May 23 (Bloomberg) -- President Barack Obama named Democrat Bob Graham, a former U.S. senator and Florida governor, and Republican William Reilly, a former Environmental Protection Agency administrator, to lead a presidential commission to investigate the BP Plc oil spill in the Gulf of Mexico.
In his weekly address on the radio and Internet, Obama said the commission, which he established by executive order, will consider the “root causes” of the accident and find ways to “prevent a similar disaster from ever happening again.”
To work with Graham and Reilly, Obama said he will name five other commission members, directing them to report in six months with recommendations “on how we can prevent, and mitigate the impact of, any future spills” at offshore wells.
“We can only pursue offshore oil drilling if we have assurances that a disaster like the BP oil spill will not happen again,” Obama said. “This commission will, I hope, help provide those assurances so we can continue to seek a secure energy future.”
After the Deepwater Horizon rig exploded and sank last month, BP estimates that 5,000 barrels of oil per day has been leaking into the Gulf of Mexico. BP has succeeded in siphoning some oil from the leak, 5,000 feet (1,524 meters) below the surface, and pumping it to ships.
In his address, Obama called the oil spill an “environmental disaster” and said the nation’s “best minds are using the world’s best technology” to try to stop the leak. Environmental Protection Agency Administrator Lisa Jackson is scheduled to visit the Gulf today to monitor her agency’s response and speak with residents, according to EPA.
Obama said the accident was caused by a breakdown in responsibility on the part of London-based BP, Geneva-based Transocean Ltd., the company from which BP leased the rig, and Houston-based Halliburton Co.
Held Accountable
“We will continue to hold the relevant companies accountable” for stopping the leak, repairing the damage, and repaying financial losses, he said.
Obama also said the federal government should be held accountable.
“If the laws on our books are inadequate to prevent such an oil spill, or if we didn’t enforce those laws, I want to know it,” he said. “I want to know what worked and what didn’t work in our response to the disaster, and where oversight of the oil and gas industry broke down.”
Inspections Ordered
Obama has already announced plans to split the revenue and regulatory functions of the Minerals Management Service to prevent conflicts of interest, ordered inspections of all deepwater drilling operations in the gulf and issued a moratorium on new drilling.
“But we need to do a lot more to protect the health and safety of our people, to safeguard the quality of our air and water, and to preserve the natural beauty and bounty of America,” Obama said.
BP said it would cooperate with the investigation.
“We share the goal of the President and the public to know what happened to cause this accident and what regulatory and industry changes are needed to help prevent something like this from happening again,” Tony Hayward, BP’s chief executive officer, said in an e-mailed statement.
Republican Response
Senate Minority Leader Mitch McConnell, a Kentucky Republican, said in a statement that “in addition to the companies that were drilling, it is important also to know what the administration approved.”
“We know that this administration approved the site. We know that this administration approved the spill response plan,” McConnell said. “Hopefully in the course of the testimony we’ll be able to figure out what went wrong not only with the companies themselves, but with the oversight of the companies.”
In the Republican weekly address, Louisiana Senator David Vitter called on the U.S. Army Corps of Engineers to immediately start work -- “with BP, by the way, appropriately footing the bill” -- dredging material from rivers and deltas to build up barrier islands to help protect the coast from oil.
Vitter also said he is working with other Gulf Coast legislators to back legislation that raises the liability cap for companies responsible for spills to the greater of “the last four quarters of the responsible party’s profits” or double the current $75 million limit.
The measure would also encourage research on ways to cap wells and develop booms to prevent the spread of oil in rough seas.
“That would make offshore drilling safer, smarter and more reliable,” Vitter said.
Saturday, May 22, 2010
Forrest Says Australia Won’t Compromise on Tax Plan
May 23 (Bloomberg) -- Andrew Forrest, chief executive officer of Fortescue Metals Group Ltd., said the Australian government is unwilling to compromise on when a proposed 40 percent tax on mining profits will apply.
Forrest criticized the plan to tax as “super” profits returns from resource projects exceeding the rate on long-term Australian government bonds. “They’ve said to us the 6 percent threshold is non-negotiable,” he said in an interview today on ABC television’s Inside Business program.
Resources Minister Martin Ferguson said the government is open to making “refinements” to the proposal, due to start in 2012. It will wait until talks with companies are completed before any changes, he told Channel Ten’s Meet the Press today.
Fortescue shares have dropped about 19 percent to A$3.72 since the plan was announced May 2, compared with a loss of 10 percent for the benchmark S&P/ASX 200 Index. Fortescue joined BHP Billiton Ltd., the world’s largest mining company, and Rio Tinto Group in putting projects under review because of the plan.
Forrest owns about 31 percent of Fortescue Metals, which has a market value of A$11.6 billion, according to data compiled by Bloomberg. That puts his stake at about A$3.6 billion.
Possible Changes
Asked whether the government may alter the long-term bond rate threshold, Ferguson said today that he’s “not prepared to suggest there will be any movement. We’ll await the outcome of those discussions” with the mining companies.
“There will be a profit-based tax in Australia,” Ferguson said. “The headline rate is going to be 40 percent, but there are refinements that can be made to make the tax more appropriate and balanced from a mining industry point of view.”
Fortescue, Australia’s third-largest iron-ore producer, put the $9 billion Solomon Hub and $6 billion Western Hub projects on hold, while the Chichester venture is proceeding, the company said May 19. The tax threatens the company’s ability to fund future projects, Forrest said in the interview.
Ross Garnaut, a government adviser and chairman of Lihir Gold Ltd., has called for changes to the tax plan to maintain the industry’s growth. Even so, Garnaut said in an interview with Inside Business today that “it’s dangerous” to have the industry trying to dictate policy to the government.
A panel consulting with the resources industry on the tax has met with eight large companies and is scheduled to talk with another 10 companies “over the coming weeks,” Treasurer Wayne Swan said in an e-mailed statement today.
The government “will not be deterred by this scare campaign,” Swan said. “Nobody should doubt the government’s resolve to make sure the community gets a fair share of the mineral resources that belong to the Australian people.”
Forrest criticized the plan to tax as “super” profits returns from resource projects exceeding the rate on long-term Australian government bonds. “They’ve said to us the 6 percent threshold is non-negotiable,” he said in an interview today on ABC television’s Inside Business program.
Resources Minister Martin Ferguson said the government is open to making “refinements” to the proposal, due to start in 2012. It will wait until talks with companies are completed before any changes, he told Channel Ten’s Meet the Press today.
Fortescue shares have dropped about 19 percent to A$3.72 since the plan was announced May 2, compared with a loss of 10 percent for the benchmark S&P/ASX 200 Index. Fortescue joined BHP Billiton Ltd., the world’s largest mining company, and Rio Tinto Group in putting projects under review because of the plan.
Forrest owns about 31 percent of Fortescue Metals, which has a market value of A$11.6 billion, according to data compiled by Bloomberg. That puts his stake at about A$3.6 billion.
Possible Changes
Asked whether the government may alter the long-term bond rate threshold, Ferguson said today that he’s “not prepared to suggest there will be any movement. We’ll await the outcome of those discussions” with the mining companies.
“There will be a profit-based tax in Australia,” Ferguson said. “The headline rate is going to be 40 percent, but there are refinements that can be made to make the tax more appropriate and balanced from a mining industry point of view.”
Fortescue, Australia’s third-largest iron-ore producer, put the $9 billion Solomon Hub and $6 billion Western Hub projects on hold, while the Chichester venture is proceeding, the company said May 19. The tax threatens the company’s ability to fund future projects, Forrest said in the interview.
Ross Garnaut, a government adviser and chairman of Lihir Gold Ltd., has called for changes to the tax plan to maintain the industry’s growth. Even so, Garnaut said in an interview with Inside Business today that “it’s dangerous” to have the industry trying to dictate policy to the government.
A panel consulting with the resources industry on the tax has met with eight large companies and is scheduled to talk with another 10 companies “over the coming weeks,” Treasurer Wayne Swan said in an e-mailed statement today.
The government “will not be deterred by this scare campaign,” Swan said. “Nobody should doubt the government’s resolve to make sure the community gets a fair share of the mineral resources that belong to the Australian people.”
Asian Currencies Post Weekly Drops as Europe Woes Spur Outflows
May 22 (Bloomberg) -- Asian currencies slumped this week, with India’s rupee and Malaysia’s ringgit sliding the most since the 1990s, as investors dumped emerging-market assets on concern Europe’s debt crisis will derail the global economic recovery.
The Bloomberg-JPMorgan Asia Dollar Index dropped the most since February 2009 even as reports showed economic growth accelerated in Singapore and Taiwan. Share markets added to losses yesterday after U.S. data cast doubt on the strength of a recovery in the world’s largest economy. Governments in Europe are cutting spending and raising taxes as they struggle to reduce budget deficits that are straining finances.
“It’s very much driven by the European situation and this is causing broad-based position liquidation in Asia,” said Thio Chin Loo, a senior currency analyst in Singapore at BNP Paribas SA. “The decline in Asian currencies is not due to economic fundamentals but due to reduction in risk across all markets.”
The rupee fell 3.6 percent to 46.92 in Mumbai, the biggest weekly loss since October 1995, according to data compiled by Bloomberg. The ringgit declined 3.5 percent to 3.3165, its worst performance since the Asian financial crisis in 1998. The Philippine peso dropped 3.9 percent to 46.50, the most in nearly a decade.
The Asia Dollar Index, which tracks the region’s 10 most- traded currencies excluding the yen, dropped 1.6 percent this week and the MSCI Asia-Pacific Index of regional shares slid almost 7 percent.
‘Must De-Risk’
“There’s only one thing to do; you must de-risk,” said Marcelo Ayes, a senior vice president at treasury of Rizal Commercial Banking Corp. in Manila. “The crisis in Europe may now require a global solution. Over time, the only assets that may benefit from this crisis are gold and U.S. Treasuries.”
Yuan forwards reached an eight-month low on speculation China will defer any appreciation in the currency until the turmoil in financial markets sparked by Europe’s debt crisis has settled. The contracts reflect bets the currency will strengthen 1.3 percent in the next 12 months from the pegged rate of about 6.83 per dollar. Against the euro, the yuan has appreciated 15 percent this year.
China’s central bank may delay raising borrowing costs, revaluing the exchange rate and implementing property taxes amid deepening woes in Europe, BNP Paribas analysts Chen Xingdong and Isaac Meng wrote in a research note.
Yuan Policy
The U.S.-China Strategic & Economic Dialogue will be held in Beijing May 24-25. China’s Assistant Finance Minister Zhu Guangyao said May 20 the Asian nation won’t succumb to external pressure and will modify its currency based on the economic situation.
“The global uncertainties mean China may delay the tightening,” said Nizam Idris, a currency strategist with UBS AG in Singapore. “I seriously don’t think the appreciation will happen anytime soon.”
Overseas investors have pulled more than $9 billion from stock markets in South Korea, Taiwan, Thailand and India this month. Selling of Korean stocks was spurred by escalating tensions with the North over the March sinking of one of the South’s warships. Thai stocks were offloaded as security forces’ clashes with anti-government protesters led to deadly gunfights and arson attacks on several buildings in Bangkok.
“The political risk is still very high and it’s not the time to buy Thai assets,” said Yoshihiro Nakatani, who oversees $877 million at Asahi Life Asset Management Co. in Tokyo. “Until the situation clearly improves, we will probably see downward pressure.”
The baht fell 0.2 percent this week to 32.44 per dollar in offshore trading, Bloomberg data show. Financial markets were shut in Bangkok after May 19, when the military started enforcing overnight curfews in the capital.
Elsewhere, Indonesia’s rupiah dropped 1.6 percent this week to 9,278 per dollar, the Singapore dollar slid 1.7 percent to S$1.4078, and the Taiwan dollar declined 1.3 percent to NT$32.25. South Korea’s won slid 5.3 percent to 1,194.80, before financial markets closed yesterday for a public holiday.
The Bloomberg-JPMorgan Asia Dollar Index dropped the most since February 2009 even as reports showed economic growth accelerated in Singapore and Taiwan. Share markets added to losses yesterday after U.S. data cast doubt on the strength of a recovery in the world’s largest economy. Governments in Europe are cutting spending and raising taxes as they struggle to reduce budget deficits that are straining finances.
“It’s very much driven by the European situation and this is causing broad-based position liquidation in Asia,” said Thio Chin Loo, a senior currency analyst in Singapore at BNP Paribas SA. “The decline in Asian currencies is not due to economic fundamentals but due to reduction in risk across all markets.”
The rupee fell 3.6 percent to 46.92 in Mumbai, the biggest weekly loss since October 1995, according to data compiled by Bloomberg. The ringgit declined 3.5 percent to 3.3165, its worst performance since the Asian financial crisis in 1998. The Philippine peso dropped 3.9 percent to 46.50, the most in nearly a decade.
The Asia Dollar Index, which tracks the region’s 10 most- traded currencies excluding the yen, dropped 1.6 percent this week and the MSCI Asia-Pacific Index of regional shares slid almost 7 percent.
‘Must De-Risk’
“There’s only one thing to do; you must de-risk,” said Marcelo Ayes, a senior vice president at treasury of Rizal Commercial Banking Corp. in Manila. “The crisis in Europe may now require a global solution. Over time, the only assets that may benefit from this crisis are gold and U.S. Treasuries.”
Yuan forwards reached an eight-month low on speculation China will defer any appreciation in the currency until the turmoil in financial markets sparked by Europe’s debt crisis has settled. The contracts reflect bets the currency will strengthen 1.3 percent in the next 12 months from the pegged rate of about 6.83 per dollar. Against the euro, the yuan has appreciated 15 percent this year.
China’s central bank may delay raising borrowing costs, revaluing the exchange rate and implementing property taxes amid deepening woes in Europe, BNP Paribas analysts Chen Xingdong and Isaac Meng wrote in a research note.
Yuan Policy
The U.S.-China Strategic & Economic Dialogue will be held in Beijing May 24-25. China’s Assistant Finance Minister Zhu Guangyao said May 20 the Asian nation won’t succumb to external pressure and will modify its currency based on the economic situation.
“The global uncertainties mean China may delay the tightening,” said Nizam Idris, a currency strategist with UBS AG in Singapore. “I seriously don’t think the appreciation will happen anytime soon.”
Overseas investors have pulled more than $9 billion from stock markets in South Korea, Taiwan, Thailand and India this month. Selling of Korean stocks was spurred by escalating tensions with the North over the March sinking of one of the South’s warships. Thai stocks were offloaded as security forces’ clashes with anti-government protesters led to deadly gunfights and arson attacks on several buildings in Bangkok.
“The political risk is still very high and it’s not the time to buy Thai assets,” said Yoshihiro Nakatani, who oversees $877 million at Asahi Life Asset Management Co. in Tokyo. “Until the situation clearly improves, we will probably see downward pressure.”
The baht fell 0.2 percent this week to 32.44 per dollar in offshore trading, Bloomberg data show. Financial markets were shut in Bangkok after May 19, when the military started enforcing overnight curfews in the capital.
Elsewhere, Indonesia’s rupiah dropped 1.6 percent this week to 9,278 per dollar, the Singapore dollar slid 1.7 percent to S$1.4078, and the Taiwan dollar declined 1.3 percent to NT$32.25. South Korea’s won slid 5.3 percent to 1,194.80, before financial markets closed yesterday for a public holiday.
Shirakawa Sees Europe Turmoil Persisting, Backs ECB Bond Buying
May 22 (Bloomberg) -- Bank of Japan Governor Shirakawa backed the European Central Bank’s efforts to defuse the sovereign-debt crisis while signaling it will “take time” for the region’s policy makers to calm unsettled markets.
Shirakawa said Japanese stock movements are unstable, hours after the finance minister warned on the impact of “excessive” yen gains. The BOJ chief spoke in Tokyo yesterday after the bank kept its main interest rate at 0.1 percent and outlined plans to spur corporate loans and support growth.
Exports dominated an acceleration of Japan’s growth in the first quarter, underscoring the country’s vulnerability to any drop in global demand as spending at home fails to spur prices. Shirakawa told reporters that while the European crisis has had a “limited” effect on Japan’s recovery so far, any escalation would become a “downside factor.”
“The direct effect of the fiscal turmoil triggered by Greece on the Japanese economy is very limited, but should the yen’s gain and stock plunge continue, that would become a real threat,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo. “The BOJ will probably implement further actions if financial markets become more volatile.”
The Nikkei 225 Stock Average slid 2.5 percent to 9,784.54 at yesterday’s close in Tokyo, capping the biggest weekly drop since January 2009. The yen fell 0.4 percent to 112.40 per euro late yesterday after reaching an eight-year high on May 20. Japan’s currency slipped 0.3 percent against the dollar.
Caution on Yen
Finance Minister Naoto Kan said it’s undesirable for market volatility to cause currencies to stray from “stable” levels and he’s watching whether the yen’s gains might become “excessive.” A stronger yen risks hurting the exporters that have led Japan’s recovery from its worst postwar recession.
Shirakawa said the ECB’s decision this month to start buying government bonds was the “most appropriate” given turmoil in the region’s debt markets. The ECB “made it clear that this operation does not represent any change to its monetary policy stance, and it was intended to fix the bond markets, which had started to become dysfunctional.”
“It will take time until European nations make sound achievements toward fiscal reform and regain market trust,” he said.
To stop the debt crisis, European policy makers this month unveiled an unprecedented rescue package that included almost $1 trillion of loans as well as the ECB’s bond purchase program.
Cash Injection
In the aftermath of yesterday’s stock tumble, Japan’s central bank pumped 1 trillion yen ($11 billion) of same-day funds into the banking system to boost liquidity, the third such addition since May 7.
Japan’s export recovery has prompted companies from Nissan Motor Co. to Tokyo Electron Ltd. to forecast higher profits and spending. A government report this week showed the economy’s expansion accelerated to an annual 4.9 percent rate last quarter. More than half of that came from trade as consumer spending growth cooled.
The BOJ policy board raised its assessment of the economy, saying it is “starting to recover moderately, induced by improvement in overseas economic conditions.” It reiterated a pledge to fight price declines, describing deflation as a “critical challenge.”
The credit program announced yesterday will offer one-year loans to banks at the key overnight rate, as long as they lend the money to companies for projects that could foster growth. Shirakawa said last month that the plan would seek to spur lending in areas such as energy, the environment and technology.
Political Pressure
Economists including Mari Iwashita say the central bank is likely to face political pressure to keep supporting the economy as Prime Minister Yukio Hatoyama’s government addresses record public debt and prepares for a July election. Finance Minister Kan said this week that he expects the bank to support an economy that’s not yet in a self-sustained recovery.
“The new loan program, an extraordinary step for a central bank, seems to be Shirakawa’s response to political calls on the bank to ease policy,” said Iwashita, chief market economist at Nikko Cordial Securities Inc. in Tokyo.
The International Monetary Fund said this week that fiscal adjustment is “critical,” while the BOJ should consider further measures to combat deflation.
The ECB’s bond buying may spur government pressure on the Bank of Japan to increase its monthly purchases of the country’s debt from 1.8 trillion yen, said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. “Politicians would raise calls on the BOJ to buy more bonds should long-term interest rates start to surge,” he said.
Bond Yields
The yield on Japan’s 10-year bond fell two basis points to 1.235 percent yesterday.
The BOJ cut the key rate to 0.1 percent in December 2008, and in March doubled to 20 trillion yen a credit facility that provides three-month loans to commercial banks at that rate.
“The latest program will probably have only a limited impact on the economy, but the step would be less harmful than increasing sovereign bond purchases,” said Teizo Taya, a former BOJ board member who is now an adviser at the Daiwa Institute of Research. “The BOJ will probably continue to examine policy measures that have a minimal adverse effect.”
Shirakawa said Japanese stock movements are unstable, hours after the finance minister warned on the impact of “excessive” yen gains. The BOJ chief spoke in Tokyo yesterday after the bank kept its main interest rate at 0.1 percent and outlined plans to spur corporate loans and support growth.
Exports dominated an acceleration of Japan’s growth in the first quarter, underscoring the country’s vulnerability to any drop in global demand as spending at home fails to spur prices. Shirakawa told reporters that while the European crisis has had a “limited” effect on Japan’s recovery so far, any escalation would become a “downside factor.”
“The direct effect of the fiscal turmoil triggered by Greece on the Japanese economy is very limited, but should the yen’s gain and stock plunge continue, that would become a real threat,” said Hideo Kumano, chief economist at Dai-Ichi Life Research Institute in Tokyo. “The BOJ will probably implement further actions if financial markets become more volatile.”
The Nikkei 225 Stock Average slid 2.5 percent to 9,784.54 at yesterday’s close in Tokyo, capping the biggest weekly drop since January 2009. The yen fell 0.4 percent to 112.40 per euro late yesterday after reaching an eight-year high on May 20. Japan’s currency slipped 0.3 percent against the dollar.
Caution on Yen
Finance Minister Naoto Kan said it’s undesirable for market volatility to cause currencies to stray from “stable” levels and he’s watching whether the yen’s gains might become “excessive.” A stronger yen risks hurting the exporters that have led Japan’s recovery from its worst postwar recession.
Shirakawa said the ECB’s decision this month to start buying government bonds was the “most appropriate” given turmoil in the region’s debt markets. The ECB “made it clear that this operation does not represent any change to its monetary policy stance, and it was intended to fix the bond markets, which had started to become dysfunctional.”
“It will take time until European nations make sound achievements toward fiscal reform and regain market trust,” he said.
To stop the debt crisis, European policy makers this month unveiled an unprecedented rescue package that included almost $1 trillion of loans as well as the ECB’s bond purchase program.
Cash Injection
In the aftermath of yesterday’s stock tumble, Japan’s central bank pumped 1 trillion yen ($11 billion) of same-day funds into the banking system to boost liquidity, the third such addition since May 7.
Japan’s export recovery has prompted companies from Nissan Motor Co. to Tokyo Electron Ltd. to forecast higher profits and spending. A government report this week showed the economy’s expansion accelerated to an annual 4.9 percent rate last quarter. More than half of that came from trade as consumer spending growth cooled.
The BOJ policy board raised its assessment of the economy, saying it is “starting to recover moderately, induced by improvement in overseas economic conditions.” It reiterated a pledge to fight price declines, describing deflation as a “critical challenge.”
The credit program announced yesterday will offer one-year loans to banks at the key overnight rate, as long as they lend the money to companies for projects that could foster growth. Shirakawa said last month that the plan would seek to spur lending in areas such as energy, the environment and technology.
Political Pressure
Economists including Mari Iwashita say the central bank is likely to face political pressure to keep supporting the economy as Prime Minister Yukio Hatoyama’s government addresses record public debt and prepares for a July election. Finance Minister Kan said this week that he expects the bank to support an economy that’s not yet in a self-sustained recovery.
“The new loan program, an extraordinary step for a central bank, seems to be Shirakawa’s response to political calls on the bank to ease policy,” said Iwashita, chief market economist at Nikko Cordial Securities Inc. in Tokyo.
The International Monetary Fund said this week that fiscal adjustment is “critical,” while the BOJ should consider further measures to combat deflation.
The ECB’s bond buying may spur government pressure on the Bank of Japan to increase its monthly purchases of the country’s debt from 1.8 trillion yen, said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. “Politicians would raise calls on the BOJ to buy more bonds should long-term interest rates start to surge,” he said.
Bond Yields
The yield on Japan’s 10-year bond fell two basis points to 1.235 percent yesterday.
The BOJ cut the key rate to 0.1 percent in December 2008, and in March doubled to 20 trillion yen a credit facility that provides three-month loans to commercial banks at that rate.
“The latest program will probably have only a limited impact on the economy, but the step would be less harmful than increasing sovereign bond purchases,” said Teizo Taya, a former BOJ board member who is now an adviser at the Daiwa Institute of Research. “The BOJ will probably continue to examine policy measures that have a minimal adverse effect.”
Friday, May 21, 2010
Clinton Says N. Korea Role in Sinking Demands World Response
U.S. Secretary of State Hillary Clinton urged international action to answer North Korea’s suspected sinking of a South Korean warship, just before she arrived in China for talks set to deal with the crisis.
The U.S. wants China to help shape a response to North Korea, an American official told reporters yesterday in Shanghai. China is an ally of North Korea and has hosted now stalled international talks on reining in the regime’s nuclear arms effort. The U.S. official, who asked not to be identified, said South Korea doesn’t want war to break out over the crisis.
The evidence that North Korea fired a torpedo and sank the ship is “overwhelming and condemning,” Clinton said at a press briefing in Tokyo with Japanese Foreign Minister Katsuya Okada during a short stop before she flew on to China. The March 26 sinking of the 1,200-ton Cheonan killed 46 South Korean sailors.
South Korea’s options for a response include seeking action by the United Nations Security Council, shutting down humanitarian aid work and the Kaesong industrial park in North Korea, and joint military exercises with the U.S., according to John Park, director of the Korea Working Group at the U.S. Institute of Peace in Washington.
“The U.S. is in a tough position” at the UN, Park said in an interview. “With talks on Iran sanctions going on, they will be asked by countries like China what their priority is.”
China joined the U.S., U.K., France and Russia this week to back a draft UN Security Council resolution on Iran that would bolster an arms embargo, restrict financial transactions and enhance authority to stop and seize Iranian cargo suspected of ties to nuclear or missile work.
War Threat
The United Nations Command is convening a special investigation team consisting of UNC members and the Neutral Nations Supervisory Commission to review the findings of the international panel and to determine the scope of any armistice violations, the UNC said in Seoul today in a statement on its website. The team will report the findings to UN, according to the statement.
Kim Jong Il’s regime in North Korea, already under UN sanctions for its second nuclear-weapons test last year, threatened “all-out war” if the international body imposes additional restrictions.
In Tokyo, Clinton and Okada offered unqualified support for South Korea after an international panel issued a report saying evidence provided “conclusive” proof of North Korea’s role in the ship incident.
Okinawa, Japan
“The importance of the Japan-U.S. alliance is increasing as the sinking of the South Korean ship shows the instability” in the region, Okada said.
Another U.S. official told reporters in Shanghai that the sinking shifted Japan’s attitude in a dispute over moving an American base on Okinawa and that Japan would make a contribution on a deal. The official also asked not to be identified.
Clinton and Okada discussed the dispute over where to relocate the American military facility. Prime Minister Yukio Hatoyama, who initially called for moving the Futenma Marine Base off the island in response to local sentiment, said earlier this month he will transfer the base within Okinawa, largely in line with a 2006 bilateral agreement.
Clinton said both countries share the same goals on moving the base and are seeking an “operationally viable and politically sustainable” solution. Both sides would try to conclude the matter by the end of the month, Okada said.
Tension on the Korean peninsula is overshadowing the planned centerpiece of Clinton’s Asia trip. She and Treasury Secretary Timothy Geithner will be in Beijing May 23-25 to take part in the U.S.-China Strategic and Economic Dialogue.
The U.S. wants China to help shape a response to North Korea, an American official told reporters yesterday in Shanghai. China is an ally of North Korea and has hosted now stalled international talks on reining in the regime’s nuclear arms effort. The U.S. official, who asked not to be identified, said South Korea doesn’t want war to break out over the crisis.
The evidence that North Korea fired a torpedo and sank the ship is “overwhelming and condemning,” Clinton said at a press briefing in Tokyo with Japanese Foreign Minister Katsuya Okada during a short stop before she flew on to China. The March 26 sinking of the 1,200-ton Cheonan killed 46 South Korean sailors.
South Korea’s options for a response include seeking action by the United Nations Security Council, shutting down humanitarian aid work and the Kaesong industrial park in North Korea, and joint military exercises with the U.S., according to John Park, director of the Korea Working Group at the U.S. Institute of Peace in Washington.
“The U.S. is in a tough position” at the UN, Park said in an interview. “With talks on Iran sanctions going on, they will be asked by countries like China what their priority is.”
China joined the U.S., U.K., France and Russia this week to back a draft UN Security Council resolution on Iran that would bolster an arms embargo, restrict financial transactions and enhance authority to stop and seize Iranian cargo suspected of ties to nuclear or missile work.
War Threat
The United Nations Command is convening a special investigation team consisting of UNC members and the Neutral Nations Supervisory Commission to review the findings of the international panel and to determine the scope of any armistice violations, the UNC said in Seoul today in a statement on its website. The team will report the findings to UN, according to the statement.
Kim Jong Il’s regime in North Korea, already under UN sanctions for its second nuclear-weapons test last year, threatened “all-out war” if the international body imposes additional restrictions.
In Tokyo, Clinton and Okada offered unqualified support for South Korea after an international panel issued a report saying evidence provided “conclusive” proof of North Korea’s role in the ship incident.
Okinawa, Japan
“The importance of the Japan-U.S. alliance is increasing as the sinking of the South Korean ship shows the instability” in the region, Okada said.
Another U.S. official told reporters in Shanghai that the sinking shifted Japan’s attitude in a dispute over moving an American base on Okinawa and that Japan would make a contribution on a deal. The official also asked not to be identified.
Clinton and Okada discussed the dispute over where to relocate the American military facility. Prime Minister Yukio Hatoyama, who initially called for moving the Futenma Marine Base off the island in response to local sentiment, said earlier this month he will transfer the base within Okinawa, largely in line with a 2006 bilateral agreement.
Clinton said both countries share the same goals on moving the base and are seeking an “operationally viable and politically sustainable” solution. Both sides would try to conclude the matter by the end of the month, Okada said.
Tension on the Korean peninsula is overshadowing the planned centerpiece of Clinton’s Asia trip. She and Treasury Secretary Timothy Geithner will be in Beijing May 23-25 to take part in the U.S.-China Strategic and Economic Dialogue.
Air India Plane Crashes While Landing in India's Mangalore
An Air India Express plane overshot the runway and burst into flames while landing in heavy rain in southern India, killing all but three of the at least 166 people aboard in the country’s first fatal commercial air crash in a decade.
“We have been able to confirm three survivors,” said Prabhakar Sharma, additional deputy commissioner of Mangalore district in southern Karnataka state. The plane “is almost completely burnt,” he said. There was little chance of more people being found alive, state home minister V.S. Acharya said by phone.
Television channels including CNN-IBN and NDTV 24x7 showed flames and thick smoke billowing from a forested area at the end of the runway. Broadcasters said the plane crashed through a boundary wall and fell into a ravine. Firefighters had to cross a railway line and battle through trees to reach the wreckage, according to the reports.
There were 137 adults, 23 children and six crew aboard the low-cost flight IX-812 when it crashed this morning, Sharma said. The survivors have been taken to a hospital 20 kilometers (12 miles) from the crash site, he said. Acharya put the total number of passengers and crew at 169.
CNN-IBN showed a rescue worker carrying the foam-covered body of young girl up a mud bank away from the crash. It was not immediately clear if she was one of the survivors.
‘Grievous Loss’
Prime Minister Manmohan Singh expressed condolences over the “grievous loss of life” in a statement, announcing compensation for those killed. Singh postponed celebrations to mark the first anniversary of his re-election.
The Boeing Co. 737-800 plane flying from Dubai to Mangalore crashed at 6:30 a.m. local time, Air India spokesman Swaminathan said by telephone. The crash may be the worst in India in 14 years, according to the Aviation Safety Network website.
There was heavy rain and fog at the time of the crash, Sharma said. Civil aviation officials are on their way to Mangalore from the Karnataka capital city of Bangalore, he said.
Boeing is sending a team to provide technical assistance to the investigation at the invitation of Indian authorities, the Chicago-based aircraft manufacturer said in a statement.
Air India said in statement it was deploying “all its resources” to assist the families of passengers.
India will be the fastest-growing air travel market for the next 10 years, Airbus SAS, the world’s biggest planemaker, predicts. Over the next 20 years, Indian carriers will need 1,030 new aircraft worth $138 billion, it forecasts.
Bihar Crash
In the South Asian country’s last major air disaster, a Boeing 737-200 crashed into a residential area while approaching Patna airport in the eastern state of Bihar in July 2000. The Alliance Air aircraft, which carried 52 passengers and six crew, nose-dived into a house one kilometer short of the airport, killing 45 passengers, all crew members and two people on the ground.
Air India had debt of 152 billion rupees ($3.3 billion) as of June, according to the government. It may post a loss of 54 billion rupees for the fiscal year ended March 31, compared with a loss of 55.5 billion rupees a year earlier, according to Civil Aviation Minister Praful Patel.
International air travel has rebounded from last year’s slump as the global economy expanded. Indian airlines carried 16.82 million passengers between January and April this year, 22 percent more than a year earlier, according to the Civil Aviation Ministry.
Like state-controlled Chinese carriers and Japan Airlines Ltd., Air India has sought government aid as it flies unprofitable routes and faces growing competition from carriers including Singapore Airlines Ltd.
“We have been able to confirm three survivors,” said Prabhakar Sharma, additional deputy commissioner of Mangalore district in southern Karnataka state. The plane “is almost completely burnt,” he said. There was little chance of more people being found alive, state home minister V.S. Acharya said by phone.
Television channels including CNN-IBN and NDTV 24x7 showed flames and thick smoke billowing from a forested area at the end of the runway. Broadcasters said the plane crashed through a boundary wall and fell into a ravine. Firefighters had to cross a railway line and battle through trees to reach the wreckage, according to the reports.
There were 137 adults, 23 children and six crew aboard the low-cost flight IX-812 when it crashed this morning, Sharma said. The survivors have been taken to a hospital 20 kilometers (12 miles) from the crash site, he said. Acharya put the total number of passengers and crew at 169.
CNN-IBN showed a rescue worker carrying the foam-covered body of young girl up a mud bank away from the crash. It was not immediately clear if she was one of the survivors.
‘Grievous Loss’
Prime Minister Manmohan Singh expressed condolences over the “grievous loss of life” in a statement, announcing compensation for those killed. Singh postponed celebrations to mark the first anniversary of his re-election.
The Boeing Co. 737-800 plane flying from Dubai to Mangalore crashed at 6:30 a.m. local time, Air India spokesman Swaminathan said by telephone. The crash may be the worst in India in 14 years, according to the Aviation Safety Network website.
There was heavy rain and fog at the time of the crash, Sharma said. Civil aviation officials are on their way to Mangalore from the Karnataka capital city of Bangalore, he said.
Boeing is sending a team to provide technical assistance to the investigation at the invitation of Indian authorities, the Chicago-based aircraft manufacturer said in a statement.
Air India said in statement it was deploying “all its resources” to assist the families of passengers.
India will be the fastest-growing air travel market for the next 10 years, Airbus SAS, the world’s biggest planemaker, predicts. Over the next 20 years, Indian carriers will need 1,030 new aircraft worth $138 billion, it forecasts.
Bihar Crash
In the South Asian country’s last major air disaster, a Boeing 737-200 crashed into a residential area while approaching Patna airport in the eastern state of Bihar in July 2000. The Alliance Air aircraft, which carried 52 passengers and six crew, nose-dived into a house one kilometer short of the airport, killing 45 passengers, all crew members and two people on the ground.
Air India had debt of 152 billion rupees ($3.3 billion) as of June, according to the government. It may post a loss of 54 billion rupees for the fiscal year ended March 31, compared with a loss of 55.5 billion rupees a year earlier, according to Civil Aviation Minister Praful Patel.
International air travel has rebounded from last year’s slump as the global economy expanded. Indian airlines carried 16.82 million passengers between January and April this year, 22 percent more than a year earlier, according to the Civil Aviation Ministry.
Like state-controlled Chinese carriers and Japan Airlines Ltd., Air India has sought government aid as it flies unprofitable routes and faces growing competition from carriers including Singapore Airlines Ltd.
Thursday, May 20, 2010
Rashtriya Chemicals Said to Plan $1 Billion Urea Plant in Ghana
May 21 (Bloomberg) -- Rashtriya Chemicals & Fertilizers Ltd., India’s biggest state-run urea maker, plans to invest $1 billion to set up a facility in Ghana, a government official with direct knowledge of the matter said.
The plant will have the capacity to produce 1 million metric tons of the soil nutrient, the official said in New Delhi, declining to be identified as the information isn’t public. Rashtriya Chemicals plans to secure fuel for the project from Ghana Oil Co., the official said.
The fertilizer ministry has approved the investment proposal, the official said.
U.S. Jha, chairman and managing director, declined to comment on the company’s investment plans. Cyril Oppong, spokesman for Ghana Oil, was unable to comment immediately.
India needs about 26 million tons of urea annually compared with domestic production capacity of 21 million tons. The shortfall in supply is met through imports.
A shortage of natural gas, the main feedstock for making urea, is forcing companies such as Indian Farmers Fertilizer Cooperative Ltd., India’s largest fertilizer maker, to form joint ventures abroad to set up urea plants.
As many as six Indian fertilizer companies have asked the government for more gas to increase their production capacities. A panel of ministers headed by Finance Minister Pranab Mukherjee sets prices and allocates gas.
Demand for gas in the next three years may climb to about 360 million cubic meters a day from 260 million cubic meters a day currently, B.C. Tripathi, chairman and managing director of GAIL India Ltd., said March 12. Supply may increase to about 230 million cubic meters a day from about 170 million cubic meters now, he said. GAIL is the country’s monopoly natural gas distributor.
Power stations and fertilizer plants in India are shifting to the cleaner-burning fuel after Reliance Industries Ltd. started production from the nation’s biggest gas field in April. Demand may rise after new pipelines are built to connect more factories, Tripathi said.
The plant will have the capacity to produce 1 million metric tons of the soil nutrient, the official said in New Delhi, declining to be identified as the information isn’t public. Rashtriya Chemicals plans to secure fuel for the project from Ghana Oil Co., the official said.
The fertilizer ministry has approved the investment proposal, the official said.
U.S. Jha, chairman and managing director, declined to comment on the company’s investment plans. Cyril Oppong, spokesman for Ghana Oil, was unable to comment immediately.
India needs about 26 million tons of urea annually compared with domestic production capacity of 21 million tons. The shortfall in supply is met through imports.
A shortage of natural gas, the main feedstock for making urea, is forcing companies such as Indian Farmers Fertilizer Cooperative Ltd., India’s largest fertilizer maker, to form joint ventures abroad to set up urea plants.
As many as six Indian fertilizer companies have asked the government for more gas to increase their production capacities. A panel of ministers headed by Finance Minister Pranab Mukherjee sets prices and allocates gas.
Demand for gas in the next three years may climb to about 360 million cubic meters a day from 260 million cubic meters a day currently, B.C. Tripathi, chairman and managing director of GAIL India Ltd., said March 12. Supply may increase to about 230 million cubic meters a day from about 170 million cubic meters now, he said. GAIL is the country’s monopoly natural gas distributor.
Power stations and fertilizer plants in India are shifting to the cleaner-burning fuel after Reliance Industries Ltd. started production from the nation’s biggest gas field in April. Demand may rise after new pipelines are built to connect more factories, Tripathi said.
China May Delay Tightening on Europe Crisis, BNP Says
May 21 (Bloomberg) -- China may delay raising borrowing costs, revaluing its currency and implementing property taxes as the deepening European crisis threatens global growth, according to BNP Paribas.
“We understand that Chinese policymakers have noticed the interaction between structural tightening and a possible double- whammy effect on growth,” BNP Paribas analysts Chen Xingdong and Isaac Meng said in a report. “We expect the government to become more cautious in additional tightening measures.”
Chinese Premier Wen Jiabao said May 18 the global economic crisis is more complicated and serious than expected and the foundations of the recovery remain fragile, China Central Television reported. Europe is China’s biggest export destination, making up 20 percent of its total overseas sales.
The Shanghai Composite Index has fallen 5.2 percent this week on concern the Europe crisis may slow China’s exports to the region and the government will step up tightening measures to prevent asset bubbles.
The gauge has lost 21 percent in 2010, making it Asia’s worst performer, as the government raised mortgage rates and down payments in April to curb real-estate price gains, while the central bank this month ordered banks to set aside more deposits as reserves for a third time in 2010.
A weeklong rout in global stocks deepened yesterday on concern that European governments are divided on resolving financial turmoil in the region. French Finance Minister Christine Lagarde said that the 16 countries that share the euro need greater coordination.
‘Unlikely’ Yuan Change
The BNP analysts forecast a “limited” rate increase late in the third quarter, while a revaluation of the yuan is “increasingly unlikely.” The Chinese currency has appreciated more than 14 percent against the euro in the past four months and the gain is putting pressure on China’s exporters, Ministry of Commerce spokesman Yao Jian said May 17.
China can wait until the second half of 2010 or next year to raise interest rates as economic growth slows, the state-run China Securities Journal newspaper said in a front-page editorial yesterday.
The growth of China’s exports to Europe may slow by six to seven percentage points in May, June, and in the third quarter of the year as Europe’s debt crisis deals a “severe” blow to foreign trade, the Shanghai Securities News reported May 19, citing Huo Jianguo, a researcher at the Ministry of Commerce.
The negative effects from the European debt crisis on Chinese economy will be “manageable,” according to Morgan Stanley. Europe’s weakness will help China avoid a worse-case scenario of overheating, Morgan Stanley analysts Qing Wang, Steven Zhang and Ernest Ho wrote in a note to clients yesterday.
“We understand that Chinese policymakers have noticed the interaction between structural tightening and a possible double- whammy effect on growth,” BNP Paribas analysts Chen Xingdong and Isaac Meng said in a report. “We expect the government to become more cautious in additional tightening measures.”
Chinese Premier Wen Jiabao said May 18 the global economic crisis is more complicated and serious than expected and the foundations of the recovery remain fragile, China Central Television reported. Europe is China’s biggest export destination, making up 20 percent of its total overseas sales.
The Shanghai Composite Index has fallen 5.2 percent this week on concern the Europe crisis may slow China’s exports to the region and the government will step up tightening measures to prevent asset bubbles.
The gauge has lost 21 percent in 2010, making it Asia’s worst performer, as the government raised mortgage rates and down payments in April to curb real-estate price gains, while the central bank this month ordered banks to set aside more deposits as reserves for a third time in 2010.
A weeklong rout in global stocks deepened yesterday on concern that European governments are divided on resolving financial turmoil in the region. French Finance Minister Christine Lagarde said that the 16 countries that share the euro need greater coordination.
‘Unlikely’ Yuan Change
The BNP analysts forecast a “limited” rate increase late in the third quarter, while a revaluation of the yuan is “increasingly unlikely.” The Chinese currency has appreciated more than 14 percent against the euro in the past four months and the gain is putting pressure on China’s exporters, Ministry of Commerce spokesman Yao Jian said May 17.
China can wait until the second half of 2010 or next year to raise interest rates as economic growth slows, the state-run China Securities Journal newspaper said in a front-page editorial yesterday.
The growth of China’s exports to Europe may slow by six to seven percentage points in May, June, and in the third quarter of the year as Europe’s debt crisis deals a “severe” blow to foreign trade, the Shanghai Securities News reported May 19, citing Huo Jianguo, a researcher at the Ministry of Commerce.
The negative effects from the European debt crisis on Chinese economy will be “manageable,” according to Morgan Stanley. Europe’s weakness will help China avoid a worse-case scenario of overheating, Morgan Stanley analysts Qing Wang, Steven Zhang and Ernest Ho wrote in a note to clients yesterday.
Wednesday, May 19, 2010
Japan Economy Grows Less Than Forecast, Putting Pressure on BOJ
May 20 (Bloomberg) -- Japan’s economy grew less than forecast in the first quarter as an export-led recovery failed to stoke consumer spending, putting pressure on the central bank to do more to end deflation as it begins a two-day meeting.
Gross domestic product rose 4.9 percent in the three months to March at an annualized rate, up from 4.2 percent in October to December, the Cabinet Office said in Tokyo today. Unadjusted for price changes, so-called nominal GDP gained 1.2 percent on a quarterly basis, the most in a decade, as trade rebounded.
Stocks fell and Finance Minister Naoto Kan said he expects the Bank of Japan to support an economy that’s not yet in a self-sustained recovery. The comeback in world trade, spurred by China’s demand, is helping countries across Asia, with Singapore today reporting GDP jumped an annualized 38.6 percent and Taiwan forecast to say its expansion accelerated in the first quarter.
“As long as demand from emerging economies remains strong, Japan’s economy will stay on a recovery track,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. The direction of overseas economies poses “a major risk factor,” he said after Europe’s debt crisis has deepened concern about the durability of global growth.
Japan’s benchmark Nikkei 225 Stock Average dropped 0.7 percent to 10,113.50 at the lunch break in Tokyo, bringing its slide in the past month to 7.2 percent. Against the euro, the yen strengthened to 113.14. Its 11 percent climb versus the European currency in the past month threatens to make its exports to the region more costly.
Nissan, Tokyo Electron
In the first quarter, companies from Nissan Motor Co. to Tokyo Electron Ltd. reaped the benefits of the trade recovery as they forecast higher profits and spending. The rebound also did start feeding into wages and the labor market. Earnings rose for the first time in 22 months in March and the ratio of job openings to applicants advanced for a third month.
Consumer spending rose 0.3 percent in the first quarter, slowing from the previous period’s 0.7 percent gain, today’s report showed.
“The data raises concern about the outlook for consumption” as fiscal stimulus efforts wear off, said Muto at Sumitomo Mitsui. “The improvement in wages is still lagging behind and failing to take over the role of locomotive.”
Business spending gained 1 percent, less than the fourth quarter’s 1.3 percent. Housing investment climbed 0.3 percent, the first increase in five quarters.
The 4.9 percent annualized growth rate followed a revised 4.2 percent expansion in the previous quarter, today’s report showed. The median forecast of 21 economists surveyed by Bloomberg News was for a 5.5 percent gain in GDP last quarter.
Bring Inflation Back
Tokyo Electron said last week that it would return to profit this fiscal year and more than double capital spending to 35 billion yen. Nissan, Japan’s third-largest automaker, forecast profit will more than triple this fiscal year as auto demand recovers in North America and sales grow in China.
“The best thing Japan can do is to bring inflation back to their economy,” Huw McKay, a senior international economist at Westpac Banking Corp. in Sydney, said in a Bloomberg Television interview. Sustained nominal GDP growth will help stoke inflation expectations and start to narrow the nation’s fiscal deficit, he also said.
Aeon Co., Japan’s second-biggest retailer, said in April that it would cut prices of as many as 500 products. The Chiba- based company forecasts profit will rise as much as 22 percent this fiscal year as cost reductions offset weak consumer outlays.
Price Declines Moderate
Price declines in Japan did moderate last quarter, with the domestic demand deflator falling 1.9 percent, the smallest drop in a year, today’s report showed. From the previous three months, it rose for the first time in seven quarters.
“This suggests Japan is passing through the worst phase of deflation, although it will take time until the nation fully overcomes it,” said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo. “Deflationary pressure is easing gradually.”
Faster growth would provide some relief for Prime Minister Yukio Hatoyama, whose public support has tumbled ahead of an upper-house election to be held in July.
Kan’s remarks in a press briefing in Tokyo today indicated the government will maintain pressure on the Bank of Japan to take more action. The central bank, which starts a two-day policy meeting today, will probably keep the benchmark interest rate at 0.1 percent, all 16 analysts said in a separate survey.
Kan, who is also deputy prime minister, said that he expects the Bank of Japan to support the economy with “flexible and appropriate” policy and that officials must be “cautious” about calling the recovery self-sustaining.
“The BOJ’s unlikely to change their policies as a result of the GDP report,” Kyohei Morita, chief economist at Barclays Capital in Tokyo, said before the report. “As long as deflation continues, the government’s going to continue demanding more from the BOJ to beat deflation.”
Governor Masaaki Shirakawa’s board pledged to help lenders provide credit at its previous meeting in April. The bank may announce an outline of the lending plan at this week’s meeting, according to six of 16 economists surveyed by Bloomberg.
Gross domestic product rose 4.9 percent in the three months to March at an annualized rate, up from 4.2 percent in October to December, the Cabinet Office said in Tokyo today. Unadjusted for price changes, so-called nominal GDP gained 1.2 percent on a quarterly basis, the most in a decade, as trade rebounded.
Stocks fell and Finance Minister Naoto Kan said he expects the Bank of Japan to support an economy that’s not yet in a self-sustained recovery. The comeback in world trade, spurred by China’s demand, is helping countries across Asia, with Singapore today reporting GDP jumped an annualized 38.6 percent and Taiwan forecast to say its expansion accelerated in the first quarter.
“As long as demand from emerging economies remains strong, Japan’s economy will stay on a recovery track,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. The direction of overseas economies poses “a major risk factor,” he said after Europe’s debt crisis has deepened concern about the durability of global growth.
Japan’s benchmark Nikkei 225 Stock Average dropped 0.7 percent to 10,113.50 at the lunch break in Tokyo, bringing its slide in the past month to 7.2 percent. Against the euro, the yen strengthened to 113.14. Its 11 percent climb versus the European currency in the past month threatens to make its exports to the region more costly.
Nissan, Tokyo Electron
In the first quarter, companies from Nissan Motor Co. to Tokyo Electron Ltd. reaped the benefits of the trade recovery as they forecast higher profits and spending. The rebound also did start feeding into wages and the labor market. Earnings rose for the first time in 22 months in March and the ratio of job openings to applicants advanced for a third month.
Consumer spending rose 0.3 percent in the first quarter, slowing from the previous period’s 0.7 percent gain, today’s report showed.
“The data raises concern about the outlook for consumption” as fiscal stimulus efforts wear off, said Muto at Sumitomo Mitsui. “The improvement in wages is still lagging behind and failing to take over the role of locomotive.”
Business spending gained 1 percent, less than the fourth quarter’s 1.3 percent. Housing investment climbed 0.3 percent, the first increase in five quarters.
The 4.9 percent annualized growth rate followed a revised 4.2 percent expansion in the previous quarter, today’s report showed. The median forecast of 21 economists surveyed by Bloomberg News was for a 5.5 percent gain in GDP last quarter.
Bring Inflation Back
Tokyo Electron said last week that it would return to profit this fiscal year and more than double capital spending to 35 billion yen. Nissan, Japan’s third-largest automaker, forecast profit will more than triple this fiscal year as auto demand recovers in North America and sales grow in China.
“The best thing Japan can do is to bring inflation back to their economy,” Huw McKay, a senior international economist at Westpac Banking Corp. in Sydney, said in a Bloomberg Television interview. Sustained nominal GDP growth will help stoke inflation expectations and start to narrow the nation’s fiscal deficit, he also said.
Aeon Co., Japan’s second-biggest retailer, said in April that it would cut prices of as many as 500 products. The Chiba- based company forecasts profit will rise as much as 22 percent this fiscal year as cost reductions offset weak consumer outlays.
Price Declines Moderate
Price declines in Japan did moderate last quarter, with the domestic demand deflator falling 1.9 percent, the smallest drop in a year, today’s report showed. From the previous three months, it rose for the first time in seven quarters.
“This suggests Japan is passing through the worst phase of deflation, although it will take time until the nation fully overcomes it,” said Takahide Kiuchi, chief economist at Nomura Securities Co. in Tokyo. “Deflationary pressure is easing gradually.”
Faster growth would provide some relief for Prime Minister Yukio Hatoyama, whose public support has tumbled ahead of an upper-house election to be held in July.
Kan’s remarks in a press briefing in Tokyo today indicated the government will maintain pressure on the Bank of Japan to take more action. The central bank, which starts a two-day policy meeting today, will probably keep the benchmark interest rate at 0.1 percent, all 16 analysts said in a separate survey.
Kan, who is also deputy prime minister, said that he expects the Bank of Japan to support the economy with “flexible and appropriate” policy and that officials must be “cautious” about calling the recovery self-sustaining.
“The BOJ’s unlikely to change their policies as a result of the GDP report,” Kyohei Morita, chief economist at Barclays Capital in Tokyo, said before the report. “As long as deflation continues, the government’s going to continue demanding more from the BOJ to beat deflation.”
Governor Masaaki Shirakawa’s board pledged to help lenders provide credit at its previous meeting in April. The bank may announce an outline of the lending plan at this week’s meeting, according to six of 16 economists surveyed by Bloomberg.
India’s Central Bank Signals ‘Cautious’ Pace of Rate Increases
May 20 (Bloomberg) -- India’s central bank signaled it may raise interest rates in a measured manner as Europe’s debt crisis outweighs inflation concerns.
Global economic conditions have changed in the past six weeks and a “cautious pace is the best way to go and that is the stance,” Subir Gokarn, the deputy governor in charge of monetary policy at the Reserve Bank of India, told reporters in Thiruvananthapuram, India, yesterday. “I am aware rates are quite out of line with inflation and the growth scenario.”
India and China, the world’s fastest-growing major economies, are struggling to control inflation amid risks to growth emanating from debt woes of Greece, Portugal and Spain. Gokarn’s comments indicate the central bank may slow the pace of interest-rate increases even though Governor Duvvuri Subbarao described rising prices as a “big worry.”
“Interest rates will go up, but in a gradual way,” said Dharmakirti Joshi, chief economist at Crisil Ltd., the Indian unit of Standard & Poor’s. Subbarao may raise borrowing costs by a quarter percentage point in the next monetary policy announcement on July 27, Joshi said, adding a move before that is unlikely.
The Reserve Bank on April 20 raised its benchmark interest rates by a quarter point for the second time in a month, increasing the reverse repurchase rate to 3.75 percent and the repurchase rate to 5.25 percent.
Protect Economy
The government will protect the Indian economy from the crisis in Europe, Finance Minister Pranab Mukherjee said in an interview with the NDTV Profit television channel yesterday.
India’s central bank unveiled its stance after the European Union and International Monetary Fund cobbled together a 110 billion-euro ($136.4 billion) rescue package for Greece on May 2 to prevent contagion. European leaders followed it up with an unprecedented emergency fund of as much as 750 billion euros to back countries facing instability and a program of bond purchases by the European Central Bank.
Europe’s problems coincide with rising prices in India, with the benchmark wholesale-price inflation rate climbing 9.59 percent in April as demand for cars and houses increase.
India’s industrial production grew 13.5 percent in March, rising more than 10 percent for a sixth straight month.
In China, where industrial production rose 17.8 percent in April, consumer prices climbed at the fastest pace in 18 months, adding pressure on policy makers to raise interest rates and allow yuan gains. China has raised banks’ reserve requirements three times this year.
Factory Output
Factory output is gaining strength in India as wages rise. Salaries in India may grow at the fastest pace in the Asia Pacific this year, according to Hewitt Associates Inc., the Lincolnshire, Illinois-based human resources adviser.
Cement production by companies including ACC Ltd., India’s biggest cement maker, gained 10.1 percent in March, the government said on April 27.
Concerns about Europe caused the Sensitive Index to fall the most in about four months yesterday, declining 2.8 percent on the Bombay Stock Exchange. The rupee weakened the most in 15 months, closing at 46.3550 per dollar in Mumbai, while the yield on the 10-year government bond fell five basis points to 7.44 percent, the lowest in more than five months.
Subbarao and Gokarn are in Thiruvananthapuram for a meeting of the central bank’s board of directors today. The board includes Azim Premji, chairman of Wipro Ltd., India’s third- largest software provider, and Kumar Mangalam Birla, chairman of Hindalco Industries Ltd., the nation’s largest aluminum producer.
Global economic conditions have changed in the past six weeks and a “cautious pace is the best way to go and that is the stance,” Subir Gokarn, the deputy governor in charge of monetary policy at the Reserve Bank of India, told reporters in Thiruvananthapuram, India, yesterday. “I am aware rates are quite out of line with inflation and the growth scenario.”
India and China, the world’s fastest-growing major economies, are struggling to control inflation amid risks to growth emanating from debt woes of Greece, Portugal and Spain. Gokarn’s comments indicate the central bank may slow the pace of interest-rate increases even though Governor Duvvuri Subbarao described rising prices as a “big worry.”
“Interest rates will go up, but in a gradual way,” said Dharmakirti Joshi, chief economist at Crisil Ltd., the Indian unit of Standard & Poor’s. Subbarao may raise borrowing costs by a quarter percentage point in the next monetary policy announcement on July 27, Joshi said, adding a move before that is unlikely.
The Reserve Bank on April 20 raised its benchmark interest rates by a quarter point for the second time in a month, increasing the reverse repurchase rate to 3.75 percent and the repurchase rate to 5.25 percent.
Protect Economy
The government will protect the Indian economy from the crisis in Europe, Finance Minister Pranab Mukherjee said in an interview with the NDTV Profit television channel yesterday.
India’s central bank unveiled its stance after the European Union and International Monetary Fund cobbled together a 110 billion-euro ($136.4 billion) rescue package for Greece on May 2 to prevent contagion. European leaders followed it up with an unprecedented emergency fund of as much as 750 billion euros to back countries facing instability and a program of bond purchases by the European Central Bank.
Europe’s problems coincide with rising prices in India, with the benchmark wholesale-price inflation rate climbing 9.59 percent in April as demand for cars and houses increase.
India’s industrial production grew 13.5 percent in March, rising more than 10 percent for a sixth straight month.
In China, where industrial production rose 17.8 percent in April, consumer prices climbed at the fastest pace in 18 months, adding pressure on policy makers to raise interest rates and allow yuan gains. China has raised banks’ reserve requirements three times this year.
Factory Output
Factory output is gaining strength in India as wages rise. Salaries in India may grow at the fastest pace in the Asia Pacific this year, according to Hewitt Associates Inc., the Lincolnshire, Illinois-based human resources adviser.
Cement production by companies including ACC Ltd., India’s biggest cement maker, gained 10.1 percent in March, the government said on April 27.
Concerns about Europe caused the Sensitive Index to fall the most in about four months yesterday, declining 2.8 percent on the Bombay Stock Exchange. The rupee weakened the most in 15 months, closing at 46.3550 per dollar in Mumbai, while the yield on the 10-year government bond fell five basis points to 7.44 percent, the lowest in more than five months.
Subbarao and Gokarn are in Thiruvananthapuram for a meeting of the central bank’s board of directors today. The board includes Azim Premji, chairman of Wipro Ltd., India’s third- largest software provider, and Kumar Mangalam Birla, chairman of Hindalco Industries Ltd., the nation’s largest aluminum producer.
Tuesday, May 18, 2010
Sovereign Woes Trigger ‘Lehman II’ Concern for Europe’s Banks
May 19 (Bloomberg) -- Europe’s banks are facing déjà vu as fresh tremors in the debt markets threaten to shake the financial system less than two years after the collapse of Lehman Brothers Holdings Inc.
This time the concern isn’t about subprime mortgages or exotic derivatives, it’s about banks’ holdings of bonds sold by European Union governments including Greece, Portugal and Spain. Pledges of $1 trillion in EU aid have failed to shore up the euro or dispel doubts about the region’s finances.
Investors have punished the shares of European financial firms and driven up the cost of insuring against default by banks and insurers on concern measures aimed at reducing the region’s budget deficits will choke economic growth. In a worst- case scenario, government debt restructurings could erode capital and spark another credit crunch, analysts say.
“There’s a concern this may be Lehman II,” said Konrad Becker, a Munich-based banking analyst at Merck Finck & Co. “The direct risks of writedowns and loan defaults combined with indirect ones such as mistrust between banks could lead to a systemic crisis.”
The rate banks say they charge each other for three-month loans in dollars rose yesterday to a nine-month high. The three- month London interbank offered rate in dollars, or Libor, reached 0.465 percent, the highest since Aug. 5, according to the British Bankers’ Association. The euro fell to its weakest against the dollar since 2006 on May 17.
Subprime Survivors Struck
Banks in Greece, Portugal and Spain, which mostly dodged losses from the financial crisis of 2008, have suffered the biggest share declines. National Bank of Greece SA, the country’s largest bank, dropped 43 percent in Athens trading this year. Spain’s Bankinter SA and Banco Bilbao Vizcaya Argentaria SA, Portugal’s Banco Espirito Santo SA and Italy’s Intesa Sanpaolo SpA each fell more than 28 percent.
The latest debt concerns spread across Europe just as EU economies were returning to growth and banks were emerging from the worst financial crisis since the Great Depression.
The credit crunch that began with the collapse of the U.S. subprime mortgage market and swept away New York-based Lehman in September of 2008 led to $542 billion of writedowns and credit losses for European financial companies, data compiled by Bloomberg show. UBS AG of Zurich and Edinburgh-based Royal Bank of Scotland Group Plc were among financial firms that needed government help to survive.
‘$1 Billion Question’
Greece’s public finances began rattling investors late last year, when the country more than tripled its budget deficit forecast for 2009 to 12.7 percent of gross domestic product. The shortfall prompted European Monetary Affairs Commissioner Joaquin Almunia to say Greece’s finances had become a “concern for the whole euro area.”
On April 22, the EU made an even higher estimate of Greece’s budget deficit for last year: 13.6 percent of GDP.
Standard & Poor’s cut Greece’s credit rating to junk on April 27, and also lowered Portugal to A-. It trimmed Spain one step to AA the following day.
The EU and International Monetary Fund cobbled together a 110 billion-euro ($136.4 billion) rescue package for Greece on May 2 to prevent contagion. About a week later, European leaders drew up an unprecedented emergency fund of as much as 750 billion euros to back countries facing instability and a program of bond purchases by the European Central Bank.
“The $1 billion question is will this money be enough to stabilize the market and entice investors to continue to put money into sovereign debt and also into bank funding,” said Dirk Hoffmann-Becking, an analyst at Sanford C. Bernstein Ltd. in London.
Strangling Growth
Europe’s banks had $2.29 trillion at risk in Greece, Italy, Portugal and Spain at the end of 2009, according to figures from the Bank for International Settlements in Basel, Switzerland. French banks had the most claims, at $843 billion, followed by Germany at $520 billion and the U.K. at $227 billion.
European financial companies hold more than 134 billion euros of Greek, Portuguese and Spanish sovereign debt, according to figures provided to Bloomberg News in interviews and e-mails, or culled from company reports and presentations.
“The first problem is if the sovereign-debt crisis continues, European banks and insurers are going to have to write down their exposure at some point,” said Daniel Hupfer, who helps manage 32.3 billion euros at M.M. Warburg in Hamburg, including shares of Deutsche Bank AG and BNP Paribas SA. “The second is the economy: if European countries focus on saving, that could strangle growth.”
Leaving the Euro
One or more European economies may default on their debt and Greece and other “laggards” in the euro area may have to abandon the common currency in the next few years to spur their economies, New York University professor Nouriel Roubini said in an interview on Bloomberg Television on May 12.
The crisis engulfing the euro area is not over yet as Greece remains the “tip of an iceberg,” Roubini said in an interview with BBC radio broadcast yesterday. “What we’re facing right now in the eurozone is a second stage of a typical financial crisis.”
A restructuring of Greece’s sovereign debt could lead to as much as 75 billion euros of losses for European banks, based on estimates from Frankfurt-based Deutsche Bank.
Josef Ackermann, the chief executive officer of Germany’s largest bank, said in an interview on ZDF television last week that it’s imperative to avoid a restructuring of Greece’s debt for now, even as he expressed doubts about the country’s ability to pay back its borrowings in full.
An Overreaction?
Some analysts say the threat to Europe’s banks is overstated and that the EU’s rescue package will eventually bolster confidence. There’s little evidence so far that sovereign concerns are cutting into profits for most lenders. The 10 biggest banks by market value in the euro region earned almost $15 billion in the first quarter, company reports show.
“Almost all banks beat earnings estimates, but that’s been neglected because of the sovereign-risk issue,” said Johan Fastenakels, an analyst at KBC Groep in Brussels. “Markets are overreacting.”
European stocks gained for the first time in three days yesterday as concern eased that measures to control the region’s debt crisis will curb economic growth. The Bloomberg Europe Banks and Financial Services Index rose 1.8 percent.
Deficit Cutting
Europe’s debt-ridden governments are pushing forward with austerity plans to appease investors and avoid a contagion. Greece agreed to budget cuts amounting to 13 percent of GDP. Spain announced the biggest reductions in at least 30 years on May 12, and Portugal followed a day later, pledging to slash wages and raise taxes. Italian officials said the government may make an extraordinary reduction in public spending. France is slated to submit its latest tax and spending plans to the European Commission, the EU’s executive arm, this week.
European finance ministers said Greece’s debt crisis won’t unleash a continent-wide austerity drive and tip the economy back into a recession. Only high-deficit countries including Spain and Portugal will be ordered to make additional deficit cuts, while budget policies will remain untouched in better-off nations such as Germany and Finland.
“Not everyone will accelerate consolidation in a very uniform way,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels after a meeting of ministers from the 16 euro countries yesterday. “That would lead to a very restrictive fiscal stance for the euro area as a whole, which would risk depressing economic growth.”
Political leaders are trying to put to work lessons learned in the subprime debacle.
“The advantage to the subprime crisis is we now are much more aware of how fragile our financial system is and we’re much more aware of what needs to be done to stabilize it,” said Hoffmann-Becking. “On the negative side is just the sheer scale of the sovereign debt problem: it’s larger than subprime. And whilst in subprime you could argue that a government will have to come and step in and save us, there is no government to save the government.”
This time the concern isn’t about subprime mortgages or exotic derivatives, it’s about banks’ holdings of bonds sold by European Union governments including Greece, Portugal and Spain. Pledges of $1 trillion in EU aid have failed to shore up the euro or dispel doubts about the region’s finances.
Investors have punished the shares of European financial firms and driven up the cost of insuring against default by banks and insurers on concern measures aimed at reducing the region’s budget deficits will choke economic growth. In a worst- case scenario, government debt restructurings could erode capital and spark another credit crunch, analysts say.
“There’s a concern this may be Lehman II,” said Konrad Becker, a Munich-based banking analyst at Merck Finck & Co. “The direct risks of writedowns and loan defaults combined with indirect ones such as mistrust between banks could lead to a systemic crisis.”
The rate banks say they charge each other for three-month loans in dollars rose yesterday to a nine-month high. The three- month London interbank offered rate in dollars, or Libor, reached 0.465 percent, the highest since Aug. 5, according to the British Bankers’ Association. The euro fell to its weakest against the dollar since 2006 on May 17.
Subprime Survivors Struck
Banks in Greece, Portugal and Spain, which mostly dodged losses from the financial crisis of 2008, have suffered the biggest share declines. National Bank of Greece SA, the country’s largest bank, dropped 43 percent in Athens trading this year. Spain’s Bankinter SA and Banco Bilbao Vizcaya Argentaria SA, Portugal’s Banco Espirito Santo SA and Italy’s Intesa Sanpaolo SpA each fell more than 28 percent.
The latest debt concerns spread across Europe just as EU economies were returning to growth and banks were emerging from the worst financial crisis since the Great Depression.
The credit crunch that began with the collapse of the U.S. subprime mortgage market and swept away New York-based Lehman in September of 2008 led to $542 billion of writedowns and credit losses for European financial companies, data compiled by Bloomberg show. UBS AG of Zurich and Edinburgh-based Royal Bank of Scotland Group Plc were among financial firms that needed government help to survive.
‘$1 Billion Question’
Greece’s public finances began rattling investors late last year, when the country more than tripled its budget deficit forecast for 2009 to 12.7 percent of gross domestic product. The shortfall prompted European Monetary Affairs Commissioner Joaquin Almunia to say Greece’s finances had become a “concern for the whole euro area.”
On April 22, the EU made an even higher estimate of Greece’s budget deficit for last year: 13.6 percent of GDP.
Standard & Poor’s cut Greece’s credit rating to junk on April 27, and also lowered Portugal to A-. It trimmed Spain one step to AA the following day.
The EU and International Monetary Fund cobbled together a 110 billion-euro ($136.4 billion) rescue package for Greece on May 2 to prevent contagion. About a week later, European leaders drew up an unprecedented emergency fund of as much as 750 billion euros to back countries facing instability and a program of bond purchases by the European Central Bank.
“The $1 billion question is will this money be enough to stabilize the market and entice investors to continue to put money into sovereign debt and also into bank funding,” said Dirk Hoffmann-Becking, an analyst at Sanford C. Bernstein Ltd. in London.
Strangling Growth
Europe’s banks had $2.29 trillion at risk in Greece, Italy, Portugal and Spain at the end of 2009, according to figures from the Bank for International Settlements in Basel, Switzerland. French banks had the most claims, at $843 billion, followed by Germany at $520 billion and the U.K. at $227 billion.
European financial companies hold more than 134 billion euros of Greek, Portuguese and Spanish sovereign debt, according to figures provided to Bloomberg News in interviews and e-mails, or culled from company reports and presentations.
“The first problem is if the sovereign-debt crisis continues, European banks and insurers are going to have to write down their exposure at some point,” said Daniel Hupfer, who helps manage 32.3 billion euros at M.M. Warburg in Hamburg, including shares of Deutsche Bank AG and BNP Paribas SA. “The second is the economy: if European countries focus on saving, that could strangle growth.”
Leaving the Euro
One or more European economies may default on their debt and Greece and other “laggards” in the euro area may have to abandon the common currency in the next few years to spur their economies, New York University professor Nouriel Roubini said in an interview on Bloomberg Television on May 12.
The crisis engulfing the euro area is not over yet as Greece remains the “tip of an iceberg,” Roubini said in an interview with BBC radio broadcast yesterday. “What we’re facing right now in the eurozone is a second stage of a typical financial crisis.”
A restructuring of Greece’s sovereign debt could lead to as much as 75 billion euros of losses for European banks, based on estimates from Frankfurt-based Deutsche Bank.
Josef Ackermann, the chief executive officer of Germany’s largest bank, said in an interview on ZDF television last week that it’s imperative to avoid a restructuring of Greece’s debt for now, even as he expressed doubts about the country’s ability to pay back its borrowings in full.
An Overreaction?
Some analysts say the threat to Europe’s banks is overstated and that the EU’s rescue package will eventually bolster confidence. There’s little evidence so far that sovereign concerns are cutting into profits for most lenders. The 10 biggest banks by market value in the euro region earned almost $15 billion in the first quarter, company reports show.
“Almost all banks beat earnings estimates, but that’s been neglected because of the sovereign-risk issue,” said Johan Fastenakels, an analyst at KBC Groep in Brussels. “Markets are overreacting.”
European stocks gained for the first time in three days yesterday as concern eased that measures to control the region’s debt crisis will curb economic growth. The Bloomberg Europe Banks and Financial Services Index rose 1.8 percent.
Deficit Cutting
Europe’s debt-ridden governments are pushing forward with austerity plans to appease investors and avoid a contagion. Greece agreed to budget cuts amounting to 13 percent of GDP. Spain announced the biggest reductions in at least 30 years on May 12, and Portugal followed a day later, pledging to slash wages and raise taxes. Italian officials said the government may make an extraordinary reduction in public spending. France is slated to submit its latest tax and spending plans to the European Commission, the EU’s executive arm, this week.
European finance ministers said Greece’s debt crisis won’t unleash a continent-wide austerity drive and tip the economy back into a recession. Only high-deficit countries including Spain and Portugal will be ordered to make additional deficit cuts, while budget policies will remain untouched in better-off nations such as Germany and Finland.
“Not everyone will accelerate consolidation in a very uniform way,” European Union Economic and Monetary Affairs Commissioner Olli Rehn told reporters in Brussels after a meeting of ministers from the 16 euro countries yesterday. “That would lead to a very restrictive fiscal stance for the euro area as a whole, which would risk depressing economic growth.”
Political leaders are trying to put to work lessons learned in the subprime debacle.
“The advantage to the subprime crisis is we now are much more aware of how fragile our financial system is and we’re much more aware of what needs to be done to stabilize it,” said Hoffmann-Becking. “On the negative side is just the sheer scale of the sovereign debt problem: it’s larger than subprime. And whilst in subprime you could argue that a government will have to come and step in and save us, there is no government to save the government.”
Treasury Yields Near Lowest This Year, Australian Bonds Gain
May 19 (Bloomberg) -- Treasury yields were near the lowest level in 2010 after the euro slid to a four-year low and stocks declined, bolstering demand for the safest securities.
U.S. bonds held yesterday’s biggest gain in a week as investors snapped up dollars after Germany said it will ban naked short sales of European government debt and 10 financial companies. Australian and Japanese bonds advanced, while the cost rose to protect Asia-Pacific corporate and sovereign bonds.
“Investors will transfer money from Europe to U.S. Treasuries,” said Hiromasa Nakamura, who helps oversee the equivalent of $20.7 billion as a senior investor at Mizuho Asset Management Co. in Tokyo. “The safe haven is the U.S. dollar. There is room for Treasury yields to decline.”
The yield on the benchmark 10-year note was 3.35 percent at 1:09 p.m. in Tokyo, according to BGCantor Market Data. The 3.5 percent security due May 2020 traded at a price of 101 1/4.
Ten-year notes climbed as much as 1/4 point, or $2.50 per $1,000 face amount, as the euro fell as low as $1.2144, the weakest level since April 2006.
Government securities gave up their gains as the euro recouped losses to trade little changed against the dollar.
MSCI’s Asia Pacific Index of shares slid 1.3 percent, slumping for a fourth day.
Former Federal Reserve Chairman Paul Volcker said it will take “years” to restore economies in Europe following the region’s debt crisis, speaking yesterday with Tom Keene on Bloomberg Radio.
Mizuho Asset shifted funds to Treasuries from euro bonds at the end of April, Nakamura said.
U.S. bonds held yesterday’s biggest gain in a week as investors snapped up dollars after Germany said it will ban naked short sales of European government debt and 10 financial companies. Australian and Japanese bonds advanced, while the cost rose to protect Asia-Pacific corporate and sovereign bonds.
“Investors will transfer money from Europe to U.S. Treasuries,” said Hiromasa Nakamura, who helps oversee the equivalent of $20.7 billion as a senior investor at Mizuho Asset Management Co. in Tokyo. “The safe haven is the U.S. dollar. There is room for Treasury yields to decline.”
The yield on the benchmark 10-year note was 3.35 percent at 1:09 p.m. in Tokyo, according to BGCantor Market Data. The 3.5 percent security due May 2020 traded at a price of 101 1/4.
Ten-year notes climbed as much as 1/4 point, or $2.50 per $1,000 face amount, as the euro fell as low as $1.2144, the weakest level since April 2006.
Government securities gave up their gains as the euro recouped losses to trade little changed against the dollar.
MSCI’s Asia Pacific Index of shares slid 1.3 percent, slumping for a fourth day.
Former Federal Reserve Chairman Paul Volcker said it will take “years” to restore economies in Europe following the region’s debt crisis, speaking yesterday with Tom Keene on Bloomberg Radio.
Mizuho Asset shifted funds to Treasuries from euro bonds at the end of April, Nakamura said.
Monday, May 17, 2010
Godrej May Raise $150 Million for Sara Lee Unit, Acquisitions
May 18 (Bloomberg) -- Billionaire Adi Godrej said his Godrej Consumer Products Ltd. may raise as much as $150 million selling shares to fund its purchase of Sara Lee Corp.’s stake in an Indian venture and other acquisitions.
India’s second-biggest maker of bath soap plans to sell shares worth more than half of the 185 million euros ($228 million) it agreed to pay for Sara Lee’s 51 percent stake in their joint venture, said Godrej.
“We might want to raise a little more equity this time so that later on we can raise a little more debt, if required,” he said in a May 14 interview in Mumbai, where Godrej Consumer is based. Godrej, the company’s chairman, and his family rank 148th in Forbes magazine’s list of billionaires with a net worth of $5.2 billion.
Godrej Consumer will buy companies in Asia, Africa and Latin America and has permission from its board to raise as much as 30 billion rupees ($657 million) through debt or selling shares, the billionaire said. The maker of Cinthol soaps and Renew hair color will continue to invest in emerging markets and probably not in developed countries because its expertise is in “low-cost, value for money products,” Godrej said.
“Godrej shareholders are happy because all the acquisitions have been earnings-per-share accretive with similar profiles in terms of operating margins and valuations,” said Anand Shah, an analyst at Angel Broking Ltd. in Mumbai who has an “accumulate” rating on the stock. “The only concern is whether the company has adequate management resources to integrate so many acquisitions and whether they have adequate synergy.”
Overseas Sales
Godrej Consumer fell 2.5 percent to 337.60 rupees yesterday while the benchmark Sensitive Index declined 0.9 percent. The stock’s loss pared its gain this year to 28 percent.
The acquisitions, including some being planned that haven’t been announced, will probably increase the percentage of sales the maker of soap and hair color derives from overseas to 35 percent from about 25 percent now, Godrej said. The company reported sales of 20.4 billion rupees and profit of 3.4 billion rupees for the 12 months ended March.
“We think that we have cash generation which is far beyond the needs for our organic growth in India, so investing our cash generation in acquisitions is good,” Godrej said.
The company will seek growth in India or overseas, he said. “We want growth -- whether it’s from inside or outside India, we are agnostic to that.”
Insecticide Business
Godrej Consumer is also in talks with Downers Grove, Illinois-based Sara Lee to acquire its global household insecticide business. “We are interested in that but we are not sure of the outcome of it,” Godrej said.
Godrej agreed on May 12 to buy Sara Lee’s stake in their venture.
Sara Lee has been selling units to focus on coffee and food. Last year it agreed to sell its toiletries business to Unilever NV and its air-fresheners business to Procter & Gamble Co. for a combined 1.59 billion euros and said both transactions will close this year.
Godrej Consumer is seeking to acquire businesses to widen its portfolio of hair color and personal hygiene products as well as household insecticides in emerging markets such as China and Egypt, Godrej said.
Six Acquisitions
Including the 51 percent stake in Godrej Sara Lee, the company has announced at least six acquisitions worth more than $395 million over the past year. The value doesn’t include purchases in Indonesia, Nigeria and the 50 percent stake in Godrej SCA Hygiene Ltd., where transaction values weren’t disclosed.
In April, Godrej Consumer agreed to buy Indonesian insecticide maker PT Megasari Makmur for an undisclosed price. The purchase would add 500 million rupees to profit for the year ending March, Godrej said May 7.
A month before that, the company said it entered into an agreement with Nigeria’s Tura Group to buy Tura, which manufactures and distributes products such as soaps, moisturizing lotions, and skin creams.
Godrej plans to fund the Indonesian and Nigerian acquisitions by raising debt, he said.
India’s second-biggest maker of bath soap plans to sell shares worth more than half of the 185 million euros ($228 million) it agreed to pay for Sara Lee’s 51 percent stake in their joint venture, said Godrej.
“We might want to raise a little more equity this time so that later on we can raise a little more debt, if required,” he said in a May 14 interview in Mumbai, where Godrej Consumer is based. Godrej, the company’s chairman, and his family rank 148th in Forbes magazine’s list of billionaires with a net worth of $5.2 billion.
Godrej Consumer will buy companies in Asia, Africa and Latin America and has permission from its board to raise as much as 30 billion rupees ($657 million) through debt or selling shares, the billionaire said. The maker of Cinthol soaps and Renew hair color will continue to invest in emerging markets and probably not in developed countries because its expertise is in “low-cost, value for money products,” Godrej said.
“Godrej shareholders are happy because all the acquisitions have been earnings-per-share accretive with similar profiles in terms of operating margins and valuations,” said Anand Shah, an analyst at Angel Broking Ltd. in Mumbai who has an “accumulate” rating on the stock. “The only concern is whether the company has adequate management resources to integrate so many acquisitions and whether they have adequate synergy.”
Overseas Sales
Godrej Consumer fell 2.5 percent to 337.60 rupees yesterday while the benchmark Sensitive Index declined 0.9 percent. The stock’s loss pared its gain this year to 28 percent.
The acquisitions, including some being planned that haven’t been announced, will probably increase the percentage of sales the maker of soap and hair color derives from overseas to 35 percent from about 25 percent now, Godrej said. The company reported sales of 20.4 billion rupees and profit of 3.4 billion rupees for the 12 months ended March.
“We think that we have cash generation which is far beyond the needs for our organic growth in India, so investing our cash generation in acquisitions is good,” Godrej said.
The company will seek growth in India or overseas, he said. “We want growth -- whether it’s from inside or outside India, we are agnostic to that.”
Insecticide Business
Godrej Consumer is also in talks with Downers Grove, Illinois-based Sara Lee to acquire its global household insecticide business. “We are interested in that but we are not sure of the outcome of it,” Godrej said.
Godrej agreed on May 12 to buy Sara Lee’s stake in their venture.
Sara Lee has been selling units to focus on coffee and food. Last year it agreed to sell its toiletries business to Unilever NV and its air-fresheners business to Procter & Gamble Co. for a combined 1.59 billion euros and said both transactions will close this year.
Godrej Consumer is seeking to acquire businesses to widen its portfolio of hair color and personal hygiene products as well as household insecticides in emerging markets such as China and Egypt, Godrej said.
Six Acquisitions
Including the 51 percent stake in Godrej Sara Lee, the company has announced at least six acquisitions worth more than $395 million over the past year. The value doesn’t include purchases in Indonesia, Nigeria and the 50 percent stake in Godrej SCA Hygiene Ltd., where transaction values weren’t disclosed.
In April, Godrej Consumer agreed to buy Indonesian insecticide maker PT Megasari Makmur for an undisclosed price. The purchase would add 500 million rupees to profit for the year ending March, Godrej said May 7.
A month before that, the company said it entered into an agreement with Nigeria’s Tura Group to buy Tura, which manufactures and distributes products such as soaps, moisturizing lotions, and skin creams.
Godrej plans to fund the Indonesian and Nigerian acquisitions by raising debt, he said.
Euro Weakness Is ‘Desirable’ to Counter Deflation, Resona Says
May 18 (Bloomberg) -- The euro may extend its slump below a four-year low against the dollar as the European Central Bank tolerates the currency’s decline as a way to counter deflation, according to Resona Bank Ltd.
While the emergency funding package announced by European leaders last week has reduced the risk of contagion, the region’s economy will struggle as nations such as Greece and Portugal cut spending to tackle their budget deficits, said Koichi Kurose, chief strategist at the unit of Japan’s fourth- largest banking group in Tokyo.
“Given the likelihood that austerity measures will pose downside risks to the region and enhance deflationary pressures, a weak euro is probably desirable for the economy and for the sake of the market’s stability,” Kurose said in an interview. “The euro is most likely to underperform against the U.S and Japanese currencies.”
European Union policy makers last week unveiled an unprecedented loan package worth 750 billion euro ($928 billion) and a program of bond purchases to combat the region’s spreading sovereign-debt crisis.
The euro briefly rallied after the announcement before resuming its decline. The 16-nation currency fell as low as $1.2235 yesterday, the weakest level since April 2006 before trading at $1.2349 as of 10:38 a.m. in Tokyo.
Spain’s underlying inflation turned negative last month for the first time. Consumer prices excluding energy and fresh food fell 0.1 percent from a year earlier, the National Statistics Institute said May 14.
‘Not Worrying’
Belgian Finance Minister Didier Reynders said yesterday the decline in the euro was “not worrying” and Luxembourg Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said the euro is a credible currency.
“Unless the decline in the euro starts to spiral out of control and as long as the ECB views its decline as being orderly, the central bank won’t try to intervene regardless of the currency’s levels,” Kurose said.
Although the ECB said yesterday it will reduce the size of its balance sheet, Kurose said if the central bank outlines an intention to loosen its monetary policy this may quicken the euro’s decline.
The ECB said it will invite banks to deposit cash with it for one week to prevent its purchases of government bonds from increasing the money supply. The central bank said it will take term deposits for the first time to mop up 16.5 billion euros of bond purchases settled up to May 14.
The slide in the stocks over the past week may represent a buying opportunity for investors, Kurose said.
“Unless fiscal consolidation measures in Greece falter completely, the risk of a break-up of the euro is comparatively small and Greece is not likely to leave the single currency bloc,” Kurose said. “The debt problems in Euro won’t threaten the global credit system and endanger the prosperity of the world economy, which holds the key to the stock market.”
While the emergency funding package announced by European leaders last week has reduced the risk of contagion, the region’s economy will struggle as nations such as Greece and Portugal cut spending to tackle their budget deficits, said Koichi Kurose, chief strategist at the unit of Japan’s fourth- largest banking group in Tokyo.
“Given the likelihood that austerity measures will pose downside risks to the region and enhance deflationary pressures, a weak euro is probably desirable for the economy and for the sake of the market’s stability,” Kurose said in an interview. “The euro is most likely to underperform against the U.S and Japanese currencies.”
European Union policy makers last week unveiled an unprecedented loan package worth 750 billion euro ($928 billion) and a program of bond purchases to combat the region’s spreading sovereign-debt crisis.
The euro briefly rallied after the announcement before resuming its decline. The 16-nation currency fell as low as $1.2235 yesterday, the weakest level since April 2006 before trading at $1.2349 as of 10:38 a.m. in Tokyo.
Spain’s underlying inflation turned negative last month for the first time. Consumer prices excluding energy and fresh food fell 0.1 percent from a year earlier, the National Statistics Institute said May 14.
‘Not Worrying’
Belgian Finance Minister Didier Reynders said yesterday the decline in the euro was “not worrying” and Luxembourg Prime Minister Jean-Claude Juncker, who leads the group of euro-area finance ministers, said the euro is a credible currency.
“Unless the decline in the euro starts to spiral out of control and as long as the ECB views its decline as being orderly, the central bank won’t try to intervene regardless of the currency’s levels,” Kurose said.
Although the ECB said yesterday it will reduce the size of its balance sheet, Kurose said if the central bank outlines an intention to loosen its monetary policy this may quicken the euro’s decline.
The ECB said it will invite banks to deposit cash with it for one week to prevent its purchases of government bonds from increasing the money supply. The central bank said it will take term deposits for the first time to mop up 16.5 billion euros of bond purchases settled up to May 14.
The slide in the stocks over the past week may represent a buying opportunity for investors, Kurose said.
“Unless fiscal consolidation measures in Greece falter completely, the risk of a break-up of the euro is comparatively small and Greece is not likely to leave the single currency bloc,” Kurose said. “The debt problems in Euro won’t threaten the global credit system and endanger the prosperity of the world economy, which holds the key to the stock market.”
China’s ‘One-Off’ Trade Deficit May Return, Government Says
May 17 (Bloomberg) -- China’s trade deficit in March, described by some economists as a “one-off event,” may be repeated in coming months, the nation’s commerce ministry said.
“Monthly figures this year will hover at either side of the balance point,” spokesman Yao Jian said at a press briefing in Beijing today. The full-year trade surplus is likely to “fall sharply,” he said.
China’s leaders may point to a narrowing surplus to argue in talks with the U.S. in Beijing next week that the yuan’s value isn’t a key factor in global economic imbalances. Yao’s assessment contrasts with Morgan Stanley saying May 10 that the nation is likely to report surpluses “through the rest of the year and beyond.”
Goldman Sachs Group Inc. said the same day that the March deficit was a “one-off event,” likely partly resulting from distortions caused by a Lunar New Year holiday. The sovereign debt crisis in Europe has intensified since those comments, clouding the outlook for shipments from China, the world’s biggest exporter.
Yuan forwards weakened the most in a week today on speculation that China will delay appreciation of its currency because of the European crisis. Twelve-month non-deliverable forwards fell 0.5 percent to 6.6995 per dollar as of 2:28 p.m. in Hong Kong. The Shanghai Composite Index tumbled 5.1 percent.
China will “closely monitor” the crisis, which could delay the recoveries of Europe and the world, Yao said. The yuan has strengthened more than 14 percent against the euro this year, putting “tremendous pressure on Chinese exporters” and affecting any “adjustment” of trade policies, he said.
Political Issue
Yao reiterated that China’s currency policy “shouldn’t be politicized,” and said that the nation will follow its own assessment of the world and Chinese economies when considering that policy.
“Various parties, including academic and industrial circles, have reached consensus that the yuan’s exchange rate isn’t the source of the Sino-U.S. trade surplus, nor the root cause of global imbalances,” Yao said.
U.S. Treasury Secretary Timothy F. Geithner and Secretary of State Hillary Clinton will take part in the U.S.-China Strategic and Economic Dialogue in Beijing. Geithner is “confident” that China will let the yuan rise against the U.S. dollar, he said in a Bloomberg Television interview last week.
China has held the yuan at about 6.83 per dollar since July 2008, helping exporters to weather the global financial crisis.
Trade in the first four months of the year “has pretty much set the path for the full-year trend,” Yao said.
The trade surplus narrowed 79 percent from a year earlier over that period as domestic demand and commodity costs drove a 60 percent increase in imports. In April, China posted a trade surplus of $1.68 billion after a shortfall of $7.24 billion in March that was the first in six years.
In 2009, the trade surplus shrank 34 percent to $196 billion. Increased balance in international payments will aid management of the economy, Yao said today.
--Li Yanping. Editors: Paul Panckhurst, Michael Heath.
“Monthly figures this year will hover at either side of the balance point,” spokesman Yao Jian said at a press briefing in Beijing today. The full-year trade surplus is likely to “fall sharply,” he said.
China’s leaders may point to a narrowing surplus to argue in talks with the U.S. in Beijing next week that the yuan’s value isn’t a key factor in global economic imbalances. Yao’s assessment contrasts with Morgan Stanley saying May 10 that the nation is likely to report surpluses “through the rest of the year and beyond.”
Goldman Sachs Group Inc. said the same day that the March deficit was a “one-off event,” likely partly resulting from distortions caused by a Lunar New Year holiday. The sovereign debt crisis in Europe has intensified since those comments, clouding the outlook for shipments from China, the world’s biggest exporter.
Yuan forwards weakened the most in a week today on speculation that China will delay appreciation of its currency because of the European crisis. Twelve-month non-deliverable forwards fell 0.5 percent to 6.6995 per dollar as of 2:28 p.m. in Hong Kong. The Shanghai Composite Index tumbled 5.1 percent.
China will “closely monitor” the crisis, which could delay the recoveries of Europe and the world, Yao said. The yuan has strengthened more than 14 percent against the euro this year, putting “tremendous pressure on Chinese exporters” and affecting any “adjustment” of trade policies, he said.
Political Issue
Yao reiterated that China’s currency policy “shouldn’t be politicized,” and said that the nation will follow its own assessment of the world and Chinese economies when considering that policy.
“Various parties, including academic and industrial circles, have reached consensus that the yuan’s exchange rate isn’t the source of the Sino-U.S. trade surplus, nor the root cause of global imbalances,” Yao said.
U.S. Treasury Secretary Timothy F. Geithner and Secretary of State Hillary Clinton will take part in the U.S.-China Strategic and Economic Dialogue in Beijing. Geithner is “confident” that China will let the yuan rise against the U.S. dollar, he said in a Bloomberg Television interview last week.
China has held the yuan at about 6.83 per dollar since July 2008, helping exporters to weather the global financial crisis.
Trade in the first four months of the year “has pretty much set the path for the full-year trend,” Yao said.
The trade surplus narrowed 79 percent from a year earlier over that period as domestic demand and commodity costs drove a 60 percent increase in imports. In April, China posted a trade surplus of $1.68 billion after a shortfall of $7.24 billion in March that was the first in six years.
In 2009, the trade surplus shrank 34 percent to $196 billion. Increased balance in international payments will aid management of the economy, Yao said today.
--Li Yanping. Editors: Paul Panckhurst, Michael Heath.
Conference Board Joins UBS in Seeing Peak in China’s Expansion
May 17 (Bloomberg) -- China’s growth may have peaked as developers accelerated construction work ahead of government measures to cool the property market, according to research organization The Conference Board.
A leading economic indicator rose 1.1 percent to 144.5 in March, after a 0.4 percent gain in February, the New York-based organization said today in an e-mailed statement, releasing the measure for the first time.
China’s expansion is “unlikely to accelerate further through the summer months,” Bill Adams, a Beijing-based economist for The Conference Board, said. “Developers may have been frontloading projects in anticipation of controls on the real-estate market.”
The Chinese government intensified a crackdown on property speculation after the fastest-growing major economy grew 11.9 percent in the first quarter from a year earlier. UBS AG said May 5 that China’s momentum had likely peaked and Macquarie Securities Ltd. said measures to cool the real-estate market may put the nation’s 8 percent annual growth target in jeopardy.
Asked why the jump in the March number didn’t signal a future economic acceleration, Adams said it followed six months of smaller increases and “this one month is not enough to call a new trend from.” He commented in a conference call. China’s growth remains “strong” according to Adams.
The Shanghai Composite Index fell 3 percent as of 11:30 a.m. local time, extending this year’s decline to more than 20 percent on concern that the withdrawal of stimulus measures and the real-estate crackdown will hurt company profits. Also, the sovereign-debt crisis in Europe is clouding the outlook for exports.
‘Decisive’ Action
China’s property prices rose by a record in April, according to data for 70 major cities, published by the government. Premier Wen Jiabao said May 15 that the government will act “decisively” to counter excessive gains in home prices in some cities.
The index released by The Conference Board is based on information from the central bank and the statistics bureau relating to loans, raw-material supplies, export orders, floor- space starts, consumer expectations, and supplier deliveries.
The Conference Board also publishes leading indexes for the euro area, Germany, the United Kingdom, France, Spain, Australia, South Korea and Mexico.
--Kevin Hamlin, Sophie Leung, Li Yanping. Editors: Paul Panckhurst, Russell Ward.
A leading economic indicator rose 1.1 percent to 144.5 in March, after a 0.4 percent gain in February, the New York-based organization said today in an e-mailed statement, releasing the measure for the first time.
China’s expansion is “unlikely to accelerate further through the summer months,” Bill Adams, a Beijing-based economist for The Conference Board, said. “Developers may have been frontloading projects in anticipation of controls on the real-estate market.”
The Chinese government intensified a crackdown on property speculation after the fastest-growing major economy grew 11.9 percent in the first quarter from a year earlier. UBS AG said May 5 that China’s momentum had likely peaked and Macquarie Securities Ltd. said measures to cool the real-estate market may put the nation’s 8 percent annual growth target in jeopardy.
Asked why the jump in the March number didn’t signal a future economic acceleration, Adams said it followed six months of smaller increases and “this one month is not enough to call a new trend from.” He commented in a conference call. China’s growth remains “strong” according to Adams.
The Shanghai Composite Index fell 3 percent as of 11:30 a.m. local time, extending this year’s decline to more than 20 percent on concern that the withdrawal of stimulus measures and the real-estate crackdown will hurt company profits. Also, the sovereign-debt crisis in Europe is clouding the outlook for exports.
‘Decisive’ Action
China’s property prices rose by a record in April, according to data for 70 major cities, published by the government. Premier Wen Jiabao said May 15 that the government will act “decisively” to counter excessive gains in home prices in some cities.
The index released by The Conference Board is based on information from the central bank and the statistics bureau relating to loans, raw-material supplies, export orders, floor- space starts, consumer expectations, and supplier deliveries.
The Conference Board also publishes leading indexes for the euro area, Germany, the United Kingdom, France, Spain, Australia, South Korea and Mexico.
--Kevin Hamlin, Sophie Leung, Li Yanping. Editors: Paul Panckhurst, Russell Ward.
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