The third G20 Summit is scheduled to be held in Pittsburgh on September 24-25, 2009. Earlier, the G20 finance ministers met in London on September 4-5, 2009. The G20 website and media reports indicate that there is consensus on continuation of countercyclical monetary and fiscal stimulus and about efforts to avoid protectionist tendencies in trade. Hopefully, the G20 will be able to dispel the incipient clouds on the trade horizon created by the US raising tariffs on imports of Chinese tyres. Concurrently, the differences among G20 countries on how best to reform financial sector regulation, align compensation for finance professionals with long-term performance and deal with tax havens need to be addressed. This article’s focus is on the implications of G20 deliberations for the international financial sector.
It is apparent that banks and other financial intermediaries around the world would like to revert to business as usual and for the moment they seem to be succeeding. For instance, the dubious role of the credit rating agencies is no longer on the public radar screen, high bonuses for bankers are back, and any suggestion about increasing risk capital requirements is labelled anti-innovation.
From September, 2008 till about March, 2009 money markets in developed countries froze and trade credit dried up for India. Clearly, developments in international financial markets have a wide-ranging impact on India. It is for this reason that India has an interest in: (i) better oversight and promotion of competition among credit rating agencies; (ii) urgent implementation of central counterparty clearing of over-the-counter (OTC) derivatives; and (iii) revised norms capping leverage (asset to equity) ratios in financial firms. More generally, there is wider recognition that securities markets do not auto-correct and greater international coordination is needed. It follows that India, which has a co-equal representation on G20’s Financial Stability Board (FSB), is expected to take an active interest in the working of FSB’s three Standing Committees on: (a) Vulnerabilities Assessment; (b) Supervisory and Regulatory Cooperation; (c) Standards Implementation (including controversial issues such as mark-to-market versus held-to-maturity accounting standards). These Committees are headed by a General Manager in the Bank for International Settlements (BIS), the Chairman of the UK Financial Services Authority and a Canadian Associate Deputy Finance Minister, respectively. The Financial Stability Forum (FSF), whose membership was confined to the G7 and a few other developed countries, was expanded after the G20 Summit in London to form FSB. Its secretariat is hosted by the BIS in Basel and is chaired by the Governor of the Central Bank of Italy, a former managing director in Goldman Sachs. It is surprising that FSB and its Committees are all headed by nationals from developed countries.
The G20 has discussed the modalities for reform in the Bretton-Woods institutions including raising the voting shares for developing countries to better reflect their contribution to global output. India’s voting shares in the International Monetary Fund and the World Bank (IBRD) are currently 1.89 per cent and 2.78 per cent, respectively. The ownership of the IMF and the World Bank, which is weighted heavily in favour of G7 countries, and their location in Washington DC continue to make it difficult for the management/staff in these institutions to think independently about policy issues. Further, the importance of these institutions as a source of hard currency funding for India has diminished greatly. For instance, in 2008, forex remittances into India were more than ten times the gross annual disbursements received from multilateral development banks. Since the changes in the IMF and the World Bank are likely to be very slow and limited, their reforms would be of marginal interest to India.
Taking a step back to reflect, the rules for the financial sector have been such that since the 1950s financial companies have periodically achieved a higher rate of return on equity (RoE) as compared to real sectors. More recently, some investment banks and hedge funds have raised their leverage ratios to as high as 40:1 and reported extremely huge RoEs. Financial sector votaries claim that the high RoEs are due to the ingenuity and productivity in this sector and consequently finance professionals have a legitimate claim to extraordinarily high remuneration. FSB could commission a cross-country study on risk-adjusted RoEs over the last five decades, normalising for leverage and Sharpe ratios, in the four segments of the financial sector (banking, pensions, insurance and capital markets) and real sectors. Such a study would find that measured over a decade or more, risk-adjusted RoEs for financial firms were not significantly higher than the average RoEs for other sectors.
In the run-up to the G20 Summit in Pittsburgh, the media has spotlighted the topic of irresponsible risk-taking in financial firms engendered by the prospects of outlandishly large annual bonuses ranging from several million dollars to over $100 million. Such rewards are inconsistent with performance since governments invariably end up providing funding support to prevent systemically important financial institutions from failing. At the forthcoming G20 Summit, FSB is expected to present its proposals to “align compensation-related incentives with the long-term profitability of firms.” It remains to be seen whether FSB’s formulations will be specific enough and will be acceptable on both sides of the Atlantic.
As compared to the US and Europe, India was less adversely affected by the bursting of the housing asset-price bubble. This was partly due to RBI’s prudent policies, relative lack of securitisation, and public sector dominance in the banking and insurance sectors in India. In finance, as in economics, there are no universally applicable rules. Therefore, we need to question whether the US and UK model of an excessively dominant role for the financial sector’s sponsors is relevant for India. We should also maintain a healthy sense of scepticism about the premature nature of proposals such as making Mumbai an international financial centre. At the same time, our longer-term policies cannot be to ensure the primacy of the public sector. The “mantra” has to be adequate regulation and capitalisation, as we continue to raise FDI caps in the financial sector. This should happen gradually as we progress towards greater capital account convertibility. Hence, our efforts at G20 forums in promoting reforms in the international financial sector should be to focus on the technical aspects of capital adequacy and guard against a reversion to business as usual.
Friday, September 18, 2009
Monday, September 14, 2009
India to Auction 3G Mobile-Phone Licenses in December
Sept. 14 (Bloomberg) -- India, the world’s second-largest wireless market by users, said it will start accepting bids for licenses to offer high-speed services on Dec. 7, a move that may help boost revenue at Bharti Airtel Ltd. and other carriers.
Bidders must submit any queries they have by Oct. 8, before a pre-bid conference on Oct. 12, and applications for the permits must be made on or before Nov. 13, the Department of Telecommunications said in a statement on its Web site. The government said last month it may raise about $5 billion from selling licenses for mobile-phone and wireless broadband Internet services.
The sale will pave the way for faster data services in India, the biggest economy in the world not to offer 3G nationwide. India’s number of mobile-phone subscribers has room to triple from more than 440 million, giving Sweden’s Ericsson AB, China’s Huawei Technologies Co. and Finland’s Nokia Oyj incentive to compete for network-equipment orders.
The third-generation services “will be the next phase of growth,” Nishna Biyani, an analyst at Mumbai-based Prabhudas Lilladher Pvt. said by telephone. Carriers will use the permits for airwaves to initially boost revenue from improved voice services even as they add data and broadband offerings, he said.
Bharti, India’s largest wireless operator, expects the start of high-speed services to boost “voice efficiencies” and the speed of data downloads, Chief Executive Officer Manoj Kohli said on Aug. 27. The carrier is eager to participate in the auction, he said at the time.
Gaurav Wahi, a spokesman at second-ranked Reliance Communications Ltd. declined to comment on whether the Mumbai-based operator will participate in the auction.
Revenue From Auctions
The auctions for licenses to operate third-generation mobile-phone services and WiMax wireless broadband services will earn India about 250 billion rupees ($5.13 billion), Communications Minister Andimuthu Raja said Aug. 27.
A group of ministers set a minimum price for a pan-Indian permit at 35 billion rupees, ending a nine-month deadlock over the pricing of the licenses. As many as four slots will be auctioned for each of the nation’s 22 phone-service zones, Raja said at the time.
Bharti, Vodafone Group Plc and other mobile-phone companies may gain customers by offering faster services such as music and Internet downloads that could help them offset slowing revenue growth in the more profitable urban markets. The world’s largest wireless market after China has attracted Norway’s Telenor ASA and Japan’s NTT DoCoMo Inc. AT&T Inc., the biggest U.S. carrier, has said it wants to start services in the South Asian nation.
‘Requested to Monitor’
“Participants are requested to monitor the auction Web site actively” for any changes in the schedule, the department said in its statement.
India’s Finance Minister Pranab Mukherjee has sought to delay until next year the country’s auction of rights to provide third generation mobile-phone services, Mint newspaper reported last week, citing a person familiar with the development.
India in November picked NM Rothschild & Sons Ltd. as the independent auctioneer to help it sell the permits and initially aimed to complete the process by Jan. 15.
State-controlled Bharat Sanchar Nigam Ltd. and Mahanagar Telephone Nigam Ltd. currently offer high-speed services in some parts of the country. The carriers have been exempted from the auction process.
Bidders must submit any queries they have by Oct. 8, before a pre-bid conference on Oct. 12, and applications for the permits must be made on or before Nov. 13, the Department of Telecommunications said in a statement on its Web site. The government said last month it may raise about $5 billion from selling licenses for mobile-phone and wireless broadband Internet services.
The sale will pave the way for faster data services in India, the biggest economy in the world not to offer 3G nationwide. India’s number of mobile-phone subscribers has room to triple from more than 440 million, giving Sweden’s Ericsson AB, China’s Huawei Technologies Co. and Finland’s Nokia Oyj incentive to compete for network-equipment orders.
The third-generation services “will be the next phase of growth,” Nishna Biyani, an analyst at Mumbai-based Prabhudas Lilladher Pvt. said by telephone. Carriers will use the permits for airwaves to initially boost revenue from improved voice services even as they add data and broadband offerings, he said.
Bharti, India’s largest wireless operator, expects the start of high-speed services to boost “voice efficiencies” and the speed of data downloads, Chief Executive Officer Manoj Kohli said on Aug. 27. The carrier is eager to participate in the auction, he said at the time.
Gaurav Wahi, a spokesman at second-ranked Reliance Communications Ltd. declined to comment on whether the Mumbai-based operator will participate in the auction.
Revenue From Auctions
The auctions for licenses to operate third-generation mobile-phone services and WiMax wireless broadband services will earn India about 250 billion rupees ($5.13 billion), Communications Minister Andimuthu Raja said Aug. 27.
A group of ministers set a minimum price for a pan-Indian permit at 35 billion rupees, ending a nine-month deadlock over the pricing of the licenses. As many as four slots will be auctioned for each of the nation’s 22 phone-service zones, Raja said at the time.
Bharti, Vodafone Group Plc and other mobile-phone companies may gain customers by offering faster services such as music and Internet downloads that could help them offset slowing revenue growth in the more profitable urban markets. The world’s largest wireless market after China has attracted Norway’s Telenor ASA and Japan’s NTT DoCoMo Inc. AT&T Inc., the biggest U.S. carrier, has said it wants to start services in the South Asian nation.
‘Requested to Monitor’
“Participants are requested to monitor the auction Web site actively” for any changes in the schedule, the department said in its statement.
India’s Finance Minister Pranab Mukherjee has sought to delay until next year the country’s auction of rights to provide third generation mobile-phone services, Mint newspaper reported last week, citing a person familiar with the development.
India in November picked NM Rothschild & Sons Ltd. as the independent auctioneer to help it sell the permits and initially aimed to complete the process by Jan. 15.
State-controlled Bharat Sanchar Nigam Ltd. and Mahanagar Telephone Nigam Ltd. currently offer high-speed services in some parts of the country. The carriers have been exempted from the auction process.
Jet Airways Aims to Win Back Customers With Fare Cuts
Sept. 14 (Bloomberg) -- Jet Airways (India) Ltd., seeking to regain customer confidence following a five-day strike by its pilots, said it would cut local fares by 50 percent for three days starting today.
“With these new low, limited-time fares, we hope to welcome travelers back aboard Jet Airways,” Chief Executive Officer Wolfgang Prock-Schauer said yesterday in a statement.
The airline scrapped more than 1,000 flights since Sept. 8 after some 400 pilots walked off their jobs, protesting the dismissals of four colleagues. The airline must ensure such labor problems don’t hamper its operations as it seeks to win back customers, said Binit Somaia, South Asia director at the Centre for Asia Pacific Aviation, an industry consultant.
“It affects the brand perception,” Somaia said. “Bookings for the carrier get affected because people are worried whether this can happen again. Then the airline faces a financial impact.”
Shares of Jet Airways rose as much as 4.6 percent, the most in two weeks, to 270.4 rupees, and changed hands at 264.8 rupees at 10:11 a.m. in Mumbai. The stock has gained 30 percent this year compared with a 67 percent advance for the Sensex index.
The airline scrapped flights after pilots belonging to the newly formed National Aviators Guild called in sick, refusing to work until the carrier recalled their colleagues the Guild says were dismissed for initiating steps to form a union.
Return to Work
The strike led to daily revenue losses of about $2.2 million and cancellations of about 230 flights a day, affecting as many as 100,000 passengers, Vice President K.G. Vishwanath said yesterday.
Domestic bookings will increase by tomorrow as the pilots returned to work, Sudheer Raghavan, chief commercial officer, said yesterday at a press conference in Mumbai. Jet Airways started all its international flights, he said.
Jet Airways transferred as many as 60 percent of the passengers booked on its flights to Air India, the national carrier, and other airlines during the strike, Jet Airways Executive Director Saroj K. Datta said yesterday.
The four pilots were reinstated and a consultative group was formed to deal with future labor issues, Jet Airways said. The consultative group will have two directors from the airline’s board, the chief executive officer and five representatives of the pilots, Datta said.
Double Rates
Domestic bookings slumped 39 percent to 14,000 a day since the strike began, Raghavan said Sept. 9. International reservations were down 9.5 percent to 9,500 a day. Bookings fell to 7,000 in the last two days of the strike, Datta said.
Rival carriers began to charge fares at almost double the usual rates after the strike hampered Jet Airways’ operations, the Daily News & Analysis newspaper reported Sept. 11, without saying where it got the information. India’s Directorate General of Civil Aviation asked airlines to charge fares at rates that prevailed in the week ended Sept. 6, according to a statement from the Press Information Bureau.
As many as 400 captains and first officers protested the firing of their colleagues, said Sam Thomas, general secretary of the Guild. The airline then asked a court to force the striking pilots to return to work.
Pilots formed the Guild as they were concerned about the lack of a system to facilitate a dialogue between them and the management, Datta said. The Guild continues to exist as of now, said Girish Kaushik, its president. He didn’t elaborate.
Jet Airways posted a first-quarter loss of 2.25 billion rupees ($46 million) as slowing economic growth damped travel demand. The airline slashed flights to the U.S. and other long- haul destinations to save as much as $600 million this year.
Airline losses globally may total $9 billion this year, according to the International Air Transport Association, almost double the group’s previous forecast.
“With these new low, limited-time fares, we hope to welcome travelers back aboard Jet Airways,” Chief Executive Officer Wolfgang Prock-Schauer said yesterday in a statement.
The airline scrapped more than 1,000 flights since Sept. 8 after some 400 pilots walked off their jobs, protesting the dismissals of four colleagues. The airline must ensure such labor problems don’t hamper its operations as it seeks to win back customers, said Binit Somaia, South Asia director at the Centre for Asia Pacific Aviation, an industry consultant.
“It affects the brand perception,” Somaia said. “Bookings for the carrier get affected because people are worried whether this can happen again. Then the airline faces a financial impact.”
Shares of Jet Airways rose as much as 4.6 percent, the most in two weeks, to 270.4 rupees, and changed hands at 264.8 rupees at 10:11 a.m. in Mumbai. The stock has gained 30 percent this year compared with a 67 percent advance for the Sensex index.
The airline scrapped flights after pilots belonging to the newly formed National Aviators Guild called in sick, refusing to work until the carrier recalled their colleagues the Guild says were dismissed for initiating steps to form a union.
Return to Work
The strike led to daily revenue losses of about $2.2 million and cancellations of about 230 flights a day, affecting as many as 100,000 passengers, Vice President K.G. Vishwanath said yesterday.
Domestic bookings will increase by tomorrow as the pilots returned to work, Sudheer Raghavan, chief commercial officer, said yesterday at a press conference in Mumbai. Jet Airways started all its international flights, he said.
Jet Airways transferred as many as 60 percent of the passengers booked on its flights to Air India, the national carrier, and other airlines during the strike, Jet Airways Executive Director Saroj K. Datta said yesterday.
The four pilots were reinstated and a consultative group was formed to deal with future labor issues, Jet Airways said. The consultative group will have two directors from the airline’s board, the chief executive officer and five representatives of the pilots, Datta said.
Double Rates
Domestic bookings slumped 39 percent to 14,000 a day since the strike began, Raghavan said Sept. 9. International reservations were down 9.5 percent to 9,500 a day. Bookings fell to 7,000 in the last two days of the strike, Datta said.
Rival carriers began to charge fares at almost double the usual rates after the strike hampered Jet Airways’ operations, the Daily News & Analysis newspaper reported Sept. 11, without saying where it got the information. India’s Directorate General of Civil Aviation asked airlines to charge fares at rates that prevailed in the week ended Sept. 6, according to a statement from the Press Information Bureau.
As many as 400 captains and first officers protested the firing of their colleagues, said Sam Thomas, general secretary of the Guild. The airline then asked a court to force the striking pilots to return to work.
Pilots formed the Guild as they were concerned about the lack of a system to facilitate a dialogue between them and the management, Datta said. The Guild continues to exist as of now, said Girish Kaushik, its president. He didn’t elaborate.
Jet Airways posted a first-quarter loss of 2.25 billion rupees ($46 million) as slowing economic growth damped travel demand. The airline slashed flights to the U.S. and other long- haul destinations to save as much as $600 million this year.
Airline losses globally may total $9 billion this year, according to the International Air Transport Association, almost double the group’s previous forecast.
Friday, September 11, 2009
Asia Faces Asset-Bubble Risks From Global Stimulus, Fosler Says
Sept. 11 (Bloomberg) -- Asia faces greater risks from asset bubbles caused by global stimulus than from threats to economic growth, said Gail Fosler, president of the Conference Board.
Governments need to be vigilant of the money flowing into their economies as investors buy assets such as real estate in emerging markets, Fosler of the New York-based research group said in a speech in Singapore today.
“There is a tremendous amount of fiscal stimulus that is going into producing the supply response that you see in the global economy today and the growth in assets continues to be stunning,” Fosler said. “This sets the stage for asset bubbles to move out of the U.S. and into Asia and emerging markets in general. It will be extremely important to be watchful in terms of asset accumulation and price accumulation.”
The global economy is emerging from the worst recession since the 1930s, as governments increase debt levels to finance spending. Officials from the Group of 20 nations this month expressed caution on the world economic outlook and judged it premature to start unwinding record-low interest rates and about $2 trillion in fiscal stimulus.
The global equity rally has added about $17 trillion to the value of stocks since this year’s low on March 9 as the credit crunch eased and investors became more confident of a recovery.
“There is almost no deleveraging that is actually taking place and the only thing that has slowed down is the rate of growth in leverage,” Fosler said.
China Drives Expansion
Global growth in the future will be at much lower levels than in the recent past, she said, adding that China is a bigger driver of Asian expansion than the U.S.
“The notion that U.S. consumption is driving Asian growth is really miscast,” Fosler said. “The U.S. consumer is an element, but I think much of the growth that I’ve seen in Asia has really occurred around the profit margins, around the technology sector. China is much more of a factor in Asian growth than is the U.S.”
The Federal Reserve this week said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August, adding anecdotal evidence that the worst U.S. recession in seven decades is over.
The world’s largest economy contracted 1 percent from April through June, according to the Commerce Department. The drop was the fourth in a row, making it the longest contraction since quarterly records began in 1947.
The U.S. has a “fair chance” of becoming a net saver as households in the world’s largest economy are saving more, Fosler said.
Governments need to be vigilant of the money flowing into their economies as investors buy assets such as real estate in emerging markets, Fosler of the New York-based research group said in a speech in Singapore today.
“There is a tremendous amount of fiscal stimulus that is going into producing the supply response that you see in the global economy today and the growth in assets continues to be stunning,” Fosler said. “This sets the stage for asset bubbles to move out of the U.S. and into Asia and emerging markets in general. It will be extremely important to be watchful in terms of asset accumulation and price accumulation.”
The global economy is emerging from the worst recession since the 1930s, as governments increase debt levels to finance spending. Officials from the Group of 20 nations this month expressed caution on the world economic outlook and judged it premature to start unwinding record-low interest rates and about $2 trillion in fiscal stimulus.
The global equity rally has added about $17 trillion to the value of stocks since this year’s low on March 9 as the credit crunch eased and investors became more confident of a recovery.
“There is almost no deleveraging that is actually taking place and the only thing that has slowed down is the rate of growth in leverage,” Fosler said.
China Drives Expansion
Global growth in the future will be at much lower levels than in the recent past, she said, adding that China is a bigger driver of Asian expansion than the U.S.
“The notion that U.S. consumption is driving Asian growth is really miscast,” Fosler said. “The U.S. consumer is an element, but I think much of the growth that I’ve seen in Asia has really occurred around the profit margins, around the technology sector. China is much more of a factor in Asian growth than is the U.S.”
The Federal Reserve this week said 11 of its 12 regional banks reported signs of a stable or improving economy in July and August, adding anecdotal evidence that the worst U.S. recession in seven decades is over.
The world’s largest economy contracted 1 percent from April through June, according to the Commerce Department. The drop was the fourth in a row, making it the longest contraction since quarterly records began in 1947.
The U.S. has a “fair chance” of becoming a net saver as households in the world’s largest economy are saving more, Fosler said.
Monday, September 07, 2009
Suzuki, Hyundai’s ‘Made-in-India’ Car Exports Beat China's
Sept. 7 (Bloomberg) -- India, whose auto market is 19 percent of China’s, has the edge in exports.
Suzuki Motor Corp.,Hyundai Motor Co., and Nissan Motor Co. are making India a hub for overseas sales of minicars as incentives lift demand for smaller, fuel-efficient autos. Helped by cheaper labor and a surging local market, India this year overtook China in auto exports and is challenging Thailand and South Korea as an alternative production center in Asia.
“There is a worldwide shift toward fuel-efficient, compact cars,” said Jayesh Shroff, who helps manage about $7 billion of assets including carmaker shares at SBI Asset Management Co. in Mumbai. “This offers a huge potential for India and it can emerge as a leader in the small car segment.”
Maruti Suzuki India Ltd.’s exports more than doubled to 79,860 this year. It aims to ship 130,000 vehicles in the year to March, 86 percent more than last year, said Chairman R.C. Bhargava.
Maruti Suzuki sold a monthly record 14,847 vehicles overseas in August. India’s exports of minicars and hatchbacks gained 44 percent between January and July to 201,138, according to the Society of Indian Automobile Manufacturers. Total exports, including vans, sport-utility vehicles and trucks, rose 18 percent to 229,809. Cars are exported to over 100 countries, and don’t include the U.S. or Japan.
In contrast, China’s exports slumped 60 percent to 164,800 between January and July, according to government data. Vehicles produced in Thailand for export declined 43 percent to 263,768, according to the Thai Automotive Club.
Full Control
South Korean exports dropped 31 percent to 1.12 million units, according to the Korea Automobile Manufacturers Association. Japan, the world’s largest automobile producer and exporter, shipped 1.77 million cars, trucks and buses. Of those, 135 were minicars and 439,849 were compacts.
Besides the attraction of serving a market where three of four cars bought are compacts, automakers will favor India to set up an export base as China requires companies to form local joint ventures and India doesn’t, said Ashvin Chotai, London- based managing director of Intelligence Automotive Asia Ltd.
“It makes companies more comfortable to have an export strategy when they have full control,” he said. “They don’t have to give up some parts of the profits to their partner.”
Small cars will account for 95 percent of the 690,000 passenger vehicles India will export in 2015, according to Tim Armstrong, Paris-based director of IHS Global Insight Inc. In 2016, India may share the top slot with Japan as the world’s biggest small car producer, building as many as 3 million units.
“Natural Place”
“All of India’s expertise has been the small car,” Armstrong said. “So obviously it’s a natural place to turn to” to set up export units.
Toyota Motor Corp. and General Motors Co. are also expanding Indian factories and plan to export compact vehicles.
Hyundai, South Korea’s biggest carmaker, plans to export 300,000 cars from India this year, more than its sales in the local market, a first since setting up a plant a decade back.
Nissan Motor Co., Japan’s third-biggest carmaker, will set up its first factory in India by May and use it to export entry- level cars to Europe. Spending on the plant is the most out of its global investments this year, said Colin Dodge, executive vice president.
Production in India will help Nissan save at least five percent of costs, he said. “We needed a car that can make money in Europe,” Dodge said in a June interview. “Five percent saving is very significant. It’s enormous money for us.”
Indian labor costs are about 10 percent of that in the U.S. and Europe and raw material costs in the nation are lower by 11 percent, according to Puneet Gupta, an analyst at CSM Worldwide Inc., an industry consultant. Developing a car from the design stage in India may take $225 million to $250 million, while in Europe it may be $400 million.
“The single-biggest opportunity in the auto industry for India is the small car,” said Vikas Sehgal, a Chicago-based partner at Booz & Co., an industry consultant. “If India loses in the small car market, it has nothing.”
Suzuki Motor Corp.,Hyundai Motor Co., and Nissan Motor Co. are making India a hub for overseas sales of minicars as incentives lift demand for smaller, fuel-efficient autos. Helped by cheaper labor and a surging local market, India this year overtook China in auto exports and is challenging Thailand and South Korea as an alternative production center in Asia.
“There is a worldwide shift toward fuel-efficient, compact cars,” said Jayesh Shroff, who helps manage about $7 billion of assets including carmaker shares at SBI Asset Management Co. in Mumbai. “This offers a huge potential for India and it can emerge as a leader in the small car segment.”
Maruti Suzuki India Ltd.’s exports more than doubled to 79,860 this year. It aims to ship 130,000 vehicles in the year to March, 86 percent more than last year, said Chairman R.C. Bhargava.
Maruti Suzuki sold a monthly record 14,847 vehicles overseas in August. India’s exports of minicars and hatchbacks gained 44 percent between January and July to 201,138, according to the Society of Indian Automobile Manufacturers. Total exports, including vans, sport-utility vehicles and trucks, rose 18 percent to 229,809. Cars are exported to over 100 countries, and don’t include the U.S. or Japan.
In contrast, China’s exports slumped 60 percent to 164,800 between January and July, according to government data. Vehicles produced in Thailand for export declined 43 percent to 263,768, according to the Thai Automotive Club.
Full Control
South Korean exports dropped 31 percent to 1.12 million units, according to the Korea Automobile Manufacturers Association. Japan, the world’s largest automobile producer and exporter, shipped 1.77 million cars, trucks and buses. Of those, 135 were minicars and 439,849 were compacts.
Besides the attraction of serving a market where three of four cars bought are compacts, automakers will favor India to set up an export base as China requires companies to form local joint ventures and India doesn’t, said Ashvin Chotai, London- based managing director of Intelligence Automotive Asia Ltd.
“It makes companies more comfortable to have an export strategy when they have full control,” he said. “They don’t have to give up some parts of the profits to their partner.”
Small cars will account for 95 percent of the 690,000 passenger vehicles India will export in 2015, according to Tim Armstrong, Paris-based director of IHS Global Insight Inc. In 2016, India may share the top slot with Japan as the world’s biggest small car producer, building as many as 3 million units.
“Natural Place”
“All of India’s expertise has been the small car,” Armstrong said. “So obviously it’s a natural place to turn to” to set up export units.
Toyota Motor Corp. and General Motors Co. are also expanding Indian factories and plan to export compact vehicles.
Hyundai, South Korea’s biggest carmaker, plans to export 300,000 cars from India this year, more than its sales in the local market, a first since setting up a plant a decade back.
Nissan Motor Co., Japan’s third-biggest carmaker, will set up its first factory in India by May and use it to export entry- level cars to Europe. Spending on the plant is the most out of its global investments this year, said Colin Dodge, executive vice president.
Production in India will help Nissan save at least five percent of costs, he said. “We needed a car that can make money in Europe,” Dodge said in a June interview. “Five percent saving is very significant. It’s enormous money for us.”
Indian labor costs are about 10 percent of that in the U.S. and Europe and raw material costs in the nation are lower by 11 percent, according to Puneet Gupta, an analyst at CSM Worldwide Inc., an industry consultant. Developing a car from the design stage in India may take $225 million to $250 million, while in Europe it may be $400 million.
“The single-biggest opportunity in the auto industry for India is the small car,” said Vikas Sehgal, a Chicago-based partner at Booz & Co., an industry consultant. “If India loses in the small car market, it has nothing.”
Asian Stocks Rise Amid Merger Speculation; Toshiba Advances
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.
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.
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.
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