TAIPEI (MarketWatch) — Global demand for semiconductors is better than Samsung Electronics Co.’s previous expectations, and the company is increasing chip production to meet the demand, the president of the company’s chip division said Tuesday.
Oh-Hyun Kwon attributed the improved demand to companies replenishing chip inventories and stronger sales supported by government stimulus packages.
Demand for double-data-rate-three dynamic random access memory chips used in personal computers is very strong, Kwon said at a news conference in Taipei, where the South Korean electronics giant is holding a forum on the mobile phone industry.
DDR3 chips are faster and more energy efficient than their predecessor DDR2 chips.
Samsung is now boosting production of DDR3 chips and expects to help end a shortage of the chips, he said.
Contract prices of DRAM chips have been increasing sharply since April. The average contract price of the mainstream 1-gigabit DDR2 chip that runs at 667 megahertz hit US$1.66 for the latter part of September, the highest level in a year, according to data from Taipei-based online chip clearinghouse DRAMeXchange.
DRAM prices are returning to “reasonable” levels now after previous sharp falls due to aggressive capacity expansion by manufacturers, Kwon said.
But he declined to give the company’s pricing plans. Samsung’s smaller rival Hynix Semiconductor Inc. said Tuesday the recent upward trend in DRAM prices is likely to continue due to robust PC sales and tight supply.
But Kwon also sounded a cautious note and said the sustainability of demand will depend on how sales during the Thanksgiving holiday season in late November turns out…….
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FED Actions May Be Hurt By Slow Velocity of $
By Scott Lanman
Sept. 22 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke’s efforts to stoke a U.S. economic recovery may be undermined by the central bank’s other goal of restoring the banking system to health.
The Federal Open Market Committee, at the conclusion tomorrow of a two-day meeting, will probably maintain its assessment that “tight” bank credit is impeding growth. Lending contracted for five straight weeks through Sept. 9, a drop that in part reflects Fed orders to banks to raise more capital and toughen lending standards, analysts say.
A failure to restore the flow of bank credit carries the risk that the economic recovery will be slower than the Fed anticipates, or even that the U.S. lapses into another recession, economists say. That would make it more likely the Fed will keep its main interest rate close to zero for a longer period.
“They would be absolutely delighted if banks went out and raised a lot more private capital and then began to lend more,” said former Fed Governor Lyle Gramley, now senior economic adviser with New York-based Soleil Securities Corp. “Until that happens, the Fed has to continue to try to encourage economic growth through easy money.”
The FOMC, composed of Bernanke, Fed governors and regional Fed-bank presidents, is expected to release a statement at about 2:15 p.m. New York time. Economists surveyed by Bloomberg News unanimously forecast the Fed will leave its benchmark interest rate unchanged.
The central bank may also decide to extend the end date of its $1.45 trillion program to buy housing debt, now set to expire at the end of the year, and to gradually reduce the size of the purchases.
Lending Contracts
Banks have become more careful about lending. A Fed report released last week shows banks had $6.85 trillion of loans and leases outstanding to businesses and households as of Sept. 9, down for a fifth straight week and below the record $7.32 trillion in October 2008. Real estate loans, the biggest portion, stood at $3.79 trillion, up $7.5 billion from the prior week while down from a peak of $3.9 trillion……
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Asian Markets Rise on Brokerage Upgrades of Various Companies
By Shani Raja
Sept. 22 (Bloomberg) — Asian stocks rose for the first time in three days as brokerage upgrades fueled speculation that regional equities can extend a six-month rally.
Samsung Electronics Co. gained 3.4 percent in Seoul after Citigroup Inc. raised its price estimate and chip prices climbed to their highest level in more than a year. LG Chem Ltd. and Samsung SDI Co. jumped at least 6.4 percent after being lifted to “overweight” at Morgan Stanley. China Mobile Ltd. advanced 2.4 percent in Hong Kong after it added customers at a faster rate in August than the previous month.
The MSCI Asia Pacific excluding Japan Index rose 1 percent to 393.28 as of 6:39 p.m. in Hong Kong. Markets in Japan, Malaysia, Indonesia and Pakistan were shut for holidays. The gauge that includes Japan has rallied 68 percent from a five- year low on March 9, lifting the average price of its stocks to 1.6 times book value from 1.03 at this year’s trough.
“Valuations at this juncture are not cheap,” said Tim Schroeders, who helps manage about $1 billion at Pengana Capital Ltd. in Melbourne. “However, if underlying levels of economic activity can continue to improve and profitability continues to grow, that should be sufficient to sustain current market levels.”
South Korea’s Kospi index advanced 1.4 percent to 1,718.88, its highest close since June 20, 2008. STX Pan Ocean Co., the country’s biggest commodity-shipping line, rose 8 percent in Singapore after securing its largest contract. Hong Kong’s Hang Seng Index added 1.1 percent at the close.
Valuation Concerns
The Shanghai Composite Index fell 2.3 percent to 2,897.55, its lowest close since Sept. 7. Australia’s benchmark S&P/ASX 200 Index lost 0.3 percent at the close. Macquarie Airports Ltd. climbed 3 percent in Sydney after saying it may be compensated if debt costs rise.
Futures on the U.S. Standard & Poor’s 500 Index gained 0.7 percent. The gauge fell 0.3 percent to 1,064.66 yesterday on speculation a six-month rally has outpaced prospects for profit growth, even as an index of U.S. leading economic indicators rose for the fifth-straight month.
European Stocks Rise Off The Back of Asia & On Government Stimulus
By Adria Cimino
Sept. 22 (Bloomberg) — European and Asian stocks rose, resuming a six-month rally for the MSCI World Index, amid signs government stimulus measures are helping the global economy to recover. U.S. futures advanced.
Samsung Electronics Co. and STMicroelectronics NV surged more than 3 percent as chip prices climbed to the highest level in more than a year. Carnival Corp. gained 2.7 percent in London after Bank of America Corp. recommended shares of the world’s biggest cruise-line operator. BHP Billiton Ltd. led mining companies higher as commodities advanced.
The MSCI World added 0.9 percent at 11:09 a.m. in London. The index has advanced 66 percent since March 9 as results at companies from HSBC Holdings Plc to GlaxoSmithKline Plc surpassed projections and the German and French economies unexpectedly exited recessions. The gauge is valued at more than 27 times the reported earnings of its companies, the highest level since 2003, weekly data compiled by Bloomberg show.
The rally “can run a bit further,” Georgina Taylor, an equity strategist at Legal & General Group Plc in London, which oversees $456 billion worldwide, said in a Bloomberg Television interview. “We’re positive on equities. There’s evidence of real economic activity starting to increase.”
The Dow Jones Stoxx 600 Index of European equities gained 0.9 percent today as all 19 industry groups advanced. Standard & Poor’s 500 Index futures added 0.7 percent and the MSCI Asia Pacific excluding Japan Index increased 0.9 percent. Markets in Japan, Malaysia, Indonesia and Pakistan are shut for holidays.
By Ron Harui
Sept. 22 (Bloomberg) — The euro may extend its rally to a five-week high of 137.50 yen, Citigroup Inc. said, citing trading patterns.
Europe’s currency is likely to gain versus the yen after rising above the “neckline” of a “double-bottom” pattern, Citigroup analysts Tom Fitzpatrick in New York and Shyam Devani in London wrote in a research note yesterday
“The daily chart shows the rally through the double bottom neckline at 134.41,” Fitzpatrick, chief technical analyst at Citigroup, and Devani said in the note. “A test of 137.50 is expected.”
The euro traded at 135.01 yen as of 12:50 p.m. in Tokyo from 134.96 yen in New York yesterday, when it rose to 135.48 yen, the highest level since Aug. 25. The 137.50 level would be the strongest since Aug. 13. The currency has risen 1.1 percent in September, heading for its first monthly gain since June.
A double bottom occurs when a currency makes two consecutive troughs of about the same depth, and indicates it may rebound. The neckline passes through the highest point of the double bottom.
In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index.
Oil Rises Slightly $ 70 & Change pb
VIENNA (AP) – Oil prices hung near $70 a barrel Tuesday after falling steeply overnight amid news that China’s crude consumption fell in August.
Chinese oil demand slid 5.4 percent in August from July, the first month-to-month drop since March, according to Platts, the energy information arm of McGraw-Hill Cos., as the world’s second-largest oil consumer reined in oil imports and crude throughput rates at its domestic refineries.
Benchmark crude for October delivery was up 88 cents at $70.59 a barrel in noon European electronic trading on the New York Mercantile Exchange. The contract fell $2.33 to settle at $69.71 on Monday.
Energy consumption in North America and Europe has been crimped by recession, leaving China as one of the few countries that continue to consume oil, gasoline and diesel in growing quantities. That pace, at least during late summer, appeared to slow, according to a report released Monday.
“Crude oil is not moving higher, but the only problem is, it is not moving lower either,” noted trader and analyst Stephen Schork, in his Schork Report. “In other words, the market is mired inside a well defined consolidation pattern – in between the mid $70s and high $60s.”
But some analysts expect a second-half recovery in demand from Europe and the U.S. combined with still decent energy appetite from Asia to boost oil prices.
“I think we’re going to see a pretty significant recovery in the second half in the U.S. and Europe, and demand from China has been holding up,” said Christoffer Moltke-Leth, head of sales trading for Saxo Capital Markets in Singapore. “I see more upside than downside for oil prices right now.”
Moltke-Leth said crude could rise above $75 during the next month. “If we can break through that, prices will likely jump to $80.”
In other Nymex trading, gasoline and oil for October delivery both rose by more than 2 cents to $1.77 a gallon. Natural gas, after tumbling more than 5 percent, was up more than 11 cents to $3.69 per 1,000 cubic feet.
In London, Brent crude rose 85 cents to $69.54 on the ICE Futures exchange.
Kiwi Currency Rises To Its Highest Levels
By Candice Zachariahs
Sept. 22 (Bloomberg) — The New Zealand dollar rose to the highest in more than a year after the nation’s current account deficit shrank to the least since 2004 as a proportion of the economy. Australia’s currency advanced.
The so-called kiwi climbed the most in two months after Fonterra Cooperative Group Ltd., the world’s largest dairy exporter, raised its milk price forecast for the coming year by 12 percent. Both currencies were also bolstered after the Asian Development Bank said Asian economies will expand at a faster- than-expected pace next year and China said its coal imports from Australia in the first eight months of 2009 surged.
“That’s the best number since September 2004 in GDP terms — a significant improvement in the current account,” said Imre Speizer, a market strategist at Westpac Banking Corp. in Wellington. “The kiwi will be supported.”…..
Rio Tinto Sells Its Alcan Unit to Schweiter
By Rebecca Keenan
Sept. 22 (Bloomberg) — Rio Tinto Group, the world’s third- largest mining company, agreed to sell its Alcan Composites unit to Schweiter Technologies AG for $349 million to help cut debt.
The sale should be completed by the end of the year, London-based Rio said today in a statement to the Australian stock exchange.
Rio has sold $7 billion of assets since March 2008 to help repay debt from the purchase of Canadian aluminum producer Alcan Inc. for $38.1 billion. Last week it took the first step in divesting the Alcan Engineered Products unit by agreeing to sell 56 percent of the cable division to Platinum Equity LLC.
Schweiter is the world’s biggest maker of equipment to test light-emitting diodes. Alcan Composites had sales of $649 million in the past year to August and earnings before interest taxation depreciation and amortization of $54 million, Rio said.
By Netty Ismail and Joyce Koh
Sept. 22 (Bloomberg) — The Singapore government pared its stake in Citigroup Inc. to less than 5 percent, realizing a $1.6 billion profit as the city-state’s investment companies reduce holdings in European and U.S. banks.
Government of Singapore Investment Corp. sold the stock after converting preferred shares in the New York-based bank into a more than 9 percent common-equity stake, it said in a statement. The company, manager of more than $100 billion of foreign- exchange reserves, also has a $1.6 billion paper profit on its remaining holding.
Citigroup shares have surged more than fourfold since falling below $1 on March 5, as the U.S. economy began to show signs of emerging from its deepest postwar recession. GIC’s Citigroup bet fared better than those of Temasek Holdings Pte, Singapore’s smaller investment company, which sold its stakes in Bank of America Corp. and Barclays Plc at a loss.
“There is clear evidence that the financial stimulus by central banks are bearing fruit,” said Singapore-based Roger Groebli, head of financial market analysis at LGT Capital Management, which oversees about $75 billion in assets.
Citigroup shares traded in Frankfurt gained 2.3 percent to 3.07 euros as of 12:08 p.m. local time…….
China’s Sovereign Wealth Fund Buys A Stake in Noble
By Kyunghee Park
Sept. 22 (Bloomberg) — China Investment Corp., the nation’s sovereign wealth fund, bought a 15 percent stake in Noble Group Ltd. as the Hong Kong-based commodity supplier benefits from China’s demand for coal, iron ore and soybeans.
Noble will sell $850 million worth of new and existing shares to CIC at 8.1 percent less than the last traded price. The sale includes 135 million shares owned by Chief Executive Officer Richard Elman and 438 million new shares, the Hong Kong- based company said in a statement.
CIC is increasing investments in commodities after losing money on financial firms including Blackstone Group LP and Morgan Stanley. Noble’s second-quarter profit doubled as China boosted raw material imports to fuel $586 billion of stimulus spending needs.
“CIC started accelerating its overseas investment pace in the most recent three to six months, they are showing a clear direction, that is from paper assets to commodities,” said Zhang Zhiming, director of asset allocation research at HSBC Holdings Plc in Hong Kong. “If they hold long-term positions in commodity assets, they need a trading house.”
Noble has more than doubled, making it the fourth-best performer on the Straits Times Index. The company’s shares traded at S$2.30 before they were suspended on Sept. 15 when it said it was in talks with an unspecified investor. The shares will remain suspended until Sept. 23……
By Jennifer M. Freedman
Sept. 22 (Bloomberg) — China appealed a World Trade Organization ruling that found its curbs on the sale of books, films and music from the U.S. are unfair.
WTO judges concluded on Aug. 12 that China was violating its free-trade commitments by requiring importers to channel foreign publications and audiovisual products through state-run companies. The panel also urged China to allow foreign companies to sell music over the Internet, which would be a boon for Apple Inc., with its iTunes software.
“China has appealed to the WTO over the publication ruling,” said a spokesman for the Ministry of Commerce in Beijing.
U.S.-Chinese trade relations have soured amid allegations about market-access restrictions, trade protectionism, copyright infringement, currency manipulation and claims that Chinese exporters are undercutting higher-cost American manufacturers. The U.S. has lodged eight complaints against China at the Geneva-based WTO — more than any other government — while four of China’s five trade complaints are against the U.S……
Emerging markets in Asia Get a Boost From ADB
Developing Asia is poised to lead the recovery from the global slowdown and economies in the region are proving to be more resilient to the downturn than initially estimated, the Asian Development Bank said Tuesday.
The latest update to the bank’s Asian Development Outlook 2009 forecasts developing Asia, which excludes Japan, to expand 3.9% this year, more than the 3.4% estimated in March. Likewise, the growth forecast for next year was upwardly revised to 6.4% from 6%.
Firm measures adopted by many governments and central banks, healthy financial systems before the global crisis and rapid turnaround in the larger and less export-dependent nations underpinned the growth prospects of the region, the Manila-based bank said. Tax cuts, greater public spending, targeted assistance, and easy monetary policies boosted consumption and investment.
The ADB said any slippage in the major industrial economies’ recovery would delay the region’s return to its long-term growth path. The regional economy is now poised to achieve a V-shaped rebound, according to the lender.
The report said notable divergences exist in the outlook across sub-regions and across economies. Economic growth in East Asia for 2009 was upgraded to 4.4% from 3.6%……
FDIC May Lean on Healthy Banks For Support on The Financial Crisis
(Reuters) – The Federal Deposit Insurance Corp may ask healthy U.S. banks to lend billions of dollars to restore the health of the depleted fund that safeguards bank deposits, the New York Times reported, citing senior regulators.
The paper said the initiative, which has gathered strong support across the board, is seen as a more attractive alternative to tapping the $500 billion line of credit with the U.S. Treasury, or yet another emergency assessment.
According to the paper, the FDIC was reluctant to approach the Treasury department for additional funds, since any new borrowing could be seen as a bailout, and have a strong political reaction.
The FDIC, whose board members were yet to reach a consensus on the issue, is expected to issue a proposed plan next week, to replenish the dwindling fund, the paper said.
The FDIC could not be immediately reached for comment.
IMF Asks Countries To Stay Cautious Until Recovery is Fully Realized
By Lesley Wroughton and Michael Winfrey – Analysis
WASHINGTON/PRAGUE (Reuters) – The International Monetary Fund will wait for a clear global rebound before it demands more austerity from bailed-out countries, and when it does it will focus on medium-term plans rather than quick cuts.
Rather than demand too much and fuel public outrage as in the Asian crisis, the Fund is staying more moderate, and economists said markets will do part of the persuading as they punish competing countries that neglect structural reforms.
The Fund emerged last year after a decade of diminishing relevance to snatch east European countries from the brink of disaster, pumping billions of euros into Latvia, Hungary, Romania, Serbia, Ukraine and other states.
Although it has pushed for eye-watering cuts in a few cases where it sees no alternative, it has learned from the public backlash it encountered in last decade’s Asia crisis and aims to nurture growth rather than just demand harsh belt-tightening.
Analysts say the strategy carries risks due to political wrangling ahead of a string of elections that could slow reforms the emerging states need to catch up with the richer West.
But with growth expected to plummet this year by at least 6 percent in most bailout recipients — and as much as 18 percent in Latvia — the IMF is waiting for clear signs of recovery.
“We are very cautious about trumpeting ‘this is the end of the slump, now the recovery is coming,'” Marek Belka, director of the IMF’s European department, told Reuters last week.
“Don’t expect us to announce: ‘Now is the time to turn around’. The decision is made by individual countries and conditions are so different.”
Market watchers say the approach will continue to support markets across emerging Europe but investors will punish governments that do not show willingness to rein in deficits.
SPIRALLING DEFICITS
Belka said the Fund was keeping a close eye on the recovery in western Europe and also saw potential for Eastern Europe to recover at a faster rate once the crisis ends…..
Fed is in No Hurry To Raise Rates
NEW YORK (Reuters) – The Federal Reserve meets this week against an improving economic backdrop, but with inflation not an imminent threat, the U.S. central bank is seen as in no hurry to raise interest rates.
Economists expect the policy-setting Federal Open Market Committee to hold the target range for overnight interest rates steady at zero to 0.25 percent until at least 2010.
A statement outlining the Fed’s policy decision is expected at around 2:15 p.m. EDT on Wednesday, at the end of a two-day meeting.
Fed Chairman Ben Bernanke said earlier this month that the worst U.S. recession since the Great Depression was “very likely” over, but that the recovery would be slow and would take time to create new jobs.
Below is some recent data the Fed will consider:
ECONOMY
There have been signs of economic recovery in data released since the Fed’s last policy meeting on August 11-12.
– An index measuring the U.S. economy’s prospects rose for a fifth straight month in August to a 1-1/2 year high as stock prices surged, data from private research group The Conference Board showed on Wednesday.
– Retail sales climbed 2.7 percent in July, the biggest monthly advance since January 2006, the Commerce Department said.
– The preliminary September Reuters/University of Michigan Surveys of Consumers sentiment index rose to 70.2, the highest since June.
– The New York Federal Reserve Bank’s “Empire State” business conditions index, which gauges manufacturing activity in New York State, rose to 18.88 in September, the highest level since November 2007. The survey is one of the earliest monthly guideposts to U.S. factory conditions.
But the positive news was by no means across-the-board: the U.S. unemployment rate hit a 26-year high of 9.7 percent last month.
Housing data has been mixed, suggesting some stability in the hard-hit sector but no firm revival.
In August, U.S. housing starts and permits for future building hit their highest level since November. The data reflected a rebound in multifamily homebuilding activity, though groundbreaking for single-family homes fell 3 percent.
While economists generally agree an economic recovery is underway, many continue to question its sustainability given its current reliance on monetary and fiscal stimulus measures. Continued…
High Bonds Getting Eaten Up By Investors
That’s what a pair of analysts at Citi (C) are saying, anyway.
Bloomberg: Investors are buying bonds from the lowest credit-quality issuers without restraint, according to Citigroup Inc.
Yields on high-yield, high-risk debt have narrowed by 80 basis points relative to benchmark rates in the past two weeks, Citigroup analysts John Fenn and Jason Shoup wrote in a Sept. 18 report. Last week, 13 companies, including casino owner MGM Mirage and video chain Blockbuster Inc., sold more than $6.5 billion of bonds, they wrote.
“These are the kinds of dynamics that cause strategists to wake up in the middle of the night and go for a long run,” the New York-based analysts wrote. “We understand investors are not supposed to fight the cash, but this is starting to become a bit ridiculous.”
If you’re looking for signs of a bubble, or at least complacency, this is probably a good avenue to hunt down. A disregard for risk and a chase for yield may foretell trouble.
However, as we argued last week when we looked at the subject, we’re still levels above where the crisis really started, so we still have a ways to go until we hit total complacency. But we’ve obviously come a long way, and it’s something to watch out for.
The M&A market is slowly beginning to find its footing after a steep decline from the manic merger days of 2006 and 2007. The resurgence in the deal market could be particularly beneficial to investment banks and private equity firms who have been bleeding for years as the M&A market has slowly died down:
According to analysts at Credit Suisse there are many reasons to get excited about the potential resurgence in M&A:
- Corporations are cash rich and balance sheets are healthy when compared to past recessions. Companies have the most cash in their arsenal targeted at growth strategies since 2001:
- The Kraft/Cadbury deal is a sign that companies are ready to begin putting cash to work
- The resurgence of the M&A market is good for the lending market and should be a positive for the market in general.
- M&A tends to lag the cycle which could be another sign that markets are improving.
- Sentiment indicators are improving which means the willingness to put cash to work is increasing.
How to play it? The obvious beneficiaries of a M&A boom are Goldman and Morgan Stanley – the last standing of the major investment banks and the closest thing to a pure play M&A company. Lesser known investment banks include Lazard and Greenhill – both of which have benefited enormously after the dust settled from 2008’s fallout. Other likely beneficiaries include the private equity firms who are likely to benefit from the potential market gains in a M&A boom. For investors looking for industry leaders you might consider Blackstone and Fortress Investments. For those looking for more of a diversified approach you might consider PSP – the powershares private equity fund.
Source: Credit Suisse
* All information on this website is provided for general purposes and should not be misconstrued as financial advice. Always consult your financial advisor before acting on any of the information herein. You should always assume that the author(s) could have a vested interest in topics described and may or may not own securities and instruments discussed.