June 28 (Bloomberg) -- Iranian President Mahmoud Ahmadinejad vowed to take a tougher approach toward the West during his second term, saying the Obama administration’s criticism of his crackdown on dissent after the June 12 election shows its offer of talks on Iran’s nuclear program isn’t genuine.
“If they think the government will be influenced, they’re wrong,” Ahmadinejad told judiciary officials at a conference yesterday in Tehran, in comments aired on state television. “The government will have a more powerful and decisive approach in the new term.” He called Western leaders “the arrogants.”
President Barack Obama and German Chancellor Angela Merkel urged Iran two days ago to halt the violence against protesters who say the election was rigged. They also said Iran must be blocked from obtaining a nuclear weapon. Obama dismissed Ahmadinejad’s demand for an apology for “interfering” in Iran’s affairs.
Obama and Merkel spoke after leading Iranian cleric Ahmad Khatami urged authorities to punish demonstration organizers “harshly and cruelly” to deter the opposition from seeking to annul the vote.
Protesters who use weapons should be executed, Khatami told followers at Friday prayers in Tehran. He is a member of the Assembly of Experts, which elects and can remove the Shiite Muslim-led nation’s supreme leader.
‘Ruthlessness’
“A government that treats its own citizens with that kind of ruthlessness and violence and that cannot deal with peaceful protesters who are trying to have their voices heard in an equally peaceful way I think has moved outside of universal norms,” Obama said at a June 26 news conference with Merkel.
The German chancellor said the Iranian people have a right “to have their votes be counted” and to see that the election results are substantiated.
“I’m surprised at Obama,” Ahmadinejad said. “He said he wanted to speak to Iran, and we said we are ready, but with this rhetoric? The mask is now dropped and the Iranian people, the world’s people, know they are the same. There is no change.”
Obama and Merkel said the U.S. and Europe, with Russia and China, must continue pressing to bring Iran into negotiations to suspend its effort to enrich uranium. Iran has defied United Nations sanctions imposed over its refusal to stop enrichment, saying the material is for power plants and not for weapons.
“There is no doubt that any direct dialogue or diplomacy with Iran is going to be affected by the events of the last several weeks,” Obama said. The U.S. and other nations can’t assume there will be a “huge shift” in Iran’s stance in international relations as a result of the protests, he said.
Clubs, Tear Gas
Protesters who defied a ban on opposition rallies since the election have been met with water cannon, tear gas and clubs as security forces tried to disperse crowds. Independent confirmation of the events has been limited, with foreign journalists expelled or ordered to remain in their offices.
The government said 13 protesters and eight Basij militiamen died, with hundreds of demonstrators arrested. Iran’s leadership has accused the U.S., the U.K. and Israel of instigating the violence that followed the announcement that Ahmadinejad would be president for another four-year term.
The courts will determine within the next week whether to continue holding those protesters who have been arrested for minor offenses, Alireza Avaei, a Tehran judiciary official, was cited as saying yesterday by the state-run Mehr news agency.
Social Networking
Iranians circumventing government disruption of the Internet and mobile phone networks have used social-networking Web sites to allege that dozens of protesters were killed by police and the militia. The subjects of the postings include Neda Agha Soltan, a young woman whose death from gunshot wounds was captured in a video shown around the world.
Ahmadinejad’s main challenger on the ballot, former Prime Minister Mir Hossein Mousavi, has demanded the election result be scrapped due to vote-rigging and urged demonstrators to continue the protests, saying they are legal under the constitution. He later said he will comply with a requirement to seek permission for rallies. His previous requests have been turned down or are still pending.
Ahmadinejad won 63 percent of the vote to 34 percent for Mousavi, according to the official tally. The date for his inauguration and the approval of his new Cabinet will take place between July 26 and Aug. 19, the Iranian Labor News Agency said.
The Guardian Council, which supervises elections in Iran, will set up a commission to oversee a recount of 10 percent of the presidential votes and issue a public report on the findings, the state-run Iranian Students News Agency said. The media will be able to attend the recount by the commission, which will include former Foreign Minister Ali Akbar Velayati, ex- parliament Speaker Gholam-Ali Hadad Adel and Prosecutor General Qorban-Ali Najaf-Abadi.
Independent Review Sought
Mousavi doesn’t support the recount proposed by the Guardian Council and would like to see a review of the election by an independent arbitration committee, according to a letter to the council posted yesterday on his Web site. The large number of irregularities suggests that the election should be annulled and a new one held, Mousavi said in the letter.
The Expediency Council, headed by former President Ali Akbar Hashemi Rafsanjani, said yesterday that the “unique participation” of the voters was a display of Iran’s religious democracy, according to the students news agency. The council, which resolves legislative issues on which parliament and the Guardian Council fail to agree, urged the candidates to cooperate with the Guardian Council as it ratifies the election tally and provide it with evidence for any complaints.
‘Healthiest Election’
“None of Mousavi’s claims were right and we’ve had the healthiest election,” Guardian Council spokesman Abbas Ali Kadkhodaei was cited as saying by the Khabar newspaper on its Web site. “Except for small breaches that are seen in every election, no major violation has been committed. I can firmly say that no election fraud has been committed.”
During the campaign, Ahmadinejad accused Rafsanjani of rallying support within the religious establishment for Mousavi. Security forces on June 20 detained five members of Rafsanjani’s family, including his daughter Faezeh Hashemi who encouraged protesters during a rally address. They were held briefly.
Mohsen Rezai, one of the other candidates for president, said Mousavi and the fourth challenger, Mehdi Karrubi, should cooperate with the Guardian Council’s commission. Mousavi and Karrubi have rejected any proposals for partial recounts, saying a new election should be held.
Saturday, June 27, 2009
Unemployment Probably Rose at Slower Pace: U.S. Economy Preview
June 28 (Bloomberg) -- Unemployment in the U.S. probably rose at a slower pace and the manufacturing slump eased this month as evidence mounted that the end of recession is in view, economists said before reports this week.
The jobless rate rose 0.2 percentage point to 9.6 percent, the highest level in 26 years, according to the median of 58 estimates in a Bloomberg News survey. The gain would be the smallest since November 2008. A survey of purchasing managers may show manufacturing shrank at the mildest pace in 10 months.
Government efforts to stabilize housing and consumer spending are only now starting to pay off, indicating it will take months before a recovery develops. The job market will remain one of the biggest threats to the emerging rebound as companies from General Motors Corp. to Kimberly-Clark Corp. focus on cutting costs by trimming payrolls.
“We need more improvement in the labor market for the recovery theme to play out,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. “We’ve seen an inflection point in employment, with the rate of declines diminishing. The numbers will get better in the second half.”
The Labor Department’s employment report is due July 2. The figures may also show employers cut 350,000 workers from payrolls in June compared with 345,000 in May, according to the Bloomberg survey median. The economy lost about 691,000 jobs a month on average in the first quarter.
Employers have eliminated 6 million jobs since the recession began in December 2007, the most of any economic slump in the post-World War II era.
10 Percent
By the end of the year, unemployment may reach 10 percent, a separate Bloomberg survey showed this month.
The payrolls report may also show manufacturers slashed workers this month. The job reductions and plant shutdowns may persist, reflecting the fallout from the bankruptcies of GM and Chrysler LLC.
Outside of autos, the downturn may be easing. A July 1 report from the Tempe, Arizona-based Institute for Supply Management may show its manufacturing index rose to 44.5 in June, the highest level since last August, from 42.8 in May, according to the Bloomberg survey median. Readings below 50 signal contraction.
Factory orders, to be released by the Commerce Department on July 2, probably rose in May for the third time in four months, economists predicted.
Job Cuts
Companies such as Kimberly-Clark, the maker of Huggies diapers and Kleenex tissues, are trimming costs. The Dallas- based company, whose net income has fallen for six straight quarters, will cut 1,600 jobs worldwide by year-end.
The “demanding economic environment” prompted the move, Chief Executive Officer Tom Falk said in a June 25 statement.
The economy shrank at a 5.5 percent annual pace in the first quarter, capping the worst six-month performance in half a century, according to revised government figures.
Expectations that the U.S. will start growing again in the second half of this year are helping lift Americans’ moods. Economists in the Bloomberg survey predict consumer confidence in June probably rose to the highest level since September 2008. The Conference Board will issue its report on June 30.
The Standard & Poor’s 500 Stock Index has gained 36 percent since March 9, when it hit 676.53, the lowest level in more than 12 years, amid signs the economy may start growing again this year. The index closed at 918.90 on June 26 in New York.
Housing data this week may signal stabilization. The National Association of Realtors report on July 1 may show more Americans signed contracts to buy previously owned homes in May for the fourth straight month, the longest string of gains since 2004.
A report from S&P/Case-Shiller June 30 may show declines in home prices are steadying.
The jobless rate rose 0.2 percentage point to 9.6 percent, the highest level in 26 years, according to the median of 58 estimates in a Bloomberg News survey. The gain would be the smallest since November 2008. A survey of purchasing managers may show manufacturing shrank at the mildest pace in 10 months.
Government efforts to stabilize housing and consumer spending are only now starting to pay off, indicating it will take months before a recovery develops. The job market will remain one of the biggest threats to the emerging rebound as companies from General Motors Corp. to Kimberly-Clark Corp. focus on cutting costs by trimming payrolls.
“We need more improvement in the labor market for the recovery theme to play out,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. “We’ve seen an inflection point in employment, with the rate of declines diminishing. The numbers will get better in the second half.”
The Labor Department’s employment report is due July 2. The figures may also show employers cut 350,000 workers from payrolls in June compared with 345,000 in May, according to the Bloomberg survey median. The economy lost about 691,000 jobs a month on average in the first quarter.
Employers have eliminated 6 million jobs since the recession began in December 2007, the most of any economic slump in the post-World War II era.
10 Percent
By the end of the year, unemployment may reach 10 percent, a separate Bloomberg survey showed this month.
The payrolls report may also show manufacturers slashed workers this month. The job reductions and plant shutdowns may persist, reflecting the fallout from the bankruptcies of GM and Chrysler LLC.
Outside of autos, the downturn may be easing. A July 1 report from the Tempe, Arizona-based Institute for Supply Management may show its manufacturing index rose to 44.5 in June, the highest level since last August, from 42.8 in May, according to the Bloomberg survey median. Readings below 50 signal contraction.
Factory orders, to be released by the Commerce Department on July 2, probably rose in May for the third time in four months, economists predicted.
Job Cuts
Companies such as Kimberly-Clark, the maker of Huggies diapers and Kleenex tissues, are trimming costs. The Dallas- based company, whose net income has fallen for six straight quarters, will cut 1,600 jobs worldwide by year-end.
The “demanding economic environment” prompted the move, Chief Executive Officer Tom Falk said in a June 25 statement.
The economy shrank at a 5.5 percent annual pace in the first quarter, capping the worst six-month performance in half a century, according to revised government figures.
Expectations that the U.S. will start growing again in the second half of this year are helping lift Americans’ moods. Economists in the Bloomberg survey predict consumer confidence in June probably rose to the highest level since September 2008. The Conference Board will issue its report on June 30.
The Standard & Poor’s 500 Stock Index has gained 36 percent since March 9, when it hit 676.53, the lowest level in more than 12 years, amid signs the economy may start growing again this year. The index closed at 918.90 on June 26 in New York.
Housing data this week may signal stabilization. The National Association of Realtors report on July 1 may show more Americans signed contracts to buy previously owned homes in May for the fourth straight month, the longest string of gains since 2004.
A report from S&P/Case-Shiller June 30 may show declines in home prices are steadying.
FSB’s Draghi Sees Signs of Improvement in Economy
June 27 (Bloomberg) -- The world economy is showing “convincing signs of recovery,” Mario Draghi, chairman of the newly created Financial Stability Board, said today after its first meeting.
“We observe signs of improvement here and there,” Draghi, who is also a member of the European Central Bank council and governor of the Bank of Italy, said in Basel, Switzerland. “Still, the fragilities of the economy and the financial system are there.”
The Basel-based board, which succeeds the Financial Stability Forum, will look at risks to financial markets and ensure that regulators in each country act upon them. Its members represent economies from Argentina to the United States and institutions such as the European Central Bank and the International Monetary Fund.
The global recession is showing signs of easing as financial markets thaw. Government reports this week showed that Europe’s manufacturing and service industries contracted at the slowest pace in nine months in June, while U.S. consumer spending rose in May. The Organization for Economic Cooperation and Development raised its forecast for the economy of its 30 member nations for the first time in two years this week.
The Financial Stability Board “noted signs of improvement in the global macroeconomic outlook and in some financial markets,” Draghi said. “Banks have raised capital from the private sector, but the process of restructuring and strengthening bank balance sheets is not yet completed. Corporate bond markets continue to see strong primary issuance.”
$1.4 Trillion of Losses
Financial institutions around the world have amassed losses of more than $1.4 trillion during the financial crisis, data compiled by Bloomberg show. In Europe, governments and central banks are on the hook for more than 3.7 trillion euros ($5.2 trillion) of guarantees and funding. UBS AG, the European bank with the biggest losses from the credit crisis, said on June 25 it expects a second-quarter loss.
In response, governments and central banks are tightening banking rules to strengthen the global financial system. U.S. President Barack Obama this month proposed new rules to tighten oversight, while European leaders agreed on a sweeping overhaul of their regulations.
The Basel Committee on Banking Supervision, a member of the Financial Stability Board, will “make an integrated proposal to strengthen the capital and liquidity regime by end-2009,” Draghi said, including requirements to address systemic risk.
Leverage Ratios
The Swiss National Bank on June 18 said UBS and Credit Suisse Group AG must increase the amount of capital they hold in relation to assets to withstand any further losses. The banks should aim for a so-called leverage ratio of at least 5 percent once the crisis is over, the SNB said, meaning the capital base should account for at least 5 percent of the balance sheet total. UBS’s ratio was 2.56 percent at the end of March.
Draghi said as a complement to the risk-weighted leverage ratios of the Basel 2 banking framework, regulators should consider a simpler figure.
“Basel 2 is a very sophisticated way of determining a leverage ratio,” he said. “In the end you come up with a leverage ratio but it’s the product of many different assessments of risk for different categories of assets under different markets conditions. What we are seeing is that markets have a simpler view. They want to look at some number.”
“We observe signs of improvement here and there,” Draghi, who is also a member of the European Central Bank council and governor of the Bank of Italy, said in Basel, Switzerland. “Still, the fragilities of the economy and the financial system are there.”
The Basel-based board, which succeeds the Financial Stability Forum, will look at risks to financial markets and ensure that regulators in each country act upon them. Its members represent economies from Argentina to the United States and institutions such as the European Central Bank and the International Monetary Fund.
The global recession is showing signs of easing as financial markets thaw. Government reports this week showed that Europe’s manufacturing and service industries contracted at the slowest pace in nine months in June, while U.S. consumer spending rose in May. The Organization for Economic Cooperation and Development raised its forecast for the economy of its 30 member nations for the first time in two years this week.
The Financial Stability Board “noted signs of improvement in the global macroeconomic outlook and in some financial markets,” Draghi said. “Banks have raised capital from the private sector, but the process of restructuring and strengthening bank balance sheets is not yet completed. Corporate bond markets continue to see strong primary issuance.”
$1.4 Trillion of Losses
Financial institutions around the world have amassed losses of more than $1.4 trillion during the financial crisis, data compiled by Bloomberg show. In Europe, governments and central banks are on the hook for more than 3.7 trillion euros ($5.2 trillion) of guarantees and funding. UBS AG, the European bank with the biggest losses from the credit crisis, said on June 25 it expects a second-quarter loss.
In response, governments and central banks are tightening banking rules to strengthen the global financial system. U.S. President Barack Obama this month proposed new rules to tighten oversight, while European leaders agreed on a sweeping overhaul of their regulations.
The Basel Committee on Banking Supervision, a member of the Financial Stability Board, will “make an integrated proposal to strengthen the capital and liquidity regime by end-2009,” Draghi said, including requirements to address systemic risk.
Leverage Ratios
The Swiss National Bank on June 18 said UBS and Credit Suisse Group AG must increase the amount of capital they hold in relation to assets to withstand any further losses. The banks should aim for a so-called leverage ratio of at least 5 percent once the crisis is over, the SNB said, meaning the capital base should account for at least 5 percent of the balance sheet total. UBS’s ratio was 2.56 percent at the end of March.
Draghi said as a complement to the risk-weighted leverage ratios of the Basel 2 banking framework, regulators should consider a simpler figure.
“Basel 2 is a very sophisticated way of determining a leverage ratio,” he said. “In the end you come up with a leverage ratio but it’s the product of many different assessments of risk for different categories of assets under different markets conditions. What we are seeing is that markets have a simpler view. They want to look at some number.”
Friday, June 26, 2009
Japanese Bonds Complete 2nd Weekly Gain as Deflation Deepens
June 27 (Bloomberg) -- Japan’s bonds gained for a second week as a government report showed consumer prices fell at a record pace, adding to signs deflation will hamper the economic recovery and boost the value of the fixed payments of debt.
Ten-year yields touched the lowest in almost three months after the statistics bureau said yesterday prices excluding fresh food fell 1.1 percent in May from a year ago. Bank of Japan Governor Masaaki Shirakawa said last week price declines will accelerate through the middle of the fiscal year as demand slackens and crude oil trades lower than last year’s record.
“The drop in consumer prices may accelerate to about 2 percent in the summer,” said Yuichi Kodama, chief economist in Tokyo at Meiji Yasuda Life Insurance Co., Japan’s third-largest life insurer. “The 10-year yield may decline to 1.3 percent or below as the market needs to prepare for deeper deflation.”
The yield on the benchmark 10-year note fell five basis points this week to 1.395 percent in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. It fell to 1.37 percent yesterday, the lowest since April 2. The price of the 1.5 percent debt due June 2019 gained 0.439 yen to 100.919 yen this week. A basis point is 0.01 percentage point.
Ten-year bond futures for September delivery rose 0.74 to 137.66 at the Tokyo Stock Exchange this week.
‘Extreme’ Drop
Worldwide inflation is easing as energy costs retreat and the worst global recession since the Great Depression prompts companies to discount. Consumer prices failed to rise in the euro area for the first time in at least a decade in May, and in the U.S. they fell 1.3 percent, the most since 1950. Deflation increases the value of the fixed payments on bonds.
An “extreme” slump in demand and production are causing the drop in prices, Finance Minister Kaoru Yosano said yesterday. “We continue to monitor developments in prices and need to carefully manage the economy to avoid a deflationary spiral.”
The Organization for Economic Cooperation and Development this week urged the Bank of Japan to keep pumping cash into the economy “until underlying inflation is firmly positive.” Since it cut the key interest rate to 0.1 percent in December, the central bank has been buying corporate debt and increased government bond purchases from lenders to revive growth.
Daily Loss
“Deepening deflation will support the view in the market that the super-loose monetary policy by the Bank of Japan will be sustained,” said Yasunari Ueno, chief market economist in Tokyo at Mizuho Securities Co. “I won’t change my projection that the 10-year yield will drop toward 1 percent.”
Still, 10-year bonds fell for a second day yesterday before a government report next week that economists said will show industrial output rose for a third month in May.
“The bond market may undergo a correction next week as forthcoming data may enhance economic optimism,” said Norikazu Hasegawa, a manager of the treasury division at Chiba Bank Ltd. in Tokyo. “The stable movement of stock prices indicates that the euphoria about the economy remains intact.”
The Nikkei 225 Stock Average rose 0.9 percent this week and the MSCI Asia Pacific Index of regional shares added 1.8 percent.
Industrial production rose 7 percent last month, following a 5.9 percent gain in April, according to a Bloomberg News survey of economists before the June 29 report.
Demand for bonds was also limited before a key survey of business confidence. The Bank of Japan’s Tankan index of sentiment among large manufacturers rose to minus 43 in June, from minus 58 in March, according to a separate Bloomberg survey of economists before the report is released on July 1.
Debt Sales
“It is now certain that Japan’s economy already bottomed out of the recent recession and it is now recovering,” said Taro Saito, a senior economist in Tokyo at NLI Research Institute Ltd., a unit of Japan’s biggest life insurer. “Yields may gradually trend higher.”
The Ministry of Finance will sell 2.1 trillion yen ($21.9 billion) in 10-year bonds on July 2, up from this month’s 1.9 trillion yen auction. The ministry in April said it would boost bond sales by 15 percent to 130.2 trillion yen this fiscal year.
“Given the potential risk of rising debt sales across the globe, Japan’s 10-year yield may reach 1.7 percent,” said Mitsumaru Kumagai, senior economist in Tokyo at Daiwa Institute of Research Ltd., a unit of Japan’s second-largest securities brokerage. “The Japanese economy may avoid slipping into a deflationary spiral.”
Ten-year yields touched the lowest in almost three months after the statistics bureau said yesterday prices excluding fresh food fell 1.1 percent in May from a year ago. Bank of Japan Governor Masaaki Shirakawa said last week price declines will accelerate through the middle of the fiscal year as demand slackens and crude oil trades lower than last year’s record.
“The drop in consumer prices may accelerate to about 2 percent in the summer,” said Yuichi Kodama, chief economist in Tokyo at Meiji Yasuda Life Insurance Co., Japan’s third-largest life insurer. “The 10-year yield may decline to 1.3 percent or below as the market needs to prepare for deeper deflation.”
The yield on the benchmark 10-year note fell five basis points this week to 1.395 percent in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. It fell to 1.37 percent yesterday, the lowest since April 2. The price of the 1.5 percent debt due June 2019 gained 0.439 yen to 100.919 yen this week. A basis point is 0.01 percentage point.
Ten-year bond futures for September delivery rose 0.74 to 137.66 at the Tokyo Stock Exchange this week.
‘Extreme’ Drop
Worldwide inflation is easing as energy costs retreat and the worst global recession since the Great Depression prompts companies to discount. Consumer prices failed to rise in the euro area for the first time in at least a decade in May, and in the U.S. they fell 1.3 percent, the most since 1950. Deflation increases the value of the fixed payments on bonds.
An “extreme” slump in demand and production are causing the drop in prices, Finance Minister Kaoru Yosano said yesterday. “We continue to monitor developments in prices and need to carefully manage the economy to avoid a deflationary spiral.”
The Organization for Economic Cooperation and Development this week urged the Bank of Japan to keep pumping cash into the economy “until underlying inflation is firmly positive.” Since it cut the key interest rate to 0.1 percent in December, the central bank has been buying corporate debt and increased government bond purchases from lenders to revive growth.
Daily Loss
“Deepening deflation will support the view in the market that the super-loose monetary policy by the Bank of Japan will be sustained,” said Yasunari Ueno, chief market economist in Tokyo at Mizuho Securities Co. “I won’t change my projection that the 10-year yield will drop toward 1 percent.”
Still, 10-year bonds fell for a second day yesterday before a government report next week that economists said will show industrial output rose for a third month in May.
“The bond market may undergo a correction next week as forthcoming data may enhance economic optimism,” said Norikazu Hasegawa, a manager of the treasury division at Chiba Bank Ltd. in Tokyo. “The stable movement of stock prices indicates that the euphoria about the economy remains intact.”
The Nikkei 225 Stock Average rose 0.9 percent this week and the MSCI Asia Pacific Index of regional shares added 1.8 percent.
Industrial production rose 7 percent last month, following a 5.9 percent gain in April, according to a Bloomberg News survey of economists before the June 29 report.
Demand for bonds was also limited before a key survey of business confidence. The Bank of Japan’s Tankan index of sentiment among large manufacturers rose to minus 43 in June, from minus 58 in March, according to a separate Bloomberg survey of economists before the report is released on July 1.
Debt Sales
“It is now certain that Japan’s economy already bottomed out of the recent recession and it is now recovering,” said Taro Saito, a senior economist in Tokyo at NLI Research Institute Ltd., a unit of Japan’s biggest life insurer. “Yields may gradually trend higher.”
The Ministry of Finance will sell 2.1 trillion yen ($21.9 billion) in 10-year bonds on July 2, up from this month’s 1.9 trillion yen auction. The ministry in April said it would boost bond sales by 15 percent to 130.2 trillion yen this fiscal year.
“Given the potential risk of rising debt sales across the globe, Japan’s 10-year yield may reach 1.7 percent,” said Mitsumaru Kumagai, senior economist in Tokyo at Daiwa Institute of Research Ltd., a unit of Japan’s second-largest securities brokerage. “The Japanese economy may avoid slipping into a deflationary spiral.”
Asian Currencies: Rupiah, Peso Lead Weekly Gains on Fed, Stocks
June 27 (Bloomberg) -- Indonesia’s rupiah and the Philippine peso had a weekly gain on optimism overseas investors will buy Asian bonds and stocks after the Federal Reserve signaled U.S. interest rates will be kept at near zero.
The rupiah was the biggest gainer this week among Asia’s 10 most-active currencies outside Japan as its 10-year bond yielded 7.6 percentage points more than similar-dated U.S. debt, near the highest in a month. U.S. policy makers said on June 24 they will keep the benchmark interest rate at “exceptionally low levels” for an “extended period.” The peso rose this week after the central bank said the Fed’s decision gives it scope to keep its “accommodative stance.”
“Investors are finally buying back Indonesian assets and that helps the rupiah,” said Mika Martumpal, a currency analyst at PT Bank Commonwealth in Jakarta. “The real interest rate is still competitive and is still more attractive than the U.S. dollar.”
The rupiah climbed 1.8 percent this week to 10,220 a dollar in Jakarta yesterday, according to data compiled by Bloomberg. The peso rose 0.2 percent to 48.305 in Manila, according to Tullett Prebon Plc. The Thai baht rose 0.3 percent to 34.07.
In the coming week, Bank Indonesia will hold its monthly meeting on policy rates. South Korea and Thailand will both report industrial production data and exports.
Payments Surplus
The Indonesian currency strengthened as overseas investors added to their holdings of the nation’s shares following an eight-day run of net sales, according to stock exchange data. Foreign holdings of Indonesian local-currency bonds were at 85.9 trillion rupiah as of June 25 ($8.4 billion) compared with 85.8 trillion rupiah at the end of last week, the Ministry of Finance posted on its Web site.
The peso halted two weeks of declines as central bank Governor Amando Tetangco said on June 25 the Fed’s policy stance “will benefit emerging markets such as the Philippines.” The central bank, which has lowered its overnight borrowing rate in all five meetings since December to 4.25 percent, will hold its next policy meeting on July 9. The Philippine Stock Exchange Index gained a third day, posting a weekly advance.
“The peso’s stronger opening relates to expected improvement in equities,” said Lito Biacora, vice president for treasury at Bank of the Philippine Islands in Manila.
Commodities Climb
Malaysia’s ringgit rose this week on speculation export earnings will improve as prices of crude oil and palm oil climb. The commodities together accounted for 10 percent of Malaysia’s overseas sales in the first four months of this year, government statistics showed. The Kuala Lumpur Composite Index of stocks advanced 1.4 percent this week.
“The ringgit is benefiting from the risk-appetite rally in stocks,” said Tan Voon Ching, a currency trader at OSK Investment Bank Bhd. in Kuala Lumpur. “Higher commodity prices may be a sign of a better recovery outlook but the question remains whether the trend is sustainable.”
The ringgit climbed 0.1 percent this week to 3.5335 in Kuala Lumpur, according to data compiled by Bloomberg. It earlier reached 3.5255, the strongest level since June 18.
Crude oil has risen almost 60 percent this year, while palm oil has climbed about 39 percent.
Elsewhere, the Korean won fell 1.2 percent this week to 1,284.25 and Taiwan’s dollar dropped 0.1 percent to NT$32.925 against the U.S. currency. The Vietnamese dong was barely changed at 17,802 and Singapore’s dollar was little changed at S$1.4542.
The rupiah was the biggest gainer this week among Asia’s 10 most-active currencies outside Japan as its 10-year bond yielded 7.6 percentage points more than similar-dated U.S. debt, near the highest in a month. U.S. policy makers said on June 24 they will keep the benchmark interest rate at “exceptionally low levels” for an “extended period.” The peso rose this week after the central bank said the Fed’s decision gives it scope to keep its “accommodative stance.”
“Investors are finally buying back Indonesian assets and that helps the rupiah,” said Mika Martumpal, a currency analyst at PT Bank Commonwealth in Jakarta. “The real interest rate is still competitive and is still more attractive than the U.S. dollar.”
The rupiah climbed 1.8 percent this week to 10,220 a dollar in Jakarta yesterday, according to data compiled by Bloomberg. The peso rose 0.2 percent to 48.305 in Manila, according to Tullett Prebon Plc. The Thai baht rose 0.3 percent to 34.07.
In the coming week, Bank Indonesia will hold its monthly meeting on policy rates. South Korea and Thailand will both report industrial production data and exports.
Payments Surplus
The Indonesian currency strengthened as overseas investors added to their holdings of the nation’s shares following an eight-day run of net sales, according to stock exchange data. Foreign holdings of Indonesian local-currency bonds were at 85.9 trillion rupiah as of June 25 ($8.4 billion) compared with 85.8 trillion rupiah at the end of last week, the Ministry of Finance posted on its Web site.
The peso halted two weeks of declines as central bank Governor Amando Tetangco said on June 25 the Fed’s policy stance “will benefit emerging markets such as the Philippines.” The central bank, which has lowered its overnight borrowing rate in all five meetings since December to 4.25 percent, will hold its next policy meeting on July 9. The Philippine Stock Exchange Index gained a third day, posting a weekly advance.
“The peso’s stronger opening relates to expected improvement in equities,” said Lito Biacora, vice president for treasury at Bank of the Philippine Islands in Manila.
Commodities Climb
Malaysia’s ringgit rose this week on speculation export earnings will improve as prices of crude oil and palm oil climb. The commodities together accounted for 10 percent of Malaysia’s overseas sales in the first four months of this year, government statistics showed. The Kuala Lumpur Composite Index of stocks advanced 1.4 percent this week.
“The ringgit is benefiting from the risk-appetite rally in stocks,” said Tan Voon Ching, a currency trader at OSK Investment Bank Bhd. in Kuala Lumpur. “Higher commodity prices may be a sign of a better recovery outlook but the question remains whether the trend is sustainable.”
The ringgit climbed 0.1 percent this week to 3.5335 in Kuala Lumpur, according to data compiled by Bloomberg. It earlier reached 3.5255, the strongest level since June 18.
Crude oil has risen almost 60 percent this year, while palm oil has climbed about 39 percent.
Elsewhere, the Korean won fell 1.2 percent this week to 1,284.25 and Taiwan’s dollar dropped 0.1 percent to NT$32.925 against the U.S. currency. The Vietnamese dong was barely changed at 17,802 and Singapore’s dollar was little changed at S$1.4542.
Thursday, June 25, 2009
New Zealand Economy Shrinks 1%, Extending Recession
June 26 (Bloomberg) -- New Zealand’s economy shrank for a fifth straight quarter as consumers and businesses cut spending, extending the worst recession in more than three decades.
Gross domestic product fell 1 percent in the three months to March 31, matching the revised fourth-quarter decline, Statistics New Zealand said in Wellington today. The drop exceeds the 0.7 percent median estimate in a Bloomberg survey of 11 economists.
New Zealand’s economy began contracting in the first quarter of last year and is unlikely to grow until the final three months of 2009 as the worst global slump since the Great Depression curbs exports and damps investment, Reserve Bank Governor Alan Bollard said June 11. Interest rates may stay at record lows until late next year to kick-start spending, he said.
“The world was a hostile environment for growth,” said Bernard Doyle, economist at Goldman Sachs JBWere Ltd. in Auckland. “We doubt today’s print will markedly change the Reserve Bank’s view of where the economy sits.”
New Zealand’s dollar traded at 64.44 U.S. cents at 12.35 p.m. in Wellington from 64.55 cents before the report was released.
The currency has gained 12 percent in the past three months, which “risks derailing” the economy’s recovery because it is cutting export income, Prime Minister John Key said this week.
The 1 percent contractions in the past two quarters are the largest in 18 years, the statistics agency said.
‘Multiple Blows’
The economy shrank 2.7 percent from a year earlier. In the year ended March 31, gross domestic product declined 1 percent, the first annual-average contraction since 1992.
New Zealand’s economy began shrinking last year as Bollard raised interest rates to counter a housing boom and consumer spending that was being fanned by excessive borrowing.
The economy then faced “multiple blows” from collapsing world trade and tight credit conditions, the Organization for Economic Cooperation and Development said in a report this week.
Business investment slumped, companies began firing workers, exports slowed and tourist arrivals declined. Exports make up about 30 percent of the economy and the tourism industry contributes another 10 percent.
New Zealand’s economy will probably contract 2.9 percent this year before growing 0.6 percent in 2010, the OECD said. The jobless rate, which was 5 percent in the first quarter, may surge beyond 8 percent by next year, it said.
Household Spending
Households are constrained by high debt and workers are worried they may lose their jobs. A net 28 percent of consumers expect the economy will worsen this year, according to a Westpac Banking Corp./McDermott Miller survey published on June 24. The net figure subtracts optimists from pessimists and has fallen from 57 percent in the first quarter.
Household spending, which makes up 60 percent of the economy, fell 1.4 percent in the first quarter, the most in 18 years, today’s report showed. Purchases of durable items such as cars, furniture and home appliances dropped 2.5 percent while spending on services also decreased. Sales of food and other so- called non-durable goods gained.
Retailer Smiths City Group yesterday said net income fell 72 percent profit in the year ended April 30 as demand dropped at its appliance and furniture stores. Furniture and carpet sales have declined every month since January 2008, Chairman Craig Boyce said in a statement sent to the stock exchange.
Warehouse Group Ltd., New Zealand’s biggest discount retailer, said last month sales in the three months to April 26 dropped 2.8 percent as the recession slashed demand for office goods and the company shut liquor and food outlets.
Business Investment
Business investment plunged 7.3 percent as companies purchased fewer vehicles, plant and machinery, the statistics agency said today. Commercial construction fell.
Business confidence slumped to a record low in the first quarter, according to a survey by the New Zealand Institute of Economic Research Inc. Investment intentions fell to the lowest on record, the Wellington-based institute said.
Contact Energy Ltd., the nation’s biggest publicly traded electricity company, last month said it will delay a new geothermal power station investment amid declining demand and increased funding costs.
Total investment fell 6.1 percent led by business spending. Investment in new housing, dropped 0.3 percent in the first quarter, the seventh straight decline. Inventories decreased.
Exports of goods and services increased 0.6 percent in the quarter amid rising shipments of dairy products. Import volumes slumped 8.6 percent led by machinery and passenger cars.
Output from goods-producing industries slipped, led by a 7.2 percent drop in manufacturing. Primary production was unchanged as increased output from mining offset declines by logging and fishing. Service industries output fell 0.1 percent led by transport, while real estate activity increased.
The GDP deflator, a measure of prices, rose 2.6 percent in the year ended March 31.
Gross domestic product fell 1 percent in the three months to March 31, matching the revised fourth-quarter decline, Statistics New Zealand said in Wellington today. The drop exceeds the 0.7 percent median estimate in a Bloomberg survey of 11 economists.
New Zealand’s economy began contracting in the first quarter of last year and is unlikely to grow until the final three months of 2009 as the worst global slump since the Great Depression curbs exports and damps investment, Reserve Bank Governor Alan Bollard said June 11. Interest rates may stay at record lows until late next year to kick-start spending, he said.
“The world was a hostile environment for growth,” said Bernard Doyle, economist at Goldman Sachs JBWere Ltd. in Auckland. “We doubt today’s print will markedly change the Reserve Bank’s view of where the economy sits.”
New Zealand’s dollar traded at 64.44 U.S. cents at 12.35 p.m. in Wellington from 64.55 cents before the report was released.
The currency has gained 12 percent in the past three months, which “risks derailing” the economy’s recovery because it is cutting export income, Prime Minister John Key said this week.
The 1 percent contractions in the past two quarters are the largest in 18 years, the statistics agency said.
‘Multiple Blows’
The economy shrank 2.7 percent from a year earlier. In the year ended March 31, gross domestic product declined 1 percent, the first annual-average contraction since 1992.
New Zealand’s economy began shrinking last year as Bollard raised interest rates to counter a housing boom and consumer spending that was being fanned by excessive borrowing.
The economy then faced “multiple blows” from collapsing world trade and tight credit conditions, the Organization for Economic Cooperation and Development said in a report this week.
Business investment slumped, companies began firing workers, exports slowed and tourist arrivals declined. Exports make up about 30 percent of the economy and the tourism industry contributes another 10 percent.
New Zealand’s economy will probably contract 2.9 percent this year before growing 0.6 percent in 2010, the OECD said. The jobless rate, which was 5 percent in the first quarter, may surge beyond 8 percent by next year, it said.
Household Spending
Households are constrained by high debt and workers are worried they may lose their jobs. A net 28 percent of consumers expect the economy will worsen this year, according to a Westpac Banking Corp./McDermott Miller survey published on June 24. The net figure subtracts optimists from pessimists and has fallen from 57 percent in the first quarter.
Household spending, which makes up 60 percent of the economy, fell 1.4 percent in the first quarter, the most in 18 years, today’s report showed. Purchases of durable items such as cars, furniture and home appliances dropped 2.5 percent while spending on services also decreased. Sales of food and other so- called non-durable goods gained.
Retailer Smiths City Group yesterday said net income fell 72 percent profit in the year ended April 30 as demand dropped at its appliance and furniture stores. Furniture and carpet sales have declined every month since January 2008, Chairman Craig Boyce said in a statement sent to the stock exchange.
Warehouse Group Ltd., New Zealand’s biggest discount retailer, said last month sales in the three months to April 26 dropped 2.8 percent as the recession slashed demand for office goods and the company shut liquor and food outlets.
Business Investment
Business investment plunged 7.3 percent as companies purchased fewer vehicles, plant and machinery, the statistics agency said today. Commercial construction fell.
Business confidence slumped to a record low in the first quarter, according to a survey by the New Zealand Institute of Economic Research Inc. Investment intentions fell to the lowest on record, the Wellington-based institute said.
Contact Energy Ltd., the nation’s biggest publicly traded electricity company, last month said it will delay a new geothermal power station investment amid declining demand and increased funding costs.
Total investment fell 6.1 percent led by business spending. Investment in new housing, dropped 0.3 percent in the first quarter, the seventh straight decline. Inventories decreased.
Exports of goods and services increased 0.6 percent in the quarter amid rising shipments of dairy products. Import volumes slumped 8.6 percent led by machinery and passenger cars.
Output from goods-producing industries slipped, led by a 7.2 percent drop in manufacturing. Primary production was unchanged as increased output from mining offset declines by logging and fishing. Service industries output fell 0.1 percent led by transport, while real estate activity increased.
The GDP deflator, a measure of prices, rose 2.6 percent in the year ended March 31.
India’s Sensex to Rise 14% in 12 Months, Nomura Says
June 26 (Bloomberg) -- Indian stocks are “fairly valued” after a 49 percent advance this year and further gains depend on government policies to boost economic growth and pare a budget deficit, Nomura Holdings Inc. said.
The benchmark Bombay Stock Exchange Sensitive Index may rise to 16,400 in the next 12 months, a “muted” 14 percent gain from yesterday’s close, Nomura analysts led by Prabhat Awasthi said in a report today. Investors should own a mix of so-called defensive and domestic cyclical shares, they added.
The rally this year has helped India post the sixth-best performance among the 89 markets tracked by Bloomberg News globally. Valuations have also climbed, with the Sensex now valued at 16 times reported earnings, double November’s low of 8.1 times.
“The relative outperformance and the strong move in the market post the elections have now priced in improving economic fundamentals,” the analysts wrote in the report. “The upcoming budget next month will be very important for the overall direction of the market.”
India has announced three stimulus packages since December, lowering retail fuel prices, cutting taxes on consumer products and injecting capital into state-run banks, to shield the economy from the global crisis.
Finance Minister Pranab Mukherjee will disclose the projected fiscal deficit for the year ending March 31 in his budget on July 26. The government in February said the deficit may be 5.5 percent of gross domestic product.
Nomura recommends that investors buy shares in industries including automobiles, financials, so-called fast-moving consumer goods, technology services, media, pharmaceuticals and power. Its recommended portfolio is “underweight” in energy, metals and cement companies following a jump in their valuations, according to the report.
The benchmark Bombay Stock Exchange Sensitive Index may rise to 16,400 in the next 12 months, a “muted” 14 percent gain from yesterday’s close, Nomura analysts led by Prabhat Awasthi said in a report today. Investors should own a mix of so-called defensive and domestic cyclical shares, they added.
The rally this year has helped India post the sixth-best performance among the 89 markets tracked by Bloomberg News globally. Valuations have also climbed, with the Sensex now valued at 16 times reported earnings, double November’s low of 8.1 times.
“The relative outperformance and the strong move in the market post the elections have now priced in improving economic fundamentals,” the analysts wrote in the report. “The upcoming budget next month will be very important for the overall direction of the market.”
India has announced three stimulus packages since December, lowering retail fuel prices, cutting taxes on consumer products and injecting capital into state-run banks, to shield the economy from the global crisis.
Finance Minister Pranab Mukherjee will disclose the projected fiscal deficit for the year ending March 31 in his budget on July 26. The government in February said the deficit may be 5.5 percent of gross domestic product.
Nomura recommends that investors buy shares in industries including automobiles, financials, so-called fast-moving consumer goods, technology services, media, pharmaceuticals and power. Its recommended portfolio is “underweight” in energy, metals and cement companies following a jump in their valuations, according to the report.
Indian Stocks Rise, Led by Metal Producers; Sun Pharma Plunges
June 26 (Bloomberg) -- Indian stocks rose, paring the benchmark index’s second weekly decline since early March. Sterlite Industries (India) Ltd. led gains by metal producers on optimism economic recovery may spur demand.
Sterlite, the nation’s biggest copper producer, added 2 percent as the price of the metal used in power cables rallied and a government report showed the U.S. economy shrank less than expected in the first quarter. Hindalco Industries Ltd., the largest aluminum producer, also climbed 2 percent.
“Things are definitely improving,” said Apurva Shah, head of research at Prabhudas Liladher Pvt. in Mumbai. “Positive retail sales data, ample short-term liquidity and home prices have leveled off; all point towards stabilization of the economy.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 145.45, or 1 percent, to 14,491.07 at 9:59 a.m. in Mumbai today. The S&P CNX Nifty Index on the National Stock Exchange added 1.1 percent to 4,289.20. The BSE 200 Index increased 1.1 percent to 1,768.21.
Sun Pharmaceutical Industries Ltd., India’s biggest drugmaker by market value, plunged 15 percent after generic drugs made by its unit Caraco Pharmaceutical Laboratories Ltd. were seized by U.S. authorities, who cited violations of manufacturing standards.
Sterlite advanced 2 percent to 587.85 rupees. Hindalco climbed 2 percent to 86.15 rupees.
Reliance Industries Ltd., India’s most valuable company, gained 2.2 percent to 2,000.60 rupees. ICICI Bank Ltd., the second-biggest lender, rose 2.4 percent to 717.05 rupees. Infosys Technologies Ltd., the second-biggest software services provider, added 1.7 percent to 1,788.60 rupees.
The Sensex has risen 50 percent this year on speculation government stimulus spending worldwide will help to end the first global recession since World War II. Shares on the Sensex are valued at 16.3 times reported earnings, almost double the 8.8 times they fetched in March.
Asian Stocks
Indian shares also gained after a rally in Asian stocks.
The MSCI Asia Pacific Index gained 1.3 percent to 103.09, taking its advance this week to 1.6 percent. The gauge has jumped 46 percent from a more than five-year low on March 9.
Sun Pharmaceutical tumbled 15 percent to 1,098.40 rupees. Drugs and raw ingredients for pain, heart ailment and psychiatric medications were confiscated at three Caraco facilities in Michigan to prevent the Detroit-based company from distributing its products until the manufacturing deficiencies are corrected, the U.S. Food and Drug Administration said in a statement yesterday. Shares of Caraco, which is 76 percent owned by Sun Pharmaceutical, dropped the most in 15 years.
Corrective actions had been taken and “continual improvements” are being made while Caraco works to resolve the agency’s concerns, the company said in a statement. “We don’t have any comment now, maybe later in the day,” said Mira Desai, a spokeswoman for Sun Pharmaceutical.
Sterlite, the nation’s biggest copper producer, added 2 percent as the price of the metal used in power cables rallied and a government report showed the U.S. economy shrank less than expected in the first quarter. Hindalco Industries Ltd., the largest aluminum producer, also climbed 2 percent.
“Things are definitely improving,” said Apurva Shah, head of research at Prabhudas Liladher Pvt. in Mumbai. “Positive retail sales data, ample short-term liquidity and home prices have leveled off; all point towards stabilization of the economy.”
The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 145.45, or 1 percent, to 14,491.07 at 9:59 a.m. in Mumbai today. The S&P CNX Nifty Index on the National Stock Exchange added 1.1 percent to 4,289.20. The BSE 200 Index increased 1.1 percent to 1,768.21.
Sun Pharmaceutical Industries Ltd., India’s biggest drugmaker by market value, plunged 15 percent after generic drugs made by its unit Caraco Pharmaceutical Laboratories Ltd. were seized by U.S. authorities, who cited violations of manufacturing standards.
Sterlite advanced 2 percent to 587.85 rupees. Hindalco climbed 2 percent to 86.15 rupees.
Reliance Industries Ltd., India’s most valuable company, gained 2.2 percent to 2,000.60 rupees. ICICI Bank Ltd., the second-biggest lender, rose 2.4 percent to 717.05 rupees. Infosys Technologies Ltd., the second-biggest software services provider, added 1.7 percent to 1,788.60 rupees.
The Sensex has risen 50 percent this year on speculation government stimulus spending worldwide will help to end the first global recession since World War II. Shares on the Sensex are valued at 16.3 times reported earnings, almost double the 8.8 times they fetched in March.
Asian Stocks
Indian shares also gained after a rally in Asian stocks.
The MSCI Asia Pacific Index gained 1.3 percent to 103.09, taking its advance this week to 1.6 percent. The gauge has jumped 46 percent from a more than five-year low on March 9.
Sun Pharmaceutical tumbled 15 percent to 1,098.40 rupees. Drugs and raw ingredients for pain, heart ailment and psychiatric medications were confiscated at three Caraco facilities in Michigan to prevent the Detroit-based company from distributing its products until the manufacturing deficiencies are corrected, the U.S. Food and Drug Administration said in a statement yesterday. Shares of Caraco, which is 76 percent owned by Sun Pharmaceutical, dropped the most in 15 years.
Corrective actions had been taken and “continual improvements” are being made while Caraco works to resolve the agency’s concerns, the company said in a statement. “We don’t have any comment now, maybe later in the day,” said Mira Desai, a spokeswoman for Sun Pharmaceutical.
Wednesday, June 24, 2009
Asian Stocks Rise on Growth Optimism; Mitsubishi Electric Gains
June 25 (Bloomberg) -- Asian stocks rose, led by mining and technology companies, as the U.S. Federal Reserve said the pace of economic contraction is slowing and South Korea raised its gross domestic product forecast.
Komatsu Ltd., an earthmoving equipment maker that gets a quarter of its sales from the Americas, added 3.5 percent in Tokyo as orders for U.S. durable goods unexpectedly increased. Rio Tinto Ltd., the world’s third-biggest mining company, climbed 3.3 percent in Sydney after metals prices gained. Mitsubishi Electric Corp. surged 7.2 percent after the Nikkei newspaper reported the company is planning to set up solar power manufacturing facilities in the U.S. and Europe.
The MSCI Asia Pacific Index rose 0.9 percent to 101.74 at 12:25 p.m. in Tokyo. Optimism government stimulus measures worldwide will revive the global economy has boosted the gauge by 44 percent from a more than five-year low on March 9.
“We’ve got out of the worst period thanks to those policy measures,” said Yoshihiro Ito, senior strategist at Okasan Asset Management Co., which oversees about $7.7 billion. “I still believe the global economy will start to recover in the second half.”
Japan’s Nikkei 225 Stock Average advanced 1.7 percent to 9,754.33. Kubota Corp. and Iseki & Co. climbed more than 4 percent after the Nikkei newspaper said the makers of farm equipment are seeking a greater presence in China.
South Korea’s Kospi Index gained 2.3 percent as the government said the economy will shrink 1.5 percent this year, less than an earlier forecast for a 2 percent contraction. Australia’s S&P/ASX 200 Index added 0.8 percent after the International Monetary Fund raised its 2009 and 2010 growth forecasts for the country’s economy.
Durable Goods
Futures on the Standard & Poor’s 500 Index added 0.2 percent. The gauge rose 0.7 percent in New York yesterday. U.S. orders for items meant to last several years increased 1.8 percent in May, a Commerce Department report showed. Economists had estimated a 0.9 percent drop.
Komatsu, which gets more than 80 percent of revenues supplying construction and mining equipment, added 3.5 percent to 1,480 yen. Honda Motor Co., which derives 45 percent of its sales in North America, gained 2.1 percent to 2,610 yen.
The durable goods report boosted speculation demand for resources will increase. A gauge of six metals in London climbed 4.8 percent yesterday, the most since March 19, while copper jumped 3.1 percent in New York.
Rio Tinto climbed 3.3 percent to A$51.20. BHP Billiton Ltd., the world’s biggest mining company, gained 1.5 percent to A$34.23. Mitsubishi Corp., which gets more than half of its profits from commodities, advanced 4.1 percent to 1,811 yen.
‘Glimmers of Hope’
“We’re getting glimmers of hope,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “The latest reports on consumer durables show consumers are becoming a bit more active and purchasing has returned to the marketplace.”
Financial markets have improved, the Fed said in a statement after a two-day meeting in Washington where it also kept the benchmark interest rate between zero and 0.25 percent. The Organization for Economic Cooperation and Development also lifted its forecast for growth in the economies of its 30 member nations yesterday for the first time in two years.
Optimism for an economic recovery had driven the average valuation of companies in the MSCI Asia Pacific Index to 1.5 times the net value of assets as of June 12, according to Bloomberg data. That was the highest level since Sept. 26. The gauge sank 3.5 percent last week, its first weekly drop in five.
Solar Power
Mitsubishi Electric surged 7.2 percent to 610 yen. The company plans to build plants for assembling solar power generation systems in Europe and the U.S. next fiscal year, the Nikkei newspaper reported, without citing anyone.
Samsung Electronics Co., the world’s biggest maker of liquid-crystal display televisions, added 1.7 percent to 590,000 won after a U.S. trade agency said some of the company’s products had been infringed by Sharp Corp. Some Sharp LCD televisions and computer monitors should be banned from the U.S., the country’s International Trade Commission said yesterday.
Harvey Norman Holdings Ltd., Australia’s No. 1 electronics retailer, climbed 3.8 percent to A$3.02. David Jones Ltd., the country’s second-largest department store chain, gained 1.5 percent to A$4.06.
The IMF said Australia’s economy will contract 0.5 percent this year, compared with a 1.4 percent decline estimated in April. The economy will grow 1.5 percent next year, the IMF said, after previously forecasting a 0.6 percent increase.
In Tokyo, Kubota rose 4.7 percent to 752 yen, while Iseki advanced 6.9 percent to 388 yen.
Kubota plans to increase production of combines and rice transplanters in China as government subsidies help to increase demand for the machines, the Nikkei reported, without saying where it obtained the information. Iseki has offered expertise to a Chinese farming equipment maker and will start producing harvesters there in August, according to the report.
Komatsu Ltd., an earthmoving equipment maker that gets a quarter of its sales from the Americas, added 3.5 percent in Tokyo as orders for U.S. durable goods unexpectedly increased. Rio Tinto Ltd., the world’s third-biggest mining company, climbed 3.3 percent in Sydney after metals prices gained. Mitsubishi Electric Corp. surged 7.2 percent after the Nikkei newspaper reported the company is planning to set up solar power manufacturing facilities in the U.S. and Europe.
The MSCI Asia Pacific Index rose 0.9 percent to 101.74 at 12:25 p.m. in Tokyo. Optimism government stimulus measures worldwide will revive the global economy has boosted the gauge by 44 percent from a more than five-year low on March 9.
“We’ve got out of the worst period thanks to those policy measures,” said Yoshihiro Ito, senior strategist at Okasan Asset Management Co., which oversees about $7.7 billion. “I still believe the global economy will start to recover in the second half.”
Japan’s Nikkei 225 Stock Average advanced 1.7 percent to 9,754.33. Kubota Corp. and Iseki & Co. climbed more than 4 percent after the Nikkei newspaper said the makers of farm equipment are seeking a greater presence in China.
South Korea’s Kospi Index gained 2.3 percent as the government said the economy will shrink 1.5 percent this year, less than an earlier forecast for a 2 percent contraction. Australia’s S&P/ASX 200 Index added 0.8 percent after the International Monetary Fund raised its 2009 and 2010 growth forecasts for the country’s economy.
Durable Goods
Futures on the Standard & Poor’s 500 Index added 0.2 percent. The gauge rose 0.7 percent in New York yesterday. U.S. orders for items meant to last several years increased 1.8 percent in May, a Commerce Department report showed. Economists had estimated a 0.9 percent drop.
Komatsu, which gets more than 80 percent of revenues supplying construction and mining equipment, added 3.5 percent to 1,480 yen. Honda Motor Co., which derives 45 percent of its sales in North America, gained 2.1 percent to 2,610 yen.
The durable goods report boosted speculation demand for resources will increase. A gauge of six metals in London climbed 4.8 percent yesterday, the most since March 19, while copper jumped 3.1 percent in New York.
Rio Tinto climbed 3.3 percent to A$51.20. BHP Billiton Ltd., the world’s biggest mining company, gained 1.5 percent to A$34.23. Mitsubishi Corp., which gets more than half of its profits from commodities, advanced 4.1 percent to 1,811 yen.
‘Glimmers of Hope’
“We’re getting glimmers of hope,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “The latest reports on consumer durables show consumers are becoming a bit more active and purchasing has returned to the marketplace.”
Financial markets have improved, the Fed said in a statement after a two-day meeting in Washington where it also kept the benchmark interest rate between zero and 0.25 percent. The Organization for Economic Cooperation and Development also lifted its forecast for growth in the economies of its 30 member nations yesterday for the first time in two years.
Optimism for an economic recovery had driven the average valuation of companies in the MSCI Asia Pacific Index to 1.5 times the net value of assets as of June 12, according to Bloomberg data. That was the highest level since Sept. 26. The gauge sank 3.5 percent last week, its first weekly drop in five.
Solar Power
Mitsubishi Electric surged 7.2 percent to 610 yen. The company plans to build plants for assembling solar power generation systems in Europe and the U.S. next fiscal year, the Nikkei newspaper reported, without citing anyone.
Samsung Electronics Co., the world’s biggest maker of liquid-crystal display televisions, added 1.7 percent to 590,000 won after a U.S. trade agency said some of the company’s products had been infringed by Sharp Corp. Some Sharp LCD televisions and computer monitors should be banned from the U.S., the country’s International Trade Commission said yesterday.
Harvey Norman Holdings Ltd., Australia’s No. 1 electronics retailer, climbed 3.8 percent to A$3.02. David Jones Ltd., the country’s second-largest department store chain, gained 1.5 percent to A$4.06.
The IMF said Australia’s economy will contract 0.5 percent this year, compared with a 1.4 percent decline estimated in April. The economy will grow 1.5 percent next year, the IMF said, after previously forecasting a 0.6 percent increase.
In Tokyo, Kubota rose 4.7 percent to 752 yen, while Iseki advanced 6.9 percent to 388 yen.
Kubota plans to increase production of combines and rice transplanters in China as government subsidies help to increase demand for the machines, the Nikkei reported, without saying where it obtained the information. Iseki has offered expertise to a Chinese farming equipment maker and will start producing harvesters there in August, according to the report.
New Zealand’s Economy Probably Contracted at Slower Pace
June 25 (Bloomberg) -- New Zealand’s economy probably contracted at a slower pace in the first quarter, adding to signs the nation will emerge from the worst recession in more than three decades by the end of this year.
Gross domestic product shrank 0.7 percent in the three months ended March 31 from the previous three months, according to the median estimate of 11 economists surveyed by Bloomberg News. The economy contracted 0.9 percent in the fourth quarter. The GDP report is released at 10:45 a.m. tomorrow in Wellington.
Reserve Bank Governor Alan Bollard said this month the economy, which began contracting in the first quarter of 2008, may start growing in the final three months of this year. The recovery is likely to be “slow and fragile” and interest rates will be kept at a record low until late next year to further stimulate demand, he said.
“The rate of economic contraction is now abating,” said Craig Ebert, senior economist at Bank of New Zealand Ltd. in Wellington. “While we remain cautious about the underlying vulnerabilities, there is at least some chance of a mild expansion over the second half of 2009.”
Bollard on June 11 forecast the economy contracted 1 percent in the first quarter. The projections were prepared before reports that showed housing construction fell less than expected and export volumes rose, which will limit the size of the contraction, economists say.
Prime Minister John Key this week said he felt the economy performed better than the central bank expected in the first quarter.
Global Conditions
Bollard forecast the economy shrank just 0.3 percent in the three months ending June 30, citing a recovery in global financial conditions and the world economy. Domestically, the housing market has begun recovering from record lows amid reduced interest rates and government spending, he said.
The central bank has cut the official cash rate by 5.75 percentage points since July to a record-low 2.5 percent. Bollard will leave the benchmark unchanged at his next review on July 30, according to all 12 economists surveyed by Bloomberg.
New Zealand’s economy began contracting last year as Bollard raised interest rates to counter a housing boom and consumer spending that was being fanned by excessive borrowing.
The economy then faced “multiple blows” from collapsing world trade and tight credit conditions, the Organization for Economic Cooperation and Development said in a report yesterday.
Business investment slumped, companies began firing workers, exports slowed and tourist arrivals declined. Exports make up about 30 percent of the economy and the tourism industry contributes another 10 percent.
Job Losses
The first-quarter jobless rate rose to 5 percent, the most in six years, and consumer confidence slumped. Retail sales fell by a record 2.9 percent in the three months to March, and will subtract the most from GDP, economists say.
“Spending on anything discretionary, housing related or exposed to tourism contracted sharply,” said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland.
Warehouse Group Ltd., New Zealand’s biggest discount retailer, said last month sales in the three months to April 26 fell 2.8 percent as the recession slashed demand for office goods and the company shut liquor and fresh-food outlets.
Business confidence slumped to a record low in the first quarter, according to a survey by the New Zealand Institute of Economic Research Inc.
Investment intentions fell to the lowest on record, the Wellington-based institute said.
Exports, Building
While spending and investment decline, net exports contributed to GDP in the quarter and the drop in construction was less than expected, economists said.
Overseas sales of butter, meat and wool increased and imports slumped, the government said on June 10. Housing construction fell 0.4 percent in the first quarter after a 12 percent drop in the preceding three months, according to a June 9 report.
“Construction is likely to be a much smaller drag on GDP, said Tuffley. Still, the weakness in demand for new housing will probably weigh on the economy for some time, he said.
“We expect that residential construction will bottom out over the second half, with house sales and consents recently lifting off lows,” he said. House sales rose 44 percent in May from a year earlier, according to Real Estate Institute figures, after reaching a record low in January. Home-building approvals increased in April.
Gross domestic product shrank 0.7 percent in the three months ended March 31 from the previous three months, according to the median estimate of 11 economists surveyed by Bloomberg News. The economy contracted 0.9 percent in the fourth quarter. The GDP report is released at 10:45 a.m. tomorrow in Wellington.
Reserve Bank Governor Alan Bollard said this month the economy, which began contracting in the first quarter of 2008, may start growing in the final three months of this year. The recovery is likely to be “slow and fragile” and interest rates will be kept at a record low until late next year to further stimulate demand, he said.
“The rate of economic contraction is now abating,” said Craig Ebert, senior economist at Bank of New Zealand Ltd. in Wellington. “While we remain cautious about the underlying vulnerabilities, there is at least some chance of a mild expansion over the second half of 2009.”
Bollard on June 11 forecast the economy contracted 1 percent in the first quarter. The projections were prepared before reports that showed housing construction fell less than expected and export volumes rose, which will limit the size of the contraction, economists say.
Prime Minister John Key this week said he felt the economy performed better than the central bank expected in the first quarter.
Global Conditions
Bollard forecast the economy shrank just 0.3 percent in the three months ending June 30, citing a recovery in global financial conditions and the world economy. Domestically, the housing market has begun recovering from record lows amid reduced interest rates and government spending, he said.
The central bank has cut the official cash rate by 5.75 percentage points since July to a record-low 2.5 percent. Bollard will leave the benchmark unchanged at his next review on July 30, according to all 12 economists surveyed by Bloomberg.
New Zealand’s economy began contracting last year as Bollard raised interest rates to counter a housing boom and consumer spending that was being fanned by excessive borrowing.
The economy then faced “multiple blows” from collapsing world trade and tight credit conditions, the Organization for Economic Cooperation and Development said in a report yesterday.
Business investment slumped, companies began firing workers, exports slowed and tourist arrivals declined. Exports make up about 30 percent of the economy and the tourism industry contributes another 10 percent.
Job Losses
The first-quarter jobless rate rose to 5 percent, the most in six years, and consumer confidence slumped. Retail sales fell by a record 2.9 percent in the three months to March, and will subtract the most from GDP, economists say.
“Spending on anything discretionary, housing related or exposed to tourism contracted sharply,” said Nick Tuffley, chief economist at ASB Bank Ltd. in Auckland.
Warehouse Group Ltd., New Zealand’s biggest discount retailer, said last month sales in the three months to April 26 fell 2.8 percent as the recession slashed demand for office goods and the company shut liquor and fresh-food outlets.
Business confidence slumped to a record low in the first quarter, according to a survey by the New Zealand Institute of Economic Research Inc.
Investment intentions fell to the lowest on record, the Wellington-based institute said.
Exports, Building
While spending and investment decline, net exports contributed to GDP in the quarter and the drop in construction was less than expected, economists said.
Overseas sales of butter, meat and wool increased and imports slumped, the government said on June 10. Housing construction fell 0.4 percent in the first quarter after a 12 percent drop in the preceding three months, according to a June 9 report.
“Construction is likely to be a much smaller drag on GDP, said Tuffley. Still, the weakness in demand for new housing will probably weigh on the economy for some time, he said.
“We expect that residential construction will bottom out over the second half, with house sales and consents recently lifting off lows,” he said. House sales rose 44 percent in May from a year earlier, according to Real Estate Institute figures, after reaching a record low in January. Home-building approvals increased in April.
Tuesday, June 23, 2009
Investec Snubs Record Indian Bond Sales as HSBC Sees Inflation
June 24 (Bloomberg) -- International investors are balking at Indian Prime Minister Manmohan Singh’s plan to sell a record $74 billion in bonds this fiscal year, saying the country risks a junk debt rating and faster inflation.
Foreign funds cut holdings of local-currency debt by 20 percent from a January peak to $5.7 billion, according to India’s Securities and Exchange Board. Investec Asset Management Ltd., Nikko Asset Management Ltd. and ING Investment Management, which together manage more than $15 billion in emerging-market debt, say they’re avoiding the market.
Yields are rising as Singh boosts spending on infrastructure and programs to reduce poverty, which he says are needed to return the economy to 9 percent growth, from the 6 percent forecast by the central bank for the year started April 1. Standard & Poor’s said June 22 that India may raise its budget deficit estimate in July to 6.5 percent of gross domestic product, the most in 19 years. It has a negative outlook on the nation’s BBB- credit rating, the lowest investment grade.
“Indian bonds are surrounded by deep fundamental risks like the deficit, inflation and the huge supply,” said Peter Eerdmans, who oversees $650 million as the head of emerging- market debt in London at Investec, a Cape Town-based money manager. “There’s no reason for us to have them in our portfolio.”
The global economic recovery depends on the success of Brazil, Russia, India and China, the so-called BRIC nations, Singh said on the eve of a June 16 meeting with his counterparts in the Russian city of Yekaterinburg. He plans to spend $500 billion on infrastructure by 2012 to spur growth and alleviate poverty in a nation where the World Bank estimates three out of four of the 1.2 billion people live on less than $2 a day.
Investec Sells
The nation’s debt delivered losses of 4.2 percent this year, compared with a 0.5 percent decline in China, indexes compiled by HSBC Holdings Plc show. The yield on India’s benchmark 6.25 percent 10-year bond has risen 1.76 percentage points this year to 7.01 percent, even as the government reported the first deflation in three years.
Investec sold its India holdings in late 2008 and will only consider buying if yields increase 1 percentage point because of the risk of inflation, Eerdmans said in a June 18 interview. That would still be below the seven-year high yield of 9.47 percent last July, when inflation was at 12.9 percent.
HSBC, Europe’s biggest bank, predicts wholesale prices will accelerate to as much as 8 percent by the end of March 2010. Prices dropped 1.6 percent in the first week of June, according data compiled by the central bank.
Rate Increase
Bank of America Corp. and Goldman Sachs Group Inc. predict the Reserve Bank of India, which cut key interest rates six times since mid-October, will start raising borrowing costs by early 2010. The overnight lending rate was last reduced in April to a record low of 4.75 percent.
“Investors are bracing for a comeback of inflation,” said Rachana Mehta, the head of debt in Singapore at KE Capital, which is partly owned by Japan’s biggest bank. She predicts the decline in 10-year securities will drive the yield to 8 percent by year-end. Investors would lose 2.7 percent in that scenario, data compiled by Bloomberg show.
While bonds dropped, India’s stocks and rupee rallied after Singh became the nation’s first premier since 1971 to win re- election following a full term. India may sell stakes in state- run companies to foreign investors and inject more capital into lenders to stoke growth, President Pratibha Devisingh Patil said when unveiling Singh’s plans on June 4.
Stronger Growth
The rupee gained 4.5 percent since March 31 to 48.56 per dollar, heading for its best quarter in two years. The Bombay Stock Exchange Sensitive Index, or Sensex, jumped 17 percent the first trading day after election results were announced May 16 and is up 0.3 percent since then to 14,324.01.
Western Asset Management Co., which manages $430 billion, holds more rupee bonds than the index against which it measures its performance, lured by currency gains.
“Stronger growth means higher taxes, higher revenue and lower total government debt,” said Rajeev de Mello, head of Asia debt in Singapore at Western Asset, a part of Baltimore- based Legg Mason Inc.
India’s debt returned 26 percent to dollar-based investors in the past three years, compared with 20 percent for China, 59 percent for Brazil and 18 percent for Russia, according to indexes compiled by JPMorgan Chase & Co.
Fiscal Risk
Finance Minister Pranab Mukherjee will present the new government’s budget proposal on July 6 for the year started April 1. HSBC predicts he will call for increased spending, widening the deficit from the previous year’s 6.2 percent of GDP.
“Fiscal risk in India is among the highest globally,” Takahira Ogawa, a Singapore-based director of sovereign ratings at S&P, said in a June 22 interview. “It will be difficult for the government to address this issue at least for another year.”
India will spend more than 3.7 percent of its economic output servicing debt, compared with 3.6 percent last fiscal year, according to current budget projections.
Sustaining growth for India’s $1.2 trillion economy is a “higher priority at this moment” than sovereign ratings, India’s Finance Secretary Ashok Chawla said at a press conference on May 27. A spokesman in Chawla’s office said this week the finance secretary wouldn’t comment further before the budget announcement. Brazil also has a BBB- credit rating from S&P, Russia’s is a level higher at BBB, while China’s debt is rated A+.
‘Situation Edgy’
“We don’t know how much in debt sales will be enough to get the economy anywhere close to what it was back in 2006 or 2007,” said Gavin Redknap, a strategist in London for Tokyo- based Nikko Asset, which oversees $6 billion in emerging-market debt. “Inflation is going to keep the situation edgy when things turn around.”
He said 10-year yields aren’t attractive below 8 percent.
Foreign funds’ bond holdings, which reached a high of $7.1 billion on Jan. 9, are dwarfed by stock holdings that totaled as much as $60.8 billion on June 12, according to data compiled by the securities board.
Increasing bond sales are damping demand from banks, the biggest buyers. Local lenders’ sovereign debt holdings declined to 25.8 percent of their deposits in May, the lowest in more than a year, reflecting higher savings and fewer debt purchases, central bank data show.
Swings in India’s benchmark bond prices widened to the most on record last month, boosting the potential for losses. A measure of the 10-year yield’s 100-day volatility surged as high as 45 percent in May, Bloomberg data show. The gauge has since dropped to 34 percent, higher than 8.3 percent in Brazil and 26.5 percent in China.
“There’s justifiably some nervousness about the fiscal deficit,” said Shriram Ramanathan, who helps manage $8.7 billion of emerging-market debt in Hong Kong at ING Investment, part of the largest Dutch financial-services group. ING has “exited” all its Indian bond positions, he said.
Foreign funds cut holdings of local-currency debt by 20 percent from a January peak to $5.7 billion, according to India’s Securities and Exchange Board. Investec Asset Management Ltd., Nikko Asset Management Ltd. and ING Investment Management, which together manage more than $15 billion in emerging-market debt, say they’re avoiding the market.
Yields are rising as Singh boosts spending on infrastructure and programs to reduce poverty, which he says are needed to return the economy to 9 percent growth, from the 6 percent forecast by the central bank for the year started April 1. Standard & Poor’s said June 22 that India may raise its budget deficit estimate in July to 6.5 percent of gross domestic product, the most in 19 years. It has a negative outlook on the nation’s BBB- credit rating, the lowest investment grade.
“Indian bonds are surrounded by deep fundamental risks like the deficit, inflation and the huge supply,” said Peter Eerdmans, who oversees $650 million as the head of emerging- market debt in London at Investec, a Cape Town-based money manager. “There’s no reason for us to have them in our portfolio.”
The global economic recovery depends on the success of Brazil, Russia, India and China, the so-called BRIC nations, Singh said on the eve of a June 16 meeting with his counterparts in the Russian city of Yekaterinburg. He plans to spend $500 billion on infrastructure by 2012 to spur growth and alleviate poverty in a nation where the World Bank estimates three out of four of the 1.2 billion people live on less than $2 a day.
Investec Sells
The nation’s debt delivered losses of 4.2 percent this year, compared with a 0.5 percent decline in China, indexes compiled by HSBC Holdings Plc show. The yield on India’s benchmark 6.25 percent 10-year bond has risen 1.76 percentage points this year to 7.01 percent, even as the government reported the first deflation in three years.
Investec sold its India holdings in late 2008 and will only consider buying if yields increase 1 percentage point because of the risk of inflation, Eerdmans said in a June 18 interview. That would still be below the seven-year high yield of 9.47 percent last July, when inflation was at 12.9 percent.
HSBC, Europe’s biggest bank, predicts wholesale prices will accelerate to as much as 8 percent by the end of March 2010. Prices dropped 1.6 percent in the first week of June, according data compiled by the central bank.
Rate Increase
Bank of America Corp. and Goldman Sachs Group Inc. predict the Reserve Bank of India, which cut key interest rates six times since mid-October, will start raising borrowing costs by early 2010. The overnight lending rate was last reduced in April to a record low of 4.75 percent.
“Investors are bracing for a comeback of inflation,” said Rachana Mehta, the head of debt in Singapore at KE Capital, which is partly owned by Japan’s biggest bank. She predicts the decline in 10-year securities will drive the yield to 8 percent by year-end. Investors would lose 2.7 percent in that scenario, data compiled by Bloomberg show.
While bonds dropped, India’s stocks and rupee rallied after Singh became the nation’s first premier since 1971 to win re- election following a full term. India may sell stakes in state- run companies to foreign investors and inject more capital into lenders to stoke growth, President Pratibha Devisingh Patil said when unveiling Singh’s plans on June 4.
Stronger Growth
The rupee gained 4.5 percent since March 31 to 48.56 per dollar, heading for its best quarter in two years. The Bombay Stock Exchange Sensitive Index, or Sensex, jumped 17 percent the first trading day after election results were announced May 16 and is up 0.3 percent since then to 14,324.01.
Western Asset Management Co., which manages $430 billion, holds more rupee bonds than the index against which it measures its performance, lured by currency gains.
“Stronger growth means higher taxes, higher revenue and lower total government debt,” said Rajeev de Mello, head of Asia debt in Singapore at Western Asset, a part of Baltimore- based Legg Mason Inc.
India’s debt returned 26 percent to dollar-based investors in the past three years, compared with 20 percent for China, 59 percent for Brazil and 18 percent for Russia, according to indexes compiled by JPMorgan Chase & Co.
Fiscal Risk
Finance Minister Pranab Mukherjee will present the new government’s budget proposal on July 6 for the year started April 1. HSBC predicts he will call for increased spending, widening the deficit from the previous year’s 6.2 percent of GDP.
“Fiscal risk in India is among the highest globally,” Takahira Ogawa, a Singapore-based director of sovereign ratings at S&P, said in a June 22 interview. “It will be difficult for the government to address this issue at least for another year.”
India will spend more than 3.7 percent of its economic output servicing debt, compared with 3.6 percent last fiscal year, according to current budget projections.
Sustaining growth for India’s $1.2 trillion economy is a “higher priority at this moment” than sovereign ratings, India’s Finance Secretary Ashok Chawla said at a press conference on May 27. A spokesman in Chawla’s office said this week the finance secretary wouldn’t comment further before the budget announcement. Brazil also has a BBB- credit rating from S&P, Russia’s is a level higher at BBB, while China’s debt is rated A+.
‘Situation Edgy’
“We don’t know how much in debt sales will be enough to get the economy anywhere close to what it was back in 2006 or 2007,” said Gavin Redknap, a strategist in London for Tokyo- based Nikko Asset, which oversees $6 billion in emerging-market debt. “Inflation is going to keep the situation edgy when things turn around.”
He said 10-year yields aren’t attractive below 8 percent.
Foreign funds’ bond holdings, which reached a high of $7.1 billion on Jan. 9, are dwarfed by stock holdings that totaled as much as $60.8 billion on June 12, according to data compiled by the securities board.
Increasing bond sales are damping demand from banks, the biggest buyers. Local lenders’ sovereign debt holdings declined to 25.8 percent of their deposits in May, the lowest in more than a year, reflecting higher savings and fewer debt purchases, central bank data show.
Swings in India’s benchmark bond prices widened to the most on record last month, boosting the potential for losses. A measure of the 10-year yield’s 100-day volatility surged as high as 45 percent in May, Bloomberg data show. The gauge has since dropped to 34 percent, higher than 8.3 percent in Brazil and 26.5 percent in China.
“There’s justifiably some nervousness about the fiscal deficit,” said Shriram Ramanathan, who helps manage $8.7 billion of emerging-market debt in Hong Kong at ING Investment, part of the largest Dutch financial-services group. ING has “exited” all its Indian bond positions, he said.
Asian Stocks Rise, Led by Technology Shares; Angang Advances
June 24 (Bloomberg) -- Asian stocks gained, lifting the MSCI Asia Pacific Index from a four-week low, as Oracle Corp. reported better-than-estimated profit and oil prices advanced.
Hynix Semiconductor Inc., the world’s No. 2 maker of computer-memory chips, rose 2.6 percent in Seoul on optimism industry demand will pick up. Showa Shell Sekiyu KK, a refiner and solar-equipment maker, jumped 7.4 percent in Tokyo after saying it will build solar power plants in Saudi Arabia. Angang Steel Co. climbed 6.6 percent in Hong Kong on speculation a possible iron-ore discovery in China will cut production costs.
The MSCI Asia Pacific Index added 0.8 percent to 100.41 as of 1:02 p.m. in Tokyo. The gauge sank 2.3 percent yesterday, paring its rally from a more than five-year low on March 9 to 41 percent. Optimism the global economy is recovering had driven valuations on the index to the highest since September.
“We’re going through a period of reflection,” said Matt Riordan, who helps manage about $3.2 billion at Paradice Investment Management in Sydney. “People are trying to work out whether you’re likely to see the recovery continue, or whether things just got ahead of themselves.”
Hynix Semiconductor Inc., the world’s No. 2 maker of computer-memory chips, rose 2.6 percent in Seoul on optimism industry demand will pick up. Showa Shell Sekiyu KK, a refiner and solar-equipment maker, jumped 7.4 percent in Tokyo after saying it will build solar power plants in Saudi Arabia. Angang Steel Co. climbed 6.6 percent in Hong Kong on speculation a possible iron-ore discovery in China will cut production costs.
The MSCI Asia Pacific Index added 0.8 percent to 100.41 as of 1:02 p.m. in Tokyo. The gauge sank 2.3 percent yesterday, paring its rally from a more than five-year low on March 9 to 41 percent. Optimism the global economy is recovering had driven valuations on the index to the highest since September.
“We’re going through a period of reflection,” said Matt Riordan, who helps manage about $3.2 billion at Paradice Investment Management in Sydney. “People are trying to work out whether you’re likely to see the recovery continue, or whether things just got ahead of themselves.”
Satyam Names Gurnani Chief to Help Rebuild Company After Fraud
June 24 (Bloomberg) -- Satyam Computer Services Ltd. named Chander Prakash Gurnani chief executive officer as new owner Tech Mahindra Ltd. starts to reorganize the company at the center of India’s biggest corporate fraud probe.
Gurnani, who headed the international operations at Satyam’s parent, replaced A.S. Murty yesterday. Subramaniam Durgashankar, formerly senior vice president of mergers and acquisitions at Tech Mahindra’s largest shareholder, was appointed chief financial officer. Gurnani said he plans to announce a reorganization of Satyam by tomorrow.
Gurnani, 50, aims to revive Satyam after a stock collapse prompted by former chairman Ramalinga Raju’s admission in January that he overstated assets by $1 billion. The new chief executive pledged he will improve the company’s corporate governance and customer ties as he tries to regain market share lost to rivals such as Infosys Technologies Ltd.
“Substantial changes needed to be made in the company’s organizational structure,” Kevin Trindade, a Mumbai-based analyst at KR Choksey Shares & Securities Pvt., said by telephone. Gurnani’s experience will make him “one of the most valuable assets” to Satyam, he said.
Satyam’s American depositary receipts gained 4.3 percent to $3.40 at 9:41 a.m. in New York trading. The stock has declined 59 percent in Mumbai trading since Raju’s disclosure on Jan. 7, while the benchmark Sensitive Index has advanced 39 percent.
Outbidding Wilbur Ross
Tech Mahindra Chairman Anand Mahindra, who outbid billionaire Wilbur Ross and Larsen & Toubro Ltd. with a $579 million offer in April, has said he’s taking a “calculated risk” in buying Satyam before the company restates accounts and without clarity on liabilities from lawsuits in the U.S.
The 54-year-old Harvard University graduate is also trying to keep Satyam’s clients from joining State Farm Automobile Insurance Co. in canceling orders.
“Attrition has been practically zero since April,” Gurnani, a chemical engineer from the Rourkela, India-based National Institute of Technology, said.
Tech Mahindra may be merged with Satyam in the next one or two years, he said. On June 21, Satyam, once India’s fourth- largest software-services provider, said it rebranded itself to Mahindra Satyam.
Gurnani, a former chief operating officer and founder of the Indian unit of Perot Systems Corp. said adding the Mahindra name to Satyam would help restore customer confidence.
Satyam lost contracts from about 46 customers to rivals such as International Business Machines Corp. and Tata Consultancy Services Ltd., the Economic Times reported in March. Applied Materials Inc., Nissan Motor Co., Sony Corp. and Telstra Corp. are among companies that have moved or are in the process of seeking out other vendors, the newspaper said at the time.
‘65-Year-Old Brand’
“Mahindra has lent their 65-year-old brand to the company and that has given Satyam a huge advantage,” Gurnani said. “The fraud that happened at Satyam was localized and by a few people. The Mahindra name has washed that away.”
Satyam, which maintains computer systems and provides back- office support for Cisco Systems Inc., Nestle SA and other clients, was put on sale by a state-appointed board to prevent an exodus of clients and employees after Raju’s disclosure.
“Tech Mahindra’s buyout of Satyam has had a positive impact on customer sentiment,” JPMorgan Chase & Co.’s Mumbai- based analyst Manoj Singla wrote in a note to clients earlier this month. Satyam will probably see a “sharp turnaround” in revenues and profits as early as this year, he wrote, assigning an “outperform” rating on the stock in new coverage.
Satyam on June 9 said unaudited profit for the quarter ended Dec. 31 was 1.6 billion rupees ($33 million), its first public disclosure of earnings estimates since Raju’s statement.
Tech Mahindra rose 0.8 percent to close at 747.35 rupees yesterday. The stock has surged 133 percent since it won a bid on April 13 to acquire control of Satyam.
Excess Employees
Still, Satyam, which said it had about 48,000 employees at the time Tech Mahindra agreed to buy it, has 8,500 employees on a “virtual bench” because of a lack of orders, Gurnani said.
Employee numbers had been padded to siphon off cash, public prosecutor K. Ajay Kumar said at a court hearing for Raju in Hyderabad in January. Satyam had 40,000 employees, short of the 53,000 claimed by the company, he said. Raju’s lawyer S. Bharat Kumar and Satyam denied the charge at the time.
“The business is determined not by the CEO; there are business segment heads,” who acquire clients, Tarun Sisodia, a Mumbai-based analyst at Anand Rathi Financial Services Ltd., said by phone before the announcement. “Now the question is, when will they announce their plan for integration.”
The Pune-based Tech Mahindra, partly owned by BT Group Plc, is the smaller of the two companies and had 25,429 employees at the end of December.
Set up as a venture between BT Group and India’s largest utility-vehicle maker, Mahindra & Mahindra Ltd., in 1986, Tech Mahindra counts the British telecommunications company as its largest client and mainly serves phone companies in Europe.
“Right now we have to roll up our sleeves and get this car back on track,” said Mahindra.
Gurnani, who headed the international operations at Satyam’s parent, replaced A.S. Murty yesterday. Subramaniam Durgashankar, formerly senior vice president of mergers and acquisitions at Tech Mahindra’s largest shareholder, was appointed chief financial officer. Gurnani said he plans to announce a reorganization of Satyam by tomorrow.
Gurnani, 50, aims to revive Satyam after a stock collapse prompted by former chairman Ramalinga Raju’s admission in January that he overstated assets by $1 billion. The new chief executive pledged he will improve the company’s corporate governance and customer ties as he tries to regain market share lost to rivals such as Infosys Technologies Ltd.
“Substantial changes needed to be made in the company’s organizational structure,” Kevin Trindade, a Mumbai-based analyst at KR Choksey Shares & Securities Pvt., said by telephone. Gurnani’s experience will make him “one of the most valuable assets” to Satyam, he said.
Satyam’s American depositary receipts gained 4.3 percent to $3.40 at 9:41 a.m. in New York trading. The stock has declined 59 percent in Mumbai trading since Raju’s disclosure on Jan. 7, while the benchmark Sensitive Index has advanced 39 percent.
Outbidding Wilbur Ross
Tech Mahindra Chairman Anand Mahindra, who outbid billionaire Wilbur Ross and Larsen & Toubro Ltd. with a $579 million offer in April, has said he’s taking a “calculated risk” in buying Satyam before the company restates accounts and without clarity on liabilities from lawsuits in the U.S.
The 54-year-old Harvard University graduate is also trying to keep Satyam’s clients from joining State Farm Automobile Insurance Co. in canceling orders.
“Attrition has been practically zero since April,” Gurnani, a chemical engineer from the Rourkela, India-based National Institute of Technology, said.
Tech Mahindra may be merged with Satyam in the next one or two years, he said. On June 21, Satyam, once India’s fourth- largest software-services provider, said it rebranded itself to Mahindra Satyam.
Gurnani, a former chief operating officer and founder of the Indian unit of Perot Systems Corp. said adding the Mahindra name to Satyam would help restore customer confidence.
Satyam lost contracts from about 46 customers to rivals such as International Business Machines Corp. and Tata Consultancy Services Ltd., the Economic Times reported in March. Applied Materials Inc., Nissan Motor Co., Sony Corp. and Telstra Corp. are among companies that have moved or are in the process of seeking out other vendors, the newspaper said at the time.
‘65-Year-Old Brand’
“Mahindra has lent their 65-year-old brand to the company and that has given Satyam a huge advantage,” Gurnani said. “The fraud that happened at Satyam was localized and by a few people. The Mahindra name has washed that away.”
Satyam, which maintains computer systems and provides back- office support for Cisco Systems Inc., Nestle SA and other clients, was put on sale by a state-appointed board to prevent an exodus of clients and employees after Raju’s disclosure.
“Tech Mahindra’s buyout of Satyam has had a positive impact on customer sentiment,” JPMorgan Chase & Co.’s Mumbai- based analyst Manoj Singla wrote in a note to clients earlier this month. Satyam will probably see a “sharp turnaround” in revenues and profits as early as this year, he wrote, assigning an “outperform” rating on the stock in new coverage.
Satyam on June 9 said unaudited profit for the quarter ended Dec. 31 was 1.6 billion rupees ($33 million), its first public disclosure of earnings estimates since Raju’s statement.
Tech Mahindra rose 0.8 percent to close at 747.35 rupees yesterday. The stock has surged 133 percent since it won a bid on April 13 to acquire control of Satyam.
Excess Employees
Still, Satyam, which said it had about 48,000 employees at the time Tech Mahindra agreed to buy it, has 8,500 employees on a “virtual bench” because of a lack of orders, Gurnani said.
Employee numbers had been padded to siphon off cash, public prosecutor K. Ajay Kumar said at a court hearing for Raju in Hyderabad in January. Satyam had 40,000 employees, short of the 53,000 claimed by the company, he said. Raju’s lawyer S. Bharat Kumar and Satyam denied the charge at the time.
“The business is determined not by the CEO; there are business segment heads,” who acquire clients, Tarun Sisodia, a Mumbai-based analyst at Anand Rathi Financial Services Ltd., said by phone before the announcement. “Now the question is, when will they announce their plan for integration.”
The Pune-based Tech Mahindra, partly owned by BT Group Plc, is the smaller of the two companies and had 25,429 employees at the end of December.
Set up as a venture between BT Group and India’s largest utility-vehicle maker, Mahindra & Mahindra Ltd., in 1986, Tech Mahindra counts the British telecommunications company as its largest client and mainly serves phone companies in Europe.
“Right now we have to roll up our sleeves and get this car back on track,” said Mahindra.
Monday, June 22, 2009
India Stocks Fall for Second Day; Metal Producers Lead Decline
June 23 (Bloomberg) -- Indian stocks fell, with the benchmark index set to fall for a second day, led by Sterlite Industries (India) Ltd. after copper prices tumbled the most in four months.
Sterlite, India’s biggest copper producer, declined 4.8 percent as a stronger dollar curbed demand for commodities and the World Bank forecast a deeper global recession than estimated earlier. Hindalco Industries Ltd., the largest aluminum producer, fell 3.6 percent while Tata Steel Ltd. slid 3.2 percent.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 252.04, or 1.8 percent, to 14,074.18 at 9:57 a.m. in Mumbai today. The S&P CNX Nifty Index on the National Stock Exchange lost 1.3 percent to 4,178.50. The BSE 200 Index declined 1.8 percent to 1,707.81.
“India is falling in line with global markets,” said Krish Shanbhag, the head of research at Antique Stock Broking Ltd. in Mumbai. “After a sharp rally there are bound to be bouts of corrections.”
Sterlite fell 4.8 percent to 566 rupees. Hindalco lost 3.6 percent to 81.20 rupees. Tata Steel, the biggest producer of the alloy, declined 3.2 percent to 390 rupees.
Sterlite, India’s biggest copper producer, declined 4.8 percent as a stronger dollar curbed demand for commodities and the World Bank forecast a deeper global recession than estimated earlier. Hindalco Industries Ltd., the largest aluminum producer, fell 3.6 percent while Tata Steel Ltd. slid 3.2 percent.
The Bombay Stock Exchange’s Sensitive Index, or Sensex, fell 252.04, or 1.8 percent, to 14,074.18 at 9:57 a.m. in Mumbai today. The S&P CNX Nifty Index on the National Stock Exchange lost 1.3 percent to 4,178.50. The BSE 200 Index declined 1.8 percent to 1,707.81.
“India is falling in line with global markets,” said Krish Shanbhag, the head of research at Antique Stock Broking Ltd. in Mumbai. “After a sharp rally there are bound to be bouts of corrections.”
Sterlite fell 4.8 percent to 566 rupees. Hindalco lost 3.6 percent to 81.20 rupees. Tata Steel, the biggest producer of the alloy, declined 3.2 percent to 390 rupees.
Indian Banks, Larsen Will Gain Most on Nifty Revamp, UBS Says
June 23 (Bloomberg) -- Indian financial and engineering stocks will be the biggest beneficiaries of a revamp in the S&P CNX Nifty Index this week, according to UBS AG.
Starting on June 26, the weighting of stocks traded on the National Stock Exchange of India Ltd.’s gauge will be based on the amount of shares publicly available for trading, or the free float. Under the current system, the weighting is based on the total market capitalization.
ICICI Bank Ltd., the nation’s No. 2 lender, will benefit as the new method boosts the weighting of financial stocks by 8.6 percentage points to 23.1 percent and funds tracking the index are forced to alter holdings, UBS said in a report dated yesterday. Larsen & Toubro Ltd. will gain as engineering companies increase 3.3 percentage points to 12.1 percent.
“The index will be more widely followed now that it’s moving to a more efficient system,” Mumbai-based Suresh A Mahadevan, head of research at the Indian unit of UBS, said separately in a phone interview.
About 9 billion rupees ($185 million) are invested in funds that track the Nifty index, according to Dhirendra Kumar, managing director of Value Research Ltd., a firm that tracks Indian mutual funds.
The biggest losers will include Oil & Natural Gas Corp., India’s largest oil explorer, and NTPC Ltd., the country’s No. 1 electricity generator.
The Nifty is switching to the free-float market capitalization method used by its older rival, the Bombay Stock Exchange’s Sensitive Index, or Sensex, since September 2003.
Biggest Losers
The weightings of India’s majority state-owned companies will decline under the new method because they have a lower portion of shares available for trading. Oil & Natural Gas will lose 5.1 percentage points of its weighting, while NTPC will drop by 4.6 percentage points, UBS said, based on stock prices as of June 19.
Steel Authority of India Ltd., the nation’s second-biggest steelmaker, will decline 1.6 percentage points.
The free float for each company will be determined on the basis of the public shareholding, the exchange said in a statement March 24. Strategic investments by companies and the government as well as shares held by founders through American and global depository receipts will be excluded. Foreign direct investments will also be excluded from the free-float computation.
The following is a table of the five biggest gainers and losers after the exchange implements its new method, according to UBS.
-------------------------------------------------------------
Company Weighting Change Weight in Index
Percentage Points Percent
-------------------------------------------------------------
Biggest Gainers:
Larsen & Toubro Ltd. +4.2 7.5
ICICI Bank Ltd. +3.8 6.8
Infosys Technologies Ltd. +3.5 7.3
Housing Development Finance Corp. +2.5 4.9
HDFC Bank Ltd. +2.1 4.6
-------------------------------------------------------------
Biggest Losers:
Oil & Natural Gas Corp. -5.1 2.9
NTPC Ltd. -4.6 1.5
Steel Authority of India Ltd. -1.6 0.8
Bharti Airtel Ltd. -1.4 4.3
Tata Consultancy Services Ltd. -1.3 1.5
Starting on June 26, the weighting of stocks traded on the National Stock Exchange of India Ltd.’s gauge will be based on the amount of shares publicly available for trading, or the free float. Under the current system, the weighting is based on the total market capitalization.
ICICI Bank Ltd., the nation’s No. 2 lender, will benefit as the new method boosts the weighting of financial stocks by 8.6 percentage points to 23.1 percent and funds tracking the index are forced to alter holdings, UBS said in a report dated yesterday. Larsen & Toubro Ltd. will gain as engineering companies increase 3.3 percentage points to 12.1 percent.
“The index will be more widely followed now that it’s moving to a more efficient system,” Mumbai-based Suresh A Mahadevan, head of research at the Indian unit of UBS, said separately in a phone interview.
About 9 billion rupees ($185 million) are invested in funds that track the Nifty index, according to Dhirendra Kumar, managing director of Value Research Ltd., a firm that tracks Indian mutual funds.
The biggest losers will include Oil & Natural Gas Corp., India’s largest oil explorer, and NTPC Ltd., the country’s No. 1 electricity generator.
The Nifty is switching to the free-float market capitalization method used by its older rival, the Bombay Stock Exchange’s Sensitive Index, or Sensex, since September 2003.
Biggest Losers
The weightings of India’s majority state-owned companies will decline under the new method because they have a lower portion of shares available for trading. Oil & Natural Gas will lose 5.1 percentage points of its weighting, while NTPC will drop by 4.6 percentage points, UBS said, based on stock prices as of June 19.
Steel Authority of India Ltd., the nation’s second-biggest steelmaker, will decline 1.6 percentage points.
The free float for each company will be determined on the basis of the public shareholding, the exchange said in a statement March 24. Strategic investments by companies and the government as well as shares held by founders through American and global depository receipts will be excluded. Foreign direct investments will also be excluded from the free-float computation.
The following is a table of the five biggest gainers and losers after the exchange implements its new method, according to UBS.
-------------------------------------------------------------
Company Weighting Change Weight in Index
Percentage Points Percent
-------------------------------------------------------------
Biggest Gainers:
Larsen & Toubro Ltd. +4.2 7.5
ICICI Bank Ltd. +3.8 6.8
Infosys Technologies Ltd. +3.5 7.3
Housing Development Finance Corp. +2.5 4.9
HDFC Bank Ltd. +2.1 4.6
-------------------------------------------------------------
Biggest Losers:
Oil & Natural Gas Corp. -5.1 2.9
NTPC Ltd. -4.6 1.5
Steel Authority of India Ltd. -1.6 0.8
Bharti Airtel Ltd. -1.4 4.3
Tata Consultancy Services Ltd. -1.3 1.5
India Stocks May Rally 15% Over Next Nine Months, JPMorgan Says
June 23 (Bloomberg) -- India’s stock market, the world’s fifth-best performer this year, may rally another 15 percent over the next nine months as valuations on the benchmark index offer “reasonable upside,” JPMorgan Chase & Co. said.
The Bombay Stock Exchange Sensitive Index may trade between 12,500 and 16,500 in the year ending March 2010, JPMorgan analysts led by Bharat Iyer said, based on current-year earnings estimates. There may still be a “near term consolidation” after this year’s gains, they added.
The Sensex has rallied 49 percent this year, lagging behind indexes in Peru, Sri Lanka, China and Russia among the 89 measures tracked by Bloomberg globally. Almost a third of the gains came after Prime Minister Manmohan Singh’s Congress party won its biggest election victory since 1991.
“We remain constructive on a 12 to 18 month view, given the policy freedom available to the new government,” the analysts wrote in a note dated yesterday.
Finance Minister Pranab Mukherjee will unveil the government’s budget deficit numbers for the current fiscal year next month, when he presents his budget. The government in February said the deficit may be 5.5 percent of gross domestic product.
India has announced three stimulus packages since December, lowering retail fuel prices, cutting taxes on consumer products and injecting capital into state-run banks, to shield the economy from the global crisis.
Weak Monsoon
New stock sales and a weak monsoon may be “near-term pressure points” for Indian stocks, the analysts wrote. India’s monsoon, which runs from June to September, resumed this week after a two-week lull.
JPMorgan cut its rating on consumer discretionary stocks to “neutral” from “overweight,” advising investors to instead hold more technology services companies.
The brokerage added Satyam Computer Services Ltd., the software company at the center of India’s biggest corporate fraud, to its list of recommended shares.
The Bombay Stock Exchange Sensitive Index may trade between 12,500 and 16,500 in the year ending March 2010, JPMorgan analysts led by Bharat Iyer said, based on current-year earnings estimates. There may still be a “near term consolidation” after this year’s gains, they added.
The Sensex has rallied 49 percent this year, lagging behind indexes in Peru, Sri Lanka, China and Russia among the 89 measures tracked by Bloomberg globally. Almost a third of the gains came after Prime Minister Manmohan Singh’s Congress party won its biggest election victory since 1991.
“We remain constructive on a 12 to 18 month view, given the policy freedom available to the new government,” the analysts wrote in a note dated yesterday.
Finance Minister Pranab Mukherjee will unveil the government’s budget deficit numbers for the current fiscal year next month, when he presents his budget. The government in February said the deficit may be 5.5 percent of gross domestic product.
India has announced three stimulus packages since December, lowering retail fuel prices, cutting taxes on consumer products and injecting capital into state-run banks, to shield the economy from the global crisis.
Weak Monsoon
New stock sales and a weak monsoon may be “near-term pressure points” for Indian stocks, the analysts wrote. India’s monsoon, which runs from June to September, resumed this week after a two-week lull.
JPMorgan cut its rating on consumer discretionary stocks to “neutral” from “overweight,” advising investors to instead hold more technology services companies.
The brokerage added Satyam Computer Services Ltd., the software company at the center of India’s biggest corporate fraud, to its list of recommended shares.
Sunday, June 21, 2009
AIG Trading Partners Put Squeeze on Insurer Before U.S. Bailout
June 22 (Bloomberg) -- Goldman Sachs Group Inc. and Societe Generale SA extracted about $11.4 billion from American International Group Inc. before the insurer’s collapse as the firms demanded to hold cash against losses on mortgage-linked securities, according to regulatory filings.
Goldman Sachs got $5.9 billion and Societe Generale received $5.5 billion of about $18.5 billion in collateral paid by AIG in the 15 months before the September bailout. The payments helped settle AIG’s obligations on $62.1 billion of credit-default swaps that the Federal Reserve later removed from the New York-based insurer as part of the rescue. Officials at AIG, Goldman Sachs and Societe Generale declined to comment.
“When counterparties see trouble coming, they’ll do everything they can to get their money back, even if it means the death of the other firm,” said William Cohan, a former JPMorgan Chase & Co. investment banker and author of “House of Cards,” about the financial crisis.
President Barack Obama proposed an overhaul in regulations last week to prevent the failure of systemically important institutions such as AIG, which needed a $182.5 billion government rescue to stave off bankruptcy. Banks that bought swaps as protection against losses on mortgage-linked assets demanded cash collateral as the market value of the securities plunged last year, overwhelming AIG’s ability to pay.
“It was precisely that drain of liquidity to Goldman and SocGen that put AIG in a position of illiquidity and ultimately threw them into the government’s arms,” said Charles Calomiris, a finance professor at Columbia Business School in New York.
Collateral Damage
AIG disclosed a complete list last month of payments made to settle the $62.1 billion in derivatives. The figures for the period before the bailout were calculated by subtracting post- rescue payments disclosed in March from the sum of more than 150 transactions outlined in May.
Including collateral from before and after the rescue and payments made by Maiden Lane III, a vehicle created by the Fed to retire the swaps, Goldman Sachs received about $14 billion from AIG, Societe Generale got $16.5 billion, and Deutsche Bank AG received $8.5 billion. More than a dozen other banks got a total of about $23.1 billion.
Michael DuVally, a spokesman for New York-based Goldman Sachs, the most profitable securities firm before converting to a bank last year, declined to comment. Stephanie Carson-Parker of Societe Generale, France’s second-largest bank, also declined to comment, as did AIG’s Christina Pretto and Deutsche Bank’s Ted Meyer.
‘Protecting Itself’
Goldman Sachs was more aggressive than other firms in seeking collateral from AIG because the bank’s models showed a greater decline in the value of securities that had been insured, said two people with knowledge of the matter, who declined to be identified because the contracts were private.
“Goldman is to be congratulated for seeing the problem ahead of others and protecting itself from the impending failure of AIG,” said William Poole, former president of the St. Louis Fed, in an interview last week. “It’s not the responsibility of any private firm to determine what the public interest is -- that’s why we have a government.”
Goldman Sachs bought protection on about $20 billion in assets from AIG, meaning the company was counting on $10 billion from the insurer after the underlying holdings lost about half their value, Goldman Sachs Chief Financial Officer David Viniar said in a March conference call. The firm had “no direct exposure” to AIG because it held about $7.5 billion in collateral and hedged its remaining $2.5 billion risk to the firm’s potential failure, Viniar said. The $7.5 billion tally includes trades unrelated to Maiden Lane.
Seldom Traded
“All we did was call for the collateral that was due to us under the contracts,” Viniar said on March 20.
Arriving at a value for the swaps was “challenging” because of the dearth of pricing information for securities that seldom traded, increasing the possibility of disputes with counterparties about how much collateral was owed, AIG said in a November filing.
Joseph Cassano, who ran the AIG swaps unit until March 2008, told investors at a December 2007 conference that AIG rejected some banks’ demands for collateral. The Department of Justice is probing whether Cassano, 54, misled investors and auditors about the contracts, a person familiar with the inquiry said in April. Joseph Warin, a lawyer for Cassano, didn’t immediately return a call seeking comment.
‘They Go Away’
“We have, from time to time, gotten collateral calls from people,” Cassano said on Dec. 5, 2007. “Then we say to them, ‘Well, we don’t agree with your numbers.’ And they go, ‘Oh.’ And they go away.”
Credit-default swaps allow investors to buy protection against a possible default. The contracts pay the holder face value for the underlying securities or the cash equivalent should a borrower fail to repay debt.
Banks received the full face value to retire the Maiden Lane III holdings by being allowed to keep $35 billion in collateral and getting $27.1 billion in payments to retire the contracts.
“Our government effectively made a cash infusion through AIG and this Maiden Lane vehicle to Goldman and the other banks,” said Haag Sherman, who helps oversee $7.5 billion as chief investment officer of Houston-based Salient Partners.
Goldman Sachs and JPMorgan were involved in a failed effort on the morning of Sept. 15 last year to save AIG with a $75 billion private credit line, AIG said in the November filing. Later that day, the insurer’s credit rating was downgraded, triggering a fresh round of collateral calls and forcing the federal rescue.
Goldman Sachs got $5.9 billion and Societe Generale received $5.5 billion of about $18.5 billion in collateral paid by AIG in the 15 months before the September bailout. The payments helped settle AIG’s obligations on $62.1 billion of credit-default swaps that the Federal Reserve later removed from the New York-based insurer as part of the rescue. Officials at AIG, Goldman Sachs and Societe Generale declined to comment.
“When counterparties see trouble coming, they’ll do everything they can to get their money back, even if it means the death of the other firm,” said William Cohan, a former JPMorgan Chase & Co. investment banker and author of “House of Cards,” about the financial crisis.
President Barack Obama proposed an overhaul in regulations last week to prevent the failure of systemically important institutions such as AIG, which needed a $182.5 billion government rescue to stave off bankruptcy. Banks that bought swaps as protection against losses on mortgage-linked assets demanded cash collateral as the market value of the securities plunged last year, overwhelming AIG’s ability to pay.
“It was precisely that drain of liquidity to Goldman and SocGen that put AIG in a position of illiquidity and ultimately threw them into the government’s arms,” said Charles Calomiris, a finance professor at Columbia Business School in New York.
Collateral Damage
AIG disclosed a complete list last month of payments made to settle the $62.1 billion in derivatives. The figures for the period before the bailout were calculated by subtracting post- rescue payments disclosed in March from the sum of more than 150 transactions outlined in May.
Including collateral from before and after the rescue and payments made by Maiden Lane III, a vehicle created by the Fed to retire the swaps, Goldman Sachs received about $14 billion from AIG, Societe Generale got $16.5 billion, and Deutsche Bank AG received $8.5 billion. More than a dozen other banks got a total of about $23.1 billion.
Michael DuVally, a spokesman for New York-based Goldman Sachs, the most profitable securities firm before converting to a bank last year, declined to comment. Stephanie Carson-Parker of Societe Generale, France’s second-largest bank, also declined to comment, as did AIG’s Christina Pretto and Deutsche Bank’s Ted Meyer.
‘Protecting Itself’
Goldman Sachs was more aggressive than other firms in seeking collateral from AIG because the bank’s models showed a greater decline in the value of securities that had been insured, said two people with knowledge of the matter, who declined to be identified because the contracts were private.
“Goldman is to be congratulated for seeing the problem ahead of others and protecting itself from the impending failure of AIG,” said William Poole, former president of the St. Louis Fed, in an interview last week. “It’s not the responsibility of any private firm to determine what the public interest is -- that’s why we have a government.”
Goldman Sachs bought protection on about $20 billion in assets from AIG, meaning the company was counting on $10 billion from the insurer after the underlying holdings lost about half their value, Goldman Sachs Chief Financial Officer David Viniar said in a March conference call. The firm had “no direct exposure” to AIG because it held about $7.5 billion in collateral and hedged its remaining $2.5 billion risk to the firm’s potential failure, Viniar said. The $7.5 billion tally includes trades unrelated to Maiden Lane.
Seldom Traded
“All we did was call for the collateral that was due to us under the contracts,” Viniar said on March 20.
Arriving at a value for the swaps was “challenging” because of the dearth of pricing information for securities that seldom traded, increasing the possibility of disputes with counterparties about how much collateral was owed, AIG said in a November filing.
Joseph Cassano, who ran the AIG swaps unit until March 2008, told investors at a December 2007 conference that AIG rejected some banks’ demands for collateral. The Department of Justice is probing whether Cassano, 54, misled investors and auditors about the contracts, a person familiar with the inquiry said in April. Joseph Warin, a lawyer for Cassano, didn’t immediately return a call seeking comment.
‘They Go Away’
“We have, from time to time, gotten collateral calls from people,” Cassano said on Dec. 5, 2007. “Then we say to them, ‘Well, we don’t agree with your numbers.’ And they go, ‘Oh.’ And they go away.”
Credit-default swaps allow investors to buy protection against a possible default. The contracts pay the holder face value for the underlying securities or the cash equivalent should a borrower fail to repay debt.
Banks received the full face value to retire the Maiden Lane III holdings by being allowed to keep $35 billion in collateral and getting $27.1 billion in payments to retire the contracts.
“Our government effectively made a cash infusion through AIG and this Maiden Lane vehicle to Goldman and the other banks,” said Haag Sherman, who helps oversee $7.5 billion as chief investment officer of Houston-based Salient Partners.
Goldman Sachs and JPMorgan were involved in a failed effort on the morning of Sept. 15 last year to save AIG with a $75 billion private credit line, AIG said in the November filing. Later that day, the insurer’s credit rating was downgraded, triggering a fresh round of collateral calls and forcing the federal rescue.
Japanese Bonds Little Changed as Deflation Concerns Buoy Demand
June 22 (Bloomberg) -- Japanese government bonds were little changed as the steepest decline in U.S. consumer prices in six decades added to speculation that deflation will return to the world’s second-largest economy.
Benchmark 10-year yields traded near the lowest level in four weeks before a government report this week that economists said may show Japan’s consumer prices index fell for a third month. Gains in bonds may be limited after a survey showed Japanese manufacturers became less pessimistic this quarter amid signs the country’s worst postwar recession is easing.
“Incoming economic data, including CPI, will underscore a slow-paced improvement of the Japanese economy,” said Hirokata Kusaba, senior economist in Tokyo at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group. “Yields will fall.”
The yield on the benchmark 10-year bond rose half a basis point to 1.45 percent as of the 11:05 a.m. morning close in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield reached 1.44 percent on June 19, the lowest since May 26. The price of the securities fell 0.044 to 100.436. A basis point is 0.01 percentage point.
Ten-year bond futures for September delivery rose 0.12 to 137.04 at the Tokyo Stock Exchange. Futures contracts for 10- year bonds advanced for a seventh day, the longest stretch in six months, before this week’s inflation report.
Consumer prices excluding fresh food probably dropped 1 percent in May from a year earlier following a 0.1 percent from a year earlier, according to Bloomberg News survey of economists before the statistics bureau releases the data on June 26.
U.S. Rally
Bank of Japan Governor Masaaki Shirakawa said in May that price declines will accelerate through the middle of the financial year ending in March 2010 as demand slackens and crude oil trades below last year’s record high.
Demand for fixed-income securities may also increase after U.S. 30-year yields posted the biggest weekly drop in a month.
Yields of U.S. 30-year debt fell 14 basis points last week to 4.50 percent, according to BGCantor Market Data. It was the biggest weekly drop since the five days ended May 15.
“Market sentiment is improving, as evident by the drop of U.S. yields,” said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd. “There is also the emerging view that Japanese 10-year yields have already peaked out at 1.56 percent on June 11. Bonds will be firm.”
Sentiment Survey
Gains were limited after a joint survey by the Cabinet Office and Finance Ministry showed today sentiment among Japanese manufacturers rose to minus 13.2 points this quarter compared with minus 66 three months earlier. A negative number means pessimists outnumber optimists.
“Today’s sentiment survey clearly showed confidence has already started to recover,” said Tatsushi Shikano, senior economist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s biggest bank. “If we begin to see an improvement in economic data that track the actual development of the economy, such as industrial production, yields may rise.”
The Tankan index of sentiment among large manufacturers improved to minus 43 in June, from minus 58 in March, according to a Bloomberg survey of economists before the July 1 report.
Benchmark 10-year yields traded near the lowest level in four weeks before a government report this week that economists said may show Japan’s consumer prices index fell for a third month. Gains in bonds may be limited after a survey showed Japanese manufacturers became less pessimistic this quarter amid signs the country’s worst postwar recession is easing.
“Incoming economic data, including CPI, will underscore a slow-paced improvement of the Japanese economy,” said Hirokata Kusaba, senior economist in Tokyo at Mizuho Research Institute Ltd., a unit of Japan’s second-largest banking group. “Yields will fall.”
The yield on the benchmark 10-year bond rose half a basis point to 1.45 percent as of the 11:05 a.m. morning close in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The yield reached 1.44 percent on June 19, the lowest since May 26. The price of the securities fell 0.044 to 100.436. A basis point is 0.01 percentage point.
Ten-year bond futures for September delivery rose 0.12 to 137.04 at the Tokyo Stock Exchange. Futures contracts for 10- year bonds advanced for a seventh day, the longest stretch in six months, before this week’s inflation report.
Consumer prices excluding fresh food probably dropped 1 percent in May from a year earlier following a 0.1 percent from a year earlier, according to Bloomberg News survey of economists before the statistics bureau releases the data on June 26.
U.S. Rally
Bank of Japan Governor Masaaki Shirakawa said in May that price declines will accelerate through the middle of the financial year ending in March 2010 as demand slackens and crude oil trades below last year’s record high.
Demand for fixed-income securities may also increase after U.S. 30-year yields posted the biggest weekly drop in a month.
Yields of U.S. 30-year debt fell 14 basis points last week to 4.50 percent, according to BGCantor Market Data. It was the biggest weekly drop since the five days ended May 15.
“Market sentiment is improving, as evident by the drop of U.S. yields,” said Kazuhiko Sano, chief strategist in Tokyo at Nikko Citigroup Ltd. “There is also the emerging view that Japanese 10-year yields have already peaked out at 1.56 percent on June 11. Bonds will be firm.”
Sentiment Survey
Gains were limited after a joint survey by the Cabinet Office and Finance Ministry showed today sentiment among Japanese manufacturers rose to minus 13.2 points this quarter compared with minus 66 three months earlier. A negative number means pessimists outnumber optimists.
“Today’s sentiment survey clearly showed confidence has already started to recover,” said Tatsushi Shikano, senior economist in Tokyo at Mitsubishi UFJ Securities Co., a unit of Japan’s biggest bank. “If we begin to see an improvement in economic data that track the actual development of the economy, such as industrial production, yields may rise.”
The Tankan index of sentiment among large manufacturers improved to minus 43 in June, from minus 58 in March, according to a Bloomberg survey of economists before the July 1 report.
Japan’s Business Confidence, Service Demand Rebound
June 22 (Bloomberg) -- Japanese business confidence improved for the first time in three quarters and demand for services rose, adding to signs the country’s worst postwar recession is easing.
Sentiment among large manufacturers increased to minus 13.2 points compared with a record low of minus 66 three months ago, a government survey showed today. The tertiary index of money spent on services from phone calls to dining out climbed 2.2 percent in April from March, the Trade Ministry said.
A rebound in production as companies replace stockpiles will help the world’s second-largest economy expand for the first time in a year this quarter, economists say. Even so, Bank of Japan Governor Masaaki Shirakawa is concerned that demand may not pick up enough to sustain a recovery once $2.2 trillion in worldwide stimulus measures fades.
“It’s becoming clearer that the economy has already hit bottom,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “But the rebound will probably be lackluster in the absence of a solid recovery in profits, capital spending and consumption.”
The yen traded at 95.96 per dollar as of 11:39 a.m. in Tokyo from 96.08 before the reports were published. The Nikkei 225 Stock Average rose 0.1 percent, and has advanced 39 percent since dropping to a 26-year low on March 10.
Biggest Gain
The gain in sentiment at large manufacturers was the biggest since the Cabinet Office and Finance Ministry began the survey in 2004. Confidence at all big companies improved to minus 22.4 from minus 51.3. A negative reading means pessimists outnumber optimists.
The report offers a hint of the results likely in the Bank of Japan’s Tankan survey due July 1. The nation’s most closely watched gauge of corporate confidence will show sentiment among large manufacturers improving to minus 43 points from March’s record low of minus 58, according to the median estimate of 18 economists surveyed by Bloomberg.
China’s 4 trillion yuan ($586 billion) in government spending is boosting demand for Japanese heavy equipment and cars. Nissan Motor Co.’s sales to China rose 37 percent in April from a year earlier, buoyed by a government subsidy that halves the consumption tax on vehicles with smaller engines.
Japan’s own stimulus measures -- 25 trillion yen ($260 billion) pledged since October -- have helped lift consumer confidence to a 14-month high. Sales of electronics are by up 18 percent since the government last month introduced a program to encourage consumers to buy eco-friendly products, according to Tokyo-based researcher Gfk Marketing Service Japan Ltd.
BOJ, Government
Industrial production rose at the fastest pace in 56 years in April as companies replenished stockpiles they managed to run down during the worst of the export collapse. The rebound prompted the Bank of Japan and the government to raise their assessments of the economy in each of the past two months.
Gross domestic product will grow an annualized 1.5 percent this quarter, according to the median estimate of 11 economists. GDP contracted a record 14.2 percent in the previous period.
Governor Shirakawa said last week that he’s “cautious” about the economic outlook because the pickup in demand may be temporary. Exports and production, while improving on a month- on-month basis, are about a third lower than last year’s levels.
That’s putting pressure on managers to cut jobs and slash investment, spending that would normally trickle down to the smaller businesses that make up 70 percent of the economy. Companies plan to cut capital spending by an unprecedented 15.9 percent this business year, according to a survey published this month by the Nikkei newspaper.
Worsening Job Market
“Consumer spending will probably stay relatively solid in coming months, supported by stimulus measures,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. “But it’s highly likely to weaken as the wage and labor market deteriorate further.”
The unemployment rate rose to a five-year high of 5 percent in April and economists surveyed by Bloomberg expect it to climb to a record 5.8 percent next year. Jobs are scarce: about two work seekers are competing for a single spot, the most severe shortage on record.
Sentiment among large manufacturers increased to minus 13.2 points compared with a record low of minus 66 three months ago, a government survey showed today. The tertiary index of money spent on services from phone calls to dining out climbed 2.2 percent in April from March, the Trade Ministry said.
A rebound in production as companies replace stockpiles will help the world’s second-largest economy expand for the first time in a year this quarter, economists say. Even so, Bank of Japan Governor Masaaki Shirakawa is concerned that demand may not pick up enough to sustain a recovery once $2.2 trillion in worldwide stimulus measures fades.
“It’s becoming clearer that the economy has already hit bottom,” said Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. “But the rebound will probably be lackluster in the absence of a solid recovery in profits, capital spending and consumption.”
The yen traded at 95.96 per dollar as of 11:39 a.m. in Tokyo from 96.08 before the reports were published. The Nikkei 225 Stock Average rose 0.1 percent, and has advanced 39 percent since dropping to a 26-year low on March 10.
Biggest Gain
The gain in sentiment at large manufacturers was the biggest since the Cabinet Office and Finance Ministry began the survey in 2004. Confidence at all big companies improved to minus 22.4 from minus 51.3. A negative reading means pessimists outnumber optimists.
The report offers a hint of the results likely in the Bank of Japan’s Tankan survey due July 1. The nation’s most closely watched gauge of corporate confidence will show sentiment among large manufacturers improving to minus 43 points from March’s record low of minus 58, according to the median estimate of 18 economists surveyed by Bloomberg.
China’s 4 trillion yuan ($586 billion) in government spending is boosting demand for Japanese heavy equipment and cars. Nissan Motor Co.’s sales to China rose 37 percent in April from a year earlier, buoyed by a government subsidy that halves the consumption tax on vehicles with smaller engines.
Japan’s own stimulus measures -- 25 trillion yen ($260 billion) pledged since October -- have helped lift consumer confidence to a 14-month high. Sales of electronics are by up 18 percent since the government last month introduced a program to encourage consumers to buy eco-friendly products, according to Tokyo-based researcher Gfk Marketing Service Japan Ltd.
BOJ, Government
Industrial production rose at the fastest pace in 56 years in April as companies replenished stockpiles they managed to run down during the worst of the export collapse. The rebound prompted the Bank of Japan and the government to raise their assessments of the economy in each of the past two months.
Gross domestic product will grow an annualized 1.5 percent this quarter, according to the median estimate of 11 economists. GDP contracted a record 14.2 percent in the previous period.
Governor Shirakawa said last week that he’s “cautious” about the economic outlook because the pickup in demand may be temporary. Exports and production, while improving on a month- on-month basis, are about a third lower than last year’s levels.
That’s putting pressure on managers to cut jobs and slash investment, spending that would normally trickle down to the smaller businesses that make up 70 percent of the economy. Companies plan to cut capital spending by an unprecedented 15.9 percent this business year, according to a survey published this month by the Nikkei newspaper.
Worsening Job Market
“Consumer spending will probably stay relatively solid in coming months, supported by stimulus measures,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. “But it’s highly likely to weaken as the wage and labor market deteriorate further.”
The unemployment rate rose to a five-year high of 5 percent in April and economists surveyed by Bloomberg expect it to climb to a record 5.8 percent next year. Jobs are scarce: about two work seekers are competing for a single spot, the most severe shortage on record.
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