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European Markets & U.S. Futures Slip on Evaluations
By Daniel Hauck
Aug. 10 (Bloomberg) — European stocks fell on speculation that a five-month rally outpaced the prospects for corporate profits as the Dow Jones Stoxx 600 Index traded at the most expensive relative to earnings in almost six years. The yen rose against the dollar and the euro.
The Stoxx 600 slid 0.6 percent at 12:21 p.m. in London and futures on the Standard & Poor’s 500 Index slipped 0.4 percent. The yen advanced against 15 of the 16 most-traded currencies tracked by Bloomberg, rising 0.5 percent versus the dollar and 0.4 percent compared with the euro. Treasuries were little changed, with the yield on the 10-year note at 3.86 percent, as the government prepared to sell $75 billion of debt this week.
The 45 percent rally in the Stoxx 600 since March 9 has driven price-earnings valuations to the highest level since September 2003. Industrial metals have climbed for four straight weeks on signs the world economy is rebounding from its first recession since World War II. Laura Tyson, an adviser to President Barack Obama, said yesterday the U.S. may be on the cusp of a recovery and the effect of the nation’s stimulus plan should increase this quarter.
“We can expect a lot of volatility” in stocks, Mark Mobius, the executive chairman of Templeton Asset Management Ltd., said in an interview in Kuala Lumpur today. “When you have these rapid increases, almost without correction, you will definitely have a correction at some point.”
2008 Rout
Global stocks may drop as much as 30 percent following their recovery from last year’s rout, Mobius said. The MSCI World Index of 23 developed nations slumped 42 percent in 2008, the biggest drop in the gauge’s almost four-decade history.
The MSCI World slipped less than 0.1 percent today. The drop was limited as shares in Asia rallied after Japanese machinery orders rose for the first time in four months. The global measure is valued at 24.9 times the earnings of its 1,655 companies, the most expensive level since December 2003, weekly data compiled by Bloomberg show.
Goldman Sachs Group Inc. also boosted its forecast for China’s economic growth this year to 9.4 percent from 8.3 percent, citing “strong momentum” and the likelihood that the government will delay tightening policy.
Automakers led the decline in European stocks, dropping 2.6 percent for the biggest retreat among 19 industry groups in the Stoxx 600. Daimler AG, the world’s second-biggest maker of luxury cars, dropped 4 percent in Frankfurt after Morgan Stanley recommended selling the shares. Volkswagen AG retreated 5 percent as Europe’s largest carmaker was cut to “underweight” from “neutral” at HSBC Holdings Plc.
U.S. Futures, VIX
U.S. futures slipped today after four straight weeks of advances pushed the S&P 500 above 1,000 for the first time since November. The U.S. economy is at a “turning point” and the world is in “rough stabilization” mode after averting another depression, Nobel Prize-winning economist Paul Krugman, 56, said at a conference in Kuala Lumpur today. The global recovery won’t be export-led or “phoenix-like,” he added.
Options traders are increasing bets that the steepest rally in the S&P 500 since the 1930s won’t survive September, historically the worst month for U.S. equities.
Traders are betting the VIX, a gauge of expected stock swings, will increase 13 percent in the next five weeks, according to futures prices compiled by Bloomberg. The S&P 500 has rallied 49 percent in five months, pushing valuations to the highest levels since December 2004.
Japan Machinery Orders
The yen strengthened as a Cabinet Office report showed Japanese machinery orders climbed 9.7 percent in June and the current-account surplus widened, the latest signs that the nation’s worst postwar recession is easing. The pound declined against the dollar and the euro as last week’s decision by the Bank of England to extend its bond-buying program stoked concern the worst of the recession hasn’t passed.
Copper for delivery in three months added 0.5 percent to $6,182 a metric ton on the London Metal Exchange, extending four consecutive weekly advances. Nickel, tin and lead rose. White sugar advanced 3.1 percent to $553.90 a metric ton in London, after earlier reaching a record $556.60. Crude oil fell 0.6 percent to $70.50 a barrel in New York trading.
Credit Freeze
The cost of protecting European high-yield corporate bonds in the credit-default swaps market has plunged since March after soaring in the two years since BNP Paribas SA froze payments on some of its funds.
The Markit iTraxx Crossover Index was at 350 basis points on Aug. 9, 2007, soaring to a peak of 1,173 in March this year. The index was at 575 basis points as of 9:37 a.m. in London, tightening 9 basis points today, according to JPMorgan Chase & Co. prices.
BNP Paribas, France’s biggest lender, halted withdrawals from three investment funds because it couldn’t “fairly” value their holdings, an event seen as the trigger for the biggest credit crisis since the Great Depression.
Asian Markets Trade Higher Off U.S. Jobs Data
By Shani Raja
Aug. 10 (Bloomberg) — Asian stocks rose, led by automakers and consumer companies, after the U.S. jobless rate dropped and Japanese machinery orders increased, boosting confidence the world’s two largest economies are emerging from recessions.
Honda Motor Co., which gets 45 percent of its revenue from North America, gained 3.6 percent in Tokyo. Bridgestone Corp., the world’s largest tiremaker, rose 5.6 percent in Tokyo after forecasting a profit. China Mobile Ltd. advanced 3.4 percent in Hong Kong after the Chinese premier said the country will maintain policies aimed at bolstering domestic spending.
The MSCI Asia Pacific Index climbed 1.1 percent to 111.93 as of 8:07 p.m. in Tokyo, following a 1 percent drop last week. The gauge has risen 59 percent from a more than five-year low on March 9 amid speculation government stimulus efforts around the world will help the global economy recover.
“The key message to investors is to buy the markets,” said Kerry Series, head of Asia-Pacific equities at Sydney-based AMP Capital Investors Ltd., which holds $95 billion. “The stimulus is starting to take effect and you can see the early stages of it. I think the stock market has reflected that.”
Japan’s Nikkei 225 Stock Average rose 1.1 percent to 10,524.26 as strategists at Nomura Holdings Inc. predicted the gauge may climb as high as 11,500 by the end of October. Mitsubishi Rayon Co., which makes fabrics and chemicals, surged 20 percent after the Nikkei newspaper reported the company may be bought by rival Mitsubishi Chemical Holdings Corp.
Beating Estimates
Hong Kong’s Hang Seng Index climbed 2.7 percent. Australia’s S&P/ASX 200 Index advanced 0.1 percent, led by real- estate trust Goodman Group, which surged 16 percent after a share sale eased concerns about the company’s debt levels. Rio Tinto Group, the world’s third-biggest mining company, sank 3.3 percent on concern strained relations with China may hurt profit.
Futures on the Standard & Poor’s 500 Index lost 0.4 percent, while Treasuries fell for a sixth day. The S&P 500 climbed 1.3 percent on Aug. 7 after a Labor Department report showed the joblessness rate dropped to 9.4 percent last month from June, the first decline since April 2008. Economists had estimated the rate would rise to 9.6 percent.
Traders are betting the VIX, a gauge of expected swings on the S&P 500, will increase 13 percent in the next five weeks, according to futures prices compiled by Bloomberg. That’s the biggest spread since August 2008, right before the S&P 500 suffered the steepest two-month plunge in 21 years.
In Tokyo today, Japan’s Cabinet Office said machinery orders, an indicator of capital investment in the next three to six months, climbed 9.7 percent from May. The median estimate of 22 economists surveyed by Bloomberg was for a 2.6 percent increase.
Higher Forecast
Honda gained 3.6 percent to 3,120 yen. Sony Corp., which gets about a quarter of its sales from the U.S., climbed 3.2 percent to 2,780 yen. Komatsu Ltd., the world’s second-biggest maker of construction equipment, rose 2.9 percent to 1,632 yen.
Bridgestone jumped 5.6 percent to 1,785 yen after forecasting full-year net income of 6 billion yen ($62 million), compared with an earlier break-even prediction.
The yen weakened against the dollar after the U.S. jobs report, boosting the outlook for Japanese export earnings. The U.S. currency last week strengthened 3.1 percent against the yen, the steepest weekly advance in two months.
Companies’ efforts to cut costs boosted investor confidence in the outlook for earnings, Nomura strategists wrote in a report. The analysts said the Nikkei 225 may rise as high as 11,500 by the end of October, lifting a previous estimate that ranged between 10,500 and 11,000.
Rising Valuations?
The stock rally since March has lifted the average price of companies in the MSCI Asia Pacific Index to 1.57 times book value, the highest level since Sept. 10, which was five days before Lehman Brothers Holdings Inc. filed for bankruptcy. That level is still lower than the five-year average of 1.83 times book value, data compiled by Bloomberg show.
“Valuations are not stretched, but the market’s moved a hell of a long way since the bottom,” said Mark Konyn, Hong Kong-based chief executive officer of RCM Asia Pacific Ltd., which holds $11 billion. “The question is whether or not we’ll see that follow through in economic improvement and I think you see it in the jobs numbers in the U.S.”
China will maintain its current macroeconomic policy stance aimed at bolstering domestic spending as the nation continues to experience fallout from the global recession, Premier Wen Jiabao said yesterday.
China Mobile, the world’s largest cell-phone operator by users, advanced 3.4 percent to HK$91.55. Aluminum Corp. of China Ltd., China’s largest maker of the light metal, climbed 5.6 percent to HK$9.96.
New Zealand Housing
Pumpkin Patch Ltd., New Zealand’s second-biggest publicly traded retailer, rose 3.5 percent to NZ$1.80 in Wellington, after the country’s house prices rose for the third month in July. Prices advanced 0.7 percent from the previous month, according to Quotable Value New Zealand Ltd., the government valuation agency.
Mitsubishi Rayon surged 20 percent to 327 yen after the Nikkei reported Mitsubishi Chemical may pay as much as 200 billion yen to buy the company. Mitsubishi Rayon said it had no statement to make.
Mitsubishi Chemical wasn’t the source of the information, spokesman Yoshinori Nagayama said. The company’s shares added 4.7 percent to 443 yen.
Yanzhou Coal Mining Co. was halted from trading in Hong Kong amid speculation the company is planning a takeover bid for Australian rival Felix Resources Ltd., which was also suspended today. Macarthur Coal Ltd., the world’s biggest exporter of pulverized coal, jumped 4.5 percent to A$8.12 in Sydney. Centennial Coal Co. rose 4.4 percent to A$3.08.
Higher Stake
In Hong Kong, Hang Seng Bank Ltd. gained 2.4 percent to HK$118.60 after Chief Executive Officer Margaret Leung said the lender may raise its 12.8 percent stake in China’s Industrial Bank Co. Industrial Bank dropped 1.9 percent to 38.44 yuan.
Goodman surged 16 percent to 51.5 Australian cents. Institutional investors bought A$923 million ($773 million) shares for 40 cents each, the Sydney-based company said in a statement today, while retail investors are expected to buy A$355 million in shares.
“Some traders were wanting this capital raising to take place,” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “It’s being taken positively because it will result in a stronger balance sheet, better liquidity and an impressive gearing.”
Rio Tinto fell 3.3 percent to A$58.55 after a Chinese government-funded Web site claimed the company overcharged the country for ore by 700 billion yuan ($102 billion). Rio declined to comment on the fresh accusation.
“Sentiment will drive the share price in the short term until such time as the company comes out and they say ‘to date we have still seen no volume impact,’” UBS AG analyst Glyn Lawcock said by telephone.
SINGAPORE (AP) – Oil prices hovered near $71 a barrel Monday in Asia as investors looked to signs later this week of the U.S. consumers’ health.
Benchmark crude for September delivery was up 1 cent to $70.94 a barrel by late afternoon in Singapore in electronic trading on the New York Mercantile Exchange. On Friday, the contract fell $1.01 to settle at $70.93.
Crude prices have fluttered near $71 a barrel and $72 for about a week as investors try to gauge how strong a U.S. economic recovery will be this year. The government said Friday that the unemployment rate fell to 9.4 percent in June, but gasoline demand has been weak this summer.
This week, the U.S. government will report July retail sales, and Wal-Mart Stores Inc. and Macy’s Inc. will announce their second quarter results.
“There’s evidence that the economy as a whole is turning around,” said Toby Hassall, an energy analyst with Commodity Warrants Australia in Sydney. “But consumer demand is still really flagging.”
“Over the next six to 12 months we’re going to have to see evidence of the consumer sector picking up.”
In other Nymex trading, gasoline for September delivery was steady at $2.01 a gallon and heating oil rose 0.54 cent to $1.92. Natural gas for September delivery gained 5.7 cents to $3.73 per 1,000 cubic feet.
In London, Brent prices rose 7 cents to $73.66 a barrel on the ICE Futures exchange.
By Courtney Dentch
Aug. 10 (Bloomberg) — McDonald’s Corp., the world’s largest restaurant company, said global sales rose 4.3 percent in July, more than some analysts estimated, on demand for hamburgers and McCafe coffees.
Sales at U.S. restaurants open at least 13 months climbed 2.6 percent, while European orders increased 7.2 percent, Oak Brook, Illinois-based McDonald’s said today in a statement. Sales in Asia, the Middle East and Africa rose 2.1 percent.
McDonald’s expanded its McCafe coffee drinks to thousands of its U.S. locations and introduced a $4 Angus burger in July to help lure customers in the recession. Sales growth in the U.K., France and Australia is tempering slowing demand in China.
“Consumers are taking well to McDonald’s revamped menu and its attractive price points,” Jack Russo, an analyst with Edward Jones in St. Louis, wrote in a July 23 note. He recommends holding the stock. New foods and beverages “should serve to boost sales, and profitable sales at that.”
McDonald’s rose 36 cents to $55.20 on Aug. 7 in New York Stock Exchange composite trading. The stock had dropped 11 percent this year before today.
Jeff Farmer, an analyst with Jefferies & Co. in Boston, anticipated a 3.5 percent increase in global same-store sales in July, with 2 percent gains in the U.S. and in the Asia, Middle East and Africa region. He projected a 5 percent gain in Europe.
Jeffrey Bernstein, an analyst with Barclays Capital in New York, estimated a gain of a 3.2 percent in global sales. He projected increases of 2 percent in the U.S., 6 percent in Europe and 1 percent in the Asia, Middle East and Africa region.
Last month, McDonald’s said second-quarter net income declined to $1.09 billion, or 98 cents a share, as sales fell 7 percent to $5.65 billion, hurt by currency translations. Global sales at established stores rose 4.8 percent in the quarter, less than analysts projected, as visits declined in countries including China.
FOMC Meets This Week With Commercial Real Estate on the Brain
By Scott Lanman
Aug. 10 (Bloomberg) — The collapse in commercial real estate is preventing Federal Reserve Chairman Ben S. Bernanke from declaring the economy and financial markets are healed.
Property values have fallen 35 percent since October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls and hotels this year, pressuring companies such as Maguire Properties Inc., the largest office landlord in downtown Los Angeles, to put buildings up for sale.
The industry is likely to be high on the agenda when Bernanke and his colleagues sit down in Washington tomorrow for the Federal Open Market Committee meeting on monetary policy. Lawmakers including Barney Frank and Carolyn Maloney are pushing the central bank to extend an aid program designed to restore the flow of credit.
If nonresidential real estate remains in the doldrums, the Fed may be forced to leave emergency-lending programs in place and keep its benchmark interest rate close to zero for longer than some investors expect, given positive signs elsewhere in the economy.
Commercial property is “certainly going to be a significant drag” on growth, said Dean Maki, a former Fed researcher who is now chief U.S. economist in New York at Barclays Capital Inc., the investment-banking division of London-based Barclays Plc. “The bigger risk from it would be if it causes unexpected losses to financial firms that lead to another financial crisis.”
‘Close Attention’
The Fed is “paying very close attention,” Bernanke, 55, told the Senate Banking Committee on July 22, the second of two days of semiannual monetary-policy testimony before the House and Senate. “As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices, and so, more pressure on commercial real estate.”
The pressure may be easing in other areas of the economy. Gross domestic product shrank at a better-than-forecast 1 percent annual pace in the second quarter after a 6.4 percent drop the prior three months, and residential housing starts rose unexpectedly by 3.6 percent in June as construction of single- family dwellings jumped by the most since 2004, according to data from the Commerce Department.
Employers cut fewer workers than anticipated last month as the jobless rate fell to 9.4 percent from 9.5 percent in June — the first decline since April 2008, based on Labor Department figures.
‘Danger Zone’
Amid such glimmers of improvement, commercial real estate is a “particular danger zone,” said Janet Yellen, president of the Federal Reserve Bank of San Francisco, in a July 28 speech in Coeur d’Alene, Idaho. The market may be “under stress for some considerable period of time,” William Dudley, chief of the New York Fed bank, said the following day in New York.
Nonresidential construction may decline as much as 9 percent this year and another 5 percent in 2010, predicts Kenneth Simonson, chief economist at Associated General Contractors of America, an Arlington, Virginia, trade group whose members include Essen, Germany-based Hochtief AG’s Turner Construction Co. in New York, one of the largest U.S. builders. In the second quarter, it accounted for 3.6 percent, or $509 billion, of U.S. gross domestic product on an annual basis, down from 4.3 percent in the final three months of 2008.
A dozen lawmakers questioned Bernanke on the topic during his July testimony. Some asked about extending the Term Asset- Backed Securities Loan Facility, the emergency program the Fed began in March to restart the market for securities backed by auto, credit-card and education loans. The central bank expanded the facility in June to cover as much as $100 billion in loans to support commercial mortgage-backed securities.
One-Year Extension
Forty-one House members — including Frank, 69, a Massachusetts Democrat who chairs the Financial Services Committee, and Maloney, 61, a New York Democrat who heads the Joint Economic Committee — signed a July 31 letter seeking a one-year extension through December 2010 and asking for a decision by mid-August.
Fed policy makers will prolong the program if they judge financial markets are still “some distance from normal operation,” Bernanke said during his July 22 testimony. “We will certainly be monitoring the situation.”
The Fed likely will change the end date — just not right away, said former central-bank Governor Lyle Gramley.
Market Developments
“They’re probably going to want to wait a while to see how markets develop,” said Gramley, 82, now senior economic adviser with Soleil Securities Corp., a New York-based investment- research firm.
A six-month continuance is more likely than the one year industry officials want, said former Fed Governor Laurence Meyer, Washington-based vice chairman with consultant Macroeconomic Advisers LLC of St. Louis.
That would still be useful and “provide more of a runway” for the TALF to be effective, said Jeffrey DeBoer, president of the Real Estate Roundtable, a Washington group representing 16 trade associations and property owners including New York-based Vornado Realty Trust, the third-largest U.S. real-estate- investment trust by market value.
Any sales of mortgage-backed bonds would be the first new issues in the $700 billion U.S. market for commercial-mortgage- backed securities since it was shut down by the credit freeze in 2008.
About $3 billion are in the pipeline, and the success of these sales may foster as much as $25 billion in total deals in the next six months, said Kenneth Rosen, who runs a $310 million hedge fund in real-estate securities and heads the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley.
Signs of Improvement….
Commercial Real Estate Warnings From Maguire Properties
By CHRISTINA S.N. LEWIS
Maguire Properties Inc., one of the largest office-building owners in Southern California, is planning to hand over control of seven buildings with some $1.06 billion in debt to creditors, the latest sign that rising vacancies and falling rents are causing stress in the commercial real-estate sector.
![[maguire properties vacancies and defaults]](http://ibankcoin.com/cronkite/wp-content/imagescaler/6a7bb18eb9dde1a831ebc5c718ae6a5d.gif)
Maguire, which borrowed heavily during the go-go years to make disastrous top-of-the-market investments, mostly in Orange County, notified the buildings’ mortgage holders Friday that it expected “imminent default” on the loans. The buildings are all worth less then their mortgages and aren’t generating enough cash to pay debt service and finance leasing expenses.
Maguire’s problems are an example of the mounting pain among owners and lenders to office buildings, stores, hotels and other commercial real estate that is causing concern among banks and regulators that the sector may drag down a hoped-for economic recovery just as it is getting started. Initially, a dearth of financing caused the distress. But Maguire’s problems show that falling rents and rising vacancies are causing landlords to run out of cash.
Robert Maguire, the developer who founded the company and took it public as a real-estate investment trust in 2003, bought properties during the years before the bust on the assumption that rents would continue rising. But just the opposite has happened in Orange County, where the vacancy rate hovers around 20%, up from 6% three years ago, according to Maguire.
Chief Executive Nelson Rising, who was brought in by the company’s board last year to succeed Mr. Maguire, said in an interview that restructuring the debt on six of the buildings, located in Orange County and Los Angeles, is one possibility. But he said the most likely scenario is that the mortgage holders will take over the properties and try to sell them. Maguire already has a deal to turn over one of the buildings, Park Place One, in Irvine, Calif., to LBA Realty, a real-estate company that acquired the debt on the property at a discount in the spring. A telephone call placed to LBA’s principal wasn’t returned.
![[maguire properties default]](http://ibankcoin.com/cronkite/wp-content/imagescaler/5b8ee1698d55a4b4a743a014326cdd38.jpg)
Maguire Properties
Among the office buildings that Maguire will turn over to creditors is Stadium Towers Plaza.
The debt on the other six properties was packaged by Wall Street firms and sold as commercial mortgage backed securities, or CMBS, to dozens of institutional investors. Mr. Rising said that Maguire would work closely with the servicers of that debt to transfer control of the buildings. The seven buildings, with 4.2 million square feet, make up about 20% of Maguire’s portfolio.
Maguire, scheduled to release its second-quarter earnings Monday, will take a $345 million charge on the properties’ loss in value. The company also is set to report a net loss of $380 million for the quarter, compared with a net loss of $110 million a year earlier.
Mr. Rising has succeeded in reducing Maguire’s debt by about $1.6 billion. His plan has been to sell or give back to lenders troubled properties and shore up Maguire’s balance sheet to the point that it is able to raise capital like other real-estate investment trusts have been doing.
But Maguire’s future still looks dicey. The company still has $3.5 billion in debt, and some analysts say that amount exceeds the value of its remaining properties. “Almost every building in [Maguire’s] portfolio is under water,” says Michael Knott, an analyst with Green Street Advisors. “I don’t envy some of the choices that they are having to make.”
Maguire’s stock, which traded around $12 a share one year ago, has been trading below $1 a share in recent months, a sign that many investors expect the company to fail.
Mr. Rising acknowledged that Maguire is encumbered with properties that are cash-flow negative, including three recently constructed buildings. But he expressed cautious optimism that the company would be able to dig out of its problems. “With this particular initiative we’ve made a big step,” he said.
Landlords throughout the country are watching the cash flows of their buildings dwindle. Office vacancies nationally hit 15.4% as of June 30, up one percentage point from a year earlier, as businesses dumped 25 million square feet of space on the market, according to Colliers International.
Not only are vacancies rising, but landlords often have to cut rents when tenants renew their leases to keep the tenants. Owners also have to lay out incentive packages to attract tenants by offering them interior build-outs and months of free rent. Mr. Rising estimated that it would have cost Maguire about $31 million a year to keep the seven buildings because they weren’t generating enough money to pay these and other expenses and debt service.
While these trends are clobbering landlords, tenants who have the good fortune to be in the market for space are getting deals. For example, accounting firm Moore Stephens Wurth Frazer & Torbet signed a $3.35 million, seven-year lease a few months ago for 19,000 square feet of space in a Maguire-owned building in Brea, Calif.
Maguire cut its initial rent offer by about 20% to $25 per square foot and offered generous incentives: footing the bill for the space’s renovation and charging only a $10,000 monthly rent for the first year, according to John Metzen, Moore’s administrator. “We got what we thought was an incredible deal,” said Mr. Metzen, whose firm was represented by CB Richard Ellis.
Rising Chip Demand Still Coming Out of Asia
By Baker Li
TAIPEI (Reuters) – Rising July sales at TSMC (2330.TW) and UMC (2303.TW), the world’s two biggest contract chip makers, provided further evidence of reviving demand for computers and other consumer gadgets.
Both Taiwanese firms’ sales were in line with market expectations as they flagged a stronger third quarter and raised capital spending forecasts for this year.
Analysts said sector leader TSMC (TSM.N) used advanced process technology to churn out more chips for its customers as a new crop of laptops and mobile phones requiring powerful chips hit store shelves.
Taiwan Semiconductor Manufacturing Co Ltd (TSMC) said on Monday it had unconsolidated sales of T$30.28 billion ($923 million) last month, flat from a year ago but the largest monthly amount in nearly one year.
TSMC earns nearly half of its revenue from chips for communications products such as cellphones and counts Texas Instruments (TXN.N) and Nvidia (NVDA.O) among its major clients.
On the same day after the Taipei stock market closed, United Microelectronics Corp (UMC) said its July sales reached T$8.81 billion, their highest since November, 2007.
“The gap (between TSMC and UMC) still exists in terms of technology and economic scale,” said Kevin Chung, a manager at Taiwan’s Jih Sun Investment Consulting.
“With good sales growth momentum in the third quarter, TSMC shares might stay high.”
TSMC’s Taipei-listed shares rose 1.8 percent on Monday, while UMC shares lost 0.4 percent. TSMC has advanced about 30 percent so far this year, while the main TAIEX gained 50 percent during the same period.
After a strong third quarter, however, analysts expected TSMC’s sales to fall about 10 percent sequentially in the fourth.
In the longer term, TSMC has said it would allocate more for research and development amid the chip sector’s recovery, which analysts say would help it further widen its customer base.
Since the cost of chip manufacturing has risen, many major chipmakers in the U.S. and Japan have outsourced production, good news for chip foundries.
Integrated Device Technology (IDTI.O) said last week it would transfer manufacturing to TSMC as the U.S.-based chipmaker plans to shut down one of its factories.
Sales of chips made by mainstream 65-nanometer technology accounted for 28 percent of TSMC’s total revenue in April-June, and 12 percent of UMC’s revenue in the same period.
In the first seven months of the year, TSMC’s consolidated sales were T$144.9 billion, down 30 percent from a year ago. UMC’s sales reached T$42.3 billion in January-July, down 27 percent from a year earlier. Continued…
Shares of iron ore miner Rio Tinto slipped after a report came out accusing the company of espionage and a $100 billion swindle.
Recall that a Chinese firm tried to buy a stake in the miner but was rebuffed, and ever since then the firm has seen all kinds of headaches in the country — though of course China denies that the sequence of events is anything but coincidental.
Telegraph UK: An article published on a website controlled by the Chinese State Secrets Bureau also claimed that large amounts of “intelligence and data” had been found on Rio’s computers following the arrest of four Rio executives on spying charges last month.
The report on baomi.org, a publishing affiliate of China’s national secrets watchdog, accused Rio of “winning over and buying off, prying out intelligence… and gaining things by deceit” during critical annual negotiations over iron ore prices.
Meanwhile, the author of the report denies that this is an official government announcement:
Bloomberg: The author of an editorial linking Rio Tinto Group’s actions in China to 700 billion yuan ($102 billion) in excess charges for the steel industry said the article was his own opinion and used previously published data.
Jiang Ruqin, an employee with the Jiangsu Province Administration for the Protection of State Secrets, said he has no involvement in a legal case against four Rio employees detained last month, and that no “leaders” assigned him to write the essay or reviewed the piece before publication.
“I just wanted to write the article because this situation’s impact is really big, it affects the country’s economic security,” Jiang said in a telephone interview from Nanjing, the capital of eastern China’s Jiangsu Province. “We cadres who protect state secrets must speak up.”
As impenetrable as all this is, you have to find this intriguing. Accusatory “state secrets” websites, spying accusations, attempts by government firms to buy you out… the fun of doing business in China.
Japan Machine Orders Rise For The First Time in 4 Months
By Jason Clenfield and Keiko Ujikane
Aug. 10 (Bloomberg) — Japanese machinery orders rose for the first time in four months in June and the current-account surplus widened, the latest signs that the nation’s worst postwar recession is easing.
Orders climbed 9.7 percent from May, the Cabinet Office said today in Tokyo, more than the 2.6 percent expected by economists. The surplus more than doubled from a year earlier to 1.15 trillion yen ($11.8 billion), expanding for the first time since February 2008 as exports improved.
The Nikkei 225 Stock Average advanced, extending its rally in the past month to 13 percent as the global recession abated and cost cuts helped earnings at companies from Honda Motor Co. to Sony Corp. exceed analysts’ expectations. Even so, a separate report showed corporate bankruptcies increased in July, signaling unemployment may soon rise to a postwar high.
“We shouldn’t be too optimistic about capital spending yet,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “Companies are still burdened with excess labor and capacity and the outlook for the economy is uncertain.”
The Nikkei rose 1.1 percent, its highest close since Oct. 3. The yield on 10-year government bonds rose 2.5 basis points to a seven-week high of 1.455 percent. The yen traded at 97.25 per dollar at 3:26 p.m. in Tokyo from 97.39 before the machinery report.
Election This Month
Prime Minister Taro Aso is struggling to steer the economy toward a recovery as his ruling Liberal Democratic Party trails the opposition Democratic Party of Japan in polls ahead of an Aug. 30 election. A separate report today showed sentiment at merchants rose to a 22-month high, bolstered by the stock- market gains and Aso’s 25 trillion yen in stimulus spending.
Machine orders, an indicator of capital investment in the next three to six months, will fall 8.6 percent in the current quarter, the government said. June’s gain was mostly due to a purchase of equipment used to generate nuclear power. Without that, orders would have risen about 2 percent or 3 percent, said Shigeru Sugihara, head of statistics at the Cabinet Office.
Today’s figures add to signs the global economy is recovering from the worst recession since the Great Depression. The U.S. unemployment rate dropped for the first time in 15 months in July, prompting Nobel Prize-winning economist Paul Krugman to say yesterday that the economy “may be in the beginning of an upturn.” Analysts expect data next week will show the European economy shrank at a slower pace last quarter.
Global Stimulus
More than $2 trillion in spending by governments worldwide has stabilized global demand, helping Japanese manufacturers such as Kubota Corp., which is selling more farming equipment in China. Japan’s factory production rose 8.3 percent last quarter, rebounding from a record 22.1 percent plunge in the previous period.
The current-account surplus rose 144 percent in June from a year ago, the Finance Ministry said. Exports fell 37 percent, less than the 42.2 percent in May. Imports slid 43.8 percent.
The world’s second-largest economy probably grew for the first time in a year last quarter, expanding at an annualized 3.8 percent pace after a record 14.2 percent contraction in the first quarter, according to the median estimate of 20 analysts.
Companies have raised earnings predictions and beaten analysts’ expectations over the past month. Some 15 percent of firms listed on the first section of the Tokyo Stock Exchange raised first-half earnings estimates since June, according to Tokyo-based Shinko Research, while 10 percent cut projections.
Honda, Sony
By Aloysius Unditu
Aug. 10 (Bloomberg) — Indonesia’s economy expanded 4 percent in the second quarter, the fastest pace in Southeast Asia, as low borrowing costs and the re-election of President Susilo Bambang Yudhoyono buoyed consumer spending.
Gross domestic product grew faster than the 3.8 percent median forecast of 17 economists in a Bloomberg News survey, compared with 4.4 percent gain in the previous three months, the Central Statistics Bureau said today.
Gains in services, construction and manufacturing helped Indonesia’s $513 billion economy resist the global recession and the threat of terrorist attacks such as those that killed nine people in Jakarta last month. Domestic demand and foreign investors drove the rupiah 12 percent higher this year, the most of any Asian currency, and the Jakarta Composite index is the region’s second-best performing.
“The higher than expected growth gives a strong signal to foreign investors that our economy is resilient,” said Purbaya Yudhi Sadewa, chief economist at PT Danareksa Sekuritas in Jakarta, who forecasts an economic expansion of 4.8 percent this year. “The numbers confirm that our economy bottomed out in the first quarter.”
Indonesia’s rupiah gained 0.4 percent to 9,930 against the dollar at 3:03 p.m. in Jakarta and is the year’s best performing among 10 Asia-Pacific currencies tracked by Bloomberg. Indonesia’s benchmark stock index, which has advanced 76 percent this year, rose 1.7 percent.
Plot Foiled
Consumer confidence in Indonesia jumped in July to the highest level since December 2004, the year Yudhoyono first took office. The seventh straight monthly increase in the index compiled by the central bank was partly due to July’s peaceful presidential election, Bank Indonesia said.
Seventeen days after the end of the second quarter, two suicide bombers killed themselves and seven people at the JW Marriott and Ritz Carlton hotels in Jakarta in Indonesia’s first terrorist attack since 2005. On Aug. 8, police killed three terrorists and foiled an attempt to attack Yudhoyono’s residence.
Efforts by authorities to break up the terrorism network in part helped Yudhoyono keep Indonesia free of terrorist attacks for the past four years and boosted the president’s popularity. Yudhoyono won 60.8 percent of the votes in elections held on July 8.
Commercial Banks
Spending by consumers in Southeast Asia’s largest economy has been stoked by lower borrowing costs, with Bank Indonesia cutting its benchmark interest rate nine times since December. That’s made the nation’s central bank “one of the most aggressive in the region,” according to Chetan Ahya, an economist at Morgan Stanley in Singapore.
Consumption grew 4.8 percent in the quarter, the statistics agency said. Government spending rose 17 percent, while the services sector growth accelerated 7.4 percent.
Lending by Indonesian commercial banks rose to 1,339 trillion rupiah ($135.25 billion) in May from 1,325 trillion rupiah in early January, according to the latest available data from the central bank.
Car sales jumped 10 percent to 109,989 units in the three months to June 30 from 100,263 in the first quarter, according to the Indonesian Automotive Industries Association.
Southeast Asia’s largest economy expanded 2.3 percent in the three months ended June 30 from the previous quarter.
Robust Demand
Indonesia’s economy was “saved” from the worst of the global recession by robust domestic demand, Vice President designate Boediono said in Singapore on July 28. Growth this year will be about 4 percent, he added.
By Bloomberg News
Aug. 10 (Bloomberg) — China’s property sales surged 60 percent by value in the first seven months, adding to concern that record lending will create a real-estate bubble in the world’s fastest-growing major economy.
Sales accelerated after a 53 percent gain in the first half from a year earlier, the statistics bureau said in a statement on its Web site today. Real estate investment rose 11.6 percent, up from 9.9 percent in the six months to June 30.
Home prices in 70 major cities advanced 1 percent in July from a year earlier, the biggest increase in nine months, the National Development and Reform Commission said today in a separate statement. Premier Wen Jiabao reiterated yesterday that monetary policy will remain unchanged, after climbing asset prices triggered speculation that a tightening could be imminent.
“Policy makers may be getting a bit edgy about asset bubbles developing,” said David Cohen, an economist with Action Economics in Singapore. “They may use administrative measures to cool prices.”
Property stocks, which have gained 142 percent this year to be the best performing group on the Shanghai Composite Index, fell 1.6 percent as of 2:12 p.m. local time on concern loan growth will slow. Poly Real Estate Group Co. fell 2.7 percent.
China Construction Bank Corp. President Zhang Jianguo said last week that the nation’s second-biggest bank will cut new lending by about 70 percent in the second half to avert a surge in bad debt.
$1 Trillion of Loans
“There’s concern that while the macro-economic policy will stay the course, the real-estate industry won’t escape some policy fine-tuning,” said Zhang Chifei, a Nanjing-based real- estate analyst at Huatai Securities Co.
China’s economic growth accelerated in the second quarter and the Shanghai Composite Index has climbed almost 80 percent this year, powered by $1.1 trillion of lending in the first six months. Home prices in the 70 cities began to rise in June after declining for the previous six months.
Property sales by area climbed 37 percent in the first seven months from a year earlier, the statistics bureau said.
“The overall increase that we’re seeing in property prices is still manageable, the government would be more concerned about the stock market,” said Sherman Chan, an economist at Moody’s Economy.com in Sydney. “Higher confidence and more liquidity” are causing price gains, she added.
No Alternatives
Central bank and finance ministry officials said Aug. 7 that they will scrutinize gains in stock prices without capping new lending. The Financial Times reported the same day that the central bank had told the largest state-controlled lenders to slow growth in new loans, citing unidentified people familiar with the matter.
By Aaron Eglitis
Aug. 10 (Bloomberg) — Latvia’s economy shrank an annual 19.6 percent last quarter, the European Union’s second-steepest output slump after neighboring Lithuania, as manufacturing and retail sales plunged.
The contraction, the worst since quarterly records began in the Baltic nation in 1995, gathered pace after gross domestic product shrank 18 percent in the first quarter, the central statistics office in Riga said today, citing preliminary figures. The median estimate in a Bloomberg survey of eight economists was for a 22 percent decline. The final report will be released on Sept. 8.
“The steepest decline is behind us,” said Andris Vilks at SEB AB’s Latvian unit, who had estimated an 18 percent contraction for the second quarter. “The third and fourth quarters may see a decline of about 12 percent to 15 percent.”
Latvia’s economy, the fastest growing in the EU in 2006, is now suffering as the Baltic region, which includes Lithuania and Estonia, sinks into the severest recession in the 27-nation bloc. Latvia was forced to turn to a group led by the European Commission and the International Monetary Fund for a 7.5 billion-euro ($10.8 billion) loan after its second-biggest bank needed a state rescue and a property bubble burst.
‘Roughly Flat’
Latvia’s inflation rate fell to 2.5 percent in July, the lowest in more than six years, the statistics office reported today. The country’s trade deficit narrowed to 67 million lati ($136 million) in June, the smallest shortfall since February 2002, as imports fell twice as much as exports in the year.
“On a seasonally, quarterly adjusted basis, the figure looks roughly flat,” Oliver Weeks, a London-based economist at Morgan Stanley, said by telephone. “It’s quite a positive surprise, particularly given the sharp second-quarter downturn in Lithuania. We won’t see a contraction again like we did in the first quarter” on a quarterly basis.
Households and businesses are struggling to get back on their feet after the government agreed to reductions in state pay and pensions in an effort to rein in the budget and comply with the terms of the bailout. The IMF and the commission both withheld disbursements earlier this year until lawmakers committed to budget cuts.
“In the next quarters the situation will become more positive, though a number of serious economic problems will remain,” said Prime Minister Valdis Dombrovskis in an e-mailed statement after the figures were released. “Latvia has already overcome the statistically deepest downturn.”
Austerity Measures
Austerity measures have left households struggling to make ends meet, with spending in shops plummeting, while the slump in demand has left businesses floundering. Retail sales fell 28.5 percent in the second quarter and industrial production dropped 18.7 percent.
Latvia’s spending and wage cuts threaten to exacerbate its recession this year. Parliament passed spending cuts worth about 500 million lati ($1 billion) on June 16 to ensure the continued inflow of bailout payments. The government has committed to cutting spending or raising revenue by 500 million lati a year until 2012 to enable euro adoption. Latvia pegs its lats to the euro as part of the exchange rate mechanism.
Comments »Earnings Highlights: ALD, CEA, CCO, DYN*, ETP, FLR, HOC*, MDR, MR, NUAN, PWRD*, PCLN, QSFT, KWK, SYY,
Scrolling Headlines From Yahoo in Play
By MIKE BARRIS and TESS STYNES
Dynegy Inc. posted a wider second-quarter loss as it confirmed fellow power generator LS Power Associates LP will buy nine U.S. power plants from its one-time development partner.
The deal will eliminate Dynegy’s dual-class stock structure and give closely held LS Power a 15% stake in Dynegy, which has been struggling with slumping electricity demand and prices. The company recorded additional write-downs in the latest quarter. (See related article.)
LS Power is buying eight plants and a ninth under construction for $1.03 billion and 245 million Class B common shares. The remaining Class B shares held by LS Power will be converted into Class A stock.
The deal — which effectively unwinds a 2006 joint venture that was supposed to create the country’s largest new developer of coal-fired power plants — comes as Dynegy also said it plans to cut up to $450 million in costs the next four years.
Dynegy and other independent power producers, which rely on wholesale electricity sales at market rates, have been battered by volatile commodities prices in recent quarters. Power prices track natural-gas prices, which have fallen sharply. Amid the weak long-term price outlook, Dynegy has been selling power plants and reducing its development plans to conserve cash.
Some analysts saw the company’s announcement late last month that it was seeking amendments to its secured credit facilities as a sign of weaker-than-expected second-quarter results.
The company’s loss widened to $345 million, or 41 cents a share, from $272 million, or 32 cents a share, a year earlier. Excluding items such as asset write-downs and mark-to-market impacts, earnings before interest, taxes, depreciation and amortization fell to $125 million from $184 million.
Revenue rose 53% to $493 million. Analysts expected Ebidta of $145.4 million and revenue of $612 million, according to an analyst poll by Thomson Reuters.
Q2 EPS $0.29 vs. estimate of $0.27 * Sales and other revenue down 41 pct * Production up 41 pct, refining margin down 14 pct
Aug 10 (Reuters) – Oil refiner Holly Corp (HOC.N) reported a higher second-quarter profit that beat estimates as increased production offset the decline in refinery margins. Refinery production rose 41 percent from last year due to the operations of the newly acquired Tulsa refinery and production gains resulting from recent Navajo and Woods Cross refinery capacity expansions, the company said in a statement.
The company also noted that production in the same quarter last year was affected by a production outage at its Navajo refinery.
Holly said that its asphalt marketing business also contributed to the increased earnings in the current year.
For the second quarter, the company reported net income attributable to its stockholders of $14.6 million, or 29 cents a share, compared with $11.5 million, or 23 cents a share, in the year ago quarter.
Sales and other revenue fell 41 percent to $1.04 billion, as prices of produced refined products sold almost halved from last year.
Refinery gross margins fell 14 percent to $7.82 per produced barrel.
Analysts, on average, were expecting earnings of 27 cents a share, before special items, on revenue of $1.07 billion, according to Reuters Estimates. Shares of the company closed at $22.01 Friday on the New York Stock Exchange. They have traded in a range of between $10.84 and $36.62 in the last one year. (Reporting by Hezron Selvi in Bangalore; Editing by Aradhana Aravindan)
BEIJING, Aug. 3 /PRNewswire-Asia/ — Perfect World Co., Ltd. (Nasdaq: PWRD – News; “Perfect World” or the “Company”), a leading online game developer and operator based in China, today announces that it will release unaudited financial results for the second quarter ended June 30, 2009, before the market opens on Monday, August 10, 2009.
(Logo: http://www.newscom.com/cgi-bin/prnh/20090416/CNTH023LOGO )
The Company will host a corresponding conference call and live webcast at 8:00 am Eastern Daylight Time (8:00 pm Beijing time) the same day.
The dial-in details for the live conference call are as follows:
- U.S. Toll Free Number: 1-866-519-4004
- International Dial-in Number: +65-6735-7955
- Mainland China Toll Free Number: 10-800-819-0121
- Hong Kong Toll Free Number: 80-093-3053
- U.K. Toll Free Number: 080-8234-6646
Conference ID: PWRD
A live and archived webcast of the conference call will be available on the Investor Relations section of Perfect World’s website at http://www.pwrd.com .
A telephone replay of the call will be available after the conclusion of the conference call through 10:00 am Eastern Daylight Time, August 17, 2009.
The dial-in details for the replay are as follows:
- U.S. Toll Free Number 1-866-214-5335
- International Dial-in Number +61-2-8235-5000
Conference ID: 7973 (PWRD)
About Perfect World Co., Ltd. ( http://www.pwrd.com )
Perfect World Co., Ltd. (NASDAQ: PWRD – News) is a leading online game developer and operator based in China. Perfect World primarily develops online games based on proprietary game engines and game development platforms. The Company’s strong technology and creative game design capabilities, combined with extensive local knowledge and experience, enable it to frequently and rapidly introduce popular games that are designed to cater to changing customer preferences and market trends in China. The Company’s current portfolio of self-developed online games includes massively multiplayer online role playing games (“MMORPGs”): “Perfect World,” “Legend of Martial Arts,” “Perfect World II,” “Zhu Xian,” “Chi Bi,” “Pocketpet Journey West” and “Battle of the Immortals;” and an online casual game: “Hot Dance Party.” While a substantial portion of the revenues are generated in China, the Company’s games have been licensed to leading game operators in a number of countries and regions in Asia, Europe and South America. The Company also generates revenues from game operation in North America. The Company plans to continue to explore new and innovative business models and remains deeply committed to maximizing shareholder value over time.
Comments »Weekend Edition
Health Matters
Bottom line; if China bans it it must be bad no ?
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More On Health Matters
What is this a new weight loss drug ?
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Insanity Files
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Science Files
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Black Listed News
Okay maybe not enitrely news, but some interesting facts and a grand theory.
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Reality Files
You dirty, filthy, careless, idot !
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One More Reality File
They say you can be described by the company you keep; uncle.
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Okay One Final Reality File
The best a free market system has to offer !
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Music Files
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For The Artiste’
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Don’t Forget to Laugh !
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Keep on Laughing !
Non Farm Payrolls: Prior -467k / Mkt Expects -325k / Actual -247k … Unemployment Rate: Prior 9.5% / Mkt Expects 9.6% / Actual 9.4% … Plus A Multiple Podcast on Today’s Job #’s
Business News
Dollar Rises, Europe Reverses Slump Into Session Highs, & Oil rises On Jobs Report
By Oliver Biggadike and Ye Xie
Aug. 7 (Bloomberg) — The dollar advanced against the euro as a government report showed U.S. employers eliminated fewer jobs than economists forecast.
The currency pared this week’s loss on speculation a recovery in the world’s largest economy will encourage demand for U.S. equities.
“Euro-dollar will find it increasingly difficult to move higher because people will be betting basically on the equity side,” said Sebastien Galy, a currency analyst at BNP Paribas SA in New York, before the report.
The dollar increased 0.1 percent to $1.4311 per euro at 8:42 a.m. in New York, from $1.4345 yesterday.
Employers eliminated 247,000 jobs in July after a revised decrease of 443,000 in the previous month, the Labor Department reported today in Washington. The median forecast of 82 economists surveyed by Bloomberg News was for a reduction of 325,000. The unemployment rate decreased to 9.4 percent.
Goldman Sachs Group Inc. cut its prediction for job losses to 250,000 yesterday from 300,000, citing indications from unemployment claims data that the labor market is improving.
Before the U.S. payroll report, the pound dropped 0.2 percent to $1.6750 as Royal Bank of Scotland Group Plc, the U.K.’s biggest government-owned bank, reported a 1.04 billion- pound ($1.74 billion) loss. Two days ago sterling reached $1.7043, the highest level since Oct. 21.
Bank of England
The pound fell yesterday the most in two months as the Bank of England increased its asset-purchase plan by 50 billion pounds ($84 billion) on concern the recession is deeper than previously anticipated.
European Central Bank President Jean-Claude Trichet yesterday kept the main refinancing rate unchanged at 1 percent and said interest rates are “appropriate,” signaling policy makers won’t change borrowing costs any time soon.
German production fell 0.1 percent in June, the Economy Ministry in Berlin said today. Output jumped 4.3 percent in the previous month in the biggest gain since data for a reunified Germany began in 1991. Economists predicted an increase of 0.5 percent in June, a Bloomberg survey showed.
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Unemployment & Non Farm Payrolls Come Out Better Than Expected
WASHINGTON (Reuters) – U.S. employers cut 247,000 jobs in July, far less than expected and the least in any month since last August, according to a government report on Friday that provided the clearest evidence yet that the economy was turning around.
With fewer workers being laid off, the unemployment rate eased to 9.4 percent in July from 9.5 percent the prior month, the Labor Department said, the first time the jobless rate had fallen since April 2008.
The government revised job losses for May and June to show 43,000 fewer jobs lost than previously reported.
Analysts had expected non-farm payrolls to drop 320,000 in July and the unemployment rate to rise to 9.6 percent. The forecast was made earlier this week before other jobs data prompted some economists to lower their estimates for job losses.
Since the start of the recession in December 2007, the economy has shed 6.7 million jobs, the department said.
Job losses in July were spread across all sectors, but the pace of firings slowed markedly from previous months.
Manufacturing employment fell by 52,000 — the first time since September losses were less than 100,000 — after shrinking by 131,000 in June. This was probably due to the reopening of General Motors and Chrysler assembly plants after bankruptcy closures.
Payrolls in construction industries slipped 76,000 after falling 86,000, likely reflecting spending on infrastructure projects from the government’s $787 billion stimulus package and a modest pickup in ground breaking for new homes.
In the service-providing sector, 119,000 workers were laid off, and the goods-producing industries purged 128,000 positions.
Education and health services continued to add jobs, with payrolls increasing 17,000 in July after rising 37,000 in June. Government employment increased 7,000 after slipping 48,000 in June.
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Asian Markets Fall on Evaluations
By Shani Raja
Aug. 7 (Bloomberg) — Asian stocks fell for the third time in four days as lower profits from Konica Minolta Holdings Inc. and DBS Group Holdings Ltd. fueled concern an equity rally in the past month had outpaced earnings prospects.
Konica Minolta Holdings Inc., a maker of printers and office equipment, sank 10 percent after first-quarter profit tumbled 98 percent. DBS, Southeast Asia’s biggest bank, dropped 3.6 percent in Singapore after saying non-performing loans increased. Orient Overseas (International) Ltd., Hong Kong’s biggest container line, slumped 7.6 percent after reporting its first loss in 10 years.
The MSCI Asia Pacific Index lost 0.7 percent to 111.79 as of 7:30 p.m. in Tokyo, leaving it little changed for the week. The gauge has climbed 58 percent from a five-year low on March 9 on speculation a recovering global economy will boost corporate earnings.
“The market has run a bit ahead of the fundamentals,” said Rob Patterson, who helps manage $2.7 billion at Argo Investments Ltd. in Adelaide, Australia. “Things are getting less worse rather than better. Having said that, we’re hopeful we’ve passed the low point and that the world is becoming a better place.”
Japan’s Topix Index dropped 0.1 percent. Kubota Corp., Asia’s largest tractor maker, sank 6.1 percent on lower earnings. Hong Kong’s Hang Seng Index lost 2.5 percent, with China Construction Bank Corp. falling 3.2 percent after saying it will reduce lending.
Jobless Rate
Australia’s S&P/ASX 200 Index lost 0.6 percent, led by BHP Billiton Ltd., the world’s biggest mining company, which sank 2 percent on lower metal prices. West Australian Newspapers Holdings Ltd. slumped 3.3 percent as falling advertising revenue hurt profits. Taiwan’s stock market is shut today.
Futures on the U.S. Standard & Poor’s 500 Index lost 0.4 percent. The gauge slipped 0.6 percent yesterday as JPMorgan Chase & Co. downgraded health-care stocks.
Economists in a Bloomberg survey estimate that a Labor Department report today will show unemployment rose to 9.6 percent, the highest level since 1983. The number of Americans filing claims for jobless benefits last week fell more than economists predicted, according to data released yesterday, a sign some employers have stopped paring staff.
“The rate of deterioration in unemployment is likely to ease, but there are doubts we’ll see as much improvement as the market would like,” said Kazuhiro Takahashi, a general manager at Daiwa Securities SMBC in Tokyo.
Toyota Motor Corp., which gets 31 percent of its revenue in North America, lost 1 percent to 4,090 yen. Nissan Motor Co. dropped 1.1 percent to 694 yen.
Slumping Earnings
Better-than-expected earnings and economic reports worldwide have driven stocks higher since March, lifting the average valuation of the MSCI Asia Pacific Index’s companies to a four-month high of 25 times estimated profit on July 28. Data this week showed Australian employers unexpectedly added jobs and pointed to improving manufacturing industries in China, Europe and the U.S.
“We need to see more earnings revisions come through in order for the market to push much higher,” said Fujio Ando, a fund manager at Tokyo-based Chibagin Asset Management Co. “One could say stocks are fully priced already for the positive results we’ve had.”
The MSCI Asia Pacific Index has rallied 9.5 percent in the past month as companies reporting better-than-estimated earnings outnumbered those that disappointed by a ratio of two to one, according to data compiled by Bloomberg.
Konica, Kubota
Konica retreated 10 percent to 891 yen. The company said yesterday after markets closed net income dropped 98 percent to 299 million yen ($3.1 million) for the three months ended June, from 17.6 billion yen a year earlier. Nomura Holdings Inc. cut its rating on the stock to “neutral” from “buy.”
Kubota sank 6.1 percent to 765 yen after first-quarter operating profit tumbled 70 percent.
Singapore’s DBS fell 3.5 percent to S$12.84. The bank said net income fell 15 percent in the second quarter as non- performing loans climbed to 2.8 percent of total lending from 1.4 percent a year ago.
The rising bad loans were a “negative surprise,” Harsh Wardhan Modi, an analyst at JPMorgan Chase & Co., told Bloomberg Television. “That is something we need to understand more.”
In Hong Kong, Orient Overseas slipped 7.6 percent to HK$41.70 after reporting a $231.8 million first-half net loss as world trade slumped and rising overcapacity pummeled cargo rates. West Australian Newspapers fell 3.3 percent to A$6.15 after saying full-year profit dropped 21 percent.
Reduced Lending
China Construction Bank dropped 3.2 percent to HK$5.75. The company will reduce new lending by about 70 percent in the second half after a surge in loans in the first six months increased credit risk, President Zhang Jianguo said.
BHP declined 2 percent to A$38. Rio Tinto Group, the world’s third-largest mining company, fell 2.2 percent to A$60.57. Fortescue Metals Group Ltd. sank 3.1 percent to A$4.41.
A measure of six metals, including copper and aluminum, traded on the London Metal Exchange plunged 3.5 percent yesterday, the steepest drop since July 8. The Baltic Dry Index, a measure of shipping costs for commodities, tumbled 4.7 percent, a sixth-consecutive decline.
Daicel Chemical Industries Ltd., a Japanese maker of air- bag inflators, climbed 3.6 percent to 580 yen after boosting its profit forecast as it slashed costs. SK Networks Co., a South Korean trading company, surged 6.6 percent to 13,800 won after Daewoo Securities Co. advised investors to buy the shares on an improving debt outlook.
“There are still quite a few companies that investors have yet to properly price for the recovery,” said Daiwa’s Takahashi.
European Markets Follow Suit To The Downside
By Daniela Silberstein
Aug. 7 (Bloomberg) — European and Asian stocks fell as results from Royal Bank of Scotland Group Plc and Konica Minolta Holdings Inc. spurred speculation that a five-month rally has outpaced the prospects for earnings. U.S. futures slipped before a report that may show the unemployment rate climbed.
RBS slid 13 percent after the U.K.’s biggest government- owned bank reported a first-half loss. BHP Billiton Ltd., the world’s largest mining company, led raw-material producers lower as metals retreated. Konica Minolta slumped 10 percent in Tokyo after the maker of printers and office equipment said first- quarter profit tumbled 98 percent.
Europe’s Dow Jones Stoxx 600 Index slid 1.1 percent to 225.33 as of 11:30 a.m., trimming its fourth straight weekly gain to 0.2 percent. The gauge has climbed 43 percent since March 9 as companies from GlaxoSmithKline Plc to Goldman Sachs Group Inc. reported better-than-estimated earnings. The regional measure is now valued at 39.2 times the profits of its companies, the highest level since September 2003, weekly data compiled by Bloomberg show.
“If you look at earning most of them beat but they are quite volatile,” Philippe Gijsels, a senior structured equity strategist at Fortis Global Markets in Brussels, said in a Bloomberg Television interview. “We’re still in for a rough ride in the financial sector. I would be very cautious for the second half. It might be time to take some money off the table.”
U.S. Jobs Report
Futures on the Standard & Poor’s 500 Index slipped 0.4 percent before a report that may show a slowing pace of U.S. job losses last month wasn’t enough to prevent the unemployment rate from climbing to a 26-year high.
Employers probably cut 325,000 workers from payrolls in July after trimming 467,000 the prior month, according to the median of 82 estimates in a Bloomberg News survey. The unemployment rate likely rose to 9.6 percent from 9.5 percent.
“As the session moves on all eyes will fall on the U.S. as the non-farm payroll figures are released,” Jimmy Yates, head of equities at CMC Markets in London, wrote. “The release has the potential to undo all of the hard work of the last few sessions.”
The MSCI Asia Pacific Index sank 0.7 percent today as lower profits at DBS Group Holdings Ltd. helped fuel concern that the rally in stocks has outpaced earnings prospects.
Chinese Stocks
China’s Shanghai Composite Index retreated 2.9 percent as developers and materials producers fell, extending this week’s drop to 4.4 percent, the biggest slide since February. China Construction Bank Corp. President Zhang Jianguo said the nation’s second-largest bank will cut new lending by about 70 percent in the second half after “some loans didn’t go into the real economy.”
Tudor Investment Corp., the $10.8 billion hedge-fund firm run by Paul Tudor Jones, said equity markets could decline later this year, creating buying opportunities.
Slowing growth in China and the return of front-page stories on swine flu may be “further catalysts for global equity markets to pause in September,” the Greenwich, Connecticut-based firm said in an Aug. 3 client letter, a copy of which was obtained by Bloomberg News.
German industrial production unexpectedly declined in June after increasing the most in more than 18 years a month earlier, the Economy Ministry in Berlin said today.
RBS Retreats
RBS plummeted 13 percent to 46.6 pence. The bank posted a first-half loss of 1.04 billion pounds ($1.74 billon) as it set aside 7.52 billion pounds to cover bad loans and other impairments. Analysts had predicted net income of 1.1 billion- pounds, according to the median of six estimates in a Bloomberg survey.
“We are two years in and thing are improving but only gradually and the wake-up call from RBS this morning underlines that,” Julian Chillingworth, chief investment officer at Rathbone Unit Trust Management in London, told Bloomberg Television. “We are not out of the woods. We’ve got further impairment to come.”
Allianz SE slipped 3.2 percent to 73.11 euros. Europe’s biggest insurer by market value said profit fell 16 percent to 1.87 billion euros ($2.69 billion) in the second quarter as earnings at its property and casualty unit declined.
Earnings in Europe slumped 33 percent in the second quarter, while more than half of profits have topped analysts’ projections, according to data compiled by Bloomberg.
Basic Resources
BHP Billiton retreated 2.7 percent to 1,531 pence. Rio Tinto Group, the world’ third-largest mining company, lost 4.5 percent to 2,384 pence. Kazakhmys Plc, Kazakhstan’s biggest copper mining company, slid 3.2 percent 892 pence.
Copper dropped in London on concern demand from China the world’s biggest user of the metal, may weaken. Nickel, lead, zinc and tin also declined.
Umicore SA tumbled 10 percent to 17.29 euros. The world’s largest precious-metals recycler posted an 85 percent slump in first-half profit and forecasting second-half earnings will miss most analysts’ estimates.
Andritz AG retreated 3.8 percent to 31.37 euros. The Austrian maker of machines for the paper and steel industries, said second-quarter net income plummeted 83 percent to 6.9 million euros.
PSA Peugeot Citroen slid 7.3 percent to 20.83 euros. Europe’s second-largest carmaker had its debt rating lowered to junk by Standard & Poor’s, which cited the company’s deteriorating profitability.
Konica retreated 10 percent to 891 yen. The company said yesterday after markets closed net income dropped 98 percent to 299 million yen ($3.1 million) for the three months ended June, from 17.6 billion yen a year earlier.
Singapore’s DBS slid 3.5 percent to S$12.84. The bank said net income fell 15 percent in the second quarter as non- performing loans climbed to 2.8 percent of total lending from 1.4 percent a year ago.
Oil prices fell to near $71 a barrel Friday as investors looked to U.S. monthly employment figures due later in the day for signs the economy may be recovering.
By midday in Europe, benchmark crude for September delivery was down 70 cents to $71.24 a barrel in electronic trading on the New York Mercantile Exchange. On Thursday, the contract lost 3 cents to settle at $71.94.
Investors will be eyeing figures on job losses for a sense of the health of the U.S. economy. Traders have bid up crude from below $62 a barrel last week on expectations the economy could grow by the end of the year.
“Renewed investor hopes of an early recovery in the global economy have led to a sharp rebound in equities and oil prices,” said a report from KBC Market Services in Britain.
Oil prices have held above $71 for the last few days despite an Energy Department report this week that showed crude supplies continue to rise, a sign demand remains weak.
“Once again this has led to disregard of persistently weak oil market fundamentals. There are major overhangs of crude and middle distillates in both onland stocks and floating storage,” KBC said.
“A much tougher test of the oil market’s resiliency as an asset class will be the release of the monthly employment data,” said Jim Ritterbusch of Ritterbusch and Associates in Gelana, Illinois.
Labor Department data due out Friday is expected to show job losses slowing in July to a pace of around 320,000 – the slowest pace since August 2008 – with unemployment rising to 9.6 percent, up from 9.5 percent in June.
JBC Energy in Vienna said a buildup of stocks in Cushing, Oklahoma, was behind the spread between the Nymex and Brent contracts, which was around $3 in favor of Brent on Friday.
“Inventories have built by roughly 5 million barrels in the last six weeks, bringing the total level to around 33 million barrels,” JBC said.
Stocks in Cushing feed a number of major refineries and is also where oil traded on Nymex is stored.
“This has caused (Nymex) to become disconnected from the global crude market which has seen the spreads of crudes priced off the North American benchmark shoot up,” JBC said.
In other Nymex trading, gasoline for September delivery fell 1.38 cents to $2.0469 a gallon and heating oil dropped 1.17 cents to $1.9250. Natural gas for September delivery lost 0.9 cent to $3.734 per 1,000 cubic feet.
In London, Brent prices fell 55 cents to $74.28 a barrel on the ICE Futures exchange.
By Jana Randow and Nicholas Larkin
Aug. 7 (Bloomberg) — European central banks agreed to a third five-year cap on gold sales and said planned disposals by the International Monetary Fund could be done within the accord.
The European Central Bank and 18 other banks agreed to sell no more than a combined 400 metric tons of the metal a year through September 2014. That’s less than the annual cap of 500 tons in the current agreement, which expires Sept. 26.
“It’s positive for gold,” John Reade, an analyst at UBS AG in London, said by e-mail. Having the agreement “removes the small chance that European central banks would have dumped gold onto the market in an unconstrained manner.”
Central banks sold 73 percent less gold in the first half and full-year disposals may drop to the lowest since 1994, according to estimates from London-based researcher GFMS Ltd. The IMF wants to sell 403 tons from its reserves of 3,217 tons, the third-largest holding after the U.S. and Germany.
“The IMF has not signed and this leaves open the possibility that the Chinese, Russians, another central bank, could buy the 403 tons of IMF gold in one go,” Reade said.
China has the world’s sixth-largest holding at 1,054 tons and Russia is ranked 10th with almost 537 tons, World Gold Council data show.
Gold for immediate delivery in London was 0.4 percent lower at $959.30 an ounce by 10:45 a.m. local time today. The metal reached $971.68 an ounce yesterday, the highest since June 5.
IMF Sales
Gold sales haven’t been approved yet by the IMF’s board. The U.S. Congress passed legislation in June that permits the American representatives to the IMF to agree to the planned sale to help finance aid to poor countries.
Four hundred tons, or 12.86 million troy ounces, is equal to about a sixth of annual mine production. At this year’s average spot price of $920 an ounce, 400 tons would be worth about $11.8 billion.
The Swiss National Bank, one of the signatories to the new accord, in a statement today said it isn’t planning any gold sales in the near future, and that its gold is an important part of monetary reserves. Switzerland has 1,040 tons of gold, making it the seventh-largest holder.
Bullion sales under the current agreement total 140 tons in the current quota year, with France and the ECB leading sales, the World Gold Council said July 29. Central banks have sold about 3,867 tons since the first agreement, and failed to reach the allowed limit each year since 2005, its data show.
‘A Bit Lower’
“We thought it may well have been a bit lower,” said Daniel Major, an analyst at RBS Global Banking & Markets in London, referring to the new 400-ton cap. “The sharp decline in sales in the current agreement means a high ceiling would have been unrealistic.”
Major said he hasn’t seen any evidence of central banks likely to sell large amounts any time soon.
“The agreements were introduced in the first place to give the market some stability and knowledge that central bank sales would occur in a regulated framework, instead of unexpected ad hoc sales that would be destabilizing to the gold price,” Louise Street, a consultant to the World Gold Council, said today by phone.
Australia Sell Inflation Linked Bonds After a 6 Year Pause
By Garfield Reynolds and Wes Goodman
Aug. 7 (Bloomberg) — Australia will sell its first inflation-indexed bonds in six years as record stimulus spending worldwide prompts speculation price increases will resume once the global recession ends.
The Australian Office of Financial Management “intends the bond to become a market benchmark and will undertake further issuance as necessary to achieve this,” according to a statement today on the Web site of the Canberra-based agency. The sales may start in late September or early October, it said.
Asia-Pacific governments including Australia, Japan and Thailand had signaled they may sell inflation-linked bonds as improving economies threaten to boost the price of goods and services. Australia, which considered scrapping its bond market in 2003, boosted its debt outstanding by 67 percent to A$101.1 billion ($85 billion) in the year ended June 30, about 10 percent of its gross domestic product.
“The move signals that the government is aware of the concern about inflation and wishes to show it is keen to issue securities that provide a hedge against it,” said Andy Cossor, the Hong Kong-based chief market strategist for Asia at Frankfurt-based DZ Bank AG, Germany’s fifth-biggest lender.
“It’s also an incentive for the government not to let inflation get out of control because it would increase the government’s borrowing costs,” he said.
Australia had A$6 billion of Treasury-indexed bonds outstanding as of June 30, according to the AOFM. The government expects to sell a net A$54 billion of non-indexed bonds in the year to June 30, 2010, as it raises total debt outstanding to at least A$150 billion, according to the agency’s Web site.
Widening Spread
The spread between rates on Australian 12-year notes and local Treasury Indexed notes, which reflects the outlook among traders for consumer prices, was 2.53 percentage points as of 5 p.m. in Sydney, versus 1.52 points on Dec. 31. The annual inflation rate slowed to 1.5 percent in the second quarter, from 2.5 percent the previous three months.
Index-linked bonds may be attractive for infrastructure projects with inflation-linked revenue or to investors whose liabilities increase with inflation, the AOFM said in May.
China Will Not Cap Lending, But Is Concerned Over Stock Market Values
By Bloomberg News
Aug. 7 (Bloomberg) — Chinese officials said they will scrutinize gains in stock prices without capping new lending after a record $1.1 trillion of loans in the first half added to credit risks and threatened to cause asset bubbles.
The government wants stock-market stability and is studying share-price rises, Vice Finance Minister Ding Xuedong said at a press briefing in Beijing today. The People’s Bank of China has a range of tools to limit money supply, Su Ning, a deputy governor of the central bank, told the briefing.
The Shanghai Composite Index has rallied 79 percent in 2009 and real-estate prices have rebounded, fueling concern that loans meant for infrastructure projects are being used for speculation. The government wants to cool asset markets without derailing the recovery of the world’s third-biggest economy, which grew 7.9 percent in the second quarter from a year earlier.
Ding and Su’s comments show the key factor in policy decisions is “economic indicators, not asset markets,” said Gabriel Gondard, a portfolio manager at Fortune SGAM Fund Management Co. in Shanghai, which oversees about $7.2 billion. “Investors could read that as meaning liquidity levels will remain high, at least for now.”
Shanghai’s benchmark stock index closed down 2.9 percent, before the briefing started, for the worst weekly loss since February. The measure fell by the most in eight months on July 29 amid concern that the central bank would rein in liquidity.
‘Fine-tuning Policy’
The government will monitor asset prices and create an “internal mechanism” to stabilize the stock market, the finance ministry’s Ding said, without elaborating.
The central bank won’t consider asset prices when adjusting policies, said Su, who also elaborated on a reference in a quarterly monetary policy report to “fine-tuning” policy, saying that this happened continuously.
“It’s not the policies that will be fine tuned, but the focus, intensity and pace of policies that will be fine tuned,” the central banker said.
The surge in loans in the first half was due to the rollout of the government’s stimulus plan and lending won’t grow as quickly in the second half, Su said.
The government will maintain a moderately loose monetary stance and an expansionary fiscal policy as domestic and external demand remain weak, Zhu Zhixin, vice chairman of the National Development and Reform Commission, told the briefing. Inflation isn’t a concern, Su said.
Monitoring Lending
“Harsh lending curbs would just hurt the economy,” said Sherman Chan, an economist with Moody’s Economy.com in Sydney. She said the government would do more to monitor lending.
China’s banking regulator urged lenders on July 27 to ensure credit for investment projects flows into the real economy. Three days later, the regulator announced plans to tighten rules on working capital loans.
China Construction Bank Corp. President Zhang Jianguo said yesterday that the nation’s second-largest bank will cut new lending by about 70 percent in the second half to avert a surge in bad debt. Construction Bank plans to extend about 200 billion yuan ($29 billion) of loans, down from 708.5 billion yuan in the preceding six months. The company’s new lending through June 30 was 42 percent more than for all of 2008.
“We noticed that some loans didn’t go into the real economy,” Zhang, 54, said in an interview at the bank’s headquarters in Beijing. “I feel that some industries are expanding too rapidly. For example, housing prices are rising too fast, and housing sales are growing too fast.”
Investors are split on whether a stock bubble is a threat.
“This is a recovery story that is one of the strongest and most convincing in the world,” Chen Li, a Beijing-based strategist at Harvest Fund Management Co., which oversees about $22 billion, said Aug. 4. “I don’t think we’re in a bubble.”
Credit Suisse Group AG said this week that it will be difficult to prevent a “huge and damaging bubble from emerging” without monetary tightening.
German Industrial Out Put Dropped Unexpectedly
By Gabi Thesing
Aug. 7 (Bloomberg) — German industrial output unexpectedly declined in June after increasing the most in more than 18 years a month earlier.
Production fell 0.1 percent from May, when it jumped 4.3 percent, the biggest gain since data for a reunified Germany began in 1991, the Economy Ministry in Berlin said today. Economists predicted an increase of 0.5 percent in June, the median of 36 forecasts in a Bloomberg survey showed. From a year earlier, output declined 18.1 percent when adjusted for the number of work days.
Recent data suggest the economy is growing again, bringing an end to its deepest slump since World War II. Exports and factory orders surged in June and business confidence rose for a fourth month. The government said yesterday its forecast that the economy will contract by 6 percent this year may now be too pessimistic.
The decline in production “is a bit disappointing after the strong order numbers, but it doesn’t change the overall trend,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc in London. “Germany’s industrial recession is over and the overall economy may grow in the third quarter. It’s an export-led recovery and domestic demand will remain very weak.”
Production of investment goods declined 0.9 percent in June and consumer goods production fell 1.6 percent, today’s report showed. Intermediate goods output rose 1.8 percent. The ministry revised overall May production up from an initially reported gain of 3.7 percent.
‘Slight Recovery’
Linde AG, the world’s second biggest maker of industrial gases, on Aug. 3 said its business will improve further in the second half after profit beat analysts’ estimates in the second- quarter.
“In our gases business, we are beginning to see occasional signs of a slight recovery in demand,” Chief Executive Officer Wolfgang Reitzle said. “However, future global economic developments are beset with uncertainty and the crisis is not yet over.”
The government of Angela Merkel, who will seek a second term in office in national elections on Sept. 27, is spending about 85 billion euros ($121 billion) to stimulate the economy. The measures include tax breaks and a 2,500 euro incentive for people who scrap their old cars to buy a new one.
Still, recovering exports are likely to drive any economic pickup in Germany, which relies on foreign sales for growth.
Soaring Exports
The International Monetary Fund on July 8 raised its estimate for global economic expansion next year to 2.5 percent from 1.9. The Washington-based lender expects the world economy to contract 1.4 percent this year.
German exports soared 7 percent in June from May, the biggest gain in almost three years, the Federal Statistics Office in Wiesbaden reported today. Factory orders rose 4.5 percent in June, fueled by export demand, the Economy Ministry said yesterday.
“In light of the significant increase in orders, the manufacturing industry has probably passed its trough,” the ministry said today.
Deputy Economy Minister Walther Otremba indicated the government may revise its forecast for a 6 percent contraction this year. “We’re pretty safe on the downside and it’s quite possible that we’ll do somewhat better in the end,” he said in an interview in Berlin yesterday.
Stronger Euro
Exporters may nevertheless struggle with the euro’s 14.5 percent appreciation against the dollar since March to $1.44, while rising unemployment is likely to restrain consumer spending.
European Central Bank President Jean-Claude Trichet said yesterday “we have to remain prudent and cautious” when interpreting recent positive data. He warned that rising unemployment numbers “will have a bearing on growth.”
Germany’s unemployment rate was 8.3 percent in July. In the 16-nation euro region, the rate rose to 9.4 percent in June, the highest in 10 years.
Even so, the Bundesbank said on July 20 the German economy probably contracted “only slightly” in the second quarter after shrinking a record 3.8 percent in the first three months of the year. The Federal Statistics Office will publish a preliminary estimate of second-quarter gross domestic product on Aug. 13.
Russia Cuts Rates For a 5th Time
By Alex Nicholson and Paul Abelsky
Aug. 7 (Bloomberg) — Russia’s central bank said it reduced its main interest rates by a “cautious” quarter of a percentage point as it attempts to spur lending without triggering faster inflation.
Bank Rossii cut the refinancing rate to 10.75 percent from 11 percent and lowered the repurchase rate charged on central bank loans to 9.75 percent from 10 percent, effective from Aug. 10. The bank has cut the rates five times since April 24.
“The lending activity of banks remains low and rates for most borrowers are high, which stalls the recovery of economic growth,” the central bank said in a statement. At the same time, the bank’s board of directors opted for a “more cautious cut” after annual inflation accelerated to 12 percent in July.
Prime Minister Vladimir Putin last month urged bankers on the receiving end of government bailout funds to lend at no more than the refinancing rate plus three percentage points in a bid to boost flagging industries hit by Russia’s first recession in a decade. Unlike the U.S. and Germany, where recessions have led to annual declines in prices, Russia’s economic slump has had a limited impact on inflation.
“While today’s 25 basis point reduction may suggest a change in pace of the easing-cycle, further cuts in the official refinancing rate, perhaps to 10 percent, are possible over the coming Months,” David Oxley, emerging Europe economist at Capital Economics, said in an e-mailed note.
The “minimum” rate at which banks can lend is 15 percent to 16 percent and Bank Rossii should cut rates below 10 percent, said German Gref, head of the country’s biggest lender, OAO Sberbank.
Markets
Sberbank fell 2.1 percent after the central bank’s cut, which sent the ruble down 1.1 percent to 31.6191 per dollar. The 30-stock Micex Index slid 1.9 percent to 1,071.65 at 1:26 p.m. in Moscow, the steepest decline since July 28.
Policy makers were expected to lower the refinancing rate to 10.5 percent this month, in a Bloomberg survey of 15 economists published on Aug. 5.
Russia’s economy shrank 9.6 percent in June from the same month a year ago and grew 0.1 percent from the previous month, Deputy Economy Minister Andrei Klepach was quoted as saying by state news services on July 23.
The economy may start to show signs of recovery in the third quarter this year, he said, while acknowledging “risks” of a second wave of the crisis at the start of 2010 if companies have solvency problems.
More Cuts
After slowing for three consecutive months, consumer prices accelerated in July to an annual 12 percent from 11.9 percent in June. Falling domestic demand and a contraction in money supply will have a “substantial” effect on restraining consumer price growth, Bank Rossii said in the statement.
Lending to consumers dropped 1.1 percent for the fifth consecutive monthly decline in June and banks shrank their corporate loan books by 1.2 percent, the central bank said on July 30. Overdue bank loans reached 5 percent of the total in June, versus 4.6 percent a month earlier.
“We continue to expect the CBR will cut another cumulative 75 basis points by the end of the year, due to continued deterioration of lending conditions and economic weakness,” Vladimir Osakovsky, an economist at UniCredit SpA in Moscow said in an e-mailed note today.
‘Considerable Volatility’…….
FNM Request More Funds From Uncle Sam
By NICK TIMIRAOS
Fannie Mae said it will need an additional $10.7 billion from the U.S. Treasury after it posted a $14.8 billion net loss in the second quarter, as rising unemployment led more prime borrowers to default on their loans.
The latest infusion will bring the total bailout for Fannie to nearly $46 billion.
The Treasury has agreed to provide as much as $200 billion to keep Fannie Mae running, and it has pledged the same amount to its main rival, Freddie Mac. Government regulators took control of Fannie and Freddie last September.
Fannie, which posted a steeper loss of $23.2 in the first quarter, said on Thursday that changes in accounting rules accounted, in part, for the lower second quarter losses. Most of those losses came from a provision of $18.2 billion for future credit losses, which have stemmed from the greatest housing downturn since the Great Depression. Fannie also posted a $753 million loss on mortgage securities backed by subprime and Alt-A loans that it bought from Wall Street firms and lenders during the housing boom.
The recession, triggered by the collapse of the housing market, is now leading more prime borrowers to default. The 90-day delinquency rate on single-family loans jumped to 3.94% at the end of June, up from 3.15% on March 31 and 1.4% one year ago. Delinquency rates on multifamily loans increased to 0.5% in May, up .14 percentage points.
Freddie Mac is likely to report a loss when it releases its earnings later this month. The McLean, Va.-based mortgage-finance company has already received $51 billion in government money.
Mounting losses at the companies come as the Obama administration begins to determine how to structure the U.S. mortgage market and the future of Fannie and Freddie.
The companies could be broken into smaller pieces and privatized or nationalized, or Washington could consider revamping the private-public hybrid structure that the companies had operated under previously. The White House has said that it will release its proposal by next February. A spokesman on Wednesday said that a final overhaul remained “light years away.”
The Obama administration has used Fannie and Freddie as its main vehicle for modifying and refinancing mortgages for at-risk borrowers, and Fannie Mae said the program could have a “material adverse effect” on its business, though the effort could reduce losses over the long-term if it spurs a recovery. Those programs have been off to a slow start.
James Lockhart, the director of the government agency that oversees Fannie and Freddie, said last week that it was unlikely the government would ever recoup its entire stake in the companies. Mr. Lockhart, who will step down from his post later this month, said in an interview Monday that he expects the companies to continue taking losses for at least the next year as they continue to boost loan-loss reserves that until recently were too low.
Cash For Clunkers Get Another $2bln Injection
By John Crawley
WASHINGTON (Reuters) – The U.S. Senate approved and sent to the White House on Thursday a $2 billion extension of the “cash for clunkers” autos sales incentive program.
The measure, approved by 60 to 37, extends the successful program that has raised sales of the U.S. auto industry.
President Barack Obama was expected to sign it quickly.
The initial $1 billion of funding approved in June for “clunker” business has generated more than $920 million in rebates and more than 220,000 in auto sales.
Supported by the incentive program, U.S. auto sales overall were down about 12 percent in July from a year earlier, but it was their best performance this year.
The program offers consumers a federally backed rebate of up to $4,500 if they trade in old vehicles for new, more fuel efficient ones.
Supporters of the extension defeated several Republican amendments aimed at derailing the plan in the Senate.
Richard Shelby, the top Republican on the Senate Banking Committee, said the program “has squeezed months of normal activity” into a short period of time.
“When the backlog is met, interest in the program will fade, and the facade of economic benefit will disappear,” Shelby said.
But Obama said in a statement after the Senate vote that the economy “will continue to get a much-needed boost” from the program.
Major automakers said in a letter to senators the current $1 billion program has helped their companies, suppliers, scrap yards, steel producers and other small businesses.
“There is no question that ‘cash for clunkers’ has succeeded,” said Dave McCurdy, chief executive of the Alliance of Automobile Manufacturers, the chief trade group for General Motors Co, Chrysler LLC, Ford Motor Co, Toyota Motor Corp and other big carmakers.
Domestic and overseas manufacturers have so far split the “clunker” market. More fuel efficient passenger cars have outsold sport utilities, pickups and vans.
The administration, stunned by the swift success of the initiative and stung by a series of administrative glitches in trying to process rebates, had warned that the “clunker” measure would be suspended if more money was not approved by week’s end.
The House of Representatives passed the $2 billion extension on July 31. The Senate took a week to affirm that action. Continued…
Wall Street Pro Contemplates Market Manipulation
It’s one thing to read this sort of stuff on various blogs and financial websites, but it hits home when the market veteran of all market veterans begins pondering the same things that many of us have been thinking about as we watch the stock market in near disbelief during this crazy time. Richard Russell, as always, has some great thoughts:
I guess I should come clean and admit it. After reading all about Goldman Sachs and studying Paulson and Geithner and former NY Fed Chairman Friedman, I have become almost hopelessly cynical about the markets. Is anyone ethical? Is anyone honest? I’m starting to wonder. Where money is concerned, is there anything Wall Street or the bankers won’t try?
Rumors of manipulation have been around ever since I started writing Dow Theory Letters in 1958. I always pooh-poohed those rumors, believing that it was the losers who always blamed their losses on manipulation. But now I’m not so sure.
For instance, I watched yesterday’s close on the NYSE minute by minute. The Dow was fluctuating back and forth — up 5 points one minute, down 3 points the next minute. But with one minute to go, the Dow suddenly spurted 33 points higher. I stared at my computer screen in surprise, and I asked myself, “What the hell was that?” It seemed apparent that “somebody” wanted a noticeable higher Dow at the close.
The market can be manipulated on a daily basis or maybe for a week. But in the big picture, as to the primary trend, I don’t believe the stock market or the economy can be manipulated. Although heaven knows that Washington is trying — throwing unprecedented trillions of dollars at the US economy. It’s never been tried before, but won’t trillions of dollars be enough to manipulate the great tide or the primary trend of the market? Maybe for a few weeks or even a few months, but I still don’t believe that the primary trend can be halted or reversed, no matter who tries and no matter with how many Federal Reserve dollars.
The study of the market is part theoretical and part philosophical, and that is what makes it so fascinating. There are certain forces that are so giant, so irresistible that man has not been able to harness them. The tide of the ocean is one. The revolutions of the moon around the earth is another. And I believe the primary trend of the market is a third. The stock market is an invention of man, but although man invented it, like Frankenstein, the tide of the market, the great primary trend of the market, is beyond the power of its inventors to manipulate.
We can’t control the primary trend. Ironically the best we can do is to identify its direction, and even here there are doubts and arguments. Man has invented the X-ray and the Internet, but it’s ironic that man has not invented the fool-proof way to identify the direction of the primary trend of the stock market.
Some of the best minds in the nation have applied themselves to unraveling the mysteries of the stock market. Yet, to my knowledge nobody has come up with the ultimate method of beating the market. I’d say that the stock market is the ultimate mystery to which men have applied their intelligence. How do we know that no one, to date, has solved the mystery of how to beat the market? We know because the day someone discovers how to consistently beat the market, on that day the market will cease to exist. It won’t be a market — rather it will be a sure thing. And one man will be able to accumulate most of the wealth of the world.
I’ve worked for over 50 years with the Dow Theory. A basic tenet of Dow Theory is that it is not infallible. The good and the bad (frustrating) part of Dow Theory is that it requires interpretation. Robert Rhea wrote that “those who demand least from the Dow Theory gain the most from it.” I might add that those who demand most from the Dow Theory are the ones who will be most frustrated by it.
Turning to the present, the great stock market argument today is whether we are experiencing a new bull market or whether we dealing with a retracement and correction of a preceding bear market? I’ve given this question a lot of thought, and my conclusion is that we are dealing with a normal correction in a bear market. Some call it a “cyclical bull market,” other call it “a bear market rally.” Giving it a name won’t solve the problem of “what is it’?
Who cares — and if so why? If it’s a new primary bull market it can be expected to take the major stock averages to new record highs and we can hold stocks for the longer term with few worries. If it’s a correction in an ongoing bear market, it will end on this side of the old bull market highs, and we will have to be on our guard. Bear market rallies are tricky and deceptive, and they tend to end suddenly while leaving amateur speculators in tears.
I don’t want to see any of my subscribers in tears, so I am issuing my “be cautious” warnings well in advance.
Interesting, on August 3 we had a 90% upside day on the NYSE. This is a sign of strength, and it was followed by further strength on August 4. On August 4 Lowry’s Selling Pressure Index dropped below a significant level, signifying further impressive market strength.
At yesterday’s close the market was heavily overbought. Today (I’m writing this in the morning two hours after the market opening), the market opened on the weak side with Industrials down 89 and Transports down 84. When this happens, my thought is always — Is this the first hint of this rally possibly topping out? The advantage of a decline is that following every decline the market (i.e. the uptrend) must prove itself again. To prove itself the Dow and the Transports must advance to new highs. If they can’t or if one Average rises to a new high unconfirmed by the other, then we can look for trouble. The highs that must now be surpassed are Industrials 9320.19; Transports 3676.64.
Let’s stay alert (as always) and see what the market gives us. Bear market rallies tend to end on dull volume, non-confirmations, or divergence in the Averages.
Inflation-linked bonds, or TIPS as Treasury-based notes are known in the U.S., are securities whose principal increases at the same rate as the consumer price index.
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