Even as prospects for the American economy brighten, consumers are about to face a new financial burden: a sustained period of rising interest rates.
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Graphic
Household Debt vs. Interest Rates
That, economists say, is the inevitable outcome of the nation’s ballooning debt and the renewed prospect of inflation as the economy recovers from the depths of the recent recession.
The shift is sure to come as a shock to consumers whose spending habits were shaped by a historic 30-year decline in the cost of borrowing.
“Americans have assumed the roller coaster goes one way,” said Bill Gross, whose investment firm, Pimco, has taken part in a broad sell-off of government debt, which has pushed up interest rates. “It’s been a great thrill as rates descended, but now we face an extended climb.”
The impact of higher rates is likely to be felt first in the housing market, which has only recently begun to rebound from a deep slump. The rate for a 30-year fixed rate mortgage has risen half a point since December, hitting 5.31 last week, the highest level since last summer.
Along with the sell-off in bonds, the Federal Reserve has halted its emergency $1.25 trillion program to buy mortgage debt, placing even more upward pressure on rates.
“Mortgage rates are unlikely to go lower than they are now, and if they go higher, we’re likely to see a reversal of the gains in the housing market,” said Christopher J. Mayer, a professor of finance and economics at Columbia Business School. “It’s a really big risk.”
Each increase of 1 percentage point in rates adds as much as 19 percent to the total cost of a home, according to Mr. Mayer.
The Mortgage Bankers Association expects the rise to continue, with the 30-year mortgage rate going to 5.5 percent by late summer and as high as 6 percent by the end of the year.
Another area in which higher rates are likely to affect consumers is credit card use. And last week, the Federal Reserve reported that the average interest rate on credit cards reached 14.26 percent in February, the highest since 2001. That is up from 12.03 percent when rates bottomed in the fourth quarter of 2008 — a jump that amounts to about $200 a year in additional interest payments for the typical American household.
With losses from credit card defaults rising and with capital to back credit cards harder to come by, issuers are likely to increase rates to 16 or 17 percent by the fall, according to Dennis Moroney, a research director at the TowerGroup, a financial research company.
“The banks don’t have a lot of pricing options,” Mr. Moroney said. “They’re targeting people who carry a balance from month to month.”
Similarly, many car loans have already become significantly more expensive, with rates at auto finance companies rising to 4.72 percent in February from 3.26 percent in December, according to the Federal Reserve.
Washington, too, is expecting to have to pay more to borrow the money it needs for programs. The Office of Management and Budget expects the rate on the benchmark 10-year United States Treasury note to remain close to 3.9 percent for the rest of the year, but then rise to 4.5 percent in 2011 and 5 percent in 2012.
The run-up in rates is quickening as investors steer more of their money away from bonds and as Washington unplugs the economic life support programs that kept rates low through the financial crisis. Mortgage rates and car loans are linked to the yield on long-term bonds.
Besides the inflation fears set off by the strengthening economy, Mr. Gross said he was also wary of Treasury bonds because he feared the burgeoning supply of new debt issued to finance the government’s huge budget deficits would overwhelm demand, driving interest rates higher.
Nine months ago, United States government debt accounted for half of the assets in Mr. Gross’s flagship fund, Pimco Total Return. That has shrunk to 30 percent now — the lowest ever in the fund’s 23-year history — as Mr. Gross has sold American bonds in favor of debt from Europe, particularly Germany, as well as from developing countries like Brazil.
Last week, the yield on the benchmark 10-year Treasury note briefly crossed the psychologically important threshold of 4 percent, as the Treasury auctioned off $82 billion in new debt. That is nearly twice as much as the government paid in the fall of 2008, when investors sought out ultrasafe assets like Treasury securities after the collapse of Lehman Brothers and the beginning of the credit crisis.
Though still very low by historical standards, the rise of bond yields since then is reversing a decline that began in 1981, when 10-year note yields reached nearly 16 percent.
From that peak, steadily dropping interest rates have fed a three-decade lending boom, during which American consumers borrowed more and more but managed to hold down the portion of their income devoted to paying off loans.
Indeed, total household debt is now nine times what it was in 1981 — rising twice as fast as disposable income over the same period — yet the portion of disposable income that goes toward covering that debt has budged only slightly, increasing to 12.6 percent from 10.7 percent.
Household debt has been dropping for the last two years as recession-battered consumers cut back on borrowing, but at $13.5 trillion, it still exceeds disposable income by $2.5 trillion.
The long decline in rates also helped prop up the stock market; lower rates for investments like bonds make stocks more attractive.
That tailwind, which prevented even worse economic pain during the recession, has ceased, according to interviews with economists, analysts and money managers.
“We’ve had almost a 30-year rally,” said David Wyss, chief economist for Standard & Poor’s. “That’s come to an end.”
Just as significant as the bottom-line impact will be the psychological fallout from not being able to buy more while paying less — an unusual state of affairs that made consumer spending the most important measure of economic health.
“We’ve gotten spoiled by the idea that interest rates will stay in the low single-digits forever,” said Jim Caron, an interest rate strategist with Morgan Stanley. “We’ve also had a generation of consumers and investors get used to low rates.”
For young home buyers today considering 30-year mortgages with a rate of just over 5 percent, it might be hard to conceive of a time like October 1981, when mortgage rates peaked at 18.2 percent. That meant monthly payments of $1,523 then compared with $556 now for a $100,000 loan.
No one expects rates to return to anything resembling 1981 levels. Still, for much of Wall Street, the question is not whether rates will go up, but rather by how much.
Some firms, like Morgan Stanley, are predicting that rates could rise by a percentage point and a half by the end of the year. Others, like JPMorgan Chase are forecasting a more modest half-point jump.
But the consensus is clear, according to Terrence M. Belton, global head of fixed-income strategy for J. P. Morgan Securities. “Everyone knows that rates will eventually go higher,” he said.
Saturday, April 10, 2010
3G auctions kick off in India
India kicked off what is expected to be a windfall auction of third generation mobile and broadband wireless access spectrum on Friday, with a mixture of domestic and foreign-backed telecoms operators placing bids.
Bidding began at 9:30am India time with nine bidders competing for 3G slots in India’s 22 telecom regions. Six of these are expected to compete for the three pan-India allocations available in a process that could take days or even weeks.
EDITOR’S CHOICE
Essar Energy to raise $2.5bn in London IPO - Apr-08
Blackstone buys stake in Indian media group - Apr-07
Delhi to sell 10% stake in Coal India - Apr-06
IDFC warns of need to triple balance sheet - Apr-06
“We have already put in our first bids,” a person familiar with the process from one of India’s top mobile phone companies said Friday.
National allocations of 3G and BWA spectrum could together cost carriers up to $3bn each, according to estimates by Macquarie Securities. Market leaders Bharti Airtel, Reliance Communications, Vodafone Essar and Tata DoCoMo are expected to be strong contenders.
The government, which has set a reserve price of Rs35bn ($789m, €589m, £514m) for a national 3G allocation and Rs17.5bn for the BWA equivalent, has estimated it will earn Rs350bn from the auction in its budget for the year ending March 2011.
The long-awaited spectrum allocations are expected to mark the real start of the internet age for India, which has struggled to roll out fixed-line broadband networks given the difficulty of building land-based infrastructure in the country.
But analysts expect this to come at a heavy cost to operators, which are already struggling with intense competition..
India has nearly 600m mobile phone subscribers and is adding nearly 20m new users a month as more than 12 operators wage a price war to build market share.
The country suffers from an acute shortage of spectrum – the radio waves that carry mobile signals – with much of it still in the hands of government departments, such as the Ministry of Defence.
Even the spectrum allocations earmarked for 3G, at 5 megahertz per carrier, are regarded as inadequate by international standards.
“It’s one third to one fourth of what was allocated in Europe,” said Kunal Bajaj. “In Europe, the minimum allocation size was 15 MHz.”
The acute shortage of spectrum is expected to lead to intense bidding for 3G among operators. There are only three spectrum slots available in most of the country’s 22 telecom service areas.
The government said 11 companies were competing for the BWA spectrum, with two pan-India slots available. The BWA auction will start two days after the 3G auctions close.
The successful bidders will have to deposit their payments within 10 days and will receive spectrum in September. Commercial launch is expected early next year.
Bidding began at 9:30am India time with nine bidders competing for 3G slots in India’s 22 telecom regions. Six of these are expected to compete for the three pan-India allocations available in a process that could take days or even weeks.
EDITOR’S CHOICE
Essar Energy to raise $2.5bn in London IPO - Apr-08
Blackstone buys stake in Indian media group - Apr-07
Delhi to sell 10% stake in Coal India - Apr-06
IDFC warns of need to triple balance sheet - Apr-06
“We have already put in our first bids,” a person familiar with the process from one of India’s top mobile phone companies said Friday.
National allocations of 3G and BWA spectrum could together cost carriers up to $3bn each, according to estimates by Macquarie Securities. Market leaders Bharti Airtel, Reliance Communications, Vodafone Essar and Tata DoCoMo are expected to be strong contenders.
The government, which has set a reserve price of Rs35bn ($789m, €589m, £514m) for a national 3G allocation and Rs17.5bn for the BWA equivalent, has estimated it will earn Rs350bn from the auction in its budget for the year ending March 2011.
The long-awaited spectrum allocations are expected to mark the real start of the internet age for India, which has struggled to roll out fixed-line broadband networks given the difficulty of building land-based infrastructure in the country.
But analysts expect this to come at a heavy cost to operators, which are already struggling with intense competition..
India has nearly 600m mobile phone subscribers and is adding nearly 20m new users a month as more than 12 operators wage a price war to build market share.
The country suffers from an acute shortage of spectrum – the radio waves that carry mobile signals – with much of it still in the hands of government departments, such as the Ministry of Defence.
Even the spectrum allocations earmarked for 3G, at 5 megahertz per carrier, are regarded as inadequate by international standards.
“It’s one third to one fourth of what was allocated in Europe,” said Kunal Bajaj. “In Europe, the minimum allocation size was 15 MHz.”
The acute shortage of spectrum is expected to lead to intense bidding for 3G among operators. There are only three spectrum slots available in most of the country’s 22 telecom service areas.
The government said 11 companies were competing for the BWA spectrum, with two pan-India slots available. The BWA auction will start two days after the 3G auctions close.
The successful bidders will have to deposit their payments within 10 days and will receive spectrum in September. Commercial launch is expected early next year.
Friday, April 9, 2010
Japan’s Bonds Fall Most in Month as Recovery Signs Damp Demand
April 10 (Bloomberg) -- Japan’s bonds posted the biggest weekly decline in a month as signs the global economy is recovering damped demand for the safety of government debt.
Benchmark 10-year yields touched the highest level in five months as Bank of Japan Governor Masaaki Shirakawa said on April 7 that the economy is “picking up steadily.” Bonds also fell after U.S. reports this week showed service industries and pending home sales expanded in the world’s biggest economy, adding to signs the global recovery is gathering momentum.
“Concerns have abated about a second slump and the global economy is moving toward recovery,” said Shinji Nomura, chief debt strategist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest banking group. “That supports long-term yields, which are linked to an economic outlook.”
The yield on the 1.4 percent bond due March 2020 rose three basis points this week to 1.385 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.264 yen to 100.130 yen. The yield climbed to 1.405 percent on April 7, the highest since Nov. 12.
Ten-year yields may increase to 1.60 percent by the end of June, according to Nomura.
Ten-year bond futures for June delivery declined 0.30 this week to 138.40 at the Tokyo Stock Exchange.
The Bank of Japan, which kept its benchmark interest rate at 0.1 percent at its April 7 meeting, refrained from expanding measures to fight deflation and said a return to recession is unlikely as the recovery begins to sustain itself.
‘High Growth’
Policy makers cited exports as a driver of the nation’s expansion, after describing stimulus measures as the main reason for the rebound in previous months. “High growth in emerging economies” is propelling shipments and production, the central bank said in a statement.
The U.S. Institute for Supply Management said on April 5 its index of non-manufacturing businesses expanded in March at the fastest pace since May 2006. U.S. pending home sales climbed the most since October 2001, the National Association of Realtors said the same day.
Bond futures rose for a second day yesterday, paring a weekly loss, on signs the government will keep pressure on the central bank to keep borrowing costs low.
Prime Minister Yukio Hatoyama and BOJ’s Shirakawa yesterday held the first in a series of regular quarterly meetings that may enable the government to press for measures to fight deflation. Finance Minister Naoto Kan, who also attended, said he asked for Shirakawa’s help to fight falling prices.
‘Put Pressure’
“The government will continue to put pressure on the BOJ to do additional easing,” said Atsushi Ito, a Tokyo-based strategist at Morgan Stanley Japan Securities Co. “Pressure may increase as there’s been no mechanism set up to overcome deflation.”
Shirakawa said he and Hatoyama didn’t discuss the central bank’s monthly 1.8 trillion yen purchases of government bonds. He explained the policy board’s assessment of the economy and finances, as well as the bank’s credit program.
Bonds also declined this week on speculation some investors reduced their holdings before the Ministry of Finance sells 600 billion yen ($6.4 billion) of 30-year bonds next week.
“Investors will be hesitant to push up long-term bonds with the 30-year sale next week,” said Akihiko Inoue, chief market analyst in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest bank.
The ministry will also sell 2.4 trillion yen of five-year notes on April 15.
Benchmark 10-year yields touched the highest level in five months as Bank of Japan Governor Masaaki Shirakawa said on April 7 that the economy is “picking up steadily.” Bonds also fell after U.S. reports this week showed service industries and pending home sales expanded in the world’s biggest economy, adding to signs the global recovery is gathering momentum.
“Concerns have abated about a second slump and the global economy is moving toward recovery,” said Shinji Nomura, chief debt strategist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest banking group. “That supports long-term yields, which are linked to an economic outlook.”
The yield on the 1.4 percent bond due March 2020 rose three basis points this week to 1.385 percent at Japan Bond Trading Co., the nation’s largest interdealer debt broker. The price fell 0.264 yen to 100.130 yen. The yield climbed to 1.405 percent on April 7, the highest since Nov. 12.
Ten-year yields may increase to 1.60 percent by the end of June, according to Nomura.
Ten-year bond futures for June delivery declined 0.30 this week to 138.40 at the Tokyo Stock Exchange.
The Bank of Japan, which kept its benchmark interest rate at 0.1 percent at its April 7 meeting, refrained from expanding measures to fight deflation and said a return to recession is unlikely as the recovery begins to sustain itself.
‘High Growth’
Policy makers cited exports as a driver of the nation’s expansion, after describing stimulus measures as the main reason for the rebound in previous months. “High growth in emerging economies” is propelling shipments and production, the central bank said in a statement.
The U.S. Institute for Supply Management said on April 5 its index of non-manufacturing businesses expanded in March at the fastest pace since May 2006. U.S. pending home sales climbed the most since October 2001, the National Association of Realtors said the same day.
Bond futures rose for a second day yesterday, paring a weekly loss, on signs the government will keep pressure on the central bank to keep borrowing costs low.
Prime Minister Yukio Hatoyama and BOJ’s Shirakawa yesterday held the first in a series of regular quarterly meetings that may enable the government to press for measures to fight deflation. Finance Minister Naoto Kan, who also attended, said he asked for Shirakawa’s help to fight falling prices.
‘Put Pressure’
“The government will continue to put pressure on the BOJ to do additional easing,” said Atsushi Ito, a Tokyo-based strategist at Morgan Stanley Japan Securities Co. “Pressure may increase as there’s been no mechanism set up to overcome deflation.”
Shirakawa said he and Hatoyama didn’t discuss the central bank’s monthly 1.8 trillion yen purchases of government bonds. He explained the policy board’s assessment of the economy and finances, as well as the bank’s credit program.
Bonds also declined this week on speculation some investors reduced their holdings before the Ministry of Finance sells 600 billion yen ($6.4 billion) of 30-year bonds next week.
“Investors will be hesitant to push up long-term bonds with the 30-year sale next week,” said Akihiko Inoue, chief market analyst in Tokyo at Mizuho Investors Securities Co., a unit of Japan’s second-largest bank.
The ministry will also sell 2.4 trillion yen of five-year notes on April 15.
Germany Demands on Greek Aid Hamper Agreement on Bailout Plan
April 10 (Bloomberg) -- German resistance to subsidizing emergency loans for Greece may hold up efforts by the European Union to reach agreement on terms of a proposed financial lifeline for the debt-strapped nation.
As officials in Brussels hammered out details to a framework for joint EU-International Monetary Fund aid, Germany restated its opposition to below-market rate loans. Greek Prime Minister George Papandreou says without the subsidies Greece can’t cut the EU’s-biggest budget deficit.
“Germany is hung up on saying this rescue would be at market prices, which is self-defeating because market prices reflect the uncertainty and then you value the uncertainty and you push Greece into a death circle,” billionaire investor George Soros said yesterday in a Bloomberg Television interview.
The wrangling came amid mounting speculation among economists that a bailout was imminent. UBS AG said it could come as soon as this weekend as Fitch Ratings cut Greece’s debt rating yesterday to BBB-, the same level as Bulgaria and Panama, and just one level above junk status. Fitch said the lack of agreement on the aid package is eroding confidence in Greece.
“The lack of clarity regarding the mechanism for timely external financial support may have hindered Greece’s access to market finance at affordable cost and hence further undermined confidence in the capacity of the government to meet its fiscal targets,” Fitch said in an e-mailed statement.
Greek Yields
European Central Bank President Jean-Claude Trichet suggested April 8 that EU countries could extend loans to Greece at their own cost of borrowing. Yields on Greek 10-year bonds reached 7.5 percent April 8, more than double what Germany pays.
German Chancellor Angela Merkel’s government rejected Trichet’s approach and reiterated her view that Greece doesn’t need aid.
“A certain rate close to the market would be foreseen in any decision,” German Finance Ministry spokesman Michael Offer said yesterday in Berlin.
Her position remains that the government in Athens can solve its financial problems on its own, Offer said. Still, the cost of financing Greek debt has surged on concern it will fail to narrow the shortfall. Greek Finance Minister George Papaconstantinou said yesterday that Greek wasn’t seeking EU aid and would make good on its pledge to trim its deficit from about 13 percent last year, more than 4 times the EU limit, to 8.7 percent this year.
Moving ‘Quickly’
While Germany still considers Greece’s deficit-cutting plan feasible, a rescue involving the IMF and bilateral EU loans would be activated “quickly” if needed, Offer said.
The financial lifeline stems from a March compromise in which Merkel pushed for the IMF’s involvement over the opposition of counterparts such as Spain’s Jose Luis Rodriguez Zapatero.
Merkel has balked at putting taxpayer funds at risk in Greece, signaling that any assistance would have to be attached to strict conditions. Merkel’s coalition has slumped in opinion polls since her September re-election. That threatens to cost her Christian Democrats and their Free Democrat coalition partner their hold on Germany’s most populous state, North Rhine-Westphalia, in regional elections on May 9.
Greece will need to seek emergency funding to make bond payments and cover debt refinancing of more than 20 billion euros ($27 billion) in the next two months, UBS economists estimate. The premium investors demand to buy Greek 10-year bonds instead of German bunds jumped to 442 basis points on April 9, the highest since the introduction of the euro. That spread narrowed to 398 basis points yesterday on signs that a bailout might be nearer.
As officials in Brussels hammered out details to a framework for joint EU-International Monetary Fund aid, Germany restated its opposition to below-market rate loans. Greek Prime Minister George Papandreou says without the subsidies Greece can’t cut the EU’s-biggest budget deficit.
“Germany is hung up on saying this rescue would be at market prices, which is self-defeating because market prices reflect the uncertainty and then you value the uncertainty and you push Greece into a death circle,” billionaire investor George Soros said yesterday in a Bloomberg Television interview.
The wrangling came amid mounting speculation among economists that a bailout was imminent. UBS AG said it could come as soon as this weekend as Fitch Ratings cut Greece’s debt rating yesterday to BBB-, the same level as Bulgaria and Panama, and just one level above junk status. Fitch said the lack of agreement on the aid package is eroding confidence in Greece.
“The lack of clarity regarding the mechanism for timely external financial support may have hindered Greece’s access to market finance at affordable cost and hence further undermined confidence in the capacity of the government to meet its fiscal targets,” Fitch said in an e-mailed statement.
Greek Yields
European Central Bank President Jean-Claude Trichet suggested April 8 that EU countries could extend loans to Greece at their own cost of borrowing. Yields on Greek 10-year bonds reached 7.5 percent April 8, more than double what Germany pays.
German Chancellor Angela Merkel’s government rejected Trichet’s approach and reiterated her view that Greece doesn’t need aid.
“A certain rate close to the market would be foreseen in any decision,” German Finance Ministry spokesman Michael Offer said yesterday in Berlin.
Her position remains that the government in Athens can solve its financial problems on its own, Offer said. Still, the cost of financing Greek debt has surged on concern it will fail to narrow the shortfall. Greek Finance Minister George Papaconstantinou said yesterday that Greek wasn’t seeking EU aid and would make good on its pledge to trim its deficit from about 13 percent last year, more than 4 times the EU limit, to 8.7 percent this year.
Moving ‘Quickly’
While Germany still considers Greece’s deficit-cutting plan feasible, a rescue involving the IMF and bilateral EU loans would be activated “quickly” if needed, Offer said.
The financial lifeline stems from a March compromise in which Merkel pushed for the IMF’s involvement over the opposition of counterparts such as Spain’s Jose Luis Rodriguez Zapatero.
Merkel has balked at putting taxpayer funds at risk in Greece, signaling that any assistance would have to be attached to strict conditions. Merkel’s coalition has slumped in opinion polls since her September re-election. That threatens to cost her Christian Democrats and their Free Democrat coalition partner their hold on Germany’s most populous state, North Rhine-Westphalia, in regional elections on May 9.
Greece will need to seek emergency funding to make bond payments and cover debt refinancing of more than 20 billion euros ($27 billion) in the next two months, UBS economists estimate. The premium investors demand to buy Greek 10-year bonds instead of German bunds jumped to 442 basis points on April 9, the highest since the introduction of the euro. That spread narrowed to 398 basis points yesterday on signs that a bailout might be nearer.
Thursday, April 8, 2010
Emaar MGF to Lead $4 Billion of Property IPOs, Testing Demand
April 9 (Bloomberg) -- Emaar MGF Land Ltd. revived plans to sell shares in India for the first time, leading 182 billion rupees ($4 billion) of property offers at a time rising interest rates are deterring homebuyers.
Emaar MGF, the Indian joint venture of the United Arab Emirates’ biggest developer, intends to sell stock in the next three months, Shravan Gupta, executive vice chairman said yesterday. The New Delhi-based developer secured approval to sell as much as 38.5 billion rupees of shares, two years after scrapping a planned 64.64 billion rupee offer as stock markets slumped.
The sale will compete with Lodha Developers Ltd., Sahara Prime City Ltd. and Nitesh Estates Ltd., which are attempting the second-highest fund raising by property companies. The Bombay Stock Exchange Realty Index has fallen for the past two quarters, while the benchmark Sensex just completed its longest stretch of quarterly gains since the third quarter of 1994.
“Investors are negative on property stocks as reflected in the decline of the BSE Realty Index this year,” said Anubhav Gupta, an analyst with Kim Eng Securities India Pvt. in Mumbai. Emaar MGF “may not be able to earn in the next two to three years what they got in 2008 as both the volume and prices are much lower.”
Rising Rates
Goldman Sachs Group Inc. forecasts India will increase policy rates by a total of 1.5 percentage points this year. Reserve Bank of India Governor Duvvuri Subbarao said March 23 India risks a “hard landing” if inflation isn’t reined in. Subbarao’s comments signaled the central bank may follow the first increase in interest rates in almost two years on March 19 with more measures to rein in inflation from a 16-month high.
The planned $4 billion of share sales by real estate companies will be second only to the $4.3 billion raised in 2007, according to Bloomberg. Godrej Properties Ltd. ended a two-year drought in initial public offers by property firms in India with a 4.69 billion rupee sale in December. Rival DB Realty Ltd. followed in February with a 15 billion rupee first-time share sale.
Real estate IPOs will also compete with state-owned companies for investor interest. India plans to raise $8.9 billion selling shares in companies it owns in the fiscal year through March 2011 -- more than half the total value of last year’s offerings in India.
Emaar MGF plans to use the proceeds from the IPO to pay loans and fund development, according to a Sept. 29 share sale document filed with the regulator. Kotak Mahindra Capital Co., ICICI Securities Ltd., Deutsche Bank AG, Credit Suisse Group AG, UBS AG, HSBC Holdings Plc and the Royal Bank of Scotland Group Plc were hired to manage the offering, it said at that time.
Emaar MGF, the Indian joint venture of the United Arab Emirates’ biggest developer, intends to sell stock in the next three months, Shravan Gupta, executive vice chairman said yesterday. The New Delhi-based developer secured approval to sell as much as 38.5 billion rupees of shares, two years after scrapping a planned 64.64 billion rupee offer as stock markets slumped.
The sale will compete with Lodha Developers Ltd., Sahara Prime City Ltd. and Nitesh Estates Ltd., which are attempting the second-highest fund raising by property companies. The Bombay Stock Exchange Realty Index has fallen for the past two quarters, while the benchmark Sensex just completed its longest stretch of quarterly gains since the third quarter of 1994.
“Investors are negative on property stocks as reflected in the decline of the BSE Realty Index this year,” said Anubhav Gupta, an analyst with Kim Eng Securities India Pvt. in Mumbai. Emaar MGF “may not be able to earn in the next two to three years what they got in 2008 as both the volume and prices are much lower.”
Rising Rates
Goldman Sachs Group Inc. forecasts India will increase policy rates by a total of 1.5 percentage points this year. Reserve Bank of India Governor Duvvuri Subbarao said March 23 India risks a “hard landing” if inflation isn’t reined in. Subbarao’s comments signaled the central bank may follow the first increase in interest rates in almost two years on March 19 with more measures to rein in inflation from a 16-month high.
The planned $4 billion of share sales by real estate companies will be second only to the $4.3 billion raised in 2007, according to Bloomberg. Godrej Properties Ltd. ended a two-year drought in initial public offers by property firms in India with a 4.69 billion rupee sale in December. Rival DB Realty Ltd. followed in February with a 15 billion rupee first-time share sale.
Real estate IPOs will also compete with state-owned companies for investor interest. India plans to raise $8.9 billion selling shares in companies it owns in the fiscal year through March 2011 -- more than half the total value of last year’s offerings in India.
Emaar MGF plans to use the proceeds from the IPO to pay loans and fund development, according to a Sept. 29 share sale document filed with the regulator. Kotak Mahindra Capital Co., ICICI Securities Ltd., Deutsche Bank AG, Credit Suisse Group AG, UBS AG, HSBC Holdings Plc and the Royal Bank of Scotland Group Plc were hired to manage the offering, it said at that time.
U.K. Economy Kept 0.4% Growth Pace in First Quarter, Niesr Says
April 9 (Bloomberg) -- The U.K. economy kept up momentum in the first quarter with the same growth pace as the final three months of 2009 when the recession ended, the National Institute of Economic and Social Research said.
Gross domestic product increased 0.4 percent, matching the rate of expansion in the fourth quarter and in the three months through February, the London-based research group, whose clients include the Bank of England and the Treasury, said yesterday in an e-mailed statement.
The Niesr report signals that the worst cold snap since 1979 and an increase in sales tax haven’t derailed the economic recovery. With other data suggesting the economy is maintaining traction before the May 6 election, Prime Minister Gordon Brown and challenger David Cameron are battling over how long to keep up stimulus measures instead of cutting the budget deficit.
“These data reflect a dip in output in January which we associate the cold weather,” Niesr said in the report. “Given this dip in January and the fact that the growth rate was achieved despite the rise in the VAT rate, the underlying rate of growth of the economy is probably greater.”
Niesr publishes its growth estimate after the release each month of industrial production data, which yesterday showed a 1.3 percent increase in manufacturing output for February. The Office for National Statistics will announce GDP data for the first quarter on April 23.
Economic output is 1.1 percent higher than at the end of the recession in September, the institute said. “Output is still 5.4 percent lower than it was in early 2008 and the growth rate is still lower than the trend rate of growth of potential output, so the output gap is still increasing,” Niesr said.
The Bank of England yesterday kept its bond-purchase program unchanged at 200 billion pounds ($304 billion) for a third month as officials try to sustain the economy’s recovery from the deepest recession since World War II.
Gross domestic product increased 0.4 percent, matching the rate of expansion in the fourth quarter and in the three months through February, the London-based research group, whose clients include the Bank of England and the Treasury, said yesterday in an e-mailed statement.
The Niesr report signals that the worst cold snap since 1979 and an increase in sales tax haven’t derailed the economic recovery. With other data suggesting the economy is maintaining traction before the May 6 election, Prime Minister Gordon Brown and challenger David Cameron are battling over how long to keep up stimulus measures instead of cutting the budget deficit.
“These data reflect a dip in output in January which we associate the cold weather,” Niesr said in the report. “Given this dip in January and the fact that the growth rate was achieved despite the rise in the VAT rate, the underlying rate of growth of the economy is probably greater.”
Niesr publishes its growth estimate after the release each month of industrial production data, which yesterday showed a 1.3 percent increase in manufacturing output for February. The Office for National Statistics will announce GDP data for the first quarter on April 23.
Economic output is 1.1 percent higher than at the end of the recession in September, the institute said. “Output is still 5.4 percent lower than it was in early 2008 and the growth rate is still lower than the trend rate of growth of potential output, so the output gap is still increasing,” Niesr said.
The Bank of England yesterday kept its bond-purchase program unchanged at 200 billion pounds ($304 billion) for a third month as officials try to sustain the economy’s recovery from the deepest recession since World War II.
Wednesday, April 7, 2010
Australian Employers Added 19,600 Workers in March
April 8 (Bloomberg) -- Australian employers added more workers for the sixth time in seven months in March, underscoring central bank Governor Glenn Stevens’ decision to boost borrowing costs this week and signal further increases.
The number of people employed gained 19,600 from February, the statistics bureau said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg News was for an increase of 20,000. The jobless rate held at 5.3 percent.
Stevens has increased the benchmark lending rate five times in six meetings to prevent a jobs boom from stoking inflation as demand for skilled workers jumps at companies such as BHP Billiton Ltd. and Chevron Corp. Overseas shipments are increasing in value as Chinese demand spurs prices of Australian iron ore and coal.
“The swelling investment pipeline and strong demand for Australia’s key commodity exports mean significant employment gains should be recorded in 2010,” Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney, said ahead of today’s report.
The number of full-time jobs gained 30,100 in March and part-time employment decreased 10,600, today’s report showed.
Investors are betting there is a 26 percent chance of a quarter-percentage-point increase in the overnight cash rate target to 4.5 percent on May 4, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 8:52 a.m. The chance of a quarter-point move by early July stands at 100 percent.
Group of 20
Stevens is the only Group of 20 central banker to raise borrowing costs twice this year after leading the world in boosting benchmark rates three times in the fourth quarter of 2009, as evidence mounts that Australia’s economy will strengthen in 2010 after skirting the global recession last year.
The moves have taken the Reserve Bank’s overnight cash rate target to 4.25 percent from a half-century low of 3 percent at the start of October.
“With growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average,” Stevens said on April 6, after boosting the benchmark by a quarter point. The central bank’s target range for inflation is between 2 percent and 3 percent.
Inflation pressures may build as projects such as the A$43 billion ($40 billion) Chevron Corp.-led Gorgon natural gas project in Western Australia increases demand for skilled workers.
Mining Boom
More than A$100 billion of resources projects in Western Australia are likely to generate about 40,000 construction jobs and 12,500 permanent positions, a state government report released last year shows.
“Output growth over the year ahead is likely to exceed that seen last year,” Stevens said this week. “Australia’s terms of trade are rising, adding to incomes and fostering a build-up in investment in the resources sector.”
Australia’s gross domestic product grew 0.9 percent in the fourth quarter from the previous three months, the most in almost two years.
Advertisements for job vacancies jumped 1.8 percent in March, a report published this week by Australia & New Zealand Banking Group Ltd. showed.
Prior to today’s release, government reports showed Australian employers increased payrolls by 197,700 since August, the biggest six-month surge in more than three years.
“The rate of unemployment appears to have peaked at a much lower level than earlier expected,” Stevens said on April 6.
In contrast, the unemployment rate in the U.S. was 9.7 percent in March, and 10 percent in February among European Union countries, the highest rate since August 1998.
Australia’s participation rate, which measures the labor force as a percentage of the population aged over 15, fell to 65.1 percent in March from 65.2 percent, today’s report showed.
The number of people employed gained 19,600 from February, the statistics bureau said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg News was for an increase of 20,000. The jobless rate held at 5.3 percent.
Stevens has increased the benchmark lending rate five times in six meetings to prevent a jobs boom from stoking inflation as demand for skilled workers jumps at companies such as BHP Billiton Ltd. and Chevron Corp. Overseas shipments are increasing in value as Chinese demand spurs prices of Australian iron ore and coal.
“The swelling investment pipeline and strong demand for Australia’s key commodity exports mean significant employment gains should be recorded in 2010,” Stephen Walters, chief economist at JPMorgan Chase & Co. in Sydney, said ahead of today’s report.
The number of full-time jobs gained 30,100 in March and part-time employment decreased 10,600, today’s report showed.
Investors are betting there is a 26 percent chance of a quarter-percentage-point increase in the overnight cash rate target to 4.5 percent on May 4, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 8:52 a.m. The chance of a quarter-point move by early July stands at 100 percent.
Group of 20
Stevens is the only Group of 20 central banker to raise borrowing costs twice this year after leading the world in boosting benchmark rates three times in the fourth quarter of 2009, as evidence mounts that Australia’s economy will strengthen in 2010 after skirting the global recession last year.
The moves have taken the Reserve Bank’s overnight cash rate target to 4.25 percent from a half-century low of 3 percent at the start of October.
“With growth likely to be around trend and inflation close to target over the coming year, it is appropriate for interest rates to be closer to average,” Stevens said on April 6, after boosting the benchmark by a quarter point. The central bank’s target range for inflation is between 2 percent and 3 percent.
Inflation pressures may build as projects such as the A$43 billion ($40 billion) Chevron Corp.-led Gorgon natural gas project in Western Australia increases demand for skilled workers.
Mining Boom
More than A$100 billion of resources projects in Western Australia are likely to generate about 40,000 construction jobs and 12,500 permanent positions, a state government report released last year shows.
“Output growth over the year ahead is likely to exceed that seen last year,” Stevens said this week. “Australia’s terms of trade are rising, adding to incomes and fostering a build-up in investment in the resources sector.”
Australia’s gross domestic product grew 0.9 percent in the fourth quarter from the previous three months, the most in almost two years.
Advertisements for job vacancies jumped 1.8 percent in March, a report published this week by Australia & New Zealand Banking Group Ltd. showed.
Prior to today’s release, government reports showed Australian employers increased payrolls by 197,700 since August, the biggest six-month surge in more than three years.
“The rate of unemployment appears to have peaked at a much lower level than earlier expected,” Stevens said on April 6.
In contrast, the unemployment rate in the U.S. was 9.7 percent in March, and 10 percent in February among European Union countries, the highest rate since August 1998.
Australia’s participation rate, which measures the labor force as a percentage of the population aged over 15, fell to 65.1 percent in March from 65.2 percent, today’s report showed.
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