Canada to assembly plants. Analysts said the incentive, which ended last week, had helped to stabilize employment in manufacturing.
They expected companies, who they said probably overreacted to the slump in demand by aggressively axing jobs, to start hiring new workers as they rebuild inventories that have been reduced to record low levels.
CUT TO THE BONE
"We believe that firms cut their staffing levels to the bone early in 2009 and will be forced to rehire quickly as activity begins to rise," said Stephen Stanley, chief economist at RBS in Greenwich, Connecticut.
"Already, there have been scattered anecdotes that companies are bringing laid-off workers back, most prominently in the auto industry and we look for these stories to become increasingly frequent going forward."
The Institute for Supply Management survey for August, released on Tuesday, showed manufacturing employment still contracting, but the index was at its highest in a year.
Labor market stability is crucial for the economy's recovery from a devastating recession that started in December 2007. While data continue to suggest a recovery is underway, high unemployment is casting doubts over its sustainability.
Unemployment is putting pressure on household incomes, restraining their capacity to spend. Consumer spending accounts for about 70 percent of U.S. economic activity.
Analysts reckon payrolls should start to grow late this year or in early 2010.
"It's absolutely necessary, otherwise this will end up being a false start," said PNC Financial Services' Hoffman.
"If not late this year, but early next year we will actually start to see some increases in payrolls. That will help to reinforce, what is still going to be a weak, but sustained recovery in the U.S. and probably global as well."
Even with the economy expected to return to growth in the second half of this year and the pace of job losses to slow down significantly, unemployment was expected to rise to as high as 10 percent by December.
August's employment report also will be scrutinized for signs of improvement in the average workweek and hourly earnings. The average workweek closely correlates with overall output and could shed light on when firms will start hiring.
The average workweek is expected to be unchanged at 33.1 hours in August, after gaining slightly in July. Average hourly earnings were expected to rise for a second straight month in August, reflecting the government minimum wage increase.
"The workweek typically begins to rise as payroll losses moderate coming out of a recession, but back-to-back gains are unusual unless gross domestic product growth is strong," said Abiel Reinhart, an economist at JP Morgan in New York.
Asian Stocks Fluctuate as Brokerages Downgrade Seven & I, Hynix
Sept. 4 (Bloomberg) -- Asian stocks fluctuated, with the MSCI Asia Pacific Index set for its third weekly drop in five, as brokerage downgrades of Seven & I Holdings Co. and Hynix Semiconductor Inc. countered a rally in metal prices.
Seven & I, the world’s largest convenience store operator, fell 3.2 percent in Tokyo and Hynix Semiconductor Inc., the world’s No. 2 maker of computer-memory chips, sank 6.4 percent in Seoul. Newcrest Mining Ltd., Australia’s largest gold miner, added 1.1 percent after the metal jumped to a six-month high. Henan Yuguang Gold & Lead Co. surged 10 percent in Shanghai.
Almost five stocks dropped for every four that rose on the MSCI Asia Pacific Index, which was little changed at 112.44 as of 12:26 p.m. in Tokyo. The gauge has lost 1.3 percent this week, paring its advance from a five-year low on March 9 to 59 percent.
“We’ve seen that economically things are improving, but the big question is how much of that is already in the price,” said Matt Riordan, who helps manage about $3.8 billion at Paradice Investment Management in Sydney. “We need to see companies pushing up their guidance. If that doesn’t happen it means things are looking pretty full on the valuation side.”
Japan’s Nikkei 225 Stock Average rose 0.2 percent, paring an earlier 0.4 percent advance. Daiwa Securities Group Inc. sank 4.6 percent after Sumitomo Mitsui Financial Group Inc. said it’s in talks to end a brokerage venture between the two. China’s Shanghai Composite Index advanced 0.1 percent.
Australia’s S&P/ASX 200 Index gained 0.7 percent. Asciano Group, the country’s largest port and rail operator, climbed 3.6 percent after announcing changes to its board. New Zealand’s NZX 50 Index added 0.5 percent.
U.S. Retail Sales
Futures on the Standard & Poor’s 500 Index were little changed. The gauge added 0.9 percent yesterday, ending a four- day losing streak, as supermarket operator Costco Wholesale Corp. and clothier Gap Inc. reported sales that beat estimates.
Seven & I fell 3.2 percent to 2,080 yen after Hidehiko Aoki, an analyst at Merrill, downgraded the stock to “neutral” from “buy.” Dainippon Sumitomo Pharma Co., which offered to buy U.S. drugmaker Sepracor Inc. for $2.6 billion yesterday, sank 5.6 percent to 968 yen. Ritsuo Watanabe, an analyst at Merrill Lynch, lowered the stock to “underperform” from “neutral,” because of expiring patents at Sepracor.
Hynix slumped 6.4 percent to 20,650 won. Daewoo Securities Co. cut its rating to “hold” from “buy,” saying the share price already reflects an improved earnings outlook.
Gold, Lead
In Sydney, Newcrest Mining added 1.1 percent to A$32.21. St. Barbara Ltd., a rival, surged 5.6 percent to 28.5 Australian cents. Zijin Mining Group Co., China’s largest gold-mining company, climbed 2.9 percent to HK$7.08. Sumitomo Metal Mining Co., Japan’s biggest gold and nickel producer, climbed 1.2 percent to 1,479 yen in Tokyo.
Gold futures in New York jumped to a six-month high yesterday, reaching $999.50 an ounce, on speculation a weak dollar will boost demand for precious metals as an alternative investment. An index of six metals in London climbed 1.6 percent yesterday, the most since Aug. 28.
Lead jumped as much as 2.9 percent in London to the highest level since May 16, 2008, following a 7.8 percent surge yesterday. Henan Yuguang, China’s top producer of the metal, gained by the 10 percent daily limit to 18.30 yuan. Shenzhen Zhongjin Lingnan Nonfemet Co. added 5.9 percent to 22.50 yuan.
The MSCI Asia Pacific Index’s rally since March came as economic and earnings figures bolstered optimism the worst of the global economic crisis has passed.
Beating Predictions
This week, Australia’s statistics bureau reported second- quarter gross domestic product growth that was faster than economists estimated, while Japan’s Trade Ministry said Aug. 31 that industrial production climbed 1.9 percent from June, also exceeding economist targets.
The stock rally boosted the average price of stocks in the MSCI Asia Pacific Index to 23 times estimated earnings, compared with 16.7 times for the S&P 500, data compiled by Bloomberg show.
“I’m guessing we’ll see the correction continue before a real buying opportunity emerges,” said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages the equivalent of $13 billion. “Recent data has been fundamentally strong, but the market is showing a lukewarm reaction.”
In Tokyo, Daiwa fell 4.6 percent to 516 yen, while Sumitomo Mitsui, Japan’s second-biggest bank, was unchanged at 3,850 yen. The companies said in separate statements that no final decision had been made on ending their brokerage venture.
In Sydney, Asciano climbed 3.6 percent to A$1.565. The company said Malcolm Broomhead will take over as chairman from Tim Poole, who will step down from the role at the company’s annual meeting in October. Broomhead is a former managing director of Melbourne-based Orica Ltd., the world’s largest maker of industrial explosives.
Seven & I, the world’s largest convenience store operator, fell 3.2 percent in Tokyo and Hynix Semiconductor Inc., the world’s No. 2 maker of computer-memory chips, sank 6.4 percent in Seoul. Newcrest Mining Ltd., Australia’s largest gold miner, added 1.1 percent after the metal jumped to a six-month high. Henan Yuguang Gold & Lead Co. surged 10 percent in Shanghai.
Almost five stocks dropped for every four that rose on the MSCI Asia Pacific Index, which was little changed at 112.44 as of 12:26 p.m. in Tokyo. The gauge has lost 1.3 percent this week, paring its advance from a five-year low on March 9 to 59 percent.
“We’ve seen that economically things are improving, but the big question is how much of that is already in the price,” said Matt Riordan, who helps manage about $3.8 billion at Paradice Investment Management in Sydney. “We need to see companies pushing up their guidance. If that doesn’t happen it means things are looking pretty full on the valuation side.”
Japan’s Nikkei 225 Stock Average rose 0.2 percent, paring an earlier 0.4 percent advance. Daiwa Securities Group Inc. sank 4.6 percent after Sumitomo Mitsui Financial Group Inc. said it’s in talks to end a brokerage venture between the two. China’s Shanghai Composite Index advanced 0.1 percent.
Australia’s S&P/ASX 200 Index gained 0.7 percent. Asciano Group, the country’s largest port and rail operator, climbed 3.6 percent after announcing changes to its board. New Zealand’s NZX 50 Index added 0.5 percent.
U.S. Retail Sales
Futures on the Standard & Poor’s 500 Index were little changed. The gauge added 0.9 percent yesterday, ending a four- day losing streak, as supermarket operator Costco Wholesale Corp. and clothier Gap Inc. reported sales that beat estimates.
Seven & I fell 3.2 percent to 2,080 yen after Hidehiko Aoki, an analyst at Merrill, downgraded the stock to “neutral” from “buy.” Dainippon Sumitomo Pharma Co., which offered to buy U.S. drugmaker Sepracor Inc. for $2.6 billion yesterday, sank 5.6 percent to 968 yen. Ritsuo Watanabe, an analyst at Merrill Lynch, lowered the stock to “underperform” from “neutral,” because of expiring patents at Sepracor.
Hynix slumped 6.4 percent to 20,650 won. Daewoo Securities Co. cut its rating to “hold” from “buy,” saying the share price already reflects an improved earnings outlook.
Gold, Lead
In Sydney, Newcrest Mining added 1.1 percent to A$32.21. St. Barbara Ltd., a rival, surged 5.6 percent to 28.5 Australian cents. Zijin Mining Group Co., China’s largest gold-mining company, climbed 2.9 percent to HK$7.08. Sumitomo Metal Mining Co., Japan’s biggest gold and nickel producer, climbed 1.2 percent to 1,479 yen in Tokyo.
Gold futures in New York jumped to a six-month high yesterday, reaching $999.50 an ounce, on speculation a weak dollar will boost demand for precious metals as an alternative investment. An index of six metals in London climbed 1.6 percent yesterday, the most since Aug. 28.
Lead jumped as much as 2.9 percent in London to the highest level since May 16, 2008, following a 7.8 percent surge yesterday. Henan Yuguang, China’s top producer of the metal, gained by the 10 percent daily limit to 18.30 yuan. Shenzhen Zhongjin Lingnan Nonfemet Co. added 5.9 percent to 22.50 yuan.
The MSCI Asia Pacific Index’s rally since March came as economic and earnings figures bolstered optimism the worst of the global economic crisis has passed.
Beating Predictions
This week, Australia’s statistics bureau reported second- quarter gross domestic product growth that was faster than economists estimated, while Japan’s Trade Ministry said Aug. 31 that industrial production climbed 1.9 percent from June, also exceeding economist targets.
The stock rally boosted the average price of stocks in the MSCI Asia Pacific Index to 23 times estimated earnings, compared with 16.7 times for the S&P 500, data compiled by Bloomberg show.
“I’m guessing we’ll see the correction continue before a real buying opportunity emerges,” said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages the equivalent of $13 billion. “Recent data has been fundamentally strong, but the market is showing a lukewarm reaction.”
In Tokyo, Daiwa fell 4.6 percent to 516 yen, while Sumitomo Mitsui, Japan’s second-biggest bank, was unchanged at 3,850 yen. The companies said in separate statements that no final decision had been made on ending their brokerage venture.
In Sydney, Asciano climbed 3.6 percent to A$1.565. The company said Malcolm Broomhead will take over as chairman from Tim Poole, who will step down from the role at the company’s annual meeting in October. Broomhead is a former managing director of Melbourne-based Orica Ltd., the world’s largest maker of industrial explosives.
Tuesday, September 01, 2009
Brazil’s Top Sugar Region May Miss Output Forecast
Sept. 1 (Bloomberg) -- Sugar output from Brazil’s Center South, the world’s biggest producing region, may be less than estimated earlier this year because of heavy rainfall, adding to signs of a global shortfall.
Production may be less than the 31.2 million metric tons estimated in April, Eduardo Leao de Sousa, executive director of industry association Unica, said today in an interview, without giving a precise forecast. The rains had cut yields, Leao de Sousa said in New Delhi, where he’s attending a conference.
Raw sugar has surged to the highest in 28 years on production shortfalls in Brazil and India, and increased competition for imports. The jump in price, which has made sugar the best-performing commodity over the past year, has sparked hoarding in India, the biggest user and second-largest grower.
“There’s still room for a further increase in prices if Indian demand remains strong,” said Plinio Mario Nastari, president of Datagro Ltd., a Sao Paulo-based sugar-research company. “Brazil’s capacity to export sugar is limited.”
Raw sugar for October on ICE Futures U.S. rose as much as 4.1 percent yesterday to 24.48 cents, the highest since February 1981. The commodity is the best performer on the UBS Bloomberg Constant Maturity Commodity Index over the past 12 months.
‘Heavy Rains’
“Because of heavy rains, sucrose content has suffered,” Leao de Sousa said. The harvesting season in Center South, which comprises eight states and makes more than 80 percent of Brazil’s sugar, runs from April to November, when dry weather usually boosts yields and eases work in the fields.
In April, Unica said the region would reap a record 550 million tons of cane this year, increasing sugar production by 17 percent to 31.2 million tons. Production climbed to 15.3 million tons in the year through Aug. 16, up from 12.4 million tons in the year-earlier period, Unica said on Aug. 25.
Jonathan Kingsman, chairman of sugar broker Kingsman SA and backer of the Indian conference, said yesterday that Brazil has been “hit by bad weather” and “yields are quite low.” Separately, Newedge USA LLC Senior Vice President Michael McDougall forecast that raw sugar may reach 25 cents a pound.
World demand for sugar may exceed supply by 5 million tons in 2009-2010 after a record deficit of 7.8 million tons in the current year, Peter Baron, executive director of the International Sugar Organization, said on Aug. 16.
India’s weakest monsoon in at least seven years has caused drought in 278 of the nation’s 626 districts this year, damaging crops including sugar cane. Authorities are raiding hoarders to boost the availability of sugar, edible oils and lentils during the August-to-December festival season.
Production may be less than the 31.2 million metric tons estimated in April, Eduardo Leao de Sousa, executive director of industry association Unica, said today in an interview, without giving a precise forecast. The rains had cut yields, Leao de Sousa said in New Delhi, where he’s attending a conference.
Raw sugar has surged to the highest in 28 years on production shortfalls in Brazil and India, and increased competition for imports. The jump in price, which has made sugar the best-performing commodity over the past year, has sparked hoarding in India, the biggest user and second-largest grower.
“There’s still room for a further increase in prices if Indian demand remains strong,” said Plinio Mario Nastari, president of Datagro Ltd., a Sao Paulo-based sugar-research company. “Brazil’s capacity to export sugar is limited.”
Raw sugar for October on ICE Futures U.S. rose as much as 4.1 percent yesterday to 24.48 cents, the highest since February 1981. The commodity is the best performer on the UBS Bloomberg Constant Maturity Commodity Index over the past 12 months.
‘Heavy Rains’
“Because of heavy rains, sucrose content has suffered,” Leao de Sousa said. The harvesting season in Center South, which comprises eight states and makes more than 80 percent of Brazil’s sugar, runs from April to November, when dry weather usually boosts yields and eases work in the fields.
In April, Unica said the region would reap a record 550 million tons of cane this year, increasing sugar production by 17 percent to 31.2 million tons. Production climbed to 15.3 million tons in the year through Aug. 16, up from 12.4 million tons in the year-earlier period, Unica said on Aug. 25.
Jonathan Kingsman, chairman of sugar broker Kingsman SA and backer of the Indian conference, said yesterday that Brazil has been “hit by bad weather” and “yields are quite low.” Separately, Newedge USA LLC Senior Vice President Michael McDougall forecast that raw sugar may reach 25 cents a pound.
World demand for sugar may exceed supply by 5 million tons in 2009-2010 after a record deficit of 7.8 million tons in the current year, Peter Baron, executive director of the International Sugar Organization, said on Aug. 16.
India’s weakest monsoon in at least seven years has caused drought in 278 of the nation’s 626 districts this year, damaging crops including sugar cane. Authorities are raiding hoarders to boost the availability of sugar, edible oils and lentils during the August-to-December festival season.
Shanghai Index May Drop 25% on Economy, Xie Says
Sept. 1 (Bloomberg) -- The Shanghai Composite Index, the world’s worst performer in August, may fall another 25 percent as China’s economic recovery isn’t “sustainable,” former Morgan Stanley Asian economist Andy Xie said.
The measure plunged 6.7 percent to 2,667.75 yesterday, the most since June 2008, and entered a bear market on concern a slower lending growth may derail a rebound in the world’s third- largest economy. Xie said the index “should be 2000 or less.” The gauge rose 0.6 percent to 2,683.72 today.
“The market is in deep bubble territory,” Xie, 49, who correctly predicted in April 2007 that China’s equities would tumble, said in an interview with Bloomberg Television.
China’s retreat sent the MSCI World Index of 23 developed nations down 0.8 percent, while MSCI’s emerging-market index lost 1.5 percent, the biggest drop in two weeks. The Bank of New York Mellon China ADR Index, tracking American depositary receipts of Chinese shares, lost 2.3 percent, led by commodity producers.
The Shanghai gauge slumped 22 percent in August, the biggest decline among 89 benchmark indexes tracked by Bloomberg, as banks reined in lending to avert asset bubbles and policy makers advised industries such as steel and cement to curb overcapacity. The decline stopped a rally that had sent the measure up 103 percent from a November low on prospects the government’s 4 trillion yuan ($586 billion) stimulus program and a record amount of new credit would ensure the economy grows at least 8 percent this year.
Strong Numbers
“The local market bears are convinced that tightening is already underway,” said Howard Wang, head of the Greater China team at JF Asset Management, which oversees $50 billion. Only “a very strong set of macro numbers in August” or “stronger statements from central authorities” would change this trend, Wang said.
Still, Chinese stocks are trading at the steepest discount in the world compared with analysts’ price targets after the month-long slump. The gap of 13 percent below analysts’ combined price targets is the largest among the world’s 10 largest markets, data compiled by Bloomberg show.
Equities in China remain “a bright spot” among global stocks because of the nation’s strong growth potential, Goldman Sachs Group Inc. said yesterday.
‘Exit Strategy’
“We think the market concerns about a near-term ‘exit strategy’ appear premature as the government remains pro- growth,” Thomas Deng and Kinger Lau, analysts at Goldman Sachs, wrote in a research note.
Goldman Sachs has boosted its growth forecasts for China’s economy to 9.4 percent this year from an earlier estimate of 8.3 percent, it said in the note. Gross domestic product may increase 11.9 percent in 2010, higher than an earlier estimate of 10.9 percent, it added.
The People’s Bank of China will also have “very limited room” to raise interest rates by the end of this year, Deng and Lau wrote.
“The A share market is undergoing a correction rather than a bursting of the bubble,” said Richard Gao, who helps manage $2.8 billion at Matthews International Capital Management LCC in San Francisco. “Short term trading will be very volatile but we believe a strong economic recovery is underway in China and remain quite positive on the long-term growth potential.”
The government will maintain its fiscal and monetary policies because the economy faces many “uncertainties,” Premier Wen Jiabao said this month. Economic growth will slow in the fourth quarter as exports remain mired in a slump, Xie said.
“The recovery is not sustainable,” Xie, who resigned as Morgan Stanley’s chief economist in Asia in 2006 and now works as an independent economist, said in the interview yesterday from Shanghai.
Expectations
“This is a short-term negative,” said E. William Stone, who oversees $101 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “Expectations have been too high that China would be a driver of everything. Much has to come out of the expectations balloon.”
At least 150 stocks on the 898-member Shanghai index dropped by the daily 10 percent limit yesterday. Industrial Bank Co. and Aluminum Corp. of China Ltd. tumbled by the permitted cap after Caijing magazine reported new loan growth this month may be almost half that of July. Lower profits dragged Baoshan Iron & Steel Co., the nation’s biggest steelmaker, and China Southern Airlines Co. down at least 7 percent.
The Shanghai index trades at 29.56 times reported earnings, according to Bloomberg data. The MSCI Emerging Markets Index, a 22-country benchmark, trades for 19.22 times profit.
New Loans Drop
China may have 200 billion yuan of new loans in August, the Beijing-based Caijing reported today on its Web site. That compares with 7.4 trillion yuan for the first half of 2009 and 355.9 billion yuan in July alone. The government plans to tighten capital requirements for financial institutions, three people familiar with the matter said this month.
An estimated 1.16 trillion yuan of loans were invested in stocks in the first five months of this year, China Business News reported June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council.
“The government is now pulling the plug on liquidity,” said Xie, who is a guest columnist for Caijing. “Hopefully, it’s not too late.”
The measure plunged 6.7 percent to 2,667.75 yesterday, the most since June 2008, and entered a bear market on concern a slower lending growth may derail a rebound in the world’s third- largest economy. Xie said the index “should be 2000 or less.” The gauge rose 0.6 percent to 2,683.72 today.
“The market is in deep bubble territory,” Xie, 49, who correctly predicted in April 2007 that China’s equities would tumble, said in an interview with Bloomberg Television.
China’s retreat sent the MSCI World Index of 23 developed nations down 0.8 percent, while MSCI’s emerging-market index lost 1.5 percent, the biggest drop in two weeks. The Bank of New York Mellon China ADR Index, tracking American depositary receipts of Chinese shares, lost 2.3 percent, led by commodity producers.
The Shanghai gauge slumped 22 percent in August, the biggest decline among 89 benchmark indexes tracked by Bloomberg, as banks reined in lending to avert asset bubbles and policy makers advised industries such as steel and cement to curb overcapacity. The decline stopped a rally that had sent the measure up 103 percent from a November low on prospects the government’s 4 trillion yuan ($586 billion) stimulus program and a record amount of new credit would ensure the economy grows at least 8 percent this year.
Strong Numbers
“The local market bears are convinced that tightening is already underway,” said Howard Wang, head of the Greater China team at JF Asset Management, which oversees $50 billion. Only “a very strong set of macro numbers in August” or “stronger statements from central authorities” would change this trend, Wang said.
Still, Chinese stocks are trading at the steepest discount in the world compared with analysts’ price targets after the month-long slump. The gap of 13 percent below analysts’ combined price targets is the largest among the world’s 10 largest markets, data compiled by Bloomberg show.
Equities in China remain “a bright spot” among global stocks because of the nation’s strong growth potential, Goldman Sachs Group Inc. said yesterday.
‘Exit Strategy’
“We think the market concerns about a near-term ‘exit strategy’ appear premature as the government remains pro- growth,” Thomas Deng and Kinger Lau, analysts at Goldman Sachs, wrote in a research note.
Goldman Sachs has boosted its growth forecasts for China’s economy to 9.4 percent this year from an earlier estimate of 8.3 percent, it said in the note. Gross domestic product may increase 11.9 percent in 2010, higher than an earlier estimate of 10.9 percent, it added.
The People’s Bank of China will also have “very limited room” to raise interest rates by the end of this year, Deng and Lau wrote.
“The A share market is undergoing a correction rather than a bursting of the bubble,” said Richard Gao, who helps manage $2.8 billion at Matthews International Capital Management LCC in San Francisco. “Short term trading will be very volatile but we believe a strong economic recovery is underway in China and remain quite positive on the long-term growth potential.”
The government will maintain its fiscal and monetary policies because the economy faces many “uncertainties,” Premier Wen Jiabao said this month. Economic growth will slow in the fourth quarter as exports remain mired in a slump, Xie said.
“The recovery is not sustainable,” Xie, who resigned as Morgan Stanley’s chief economist in Asia in 2006 and now works as an independent economist, said in the interview yesterday from Shanghai.
Expectations
“This is a short-term negative,” said E. William Stone, who oversees $101 billion as chief investment strategist at PNC Wealth Management in Philadelphia. “Expectations have been too high that China would be a driver of everything. Much has to come out of the expectations balloon.”
At least 150 stocks on the 898-member Shanghai index dropped by the daily 10 percent limit yesterday. Industrial Bank Co. and Aluminum Corp. of China Ltd. tumbled by the permitted cap after Caijing magazine reported new loan growth this month may be almost half that of July. Lower profits dragged Baoshan Iron & Steel Co., the nation’s biggest steelmaker, and China Southern Airlines Co. down at least 7 percent.
The Shanghai index trades at 29.56 times reported earnings, according to Bloomberg data. The MSCI Emerging Markets Index, a 22-country benchmark, trades for 19.22 times profit.
New Loans Drop
China may have 200 billion yuan of new loans in August, the Beijing-based Caijing reported today on its Web site. That compares with 7.4 trillion yuan for the first half of 2009 and 355.9 billion yuan in July alone. The government plans to tighten capital requirements for financial institutions, three people familiar with the matter said this month.
An estimated 1.16 trillion yuan of loans were invested in stocks in the first five months of this year, China Business News reported June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council.
“The government is now pulling the plug on liquidity,” said Xie, who is a guest columnist for Caijing. “Hopefully, it’s not too late.”
India Exports Fall 28.4%, Tenth Monthly Drop in a Row
Sept. 1 (Bloomberg) -- India’s exports declined for a tenth straight month in July as the global recession eroded demand in the nation’s biggest overseas markets in the U.S. and Europe.
Merchandise shipments dropped 28.4 percent from a year earlier to $13.6 billion after sliding 27.7 percent in June, the government said in New Delhi today. Exports plunged 33.26 percent in March, the biggest fall on record, according to Bloomberg data going back to April 1995.
India last week extended tax refunds to exporters and announced incentives to explore new markets in Africa and Latin America. Trade Minister Anand Sharma last month signed free- trade accords with South Korea and the 10-member Association of Southeast Asian Nations as India tries to reduce dependence on the U.S. and Europe, which account for 40 percent of exports.
The government’s efforts are “aimed at arresting the exports decline and protect employment,” said Rohini Malkani, an economist at Citigroup Inc. Shipments are likely to decline by 10 percent to $158 billion in the current fiscal year to March 2010, Malkani estimates.
The global recession hit Asia hard as the region is almost twice as reliant on exports as the rest of the world. South Korea’s exports fell 20.6 percent in July, the tenth consecutive monthly decline, a report showed today. Japan’s exports tumbled 36.5 percent.
Global Trade
The continued risk of sluggish demand prompted the World Trade Organisation to lower its forecast for trade in goods for 2009 in July. The trade arbiter now expects a drop of 10 percent after forecasting a 9 percent contraction in March.
India has been hit by the global slump as it becomes integrated into the world economy. The volume of trade rose to about 35 percent of gross domestic product in the year ended March 31 from 21 percent in 1997-98, the year of the Asian financial crisis, according to the central bank.
Flagging exports are forcing jewelers, textiles and leather makers to scale back production and cut jobs. Exporters cut about 500,000 jobs in 10 industries, Trade Minister Sharma said on July 8.
Sharma, while unveiling the foreign trade policy for five years to 2014, last week said he expects the nation to export goods worth $168 billion in the fiscal year to March 2010 and $200 billion the following year. The South Asian nation may return to an annual average export growth of 25 percent in the three years to 2014 as global demand picks up, he predicts
Imports fell 37.1 percent in July from a year earlier to $19.6 billion, according to today’s report. Oil imports declined 55.5 percent to $5.6 billion and non-oil imports fell 24.5 percent to $13.9 billion, the government said in a statement.
India’s exports in the first four months of the fiscal year to July 31 slumped 34.1 percent to $49.6 billion, while imports slid 32.5 percent to $78.5 billion, today’s report showed.
Merchandise shipments dropped 28.4 percent from a year earlier to $13.6 billion after sliding 27.7 percent in June, the government said in New Delhi today. Exports plunged 33.26 percent in March, the biggest fall on record, according to Bloomberg data going back to April 1995.
India last week extended tax refunds to exporters and announced incentives to explore new markets in Africa and Latin America. Trade Minister Anand Sharma last month signed free- trade accords with South Korea and the 10-member Association of Southeast Asian Nations as India tries to reduce dependence on the U.S. and Europe, which account for 40 percent of exports.
The government’s efforts are “aimed at arresting the exports decline and protect employment,” said Rohini Malkani, an economist at Citigroup Inc. Shipments are likely to decline by 10 percent to $158 billion in the current fiscal year to March 2010, Malkani estimates.
The global recession hit Asia hard as the region is almost twice as reliant on exports as the rest of the world. South Korea’s exports fell 20.6 percent in July, the tenth consecutive monthly decline, a report showed today. Japan’s exports tumbled 36.5 percent.
Global Trade
The continued risk of sluggish demand prompted the World Trade Organisation to lower its forecast for trade in goods for 2009 in July. The trade arbiter now expects a drop of 10 percent after forecasting a 9 percent contraction in March.
India has been hit by the global slump as it becomes integrated into the world economy. The volume of trade rose to about 35 percent of gross domestic product in the year ended March 31 from 21 percent in 1997-98, the year of the Asian financial crisis, according to the central bank.
Flagging exports are forcing jewelers, textiles and leather makers to scale back production and cut jobs. Exporters cut about 500,000 jobs in 10 industries, Trade Minister Sharma said on July 8.
Sharma, while unveiling the foreign trade policy for five years to 2014, last week said he expects the nation to export goods worth $168 billion in the fiscal year to March 2010 and $200 billion the following year. The South Asian nation may return to an annual average export growth of 25 percent in the three years to 2014 as global demand picks up, he predicts
Imports fell 37.1 percent in July from a year earlier to $19.6 billion, according to today’s report. Oil imports declined 55.5 percent to $5.6 billion and non-oil imports fell 24.5 percent to $13.9 billion, the government said in a statement.
India’s exports in the first four months of the fiscal year to July 31 slumped 34.1 percent to $49.6 billion, while imports slid 32.5 percent to $78.5 billion, today’s report showed.
Monday, August 31, 2009
GLOBAL MARKETS - China stocks tumble; yen jumps after Japan vote
HONG KONG (Reuters) - Chinese stocks sank 6 percent to a three-month low on Monday, weighing on Asian shares, sapping investor willingness to take risks and giving the yen an added boost after Japanese voters swept the opposition into power.
The election results, while widely anticipated, sparked some short-term buying of yen on hopes that new policies will support consumer spending in an economy trapped in deflation and haunted by a weak growth outlook, though domestic stocks slipped on exporter weakness.
Major European stock futures fell 0.9 percent , following commodity prices lower, in trade thinned by a holiday in London. U.S. stock futures fell 0.6 percent and U.S. Treasury futures were up 0.2 percent.
Outside of Japan, volatility in Shanghai, a market largely closed to foreigners, has curbed risk taking and has been weighing on the Australian dollar, which is a common target for investors searching for bigger returns because of its relatively high yields.
Shanghai-listed shares dropped 6.2 percent on the day, on track to post losses of 21 percent in August, only the second month that the composite index has fallen more than 20 percent in the last 15 years.
The index also crucially dropped below the 125-day moving average, what is viewed by many domestic investors as the threshold for bear and bull markets.
Fears that banks will rein in their lending after a torrid first six months of the year and an abundant supply of expected new shares have been knocking Chinese shares lower for the last month, often weighing on global investor sentiment about holding riskier assets.
Shares of Bank of China, the country's biggest foreign exchange lender, were down 3.9 percent in Shanghai and the top drag on the market. Hong Kong's Hang Seng dropped 1.8 percent to a one-month low in sympathy with Shanghai.
Tokyo's Nikkei share average fell 0.4 percent. Large exporters Canon Inc and Honda Motor Corp were among the biggest drags on the Nikkei, losing around 3.3 percent and 1.8 percent, respectively, on the stronger yen.
Australian stocks also performed relatively well, falling only 0.2 percent. Shares of Australia and New Zealand Banking Group Ltd jumped 4.1 percent after the country's fourth-largest lender said it was starting to see bad debt provisions bottom out.
The MSCI index of Asia Pacific stocks traded outside Japan slid 1.3 percent. The selling was widespread, hitting the consumer discretionary, energy, telecommunications and materials sectors.
ASIA STOCK'S VALUATIONS QUESTIONED
Asian stocks are trading at a price-to-book valuation of 1.1 times, above the 30-year average of 0.7 times and around the same level at the peak of the last bull market.
Investors since March had been justifying the premium based on the region's growth prospects and its expected speedy recovery from the global downturn. Yet in August developed markets, such as the United States and Europe, have attracted investors away from emerging markets thanks to better economic data.
The Asian stock rally sputtered in July and August for two reasons, according to Mark Matthews, Asia Pacific strategist with Fox-Pitt Kelton ini Hong Kong.
"The first is that the U.S. in particular and the developed world in general are experiencing economic recoveries that are more robust than previously expected. The second is that there is policy shift in China, and even the doves there are happy that asset prices are no longer rising quickly," he said in a note.
YEN FOR YEN
In the currency market, the yen got an early boost on the clear-as-day election result, which eliminated any uncertainty about Japan's political leadership. The sharp selloff in Shanghai equities also supported the yen as dealers sought a safe haven.
The U.S. dollar fell 0.7 percent to 92.75 yen, the lowest since July 13, and the euro dropped 1 percent to 132.28 yen.
The sharp decline in Chinese stocks "has muddied the picture as well as to whether it's a reaction to the election victory or risk aversion. It's probably a bit of a combination of both," said a dealer at a European bank in Hong Kong about the yen strength.
The Australian dollar was off 0.6 percent to US$0.8373, though was largely unchanged in August.
The yield on the benchmark 10-year U.S. Treasury note slipped to 3.43 percent, down sharply since hitting 4 percent on June 10.
The creeping rise of risk aversion in markets pushed down oil prices, with U.S. crude for October delivery down 0.7 percent to $72.22 a barrel. Brent was down 0.9 percent to $72.12 a barrel.
The election results, while widely anticipated, sparked some short-term buying of yen on hopes that new policies will support consumer spending in an economy trapped in deflation and haunted by a weak growth outlook, though domestic stocks slipped on exporter weakness.
Major European stock futures fell 0.9 percent , following commodity prices lower, in trade thinned by a holiday in London. U.S. stock futures fell 0.6 percent and U.S. Treasury futures were up 0.2 percent.
Outside of Japan, volatility in Shanghai, a market largely closed to foreigners, has curbed risk taking and has been weighing on the Australian dollar, which is a common target for investors searching for bigger returns because of its relatively high yields.
Shanghai-listed shares dropped 6.2 percent on the day, on track to post losses of 21 percent in August, only the second month that the composite index has fallen more than 20 percent in the last 15 years.
The index also crucially dropped below the 125-day moving average, what is viewed by many domestic investors as the threshold for bear and bull markets.
Fears that banks will rein in their lending after a torrid first six months of the year and an abundant supply of expected new shares have been knocking Chinese shares lower for the last month, often weighing on global investor sentiment about holding riskier assets.
Shares of Bank of China, the country's biggest foreign exchange lender, were down 3.9 percent in Shanghai and the top drag on the market. Hong Kong's Hang Seng dropped 1.8 percent to a one-month low in sympathy with Shanghai.
Tokyo's Nikkei share average fell 0.4 percent. Large exporters Canon Inc and Honda Motor Corp were among the biggest drags on the Nikkei, losing around 3.3 percent and 1.8 percent, respectively, on the stronger yen.
Australian stocks also performed relatively well, falling only 0.2 percent. Shares of Australia and New Zealand Banking Group Ltd jumped 4.1 percent after the country's fourth-largest lender said it was starting to see bad debt provisions bottom out.
The MSCI index of Asia Pacific stocks traded outside Japan slid 1.3 percent. The selling was widespread, hitting the consumer discretionary, energy, telecommunications and materials sectors.
ASIA STOCK'S VALUATIONS QUESTIONED
Asian stocks are trading at a price-to-book valuation of 1.1 times, above the 30-year average of 0.7 times and around the same level at the peak of the last bull market.
Investors since March had been justifying the premium based on the region's growth prospects and its expected speedy recovery from the global downturn. Yet in August developed markets, such as the United States and Europe, have attracted investors away from emerging markets thanks to better economic data.
The Asian stock rally sputtered in July and August for two reasons, according to Mark Matthews, Asia Pacific strategist with Fox-Pitt Kelton ini Hong Kong.
"The first is that the U.S. in particular and the developed world in general are experiencing economic recoveries that are more robust than previously expected. The second is that there is policy shift in China, and even the doves there are happy that asset prices are no longer rising quickly," he said in a note.
YEN FOR YEN
In the currency market, the yen got an early boost on the clear-as-day election result, which eliminated any uncertainty about Japan's political leadership. The sharp selloff in Shanghai equities also supported the yen as dealers sought a safe haven.
The U.S. dollar fell 0.7 percent to 92.75 yen, the lowest since July 13, and the euro dropped 1 percent to 132.28 yen.
The sharp decline in Chinese stocks "has muddied the picture as well as to whether it's a reaction to the election victory or risk aversion. It's probably a bit of a combination of both," said a dealer at a European bank in Hong Kong about the yen strength.
The Australian dollar was off 0.6 percent to US$0.8373, though was largely unchanged in August.
The yield on the benchmark 10-year U.S. Treasury note slipped to 3.43 percent, down sharply since hitting 4 percent on June 10.
The creeping rise of risk aversion in markets pushed down oil prices, with U.S. crude for October delivery down 0.7 percent to $72.22 a barrel. Brent was down 0.9 percent to $72.12 a barrel.
June qtr GDP up 6.1 pct, meets forecasts
NEW DELHI (Reuters) - India's economy grew 6.1 percent in the June quarter from a year earlier, roughly in line with forecasts, as government stimulus measures helped spur demand, although a poor monsoon threatens to crimp growth later in the year even as it drives inflation.
The economy accelerated from its 5.8 percent rate in the previous quarter, data showed on Monday, propelled by a pick-up in activity in the mining, manufacturing, electricity and services sectors from the previous quarter.
Growth was just above analysts' median forecast of 6 percent annual expansion, and economists said weakness in agriculture could be offset by growth in manufacturing and services later in the year.
Abheek Barua, chief economist at HDFC Bank in New Delhi, expects growth for the full year of 5.8 percent, with agriculture declining by 3 percent, although strength in industrial output and services may prompt him to lift his forecast.
He expects the Reserve Bank of India to hold off on any tightening measures until the end of 2009.
"I think by January they would want to send some kind of monetary signal to thwart inflationary expectations," he said.
"By April policy we will see the first rate hike of 25 basis points preceded by a 50 basis point increase in CRR (cash reserve ratio)," he said.
Data showed manufacturing output expanded 3.4 percent in the June quarter while farm output was up 2.4 percent.
The services sector grew 7.8 percent in the June quarter, compared with 10.2 percent in the same year-ago period.
The benchmark stock index trimmed losses to 1 percent from 1.1 percent before the data release.
The benchmark 10-year bond yield was unmoved at 7.45 percent, its highest in 9-½ months, from before the release of the data. The partially convertible rupee was unchanged at 48.85/87 from earlier.
MONSOON BLUES
In the 2008/09 fiscal year to March 31, India's economy grew 6.7 percent, its weakest in six years and well below rates of 9 percent or more in the previous three years.
Just as early signs of recovery were visible with rising sales of cars and homes, the economy was jolted by the worst rainfall since 1972, with drought-like conditions engulfing 40 percent of the country's districts.
However, last week the Reserve Bank of India warned that the poor monsoon is more likely to drive inflation than to curb growth. The index of food prices jumped 13.3 percent in the year through Aug 15, even as India's wholesale price index fell for the 11th straight week.
The Reserve Bank of India (RBI) cut its key lending rate by 425 basis points between October and April, while the government has slashed duty rates and stepped up spending to pump-prime the economy and prevent massive job losses.
Last month, the RBI estimated growth during 2009/10 at 6 percent with an upward bias. The finance minister said last week growth could rebound to 8 percent next year.
Saturday, August 29, 2009
Billionaire Ross Invests in Satyam After Losing Bid for Control
Aug. 28 (Bloomberg) -- Billionaire investor Wilbur Ross has acquired the second-largest stake in Satyam Computer Services Ltd.’s U.S. securities, after missing out in an April auction for control of the Indian software developer.
Invesco Private Capital Inc., controlled by Ross, bought 1.8 million American depositary receipts, according to filings to the Securities & Exchange Commission. The securities, equivalent to two of Satyam’s Indian shares, were worth $3.11 apiece at the end of June, according to the filing. Ross in April offered the equivalent of 80 cents per depository receipt for a controlling stake.
Satyam, at the centre of India’s biggest corporate fraud, has more than doubled since Pune-based Tech Mahindra Ltd., a software provider, won the auction on April 13. The government took over the management of Satyam after founder Ramalinga Raju’s January admission that he overstated assets by $1 billion.
Tech Mahindra Chairman Anand Mahindra, who outbid billionaire Ross and Larsen & Toubro Ltd. with a $579 million offer in April, has said he’s taking a “calculated risk” in buying Satyam before the company restates accounts and without clarity on liabilities from lawsuits in the U.S.
Ross, who made his fortune taking over bankrupt steel, coal and textile companies, offered 20 rupees and Larsen bid 45.9 rupees a share, Satyam Chairman Kiran Karnik said on April 13.
Ross didn’t immediately respond to e-mailed questions about his investment in Satyam.
The investment makes Invesco the second-largest shareholder in Satyam’s depository receipts, behind Security Investors LLC, according to data compiled by Bloomberg.
Ross invested in SpiceJet Ltd. India’s second-largest budget airline, in July last year after record fuel costs deepened the Indian carrier’s losses. In February 2007, Ross acquired OCM India Ltd. a worsted suiting maker, for about $37 million, in his first investment in India.
Invesco Private Capital Inc., controlled by Ross, bought 1.8 million American depositary receipts, according to filings to the Securities & Exchange Commission. The securities, equivalent to two of Satyam’s Indian shares, were worth $3.11 apiece at the end of June, according to the filing. Ross in April offered the equivalent of 80 cents per depository receipt for a controlling stake.
Satyam, at the centre of India’s biggest corporate fraud, has more than doubled since Pune-based Tech Mahindra Ltd., a software provider, won the auction on April 13. The government took over the management of Satyam after founder Ramalinga Raju’s January admission that he overstated assets by $1 billion.
Tech Mahindra Chairman Anand Mahindra, who outbid billionaire Ross and Larsen & Toubro Ltd. with a $579 million offer in April, has said he’s taking a “calculated risk” in buying Satyam before the company restates accounts and without clarity on liabilities from lawsuits in the U.S.
Ross, who made his fortune taking over bankrupt steel, coal and textile companies, offered 20 rupees and Larsen bid 45.9 rupees a share, Satyam Chairman Kiran Karnik said on April 13.
Ross didn’t immediately respond to e-mailed questions about his investment in Satyam.
The investment makes Invesco the second-largest shareholder in Satyam’s depository receipts, behind Security Investors LLC, according to data compiled by Bloomberg.
Ross invested in SpiceJet Ltd. India’s second-largest budget airline, in July last year after record fuel costs deepened the Indian carrier’s losses. In February 2007, Ross acquired OCM India Ltd. a worsted suiting maker, for about $37 million, in his first investment in India.
U.S. Economy: Spending Climbs on ‘Cash for Clunkers’
Aug. 28 (Bloomberg) -- Consumer spending in the U.S. rose in July as Americans jammed auto showrooms to take advantage of the “cash for clunkers” program while avoiding other purchases.
The 0.2 percent gain in spending was in line with forecasts and followed a 0.6 percent increase in June, the Commerce Department said today in Washington. Excluding cars, purchases were flat. Consumer sentiment was little changed in August, a separate report showed.
Auto dealers benefited from the Obama administration’s incentive plan, which ended this month, while retailers such as Kohl’s Corp. and J.C. Penney Co. struggled to lure customers shaken by mounting job losses. Spending gains aren’t likely to be sustained as incomes stagnate and households pay down debt, casting doubt on the strength of the economic recovery.
“The cash-for-clunkers program helped auto sales but hurt other sales, which shows consumption remains weak,” said Christopher Low, chief economist at FTN Financial in New York. “Consumers don’t want to spend on other things and cannot spend, to some extent, because income growth is still anemic.”
The Reuters/University of Michigan final index of consumer sentiment dipped to 65.7, better than forecast, from 66 in July. A preliminary reading for August was 63.2.
Stocks Fell
Stocks dropped after early gains. The Standard & Poor’s 500 Index closed down 0.2 percent at 1,028.93. The yield on the benchmark 10-year Treasury note was 3.45 percent at 5:02 p.m. in New York, down from 3.46 percent yesterday.
Economists forecast consumer spending would rise 0.2 percent, according to the median of 75 estimates in a Bloomberg News survey. The June spending figure was revised from an initial estimate of 0.4 percent.
Incomes were unchanged after dropping 1.1 percent in the prior month. The decrease in income in June reflected the fading boost from government stimulus-related tax cuts and transfers. Wages and salaries posted the first gain of the year, increasing 0.1 percent after a decline of 0.3 percent the prior month.
The savings rate fell to 4.2 percent from 4.5 percent in June as spending increased while incomes stagnated.
Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, jumped 1.8 percent last month after increasing 0.8 percent in the prior month. Spending on motor vehicles and parts jumped 6.4 percent, the biggest increase in 11 months.
Spending Breakdown
Purchases of non-durable goods decreased 0.3 percent for a second month. Spending on services, which account for almost 60 percent of all outlays, climbed 0.1 percent.
Consumer spending, which accounts for about 70 percent of the economy, fell at a 1 percent pace in the second quarter, revised figures from the Commerce Department showed yesterday. The economy shrank at a 1 percent annual rate from April to June, less than analysts’ median forecast.
While economists project that spending will start growing again this quarter, much of the gain will be driven by programs such as the “cash-for-clunkers” plan.
The program provided a “short-term boost” while taking away from future growth, said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. Consumers “remain under major stress,” he said.
Auto industry data showed sales of cars and light trucks rose to an 11.2 million unit annual pace in July, the most since September, after the government offered credits of up to $4,500 to trade in gas guzzlers for more fuel-efficient cars.
Retail Sales
The boost from the auto plan failed to overcome cuts at other merchants, according to government figures released on Aug. 13. Sales at retailers in July fell 0.1 percent, the first drop in three months.
Forecasts call for below-average gains in spending because of stagnant incomes, a lack of jobs and an unemployment rate that may reach 10 percent early next year for the first time since 1983, according to a Bloomberg survey taken this month.
Purchases will probably climb at an average 1.6 percent quarterly rate through June 2010, compared with a 2.8 percent gain on average during the six-year expansion that ended in December 2007, the survey showed.
Stores Struggling
Company results signal shoppers are under pressure. J.C. Penney, the third-largest U.S. department-store chain, issued a third-quarter earnings forecast that trailed analysts’ estimates and said sales may fall 3 percent to 5 percent from the same period last year. Kohl’s said second-quarter profit fell 3 percent as sales at stores open for at least a year declined.
“People are still going to shop a little less and spend a little less than they have in the past,” Kevin Mansell, chief executive officer of Menomonee Falls, Wisconsin-based Kohl’s, said in a telephone interview on Aug. 13.
Today’s Commerce Department report also showed inflation decelerated. The price gauge tied to spending patterns dropped a record 0.8 percent from July 2008.
The Federal Reserve’s preferred gauge of prices, which excludes food and fuel, rose 0.1 percent from the previous month and was up 1.4 percent from a year earlier, the smallest gain since September 2003.
Adjusted for inflation, spending increased 0.2 percent following a 0.1 percent gain the prior month.
The 0.2 percent gain in spending was in line with forecasts and followed a 0.6 percent increase in June, the Commerce Department said today in Washington. Excluding cars, purchases were flat. Consumer sentiment was little changed in August, a separate report showed.
Auto dealers benefited from the Obama administration’s incentive plan, which ended this month, while retailers such as Kohl’s Corp. and J.C. Penney Co. struggled to lure customers shaken by mounting job losses. Spending gains aren’t likely to be sustained as incomes stagnate and households pay down debt, casting doubt on the strength of the economic recovery.
“The cash-for-clunkers program helped auto sales but hurt other sales, which shows consumption remains weak,” said Christopher Low, chief economist at FTN Financial in New York. “Consumers don’t want to spend on other things and cannot spend, to some extent, because income growth is still anemic.”
The Reuters/University of Michigan final index of consumer sentiment dipped to 65.7, better than forecast, from 66 in July. A preliminary reading for August was 63.2.
Stocks Fell
Stocks dropped after early gains. The Standard & Poor’s 500 Index closed down 0.2 percent at 1,028.93. The yield on the benchmark 10-year Treasury note was 3.45 percent at 5:02 p.m. in New York, down from 3.46 percent yesterday.
Economists forecast consumer spending would rise 0.2 percent, according to the median of 75 estimates in a Bloomberg News survey. The June spending figure was revised from an initial estimate of 0.4 percent.
Incomes were unchanged after dropping 1.1 percent in the prior month. The decrease in income in June reflected the fading boost from government stimulus-related tax cuts and transfers. Wages and salaries posted the first gain of the year, increasing 0.1 percent after a decline of 0.3 percent the prior month.
The savings rate fell to 4.2 percent from 4.5 percent in June as spending increased while incomes stagnated.
Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, jumped 1.8 percent last month after increasing 0.8 percent in the prior month. Spending on motor vehicles and parts jumped 6.4 percent, the biggest increase in 11 months.
Spending Breakdown
Purchases of non-durable goods decreased 0.3 percent for a second month. Spending on services, which account for almost 60 percent of all outlays, climbed 0.1 percent.
Consumer spending, which accounts for about 70 percent of the economy, fell at a 1 percent pace in the second quarter, revised figures from the Commerce Department showed yesterday. The economy shrank at a 1 percent annual rate from April to June, less than analysts’ median forecast.
While economists project that spending will start growing again this quarter, much of the gain will be driven by programs such as the “cash-for-clunkers” plan.
The program provided a “short-term boost” while taking away from future growth, said Peter Boockvar, equity strategist at Miller Tabak & Co. in New York. Consumers “remain under major stress,” he said.
Auto industry data showed sales of cars and light trucks rose to an 11.2 million unit annual pace in July, the most since September, after the government offered credits of up to $4,500 to trade in gas guzzlers for more fuel-efficient cars.
Retail Sales
The boost from the auto plan failed to overcome cuts at other merchants, according to government figures released on Aug. 13. Sales at retailers in July fell 0.1 percent, the first drop in three months.
Forecasts call for below-average gains in spending because of stagnant incomes, a lack of jobs and an unemployment rate that may reach 10 percent early next year for the first time since 1983, according to a Bloomberg survey taken this month.
Purchases will probably climb at an average 1.6 percent quarterly rate through June 2010, compared with a 2.8 percent gain on average during the six-year expansion that ended in December 2007, the survey showed.
Stores Struggling
Company results signal shoppers are under pressure. J.C. Penney, the third-largest U.S. department-store chain, issued a third-quarter earnings forecast that trailed analysts’ estimates and said sales may fall 3 percent to 5 percent from the same period last year. Kohl’s said second-quarter profit fell 3 percent as sales at stores open for at least a year declined.
“People are still going to shop a little less and spend a little less than they have in the past,” Kevin Mansell, chief executive officer of Menomonee Falls, Wisconsin-based Kohl’s, said in a telephone interview on Aug. 13.
Today’s Commerce Department report also showed inflation decelerated. The price gauge tied to spending patterns dropped a record 0.8 percent from July 2008.
The Federal Reserve’s preferred gauge of prices, which excludes food and fuel, rose 0.1 percent from the previous month and was up 1.4 percent from a year earlier, the smallest gain since September 2003.
Adjusted for inflation, spending increased 0.2 percent following a 0.1 percent gain the prior month.
Friday, August 28, 2009
3G spectrum bids to start at 3,500cr, WiMAX 1,750 cr
NEW DELHI: The deadlock over the reserve price for third-generation radio frequency auction, vital for services such as video-calling and high-speed internet access on mobile phones, was finally resolved on Thursday when the empowered group of ministers (EGoM) headed by finance minister Pranab Mukherjee fixed it at Rs 3,500 crore. This means, any telecom company bidding for pan-India 3G spectrum will have to pay a minimum of Rs 3,500 crore as the auctions will begin at this price.
This is nearly Rs 500 crore lower than the base price that telecom minister A Raja and the finance minister had agreed to during a meeting with Prime Minister Manmohan Singh in June ‘09. At the same time, this is nearly Rs 1,500 crore more than the price specified by telecom regulator Trai, which had said the base price must be only Rs 2,020 crore.
The EGoM also decided that a total of five players will be allowed to offer 3G services in every circle, of which one slot will be reserved for state-owned telcos BSNL & MTNL. Again, this is in variation to Mr Raja and Mr Mukherjee’s earlier decision to have seven players per circle.
“The EGoM has decided that 3G radio frequencies will have a reserve price of Rs 3,500 crore. This is final. We have also decided that the reserve price for WiMAX spectrum will be Rs 1,750 crore. We hope to complete the auctions within 90 days from Thursday and we expect to get a minimum of Rs 25,000 crore from these auctions,” Mr A Raja told ET.
He also added that the Department of Telecom had presented three options to the EGoM—retaining the reserve price at Rs 2,020 crore as recommended by Trai, double it to Rs 4,040 crore as demanded by the finance minister, or agree to a figure of Rs 3,500 crore.
All telcos said they would bid for 3G spectrum: “We welcome the government’s decision to expeditiously complete the planned auction of 3G spectrum. We believe 3G will drive the wireless broadband revolution in both urban and rural India, contributing to inclusive growth. Bharti Airtel looks forward to participating in the auction,” Bharti Airtel CEO and joint MD Manoj Kohli said.
According to a communication ministry official, the logic for fixing Rs 3500 crore as the base price is that it satisfies The Department of Telecom which suggested Rs 2,020 crore as the base price and the finance ministry’s recommendation of Rs 4,040 crore.
The EGoM has arrived at this figure (Rs 3,500 crore) by doubling the reserve price for Delhi, Mumbai and category A circles and increasing it 1.5 times for Kolkata and category B circles retaining the current base price for category C circles.
The government had decided to refer the matter to an EGoM despite telecom minister A Raja and finance minister Pranab Mukherjee reaching a consensus in June 09 during a meeting with Prime Minister Manmohan Singh on doubling the 3G reserve price to Rs 4,040 crore and allowing up to seven players (including BSNL & MTNL) per circle to offer these high-end services. This was because, the new UPA government wanted to avoid any further controversy on the auctions of frequencies for 3G and WiMAX.
Asked on the EGoM’s decision, Prashant Singhal, partner and telecom industry leader, Ernst & Young said: “The increase in the reserve price for 3G auctions to from Rs 2,020 crore to Rs 3,500 crore, with a 4-slot bidding, could see some competition in lucrative markets, such as Metros, A circles, but may still not see a lot of bidding and traction in the B and C circles.
Over 75 per cent increase in the reserve price within a year’s time and that too with the economic recession could be a dampener to the excitement in the Indian telecom industry. The high base price would mean that operators would raise the cost of services to the consumer. That in turn could prove to be a negative to the growth of 3G in India.”
In addition to Mr Raja and Mr Mukherjee, the other members of the nine-member EGoM include home minister P Chidambaram, defence minister A K Antony, agriculture minister Sharad Pawar, law minister Veerappa Moily, information & broadcasting minister Ambika Soni, planning commission deputy chairman Montek Singh Ahluwalia and minister of state in the Prime Minister’s Office Prithviraj Chavan.
This is nearly Rs 500 crore lower than the base price that telecom minister A Raja and the finance minister had agreed to during a meeting with Prime Minister Manmohan Singh in June ‘09. At the same time, this is nearly Rs 1,500 crore more than the price specified by telecom regulator Trai, which had said the base price must be only Rs 2,020 crore.
The EGoM also decided that a total of five players will be allowed to offer 3G services in every circle, of which one slot will be reserved for state-owned telcos BSNL & MTNL. Again, this is in variation to Mr Raja and Mr Mukherjee’s earlier decision to have seven players per circle.
“The EGoM has decided that 3G radio frequencies will have a reserve price of Rs 3,500 crore. This is final. We have also decided that the reserve price for WiMAX spectrum will be Rs 1,750 crore. We hope to complete the auctions within 90 days from Thursday and we expect to get a minimum of Rs 25,000 crore from these auctions,” Mr A Raja told ET.
He also added that the Department of Telecom had presented three options to the EGoM—retaining the reserve price at Rs 2,020 crore as recommended by Trai, double it to Rs 4,040 crore as demanded by the finance minister, or agree to a figure of Rs 3,500 crore.
All telcos said they would bid for 3G spectrum: “We welcome the government’s decision to expeditiously complete the planned auction of 3G spectrum. We believe 3G will drive the wireless broadband revolution in both urban and rural India, contributing to inclusive growth. Bharti Airtel looks forward to participating in the auction,” Bharti Airtel CEO and joint MD Manoj Kohli said.
According to a communication ministry official, the logic for fixing Rs 3500 crore as the base price is that it satisfies The Department of Telecom which suggested Rs 2,020 crore as the base price and the finance ministry’s recommendation of Rs 4,040 crore.
The EGoM has arrived at this figure (Rs 3,500 crore) by doubling the reserve price for Delhi, Mumbai and category A circles and increasing it 1.5 times for Kolkata and category B circles retaining the current base price for category C circles.
The government had decided to refer the matter to an EGoM despite telecom minister A Raja and finance minister Pranab Mukherjee reaching a consensus in June 09 during a meeting with Prime Minister Manmohan Singh on doubling the 3G reserve price to Rs 4,040 crore and allowing up to seven players (including BSNL & MTNL) per circle to offer these high-end services. This was because, the new UPA government wanted to avoid any further controversy on the auctions of frequencies for 3G and WiMAX.
Asked on the EGoM’s decision, Prashant Singhal, partner and telecom industry leader, Ernst & Young said: “The increase in the reserve price for 3G auctions to from Rs 2,020 crore to Rs 3,500 crore, with a 4-slot bidding, could see some competition in lucrative markets, such as Metros, A circles, but may still not see a lot of bidding and traction in the B and C circles.
Over 75 per cent increase in the reserve price within a year’s time and that too with the economic recession could be a dampener to the excitement in the Indian telecom industry. The high base price would mean that operators would raise the cost of services to the consumer. That in turn could prove to be a negative to the growth of 3G in India.”
In addition to Mr Raja and Mr Mukherjee, the other members of the nine-member EGoM include home minister P Chidambaram, defence minister A K Antony, agriculture minister Sharad Pawar, law minister Veerappa Moily, information & broadcasting minister Ambika Soni, planning commission deputy chairman Montek Singh Ahluwalia and minister of state in the Prime Minister’s Office Prithviraj Chavan.
RBI surplus jumps 66.6 per cent
The Reserve Bank of India’s (RBI’s) transferable surplus to the Government of India for 2008-09 jumped 66.6 per cent to Rs 25,009 crore from Rs 15,011 crore in the previous year.
According to the RBI Annual Report, the surplus has come primarily due to increased earnings from domestic investments.
The income from domestic sources in 2008-09 at Rs 9,935.77 crore was higher compared with the last year’s level of Rs 5,867.52 crore, primarily on account of an increase in ‘Interest on Domestic Securities and LAF operations,’ which increased from Rs 4,533.87 crore in 2007-08 to Rs 8,683.11 crore in 2008-09 and ‘Interest on Loans and Advances,’ which increased from Rs 325.60 crore in 2007-08 to Rs 1,254.80 crore in 2008-09. The investment in Government of India securities increased by Rs 1,26,086.86 crore, from Rs 72,540.33 crore as on June 30, 2008, to Rs 1,98,627.19 crore as on June 30, 2009, on account of purchase of special securities from the oil marketing companies (ie oil bonds) under the special market operations and increase in the open market operations.
The surplus thus included Rs 1,436.00 crore towards the interest differential on special securities converted into marketable securities for compensating the government for the difference in interest expenditure, which the government had to bear consequent on conversion of such special securities.
The report further stated that unlike the significant expansion in balance sheets of the central banks of several advanced economies that resulted from their policy responses to the crisis, the behaviour of the Reserve Bank’s balance sheet was distinctly different. This is because specific measures, such as reduction in CRR and unwinding of the government’s MSS balances implied corresponding contraction in the central bank’s liabilities, even as both measures were the key channels for injecting large liquidity into the financial system. Thus, through contraction in the balance sheet size, the Reserve Bank could expand the availability of liquidity in the system. On the asset side of the balance sheet too, the contraction was driven by a decline in foreign assets.
During the year, gross income and expenditure of the Reserve Bank were at Rs 60,731.98 crore and Rs 8,217.88 crore, respectively, after meeting the allocation needs for both contingency reserve (CR) and asset development reserve (ADR).
Earnings from foreign and domestic sources were at Rs 50,796.21 crore and Rs 9,935.77 crore, respectively.
The Reserve Bank’s earnings from the deployment of foreign currency assets and gold decreased by Rs 1,087.06 crore (down 2.10 per cent), from Rs 51,883.27 crore in 2007-08 to Rs 50,796.21 crore in 2008-09. This was mainly on account of the fall in interest rates in the international markets. Before accounting for mark-to-market depreciation on securities, the rate of earnings on foreign currency assets and gold was 4.24 per cent in 2008-09 as against 5.09 per cent in 2007-08. The rate of earnings on foreign currency assets and gold, after accounting for depreciation, decreased from 4.82 per cent in 2007-08 to 4.16 per cent in 2008-09.
The foreign currency assets comprise foreign securities held in the issue department, balances held abroad and investments in foreign securities held in the banking department. These assets declined by Rs 81,010.25 crore, from Rs 12,98,552.05 crore as on June 30, 2008, to Rs 12,17,541.80 crore as on June 30, 2009. The decrease in the level of foreign currency assets was mainly on account of net sales of US dollars in the domestic foreign exchange market.
According to the RBI Annual Report, the surplus has come primarily due to increased earnings from domestic investments.
The income from domestic sources in 2008-09 at Rs 9,935.77 crore was higher compared with the last year’s level of Rs 5,867.52 crore, primarily on account of an increase in ‘Interest on Domestic Securities and LAF operations,’ which increased from Rs 4,533.87 crore in 2007-08 to Rs 8,683.11 crore in 2008-09 and ‘Interest on Loans and Advances,’ which increased from Rs 325.60 crore in 2007-08 to Rs 1,254.80 crore in 2008-09. The investment in Government of India securities increased by Rs 1,26,086.86 crore, from Rs 72,540.33 crore as on June 30, 2008, to Rs 1,98,627.19 crore as on June 30, 2009, on account of purchase of special securities from the oil marketing companies (ie oil bonds) under the special market operations and increase in the open market operations.
The surplus thus included Rs 1,436.00 crore towards the interest differential on special securities converted into marketable securities for compensating the government for the difference in interest expenditure, which the government had to bear consequent on conversion of such special securities.
The report further stated that unlike the significant expansion in balance sheets of the central banks of several advanced economies that resulted from their policy responses to the crisis, the behaviour of the Reserve Bank’s balance sheet was distinctly different. This is because specific measures, such as reduction in CRR and unwinding of the government’s MSS balances implied corresponding contraction in the central bank’s liabilities, even as both measures were the key channels for injecting large liquidity into the financial system. Thus, through contraction in the balance sheet size, the Reserve Bank could expand the availability of liquidity in the system. On the asset side of the balance sheet too, the contraction was driven by a decline in foreign assets.
During the year, gross income and expenditure of the Reserve Bank were at Rs 60,731.98 crore and Rs 8,217.88 crore, respectively, after meeting the allocation needs for both contingency reserve (CR) and asset development reserve (ADR).
Earnings from foreign and domestic sources were at Rs 50,796.21 crore and Rs 9,935.77 crore, respectively.
The Reserve Bank’s earnings from the deployment of foreign currency assets and gold decreased by Rs 1,087.06 crore (down 2.10 per cent), from Rs 51,883.27 crore in 2007-08 to Rs 50,796.21 crore in 2008-09. This was mainly on account of the fall in interest rates in the international markets. Before accounting for mark-to-market depreciation on securities, the rate of earnings on foreign currency assets and gold was 4.24 per cent in 2008-09 as against 5.09 per cent in 2007-08. The rate of earnings on foreign currency assets and gold, after accounting for depreciation, decreased from 4.82 per cent in 2007-08 to 4.16 per cent in 2008-09.
The foreign currency assets comprise foreign securities held in the issue department, balances held abroad and investments in foreign securities held in the banking department. These assets declined by Rs 81,010.25 crore, from Rs 12,98,552.05 crore as on June 30, 2008, to Rs 12,17,541.80 crore as on June 30, 2009. The decrease in the level of foreign currency assets was mainly on account of net sales of US dollars in the domestic foreign exchange market.
Thursday, August 27, 2009
Housing Data Point to Market Turnaround That May Help Economy
Aug. 27 (Bloomberg) -- The worst U.S. housing market since the Great Depression may be on the mend after prices rose in 18 of 20 U.S. cities in June, existing home sales hit a two-year high, and new home sales gained for a fourth consecutive month.
“The sense that something is changing is definitely in the air,” said Robert Shiller, the Yale University professor who, with economist Karl Case, created home price indexes in the 1980s now used by Standard & Poor’s. “After three years of decline, we might be seeing a turnaround.”
Lower home prices and government stimulus efforts have spurred demand and pared the supply of existing homes to the fewest in two years, while sending new-home inventory to a 16- year low. Real estate sales buttress consumer spending, which accounts for about 70 percent of the economy, because new owners tend to buy appliances, drapes and furniture.
The S&P/Case-Shiller home-price index, which tracks 20 metropolitan areas, showed a gain in 18 cities during June, according to an Aug. 25 report. Detroit and Las Vegas were the only two that declined. The Federal Housing Finance Agency national index showed a 0.5 percent increase during June with increases in five out of nine U.S. regions, according to an Aug. 25 government report.
“Evidence is mounting that the worst of the economic downturn is behind us,” Federal Reserve Bank of Atlanta President Dennis Lockhart said yesterday in a speech in Chattanooga, Tennessee. “The beginning stages of recovery are underway.”
‘Serious Downturn’
Other federal officials are less optimistic. The jobless rate, which hit 9.5 percent in June before dipping to 9.4 percent last month, may rise to 10 percent by the end of 2009, according to an Aug. 25 report by the White House Office of Management and Budget.
“While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the report said.
About 26 percent of U.S. homes with a mortgage were worth less than the amount owed, according to a Deutsche Bank AG report this month. Deutsche Bank analysts Karen Weaver and Ying Shen forecast that by the end of the year, as many as 48 percent of mortgages may be “underwater.” That means few homeowners will be able to refinance or take home equity loans to get cash.
Leading the Way
Residential construction and home sales led the way out of the previous seven recessions going back to 1960, according to David Berson, chief economist of PMI Group, a mortgage insurer in Walnut Creek, California. Home resales gained strength an average four months before the end of a recession, single-family housing starts improved for seven months, and new-home sales grew for eight months.
Improvements in the unemployment rate lagged behind the start of a recovery by an average six months, according to Berson, the former chief economist of Washington-based Fannie Mae.
Existing home sales already have reached that marker, gaining for the last four months. Single-family housing starts improved for the last five months, two months short of the recovery average, and new-home sales jumped 9.6 percent in July, the most in four years, halfway toward the average eight months of consecutive gains before the onset of economic improvement.
Purchases of new homes in July jumped 9.6 percent, more than forecast and the biggest increase in four years, to a 433,000 annual pace, figures from the Commerce Department showed yesterday in Washington. Economists had estimated new home sales would increase to a 390,000 rate, according to the median of 71 projections in a Bloomberg News survey. July’s sales pace was the highest in 10 months and exceeded all estimates, which ranged from 365,000 to 420,000.
Tax Credit
Some of the gain was fueled by a tax credit of as much as $8,000 for first-time buyers and mortgage rates set artificially low because of the Federal Reserve’s purchases of mortgage- backed securities, said Nicolas Retsinas, director of housing studies at Harvard University in Cambridge, Massachusetts.
“Will this be sustainable over the long term?” Retsinas said. “That remains to be seen.”
The median price of a new home decreased 12 percent to $210,100 from $237,300 in July 2008. Sales of new homes were down 13 percent from a year earlier.
The jump in new-home sales was led by a 32 percent surge in the Northeast. Purchases increased 16 percent in the South and 1 percent in the West. They dropped 7.6 percent in the Midwest.
Builders had 271,000 houses on the market last month, down 35 percent from July 2008 and the fewest since March 1993. It would take 7.5 months to sell all homes at the current sales pace, the shortest time since April 2007.
Existing Home Sales
U.S. sales of existing homes jumped more than forecast in July to the highest level in almost two years, according to the National Association of Realtors. Purchases climbed 7.2 percent to an annual rate of 5.24 million, the most since August 2007, according to an Aug. 21 report by the Chicago-based realtors group. The gain was the biggest since records began in 1999.
Home prices probably will fall 13 percent in the current quarter compared with the drop of 16 percent from April through June, the realtors group said in a forecast on its Web site. Price declines may slow to 2 percent in the fourth quarter before gaining 2.3 percent in the first three months of 2010, the realtors group said.
“The sense that something is changing is definitely in the air,” said Robert Shiller, the Yale University professor who, with economist Karl Case, created home price indexes in the 1980s now used by Standard & Poor’s. “After three years of decline, we might be seeing a turnaround.”
Lower home prices and government stimulus efforts have spurred demand and pared the supply of existing homes to the fewest in two years, while sending new-home inventory to a 16- year low. Real estate sales buttress consumer spending, which accounts for about 70 percent of the economy, because new owners tend to buy appliances, drapes and furniture.
The S&P/Case-Shiller home-price index, which tracks 20 metropolitan areas, showed a gain in 18 cities during June, according to an Aug. 25 report. Detroit and Las Vegas were the only two that declined. The Federal Housing Finance Agency national index showed a 0.5 percent increase during June with increases in five out of nine U.S. regions, according to an Aug. 25 government report.
“Evidence is mounting that the worst of the economic downturn is behind us,” Federal Reserve Bank of Atlanta President Dennis Lockhart said yesterday in a speech in Chattanooga, Tennessee. “The beginning stages of recovery are underway.”
‘Serious Downturn’
Other federal officials are less optimistic. The jobless rate, which hit 9.5 percent in June before dipping to 9.4 percent last month, may rise to 10 percent by the end of 2009, according to an Aug. 25 report by the White House Office of Management and Budget.
“While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the report said.
About 26 percent of U.S. homes with a mortgage were worth less than the amount owed, according to a Deutsche Bank AG report this month. Deutsche Bank analysts Karen Weaver and Ying Shen forecast that by the end of the year, as many as 48 percent of mortgages may be “underwater.” That means few homeowners will be able to refinance or take home equity loans to get cash.
Leading the Way
Residential construction and home sales led the way out of the previous seven recessions going back to 1960, according to David Berson, chief economist of PMI Group, a mortgage insurer in Walnut Creek, California. Home resales gained strength an average four months before the end of a recession, single-family housing starts improved for seven months, and new-home sales grew for eight months.
Improvements in the unemployment rate lagged behind the start of a recovery by an average six months, according to Berson, the former chief economist of Washington-based Fannie Mae.
Existing home sales already have reached that marker, gaining for the last four months. Single-family housing starts improved for the last five months, two months short of the recovery average, and new-home sales jumped 9.6 percent in July, the most in four years, halfway toward the average eight months of consecutive gains before the onset of economic improvement.
Purchases of new homes in July jumped 9.6 percent, more than forecast and the biggest increase in four years, to a 433,000 annual pace, figures from the Commerce Department showed yesterday in Washington. Economists had estimated new home sales would increase to a 390,000 rate, according to the median of 71 projections in a Bloomberg News survey. July’s sales pace was the highest in 10 months and exceeded all estimates, which ranged from 365,000 to 420,000.
Tax Credit
Some of the gain was fueled by a tax credit of as much as $8,000 for first-time buyers and mortgage rates set artificially low because of the Federal Reserve’s purchases of mortgage- backed securities, said Nicolas Retsinas, director of housing studies at Harvard University in Cambridge, Massachusetts.
“Will this be sustainable over the long term?” Retsinas said. “That remains to be seen.”
The median price of a new home decreased 12 percent to $210,100 from $237,300 in July 2008. Sales of new homes were down 13 percent from a year earlier.
The jump in new-home sales was led by a 32 percent surge in the Northeast. Purchases increased 16 percent in the South and 1 percent in the West. They dropped 7.6 percent in the Midwest.
Builders had 271,000 houses on the market last month, down 35 percent from July 2008 and the fewest since March 1993. It would take 7.5 months to sell all homes at the current sales pace, the shortest time since April 2007.
Existing Home Sales
U.S. sales of existing homes jumped more than forecast in July to the highest level in almost two years, according to the National Association of Realtors. Purchases climbed 7.2 percent to an annual rate of 5.24 million, the most since August 2007, according to an Aug. 21 report by the Chicago-based realtors group. The gain was the biggest since records began in 1999.
Home prices probably will fall 13 percent in the current quarter compared with the drop of 16 percent from April through June, the realtors group said in a forecast on its Web site. Price declines may slow to 2 percent in the fourth quarter before gaining 2.3 percent in the first three months of 2010, the realtors group said.
Trade Policy: Govt eyes $200 bn export; doles out sops
NEW DELHI: India today extended tax holiday and duty refund for exporters, while allowing duty free capital goods import under its Foreign Trade Policy to insulate them from protectionism induced by recession abroad.
Unveiling the five-year policy, Commerce Minister Anand Sharma set a target of USD 200 billion worth exports for next fiscal, a feat that India failed to achieve in 2008-09 due to a slump in global demand in the face of financial crisis.
"India has not been affected to the same extent as other economies of the world, yet our exports have suffered a decline in the last 10 months due to a contraction in demand in the traditional markets. The protectionist measures being adopted by some of these countries have aggravated the problem," he said, presenting his first trade policy.
While exports for the April-June quarter contracted by 31 per cent, Sharma set a growth target of 15 per cent for FY'10.
"I would be hesitant to hazard a guess on the nature and extent of this recovery and the time the major economies will take to return to there pre-recession growth levels," he said, encouraging exporters to look beyond traditional markets like the US and western Europe.
Extension of income tax holiday for export units for one more year and continuance of duty refund scheme till Decemer 2010 and enhanced assistance for the scheme for development of markets are among the measures in the FTP.
The aim of the policy, which would be reviewed after two years, would be to "arrest and reverse declining trend of exports," Sharma said.
Exports have been on a decline for the past 10 months. Exports in FY'09 amounted to USD 168 billion and the country hopes to maintain the same level this fiscal.
Expressing confidence that the country would be able to achieve a 25 per cent growth rate after two years, Sharma said, "By 2014, we expect to double India's exports of goods and services."
The long-term policy objective, he added, will be to double India's share in global trade by 2020. India's share in global merchandise trade went up from 0.83 per cent in 2003 to 1.45 per cent in 2008.
"Announcing the FTP in this economic climate is indeed a daunting task. We cannot remain oblivious to declining demand in the developed world and we need to set in motion the strategies and policy measures which catalyse the growth of exports," he said.
The government, he added, would encourage exports through a "mix of measures including fiscal incentives, institutional changes, procedural rationalisation and efforts for enhance market access across the world and diversification of export markets.
The policy, Sharma said, would provide a special thrust to the employment-oriented sectors which have witnessed job losses in the wake of recession, especially in the fields of textiles, leather and handicrafts.
Tuesday, August 25, 2009
Reader's Digest files for bankruptcy protection
The publisher of the world's largest-circulated magazine Reader's Digest, sold across dozens of countries including India, today filed for bankruptcy protection in the US.
Reader's Digest Association (RDA) in a statement said that "it has filed voluntary pre-arranged petitions under Chapter 11 of the United State Bankruptcy Code, as part of the company's previously announced restructuring plan".
The filing for bankruptcy protection by RDA is aimed at reducing its debt burden by 75 per cent and to strengthen future financial position.
"The filing applies only to the RDA's US businesses-- its operations in Canada, Latin America, Europe, Africa, Asia and Australia-New Zealand will not be part of the filing," RDA said.
RDA, a global multi-brand media and marketing company based in the US, has offices in 44 countries and sells books, magazines, music, video and educational products reaching a customer base of 130 million in 78 countries.
It publishes 94 magazines, including 50 editions of Reader's Digest, the world's largest-circulated magazine and sells approximately 40 million books, music and video products across the world each year.
Prior to the filing, more than 80 per cent of the company's senior secured lenders had signed on to the agreement in principle.
Reader's Digest Association (RDA) in a statement said that "it has filed voluntary pre-arranged petitions under Chapter 11 of the United State Bankruptcy Code, as part of the company's previously announced restructuring plan".
The filing for bankruptcy protection by RDA is aimed at reducing its debt burden by 75 per cent and to strengthen future financial position.
"The filing applies only to the RDA's US businesses-- its operations in Canada, Latin America, Europe, Africa, Asia and Australia-New Zealand will not be part of the filing," RDA said.
RDA, a global multi-brand media and marketing company based in the US, has offices in 44 countries and sells books, magazines, music, video and educational products reaching a customer base of 130 million in 78 countries.
It publishes 94 magazines, including 50 editions of Reader's Digest, the world's largest-circulated magazine and sells approximately 40 million books, music and video products across the world each year.
Prior to the filing, more than 80 per cent of the company's senior secured lenders had signed on to the agreement in principle.
Bernanke to Be Nominated by Obama for Second Term as Fed Chief
Aug. 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, who led the biggest expansion of the central bank’s power in its 95-year history to battle the worst economic slump since the Great Depression, will be nominated to a second term by President Barack Obama.
Bernanke “has led the Fed through the one of the worst financial crises that this nation and this world have ever faced,” Obama said in remarks prepared for delivery today in Martha’s Vineyard, Massachusetts, where Bernanke is to join him.
“As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another,” Obama said. “But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve.”
Bernanke’s nomination for a second four-year term starting Jan. 31 requires Senate approval and was endorsed by the head of the Banking Committee, Christopher Dodd. The Fed chief will still face tough questioning from lawmakers who say he was slow to recognize the severity of the mortgage crisis and didn’t do enough to protect American consumers while leading bailouts of financial firms including Bear Stearns Cos. and American International Group Inc.
“While I have had serious differences with the Federal Reserve over the past few years, I think reappointing Chairman Bernanke is probably the right choice,” Dodd, a Connecticut Democrat, said yesterday in a statement. “There will be a thorough and comprehensive confirmation hearing.”
Stocks, Treasuries
Asian stocks fell and Treasuries advanced as Bernanke’s nomination confirmed expectations of investors, who focused instead on lower profits at Chinese companies and evidence of increasing loan losses in the U.S. Japan’s Nikkei 225 Stock Average slipped 0.7 percent to 10,506.55 at 2:11 p.m. in Tokyo. The yield on the 10-year Treasury note declined one basis point to 3.46 percent, according to data compiled by Bloomberg.
Obama decided to reappoint Bernanke because he wanted to keep together the team that had weathered the crisis, an administration official said. The official said Treasury Secretary Timothy Geithner, Chief of Staff Rahm Emanuel and National Economic Council Chairman Larry Summers all recommended Bernanke be reappointed.
Bernanke, 55, slashed the main interest rate almost to zero and pumped $1 trillion into the banking system to unfreeze credit markets. He now must guide the world’s largest economy back to growth and reduce unemployment approaching 10 percent while shrinking the Fed’s balance sheet to prevent a surge in inflation.
Challenges Ahead
“It’s not just that he’s done a great job of dealing creatively with the financial crisis,” said Richard Berner, co- head of global economics at Morgan Stanley in New York. “He has the capacity to deal with the challenges that lie ahead -- continuing to help the economy and markets heal and engineering the exit strategy when it’s appropriate to do so.”
Obama, a Democrat, continues a recent tradition of bipartisanship in his decision to nominate Bernanke, a Republican, to a second term.
Bernanke’s predecessor and fellow Republican, Alan Greenspan, served as Fed chief for 18 years while gaining renomination by three presidents, including Bill Clinton, a Democrat. President Ronald Reagan kept Paul Volcker, first selected by Jimmy Carter, for a second term.
Almost 75 percent of investors surveyed in the first Quarterly Bloomberg Global Poll had a favorable view of the chairman in July. By almost a three-to-one margin, they said Bernanke had earned another four-year term.
Exit Strategy
“Wall Street can rest a little easier,” said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Having a new chairman come in at this late date would put the Fed-engineered solution to both the recovery and the exit strategy at risk.”
The Standard & Poor’s 500 Index has risen 52 percent since a recession low on March 9. The S&P lost 38.5 percent last year. Credit markets have also recovered: The London Interbank Offered Rate for three months loans in dollars fell to 0.39 percent on Aug. 24. The rate surged as high as 4.81 percent in October.
Bernanke’s nomination comes as the world’s biggest economy is poised for renewed growth.
The economy will expand 2 percent or more in the four quarters through June, the first such streak in more than four years, according to the median of 53 forecasts in a Bloomberg News survey of economists. Gross domestic product has fallen 3.9 percent since the recession began in December 2007.
Corporate Bonds
The Libor-OIS spread, a gauge of financial stress, fell to 20 basis points Aug. 24. The spread soared to 364 basis points on Oct. 10 last year after Lehman Brothers Holdings Inc.’s collapse. Greenspan said in a June 2008 interview he wouldn’t consider credit markets back to “normal” until the spread was at 25 basis points.
Companies have sold a record $794 billion of dollar- denominated investment-grade corporate bonds this year, according to data compiled by Bloomberg. That’s up from $599 billion in the same period last year.
“Prospects for a return to growth in the near term appear good,” Bernanke said in an Aug. 21 speech at the Kansas City Fed’s annual symposium in Jackson Hole. Still, he warned of “critical challenges” ahead and added: “We have an enormous amount of work to do.”
Economists predict the unemployment rate, now 9.4 percent, could climb above 10 percent, curbing consumer spending and limiting the strength of the recovery.
MIT Degree
Ben Shalom Bernanke grew up in Dillon, South Carolina, where his family owned a pharmacy opened by his Austrian immigrant grandfather. He went north to Harvard University in Cambridge, Massachusetts, graduating summa cum laude with a bachelor’s degree in economics, then received a doctorate in economics from the neighboring Massachusetts Institute of Technology in 1979.
A self-described “Great Depression buff,” Bernanke joined the central bank as a governor in 2002 after serving as chairman of Princeton University’s economics department. President George W. Bush appointed Bernanke chairman of the Council of Economic Advisers in 2005 before naming him a few months later to the top Fed post.
“I did spend a lot of my career studying the Great Depression and other financial crises,” Bernanke said in a town-hall-style meeting on July 26 organized by PBS television. “And I didn’t expect it would be so helpful, so useful, as it has been.”
By his own admission, Bernanke was slow to recognize the severity of the mortgage meltdown at the heart of the recession.
“I and others were mistaken early on in saying that the subprime crisis would be contained,” he said in an interview last November with the New Yorker magazine.
Discount Rate Cut
In August 2007, the collapse in credit markets forced Fed policy makers to lower the discount rate just two weeks after declaring inflation was their paramount challenge. The next month, the Fed cut its benchmark federal funds rate for the first time in four years.
Bernanke came under fire for failing to prevent the collapse of Lehman Brothers, which triggered the biggest drop in the S&P 500 Index since Sept. 11, 2001, and deepened the credit freeze.
“The sentiment all over the world was that such a dramatic bankruptcy of a signature institution was impossible,” said Jean-Claude Trichet, president of the European Central Bank, in a June 15 interview.
Bernanke called Lehman’s failure “unavoidable” in his Jackson Hole speech. No buyer could be found, he said, and the investment bank didn’t have enough collateral to qualify for a Fed loan large enough to save it.
AIG Bailout
Two days after Lehman’s bankruptcy filing, the Fed took control of AIG in an $85 billion bailout designed to prevent the worst financial collapse in history.
As Lehman’s collapse sent shock waves through financial markets, Bernanke launched unprecedented programs -- one to contain fallout from a run on money-market funds, and another to buy short-term debt from companies such as General Electric Co.
Bernanke also supported then-Treasury Secretary Henry Paulson’s proposal for a $700 billion Troubled Asset Relief Program, initially intended to buy toxic assets from banks and later used to purchases equity stakes in the lenders themselves.
In December, with the economy contracting, the Fed’s key interest rate was slashed almost to zero, where it has remained. In the following months, the Fed launched programs to pump money into the economy through purchases of mortgage-backed debt, U.S. Treasuries and securities backed by auto loans, credit cards and commercial-property mortgages.
‘Uncharted Territory’
“This last couple of years has been clearly a move through uncharted territory, and as we’ve seen it’s taken a lot of unconventional moves to try to deal with the situation,” said Robert Parry, former president of the San Francisco Federal Reserve Bank. “There’s been a lot of innovation that’s gone on, and it seems to me that much of it has been successful.”
Yet the expansion of Fed authority has put Bernanke in the crosshairs of critics in Congress. Some lawmakers have accused the Fed of overstepping its authority and failing to properly supervise the financial firms that packaged and sold the mortgage-backed securities at the heart of the crisis.
“I’ve been astounded and shocked by certain regulatory malfeasance of the Federal Reserve and the reserve banks in the regulatory process in the last several years,” said Alabama Senator Richard Shelby, the ranking Republican on the Banking Committee.
Bank of America
Other lawmakers accused Bernanke of improperly pressuring Bank of America Corp. Chief Executive Officer Kenneth Lewis to proceed with its planned acquisition of Merrill Lynch & Co. The House Oversight Committee subpoenaed and released dozens of Fed e-mails and other documents. Bernanke told the panel in June that the central bank acted with the “highest integrity.”
The Fed chairman “has stepped on some landmines,” said Raymond Stone, managing director at Stone & McCarthy Research in Skillman, New Jersey. “Some were his fault, most weren’t.”
There’s little indication that Bernanke would fail to gain Senate approval. The Fed chief has cultivated relationships with key members of Congress, winning their respect while they criticized some of the central bank’s actions.
Senator Charles Schumer, a member of the Banking Committee and a New York Democrat, endorsed Bernanke’s reappointment, calling him “the right choice for these tough times.”
The recession “could have been considerably worse without Ben Bernanke’s strong and resolute actions,” Schumer said in a statement.
Bernanke “has led the Fed through the one of the worst financial crises that this nation and this world have ever faced,” Obama said in remarks prepared for delivery today in Martha’s Vineyard, Massachusetts, where Bernanke is to join him.
“As an expert on the causes of the Great Depression, I’m sure Ben never imagined that he would be part of a team responsible for preventing another,” Obama said. “But because of his background, his temperament, his courage, and his creativity, that’s exactly what he has helped to achieve.”
Bernanke’s nomination for a second four-year term starting Jan. 31 requires Senate approval and was endorsed by the head of the Banking Committee, Christopher Dodd. The Fed chief will still face tough questioning from lawmakers who say he was slow to recognize the severity of the mortgage crisis and didn’t do enough to protect American consumers while leading bailouts of financial firms including Bear Stearns Cos. and American International Group Inc.
“While I have had serious differences with the Federal Reserve over the past few years, I think reappointing Chairman Bernanke is probably the right choice,” Dodd, a Connecticut Democrat, said yesterday in a statement. “There will be a thorough and comprehensive confirmation hearing.”
Stocks, Treasuries
Asian stocks fell and Treasuries advanced as Bernanke’s nomination confirmed expectations of investors, who focused instead on lower profits at Chinese companies and evidence of increasing loan losses in the U.S. Japan’s Nikkei 225 Stock Average slipped 0.7 percent to 10,506.55 at 2:11 p.m. in Tokyo. The yield on the 10-year Treasury note declined one basis point to 3.46 percent, according to data compiled by Bloomberg.
Obama decided to reappoint Bernanke because he wanted to keep together the team that had weathered the crisis, an administration official said. The official said Treasury Secretary Timothy Geithner, Chief of Staff Rahm Emanuel and National Economic Council Chairman Larry Summers all recommended Bernanke be reappointed.
Bernanke, 55, slashed the main interest rate almost to zero and pumped $1 trillion into the banking system to unfreeze credit markets. He now must guide the world’s largest economy back to growth and reduce unemployment approaching 10 percent while shrinking the Fed’s balance sheet to prevent a surge in inflation.
Challenges Ahead
“It’s not just that he’s done a great job of dealing creatively with the financial crisis,” said Richard Berner, co- head of global economics at Morgan Stanley in New York. “He has the capacity to deal with the challenges that lie ahead -- continuing to help the economy and markets heal and engineering the exit strategy when it’s appropriate to do so.”
Obama, a Democrat, continues a recent tradition of bipartisanship in his decision to nominate Bernanke, a Republican, to a second term.
Bernanke’s predecessor and fellow Republican, Alan Greenspan, served as Fed chief for 18 years while gaining renomination by three presidents, including Bill Clinton, a Democrat. President Ronald Reagan kept Paul Volcker, first selected by Jimmy Carter, for a second term.
Almost 75 percent of investors surveyed in the first Quarterly Bloomberg Global Poll had a favorable view of the chairman in July. By almost a three-to-one margin, they said Bernanke had earned another four-year term.
Exit Strategy
“Wall Street can rest a little easier,” said Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Having a new chairman come in at this late date would put the Fed-engineered solution to both the recovery and the exit strategy at risk.”
The Standard & Poor’s 500 Index has risen 52 percent since a recession low on March 9. The S&P lost 38.5 percent last year. Credit markets have also recovered: The London Interbank Offered Rate for three months loans in dollars fell to 0.39 percent on Aug. 24. The rate surged as high as 4.81 percent in October.
Bernanke’s nomination comes as the world’s biggest economy is poised for renewed growth.
The economy will expand 2 percent or more in the four quarters through June, the first such streak in more than four years, according to the median of 53 forecasts in a Bloomberg News survey of economists. Gross domestic product has fallen 3.9 percent since the recession began in December 2007.
Corporate Bonds
The Libor-OIS spread, a gauge of financial stress, fell to 20 basis points Aug. 24. The spread soared to 364 basis points on Oct. 10 last year after Lehman Brothers Holdings Inc.’s collapse. Greenspan said in a June 2008 interview he wouldn’t consider credit markets back to “normal” until the spread was at 25 basis points.
Companies have sold a record $794 billion of dollar- denominated investment-grade corporate bonds this year, according to data compiled by Bloomberg. That’s up from $599 billion in the same period last year.
“Prospects for a return to growth in the near term appear good,” Bernanke said in an Aug. 21 speech at the Kansas City Fed’s annual symposium in Jackson Hole. Still, he warned of “critical challenges” ahead and added: “We have an enormous amount of work to do.”
Economists predict the unemployment rate, now 9.4 percent, could climb above 10 percent, curbing consumer spending and limiting the strength of the recovery.
MIT Degree
Ben Shalom Bernanke grew up in Dillon, South Carolina, where his family owned a pharmacy opened by his Austrian immigrant grandfather. He went north to Harvard University in Cambridge, Massachusetts, graduating summa cum laude with a bachelor’s degree in economics, then received a doctorate in economics from the neighboring Massachusetts Institute of Technology in 1979.
A self-described “Great Depression buff,” Bernanke joined the central bank as a governor in 2002 after serving as chairman of Princeton University’s economics department. President George W. Bush appointed Bernanke chairman of the Council of Economic Advisers in 2005 before naming him a few months later to the top Fed post.
“I did spend a lot of my career studying the Great Depression and other financial crises,” Bernanke said in a town-hall-style meeting on July 26 organized by PBS television. “And I didn’t expect it would be so helpful, so useful, as it has been.”
By his own admission, Bernanke was slow to recognize the severity of the mortgage meltdown at the heart of the recession.
“I and others were mistaken early on in saying that the subprime crisis would be contained,” he said in an interview last November with the New Yorker magazine.
Discount Rate Cut
In August 2007, the collapse in credit markets forced Fed policy makers to lower the discount rate just two weeks after declaring inflation was their paramount challenge. The next month, the Fed cut its benchmark federal funds rate for the first time in four years.
Bernanke came under fire for failing to prevent the collapse of Lehman Brothers, which triggered the biggest drop in the S&P 500 Index since Sept. 11, 2001, and deepened the credit freeze.
“The sentiment all over the world was that such a dramatic bankruptcy of a signature institution was impossible,” said Jean-Claude Trichet, president of the European Central Bank, in a June 15 interview.
Bernanke called Lehman’s failure “unavoidable” in his Jackson Hole speech. No buyer could be found, he said, and the investment bank didn’t have enough collateral to qualify for a Fed loan large enough to save it.
AIG Bailout
Two days after Lehman’s bankruptcy filing, the Fed took control of AIG in an $85 billion bailout designed to prevent the worst financial collapse in history.
As Lehman’s collapse sent shock waves through financial markets, Bernanke launched unprecedented programs -- one to contain fallout from a run on money-market funds, and another to buy short-term debt from companies such as General Electric Co.
Bernanke also supported then-Treasury Secretary Henry Paulson’s proposal for a $700 billion Troubled Asset Relief Program, initially intended to buy toxic assets from banks and later used to purchases equity stakes in the lenders themselves.
In December, with the economy contracting, the Fed’s key interest rate was slashed almost to zero, where it has remained. In the following months, the Fed launched programs to pump money into the economy through purchases of mortgage-backed debt, U.S. Treasuries and securities backed by auto loans, credit cards and commercial-property mortgages.
‘Uncharted Territory’
“This last couple of years has been clearly a move through uncharted territory, and as we’ve seen it’s taken a lot of unconventional moves to try to deal with the situation,” said Robert Parry, former president of the San Francisco Federal Reserve Bank. “There’s been a lot of innovation that’s gone on, and it seems to me that much of it has been successful.”
Yet the expansion of Fed authority has put Bernanke in the crosshairs of critics in Congress. Some lawmakers have accused the Fed of overstepping its authority and failing to properly supervise the financial firms that packaged and sold the mortgage-backed securities at the heart of the crisis.
“I’ve been astounded and shocked by certain regulatory malfeasance of the Federal Reserve and the reserve banks in the regulatory process in the last several years,” said Alabama Senator Richard Shelby, the ranking Republican on the Banking Committee.
Bank of America
Other lawmakers accused Bernanke of improperly pressuring Bank of America Corp. Chief Executive Officer Kenneth Lewis to proceed with its planned acquisition of Merrill Lynch & Co. The House Oversight Committee subpoenaed and released dozens of Fed e-mails and other documents. Bernanke told the panel in June that the central bank acted with the “highest integrity.”
The Fed chairman “has stepped on some landmines,” said Raymond Stone, managing director at Stone & McCarthy Research in Skillman, New Jersey. “Some were his fault, most weren’t.”
There’s little indication that Bernanke would fail to gain Senate approval. The Fed chief has cultivated relationships with key members of Congress, winning their respect while they criticized some of the central bank’s actions.
Senator Charles Schumer, a member of the Banking Committee and a New York Democrat, endorsed Bernanke’s reappointment, calling him “the right choice for these tough times.”
The recession “could have been considerably worse without Ben Bernanke’s strong and resolute actions,” Schumer said in a statement.
RBS Said Likely to Sell Asia Businesses to Standard Chartered
Aug. 24 (Bloomberg) -- Royal Bank of Scotland Group Plc, the biggest bank owned by the U.K. government, may sell its units in India and China to Standard Chartered Plc as soon as next month, a person familiar with the situation said.
The retail and commercial banking assets are valued at $300 million to $400 million, said the person, who declined to be identified because the talks are confidential. An official at Standard Chartered in London declined to comment.
“RBS is in ongoing discussions with bidders for the remaining assets it has decided to sell in Asia and will make further announcements, as appropriate, in due course,” said Fiona MacRae, an Edinburgh-based spokeswoman for RBS.
The sale of RBS’s assets in China has faltered and has a 30 percent chance of success because more of the RBS customers than Standard Chartered expected are locked into specific products, making it harder to shift them to alternatives, the Financial Times reported today.
RBS is reducing its presence or withdrawing from two thirds of the 54 countries in which it does business after posting the biggest loss in U.K. corporate history last year and receiving government funding.
The retail and commercial banking assets are valued at $300 million to $400 million, said the person, who declined to be identified because the talks are confidential. An official at Standard Chartered in London declined to comment.
“RBS is in ongoing discussions with bidders for the remaining assets it has decided to sell in Asia and will make further announcements, as appropriate, in due course,” said Fiona MacRae, an Edinburgh-based spokeswoman for RBS.
The sale of RBS’s assets in China has faltered and has a 30 percent chance of success because more of the RBS customers than Standard Chartered expected are locked into specific products, making it harder to shift them to alternatives, the Financial Times reported today.
RBS is reducing its presence or withdrawing from two thirds of the 54 countries in which it does business after posting the biggest loss in U.K. corporate history last year and receiving government funding.
Asian Stocks Fall, Treasuries Gain as Demand for Risk Eases
Aug. 25 (Bloomberg) -- Asian stocks fell and Treasuries advanced as lower profit at Chinese companies and evidence of increasing loan losses in the U.S. sapped demand for risky assets. South Africa’s rand and the Australian dollar dropped as commodity prices declined.
Jiangxi Copper Co. sank 5.7 percent in Shanghai after posting a 61 percent decline in first-half net income and metals retreated. Aluminum Corp. of China Ltd., which reported its third quarterly net loss, fell 2.7 percent in Hong Kong. Chinese equities posted the region’s worst performance as the nation’s premier warned the economic recovery isn’t stable yet. KB Financial Group Inc. lost 2.9 percent in Seoul as SunTrust Banks Inc. said U.S. lenders face more credit losses.
The MSCI Asia Pacific Index lost 0.4 percent to 112.95 as of 4:11 p.m. in Tokyo. The index rallied 2.5 percent yesterday, the most since May 19. Companies on the gauge are priced at an average 24 times estimated earnings, up from 13.7 times at the end of 2008.
“Companies aren’t yet seeing the signs of improvement coming through, even though the market is anticipating it,” said Matt Riordan, who helps manage about $3.8 billion at Paradice Investment Management in Sydney. “We need to start seeing some pretty broad profit upgrades coming through driven by revenues rather than cost cutting. Until then, we’ll be cautious.”
China’s Shanghai Composite Index sank 2.6 percent after the Wen Jiabao, the nation’s premier, said yesterday that excess industrial capacity may limit growth and authorities can’t be “blindly” optimistic. Japan’s Nikkei 225 Stock Average slipped 0.8 percent. Hong Kong’s Hang Seng Index lost 1.1 percent.
NGK, Woolworths
Among stocks that gained today, NGK Insulators Ltd. rallied 3.7 percent in Tokyo after the Nikkei newspaper said the company won an order from Abu Dhabi. Australia’s Woolworths Ltd., the country’s biggest retailer, rose 2.2 percent on plans for a joint venture with U.S. home-improvement chain Lowe’s Cos.
Futures on the Standard & Poor’s 500 Index lost 0.2 percent. The U.S. gauge dropped 0.1 percent yesterday, erasing an earlier 0.9 percent advance, following SunTrust’s comments. Taylor, Bean & Whitaker Mortgage Corp., the 12th-largest U.S. mortgage lender, also filed for bankruptcy protection, while Fitch Ratings said more delinquent U.S. mortgage holders are failing to catch up with their payments.
Treasuries rose for a second day amid speculation the global financial crisis won’t end this year. The yield on the 10-year note declined two basis points to 3.46 percent, according to data compiled by Bloomberg.
Fading Momentum?
“I’m favoring longer maturities,” said Hideo Shimomura, who oversees $4 billion in non-yen bonds as chief fund investor in Tokyo at Mitsubishi UFJ Asset Management Co., a unit of Japan’s largest bank. “Looking toward next year, the momentum in the economy will fade. The trend for inflation is down.”
Jiangxi Copper, China’s biggest producer of the metal, sank 5.7 percent to 37.20 yuan after saying first-half profit slumped 61 percent because of lower prices.
Copper futures in New York sank 1.4 percent in after-hours trading, following yesterday’s 1.3 percent gain. Oil prices lost 1 percent, erasing yesterday’s advance.
South Africa’s rand lost 0.5 percent versus the dollar today, while the Australian dollar fell 0.4 percent. The two currencies have moved along with the Reuters/Jefferies CRB Index of 19 raw materials about 90 percent of the time this year, Bloomberg data show. The commodities gauge, which hasn’t yet traded today, rose 0.8 percent yesterday.
‘Cautious’ Investors
“We’re not out of the woods on a global recovery basis so, though things look better, investors are being cautious,” said Phil Burke, chief foreign-exchange dealer at JPMorgan Chase Bank in Sydney.
Aluminum Corp., known as Chalco, lost 2.7 percent to HK$8.96. The company aims to break even or at least curb losses in the second half on expectations of an improvement in the market, Chairman Xiong Weiping said at a news conference today.
About 18 percent of the 538 companies in the MSCI Asia Pacific Index that posted results since early July have missed analysts’ profit estimates, according to data compiled by Bloomberg. A third of those companies have reported better-than- estimated earnings, helping drive the stock index to the highest level in almost 11 months on Aug. 14.
“The market is no longer cheap,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $75 billion. “The question is whether the rally is justified by the pick-up in economic data and earnings.”
Empty Shelves
Wesfarmers Ltd. slumped 3.5 percent to A$24.80. Australia’s second-largest retailer is stocking more fresh fruit and vegetables than it can sell to reverse the reputation its Coles supermarket division has for empty shelves and win market share, CEO Richard Goyder said in an interview.
KB Financial retreated 2.9 percent to 54,400 won following comments from James Wells III, chief executive officer of Atlanta-based SunTrust. Mizuho Financial Group Inc., Japan’s third-biggest bank by market value, slipped 1.8 percent to 225 yen. Daiwa Securities Group Inc. Japan’s second-largest brokerage, fell 3.2 percent to 551 yen.
“This credit cycle has yet to play itself out,” Wells said in a speech to the Rotary Club of Atlanta. “We do not expect things to improve for the banking industry in the very near future.”
China Construction Bank Corp. fell 4.3 percent to 5.53 yuan in Shanghai. Chairman Guo Shuqing said yesterday “excess liquidity” from explosive loan growth in the first half of the year has led to asset bubbles.
Credit Losses
Global credit losses and writedowns by financial institutions have totaled $1.6 trillion since 2007, according to data compiled by Bloomberg. The financial crisis helped drag the U.S. and Japan into recession and caused the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos.
Nouriel Roubini, the New York University professor who predicted the financial crisis, wrote in the Financial Times yesterday the chance of a double-dip recession is increasing because of risks related to ending global monetary and fiscal stimulus.
Suncorp-Metway Ltd., Australia’s third-largest insurer, sank 2.8 percent to A$7.58. Net income in the 12 months ended June 30 fell 40 percent to A$348 million ($291 million) as the company set aside more money to cover bad debt. Impairment losses on loans soared 10-fold to A$710 million.
NGK climbed 3.7 percent to 2,270 yen. The company won a 60 billion yen ($639 million) order from Abu Dhabi to supply rechargeable batteries for power management systems, the Nikkei newspaper reported.
Woolworths rose 2.2 percent to A$28.63. The company said it will start a joint venture with North Carolina-based Lowe’s and open more than 150 stores over the next five years.
South Korea’s Daewoo Engineering & Construction Co. surged 9.2 percent to 14,800 won after Edaily reported Blackstone Group LP, KKR & Co. and Permira Holdings Ltd. may bid for the company.
Jiangxi Copper Co. sank 5.7 percent in Shanghai after posting a 61 percent decline in first-half net income and metals retreated. Aluminum Corp. of China Ltd., which reported its third quarterly net loss, fell 2.7 percent in Hong Kong. Chinese equities posted the region’s worst performance as the nation’s premier warned the economic recovery isn’t stable yet. KB Financial Group Inc. lost 2.9 percent in Seoul as SunTrust Banks Inc. said U.S. lenders face more credit losses.
The MSCI Asia Pacific Index lost 0.4 percent to 112.95 as of 4:11 p.m. in Tokyo. The index rallied 2.5 percent yesterday, the most since May 19. Companies on the gauge are priced at an average 24 times estimated earnings, up from 13.7 times at the end of 2008.
“Companies aren’t yet seeing the signs of improvement coming through, even though the market is anticipating it,” said Matt Riordan, who helps manage about $3.8 billion at Paradice Investment Management in Sydney. “We need to start seeing some pretty broad profit upgrades coming through driven by revenues rather than cost cutting. Until then, we’ll be cautious.”
China’s Shanghai Composite Index sank 2.6 percent after the Wen Jiabao, the nation’s premier, said yesterday that excess industrial capacity may limit growth and authorities can’t be “blindly” optimistic. Japan’s Nikkei 225 Stock Average slipped 0.8 percent. Hong Kong’s Hang Seng Index lost 1.1 percent.
NGK, Woolworths
Among stocks that gained today, NGK Insulators Ltd. rallied 3.7 percent in Tokyo after the Nikkei newspaper said the company won an order from Abu Dhabi. Australia’s Woolworths Ltd., the country’s biggest retailer, rose 2.2 percent on plans for a joint venture with U.S. home-improvement chain Lowe’s Cos.
Futures on the Standard & Poor’s 500 Index lost 0.2 percent. The U.S. gauge dropped 0.1 percent yesterday, erasing an earlier 0.9 percent advance, following SunTrust’s comments. Taylor, Bean & Whitaker Mortgage Corp., the 12th-largest U.S. mortgage lender, also filed for bankruptcy protection, while Fitch Ratings said more delinquent U.S. mortgage holders are failing to catch up with their payments.
Treasuries rose for a second day amid speculation the global financial crisis won’t end this year. The yield on the 10-year note declined two basis points to 3.46 percent, according to data compiled by Bloomberg.
Fading Momentum?
“I’m favoring longer maturities,” said Hideo Shimomura, who oversees $4 billion in non-yen bonds as chief fund investor in Tokyo at Mitsubishi UFJ Asset Management Co., a unit of Japan’s largest bank. “Looking toward next year, the momentum in the economy will fade. The trend for inflation is down.”
Jiangxi Copper, China’s biggest producer of the metal, sank 5.7 percent to 37.20 yuan after saying first-half profit slumped 61 percent because of lower prices.
Copper futures in New York sank 1.4 percent in after-hours trading, following yesterday’s 1.3 percent gain. Oil prices lost 1 percent, erasing yesterday’s advance.
South Africa’s rand lost 0.5 percent versus the dollar today, while the Australian dollar fell 0.4 percent. The two currencies have moved along with the Reuters/Jefferies CRB Index of 19 raw materials about 90 percent of the time this year, Bloomberg data show. The commodities gauge, which hasn’t yet traded today, rose 0.8 percent yesterday.
‘Cautious’ Investors
“We’re not out of the woods on a global recovery basis so, though things look better, investors are being cautious,” said Phil Burke, chief foreign-exchange dealer at JPMorgan Chase Bank in Sydney.
Aluminum Corp., known as Chalco, lost 2.7 percent to HK$8.96. The company aims to break even or at least curb losses in the second half on expectations of an improvement in the market, Chairman Xiong Weiping said at a news conference today.
About 18 percent of the 538 companies in the MSCI Asia Pacific Index that posted results since early July have missed analysts’ profit estimates, according to data compiled by Bloomberg. A third of those companies have reported better-than- estimated earnings, helping drive the stock index to the highest level in almost 11 months on Aug. 14.
“The market is no longer cheap,” said Nader Naeimi, a Sydney-based strategist at AMP Capital Investors, which manages about $75 billion. “The question is whether the rally is justified by the pick-up in economic data and earnings.”
Empty Shelves
Wesfarmers Ltd. slumped 3.5 percent to A$24.80. Australia’s second-largest retailer is stocking more fresh fruit and vegetables than it can sell to reverse the reputation its Coles supermarket division has for empty shelves and win market share, CEO Richard Goyder said in an interview.
KB Financial retreated 2.9 percent to 54,400 won following comments from James Wells III, chief executive officer of Atlanta-based SunTrust. Mizuho Financial Group Inc., Japan’s third-biggest bank by market value, slipped 1.8 percent to 225 yen. Daiwa Securities Group Inc. Japan’s second-largest brokerage, fell 3.2 percent to 551 yen.
“This credit cycle has yet to play itself out,” Wells said in a speech to the Rotary Club of Atlanta. “We do not expect things to improve for the banking industry in the very near future.”
China Construction Bank Corp. fell 4.3 percent to 5.53 yuan in Shanghai. Chairman Guo Shuqing said yesterday “excess liquidity” from explosive loan growth in the first half of the year has led to asset bubbles.
Credit Losses
Global credit losses and writedowns by financial institutions have totaled $1.6 trillion since 2007, according to data compiled by Bloomberg. The financial crisis helped drag the U.S. and Japan into recession and caused the collapse of Lehman Brothers Holdings Inc. and Bear Stearns Cos.
Nouriel Roubini, the New York University professor who predicted the financial crisis, wrote in the Financial Times yesterday the chance of a double-dip recession is increasing because of risks related to ending global monetary and fiscal stimulus.
Suncorp-Metway Ltd., Australia’s third-largest insurer, sank 2.8 percent to A$7.58. Net income in the 12 months ended June 30 fell 40 percent to A$348 million ($291 million) as the company set aside more money to cover bad debt. Impairment losses on loans soared 10-fold to A$710 million.
NGK climbed 3.7 percent to 2,270 yen. The company won a 60 billion yen ($639 million) order from Abu Dhabi to supply rechargeable batteries for power management systems, the Nikkei newspaper reported.
Woolworths rose 2.2 percent to A$28.63. The company said it will start a joint venture with North Carolina-based Lowe’s and open more than 150 stores over the next five years.
South Korea’s Daewoo Engineering & Construction Co. surged 9.2 percent to 14,800 won after Edaily reported Blackstone Group LP, KKR & Co. and Permira Holdings Ltd. may bid for the company.
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