May 8 (Bloomberg) -- European leaders agreed to set up an emergency fund to halt the spread of Greece’s fiscal woes, seeking to prevent a sovereign debt crisis from shattering confidence in the 11-year-old euro.
Jolted into action by the sliding currency and soaring bond yields in Portugal and Spain, leaders of the 16 euro countries said the workings of the financial backstop will be hammered out before the markets open on May 10.
“We will defend the euro, whatever it takes,” European Commission President Jose Barroso told reporters early today after the leaders met in Brussels.
Europe’s failure to contain Greece’s fiscal crisis triggered a 4.3 percent drop in the euro this week and led the U.S. and Asia to rally around in a bid to prevent a global sovereign-debt crisis from pitching the world back into a recession.
European officials declined to disclose the size of the stabilization fund, to be made up of money borrowed by the European Union’s central authorities with guarantees by national governments. Finance ministers will meet at 4 p.m. tomorrow in Brussels to flesh out the details.
“When the markets re-open Monday, we will have in place a mechanism to defend the euro,” French President Nicolas Sarkozy said. “If you don’t think that’s significant, you haven’t been to many EU summits.”
Independent ECB
Barroso said he wouldn’t push the independent European Central Bank to, for example, buy government bonds. ECB President Jean-Claude Trichet accelerated the market selloff on May 6 by rejecting that measure.
With the euro facing its stiffest test since its debut in 1999, the summit -- called to discuss longer-term efforts to coordinate economic policies -- turned into a crisis-management session that dragged past midnight.
The euro slid to $1.2715 from $1.3293 during the week, and is down 15 percent since late November. European stocks sank the most in 18 months, with the Stoxx Europe 600 Index tumbling 8.8 percent to 237.18.
The extra yield that investors demand to hold Greek, Portuguese and Spanish debt instead of safer German bonds rose to euro-era highs yesterday. The premium on 10-year government bonds jumped as high as 973 basis points for Greece, 354 basis points for Portugal and 173 basis points for Spain.
Spreading Contagion
Europe came under pressure on a hastily arranged conference call of Group of Seven finance chiefs yesterday. All agreed on “the need for a clear, timely and strong response,” Canadian Finance Minister Jim Flaherty, who chaired the call, told reporters in Ottawa. “We hope to see a strong, early policy response in Europe.”
The spreading contagion also drew the attention of President Barack Obama, who said in Washington that U.S. regulators will examine the “unusual market activity” that on May 6 briefly drove the Dow Jones Industrial Average down by almost 1,000 points, erasing more than $1 trillion in wealth before the market bounced back.
In Brussels, German Chancellor Angela Merkel stepped up German calls for a closer monitoring of government finances and more rigorous enforcement of the deficit-limitation rules, originally drafted by Germany in the 1990s.
Europe will send “a very clear signal against those who want to speculate against the euro,” Merkel said.
Credit-Rating Authority
With the euro region’s overall deficit forecast at 6.6 percent of gross domestic product in 2010 and 6.1 percent in 2011, the vow to bring budget shortfalls back below the euro’s 3 percent limit echoes promises that have been regularly broken ever since governments in 1999 set a three-year deadline for achieving balanced budgets.
Plans for a European credit-rating authority are already under consideration at the EU Commission, the bloc’s Brussels- based executive agency. It also is investigating whether ratings companies such as Standard & Poor’s wield too much power over investors’ perceptions of governments.
Asked whether steps to stem speculation against government bonds would include restrictions on short sales or credit default swaps, Barroso said “some of the points you have mentioned will be contemplated.”
The political leadership of the $12 trillion economy also signed off on a 110 billion-euro ($140 billion) aid package for Greece negotiated by finance ministers last week. So far nine governments have cleared the way for funds to be sent to Athens.
Biggest Contributor
Germany, the biggest contributor with as much as 22.4 billion euros over three years, fell in line yesterday with endorsements in the lower and upper houses of parliament. A group of German academics filed a lawsuit to try to halt the payout.
A day after whisking a three-year, 30 billion-euro program of deficit cuts through parliament, Greek Prime Minister George Papandreou ruled out further belt-tightening steps for the time being, saying the point of the summit was to “reaffirm our confidence in our economies and our common currency and this I believe is a very important message for the global economic recovery.”
Europe’s unprecedented lending pledge has “proven insufficient to stop market contagion to the rest of the euro- zone periphery,” Michael Saunders and other economists at Citigroup Inc. said in an e-mailed note before the summit. “Different kinds of solutions are necessary to fix the underlying problems of the rest of the euro periphery other than Greek-style packages, and these are unlikely to come in the very short term.”
Friday, May 7, 2010
Asia Currencies Post Weekly Drops as Europe Debt Crisis Spreads
May 8 (Bloomberg) -- Asian currencies tumbled this week, with South Korea’s won and the Philippine peso posting their biggest losses in more than a year, as Europe’s debt crisis drove investors from riskier assets.
The MSCI Asia-Pacific Index of regional shares had its worst week since February 2009 and the cost of protecting the region’s corporate bonds from default rose the most in 14 months. Greece’s Finance Minister George Papaconstantinou said May 6 the nation has insufficient funds to pay 8.5 billion euros ($10.8 billion) of debt due this month and Moody’s Investors Service said Europe’s fiscal crisis may threaten banks in Portugal, Spain, Italy, the U.K. and Ireland.
“Asian stocks and currencies are typical riskier assets and so they got sold aggressively,” said Minori Uchida, senior analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest bank. “Asian currencies are also hit harder than other emerging markets because the region largely depends on external demand and anything threatening the global economy means a sell for Asian currencies.”
The won declined 4.1 percent this week to 1,155.45 per dollar and the peso slid 2.4 percent to 45.535. Malaysia’s ringgit dropped 2.7 percent, the most since a dollar peg ended in 2005. Indonesia’s rupiah gained 0.1 percent to 9,225 yesterday, trimming its weekly loss to 2.4 percent, on suspected intervention by the central bank.
Intervention
Bank Indonesia will ensure a “stable” rupiah and doesn’t plan to impose capital controls, central bank Deputy Governor Budi Mulya said yesterday. The monetary authority “is always in the market to smooth currency volatility,” said Lindawati Susanto, head of foreign-exchange trading at PT Bank Resona Perdania in Jakarta.
India’s rupee also pared losses yesterday on suspected intervention, after touching a two-month low of 45.725 per dollar. The currency declined 2.5 percent to 45.4800 this week.
“The Reserve Bank of India has supported the rupee intermittently since yesterday as things move from bad to worse in global financial markets,” said J. Moses Harding, a Mumbai- based executive vice president at IndusInd Bank Ltd. “I think the RBI is only trying to cushion currency weakness and check volatility rather than influence its direction.”
In Taiwan, traders said the central bank sold the local currency in the final minutes of trading yesterday to help weaken it. The island’s dollar declined 1.4 percent this week to NT$31.85 versus the greenback. It slid 0.3 percent yesterday, having been little changed at NT$31.73 two minutes before the end of the trading session.
Stock Outflows
Investors pulled “modest” amounts of money from equity funds investing in Asia’s emerging markets in the week ended May 5, while funds focused on Taiwan recorded the biggest outflows since the third quarter of 2009, according to EPFR Global. Foreign investors sold $885 million more Korean equities than they bought in the first four days of this week and pulled $1.4 billion from Taiwan’s stocks, exchange data show.
“While Asia is much stronger than Europe in terms of the fiscal position, markets will nevertheless be affected by deleveraging flows away from emerging markets as an asset class,” Frances Cheung, a Hong Kong-based senior rates strategist at Credit Agricole CIB, wrote in a research note yesterday.
Elsewhere in Asia, Singapore’s dollar dropped 1.9 percent this week to S$1.3933 and the Thai baht was little changed at 32.35.
The MSCI Asia-Pacific Index of regional shares had its worst week since February 2009 and the cost of protecting the region’s corporate bonds from default rose the most in 14 months. Greece’s Finance Minister George Papaconstantinou said May 6 the nation has insufficient funds to pay 8.5 billion euros ($10.8 billion) of debt due this month and Moody’s Investors Service said Europe’s fiscal crisis may threaten banks in Portugal, Spain, Italy, the U.K. and Ireland.
“Asian stocks and currencies are typical riskier assets and so they got sold aggressively,” said Minori Uchida, senior analyst in Tokyo at Bank of Tokyo-Mitsubishi UFJ Ltd., a unit of Japan’s largest bank. “Asian currencies are also hit harder than other emerging markets because the region largely depends on external demand and anything threatening the global economy means a sell for Asian currencies.”
The won declined 4.1 percent this week to 1,155.45 per dollar and the peso slid 2.4 percent to 45.535. Malaysia’s ringgit dropped 2.7 percent, the most since a dollar peg ended in 2005. Indonesia’s rupiah gained 0.1 percent to 9,225 yesterday, trimming its weekly loss to 2.4 percent, on suspected intervention by the central bank.
Intervention
Bank Indonesia will ensure a “stable” rupiah and doesn’t plan to impose capital controls, central bank Deputy Governor Budi Mulya said yesterday. The monetary authority “is always in the market to smooth currency volatility,” said Lindawati Susanto, head of foreign-exchange trading at PT Bank Resona Perdania in Jakarta.
India’s rupee also pared losses yesterday on suspected intervention, after touching a two-month low of 45.725 per dollar. The currency declined 2.5 percent to 45.4800 this week.
“The Reserve Bank of India has supported the rupee intermittently since yesterday as things move from bad to worse in global financial markets,” said J. Moses Harding, a Mumbai- based executive vice president at IndusInd Bank Ltd. “I think the RBI is only trying to cushion currency weakness and check volatility rather than influence its direction.”
In Taiwan, traders said the central bank sold the local currency in the final minutes of trading yesterday to help weaken it. The island’s dollar declined 1.4 percent this week to NT$31.85 versus the greenback. It slid 0.3 percent yesterday, having been little changed at NT$31.73 two minutes before the end of the trading session.
Stock Outflows
Investors pulled “modest” amounts of money from equity funds investing in Asia’s emerging markets in the week ended May 5, while funds focused on Taiwan recorded the biggest outflows since the third quarter of 2009, according to EPFR Global. Foreign investors sold $885 million more Korean equities than they bought in the first four days of this week and pulled $1.4 billion from Taiwan’s stocks, exchange data show.
“While Asia is much stronger than Europe in terms of the fiscal position, markets will nevertheless be affected by deleveraging flows away from emerging markets as an asset class,” Frances Cheung, a Hong Kong-based senior rates strategist at Credit Agricole CIB, wrote in a research note yesterday.
Elsewhere in Asia, Singapore’s dollar dropped 1.9 percent this week to S$1.3933 and the Thai baht was little changed at 32.35.
Thursday, May 6, 2010
India Should Tax ‘Volatile’ Stock Inflows, Ex-Governor Says
May 7 (Bloomberg) -- India should tax foreign capital inflows into the equity market that stay invested for less than two years to protect its financial system and sustain economic growth, said former central bank governor Bimal Jalan.
“If you have unstable, unpredictable, volatile capital flows which are affecting financial stability as well as the real economy’s stability, then you have to find a way of handling them so that they are not free for all,” Jalan, who headed the Reserve Bank of India between 1997 and 2003, said in a telephone interview. “I’m in favor of tax on profits earned from capital flows which are going to the stock market.”
Emerging markets in Asia are grappling with a surge in capital inflows as governments and central banks around the world pumped in cash to counter the global recession. Taiwan central bank Governor Perng Fai-nan said this week emerging markets should consider limits, Indonesia has studied the issue and Brazil imposed a levy last year.
Reserve Bank of India Governor Duvvuri Subbarao said on April 26 India “may well employ” some form of capital controls. Record foreign buying of stocks and bonds lifted India’s rupee in each of the first four months of 2010, the longest winning streak in three years.
Asian nations should increasingly consider ways to manage inflows that are fueling inflation and creating asset bubbles, Noeleen Heyzer, executive secretary of the United Nations Economic and Social Commission for Asia and the Pacific, wrote in the report yesterday.
‘Legitimate’ Tool
The International Monetary Fund, which previously criticized capital controls, in February released a study saying limits on capital are a “legitimate” tool in some cases for governments.
Equity and property prices in some markets have surged as the region’s growth outpaces the rest of the world. The central bank estimates the $1.2 trillion economy may expand 8 percent “with an upward bias” in the year ending March 31. Last year, it grew 7.2 percent.
The World Bank predicts as much as $800 billion in global capital flows this year, compared with about $450 billion to developing economies in the second half of 2009 at an annualized pace.
Foreign investors have bought a net 290.2 billion rupees ($6.4 billion) of stocks this year compared with a record 834.2 billion rupees in 2009, according to the nation’s market regulator. The rupee has appreciated 2.7 percent against the dollar this year. Last year, it gained 4.8 percent.
‘Red Light’
At present, India permits the rupee to be freely convertible on the trade and current account and places curbs for the capital account. An advisory panel formed by the central bank in 2006 suggested fuller convertibility in five years.
A cap on the amount of funds Indian companies are allowed to raise abroad as well a ceiling on foreign investments in debt instruments are among the controls imposed by India. The limit on foreign investment in government debt is $5 billion while on corporate debt it is $10 billion.
Kaushik Basu, chief economic adviser in India’s finance ministry, said there is no surge in capital inflows this year and that the country had witnessed bigger influx of funds earlier. “I don’t think it’s really a situation where you need to bring in capital controls,” said Basu.
Jalan said policy makers should improve regulation of capital into the country when the situation is normal instead of waiting until the emergence of a crisis.
“There should be no reluctance to take measures which will provide you financial stability,” said Jalan. “You have free roads but you obey the red lights.”
“If you have unstable, unpredictable, volatile capital flows which are affecting financial stability as well as the real economy’s stability, then you have to find a way of handling them so that they are not free for all,” Jalan, who headed the Reserve Bank of India between 1997 and 2003, said in a telephone interview. “I’m in favor of tax on profits earned from capital flows which are going to the stock market.”
Emerging markets in Asia are grappling with a surge in capital inflows as governments and central banks around the world pumped in cash to counter the global recession. Taiwan central bank Governor Perng Fai-nan said this week emerging markets should consider limits, Indonesia has studied the issue and Brazil imposed a levy last year.
Reserve Bank of India Governor Duvvuri Subbarao said on April 26 India “may well employ” some form of capital controls. Record foreign buying of stocks and bonds lifted India’s rupee in each of the first four months of 2010, the longest winning streak in three years.
Asian nations should increasingly consider ways to manage inflows that are fueling inflation and creating asset bubbles, Noeleen Heyzer, executive secretary of the United Nations Economic and Social Commission for Asia and the Pacific, wrote in the report yesterday.
‘Legitimate’ Tool
The International Monetary Fund, which previously criticized capital controls, in February released a study saying limits on capital are a “legitimate” tool in some cases for governments.
Equity and property prices in some markets have surged as the region’s growth outpaces the rest of the world. The central bank estimates the $1.2 trillion economy may expand 8 percent “with an upward bias” in the year ending March 31. Last year, it grew 7.2 percent.
The World Bank predicts as much as $800 billion in global capital flows this year, compared with about $450 billion to developing economies in the second half of 2009 at an annualized pace.
Foreign investors have bought a net 290.2 billion rupees ($6.4 billion) of stocks this year compared with a record 834.2 billion rupees in 2009, according to the nation’s market regulator. The rupee has appreciated 2.7 percent against the dollar this year. Last year, it gained 4.8 percent.
‘Red Light’
At present, India permits the rupee to be freely convertible on the trade and current account and places curbs for the capital account. An advisory panel formed by the central bank in 2006 suggested fuller convertibility in five years.
A cap on the amount of funds Indian companies are allowed to raise abroad as well a ceiling on foreign investments in debt instruments are among the controls imposed by India. The limit on foreign investment in government debt is $5 billion while on corporate debt it is $10 billion.
Kaushik Basu, chief economic adviser in India’s finance ministry, said there is no surge in capital inflows this year and that the country had witnessed bigger influx of funds earlier. “I don’t think it’s really a situation where you need to bring in capital controls,” said Basu.
Jalan said policy makers should improve regulation of capital into the country when the situation is normal instead of waiting until the emergence of a crisis.
“There should be no reluctance to take measures which will provide you financial stability,” said Jalan. “You have free roads but you obey the red lights.”
Ambani Case Ruling May Decide Fate of Indian Energy Investments
May 7 (Bloomberg) -- India’s Supreme Court will rule today on a gas dispute between billionaire Mukesh Ambani and his estranged brother, a decision that may determine whether the energy-starved nation will be able to attract explorers.
The court’s verdict will come on appeals filed after a lower court ordered Mukesh’s Reliance Industries Ltd., India’s most valuable company, to honor a 2005 accord to sell gas from the nation’s largest field at a discount to Reliance Natural Resources Ltd., controlled by younger brother Anil Ambani, 50.
The judgment may resolve the feud between the world’s richest brothers over a field with $38 billion worth of reserves. India’s oil regulator said last year’s auction of oil and gas fields received few offers because of disputes over production sharing contracts awarded in previous rounds and the global recession.
“Its main significance is the extent to which it can provide comfort to an industry that has international players,” said Prashanth Sabeshan, an independent Singapore-based lawyer who has advised energy companies in India. “Can you sell gas at an agreed price in India?”
Reliance Natural had its biggest monthly gain in almost a year in April as the court neared its verdict. The stock swung between gains and losses yesterday and closed 0.2 percent lower at 68.35 rupees. Reliance Industries fell 1.3 percent, the fifth day of declines, in line with a global selloff in equities.
Energy companies bid for half the oil and gas blocks on offer during an international auction, which closed in October as the Ambani gas dispute made its way to the Supreme Court. Reliance Industries, which won the KG-D6 field in an auction a decade ago, shunned the sale. India received bids for 36 of the 70 areas offered last year.
Investors Seek Clarity
The row contributed to the unease of international energy companies over the lack of clarity in India’s production sharing contracts between the government and explorers that govern pricing and revenue sharing from oil and gas blocks.
BG Group Plc, the U.K.’s third-largest natural-gas producer, withdrew from a block in April with state-run Oil & Natural Gas Corp., citing the absence of clear documentation on the validity of its contract.
“Investors have been waiting so long for a verdict,” said Taina Erajuuri, who helps manage more than 1 billion euros ($1.3 billion) of emerging market stocks at Helsinki-based Fim Asset Management, including Reliance Industries. “There is this need for clarity, one way or the other.”
India, which imports more than 75 percent of its crude oil needs, is keen to attract investment to reduce dependence on overseas purchases and develop domestic supplies critical to sustaining its expansion. The world’s second-fastest growing major economy is forecast to account for 15 percent of the global increase in energy demand to 2030, according to the International Energy Agency.
Family Dispute
The dispute stems from a 2005 agreement dividing the Reliance business, brokered by Mukesh, 53, and Anil’s mother after the family patriarch, Dhirubhai Ambani, died without leaving a will. The accord required Reliance Industries to supply 28 million cubic meters of gas a day for 17 years at $2.34 per million British thermal units.
The government subsequently set a price of $4.20 per million British thermal units in September 2007 for gas contracts in the Krishna Godavari basin.
Anil’s Reliance Natural told the Supreme Court that the government’s decision on gas prices could not be implemented retroactively. Reliance Industries countered that it cannot comply with the contract because gas can neither be sold nor bought by either party without the government’s approval.
Proposed Plant
The government maintains the state alone has the power to fix gas prices, assign customers and approve gas sales. In an affidavit filed on Sept. 1, the government said it wasn’t interested in the brothers’ agreement and only wants to protect its rights as the owner of the gas.
The Bombay High Court ordered Reliance Industries on June 15 to honor the agreement and supply the fuel, which was meant for a power plant near New Delhi that has yet to be constructed. The Supreme Court ruling is scheduled for 10:30 a.m. local time today, according to the court’s website.
Losing the case could shave as much as $600 million off Reliance Industries’ annual earnings, Moody’s Investors Service said Oct. 19.
Reliance Industries started production from the KG-D6 field in April last year and produces about 64 million cubic meters of gas a day, Executive Director P.M.S. Prasad said in March. All of the fuel is sold to customers including fertilizer plants, power stations and chemical plants selected by the government. Peak production of 80 million cubic meters a day may be reached this year, doubling the availability of gas in the country.
The case is SLP(C) No. 14997/2009 between Reliance Natural Resources and Reliance Industries in India’s Supreme Court.
The court’s verdict will come on appeals filed after a lower court ordered Mukesh’s Reliance Industries Ltd., India’s most valuable company, to honor a 2005 accord to sell gas from the nation’s largest field at a discount to Reliance Natural Resources Ltd., controlled by younger brother Anil Ambani, 50.
The judgment may resolve the feud between the world’s richest brothers over a field with $38 billion worth of reserves. India’s oil regulator said last year’s auction of oil and gas fields received few offers because of disputes over production sharing contracts awarded in previous rounds and the global recession.
“Its main significance is the extent to which it can provide comfort to an industry that has international players,” said Prashanth Sabeshan, an independent Singapore-based lawyer who has advised energy companies in India. “Can you sell gas at an agreed price in India?”
Reliance Natural had its biggest monthly gain in almost a year in April as the court neared its verdict. The stock swung between gains and losses yesterday and closed 0.2 percent lower at 68.35 rupees. Reliance Industries fell 1.3 percent, the fifth day of declines, in line with a global selloff in equities.
Energy companies bid for half the oil and gas blocks on offer during an international auction, which closed in October as the Ambani gas dispute made its way to the Supreme Court. Reliance Industries, which won the KG-D6 field in an auction a decade ago, shunned the sale. India received bids for 36 of the 70 areas offered last year.
Investors Seek Clarity
The row contributed to the unease of international energy companies over the lack of clarity in India’s production sharing contracts between the government and explorers that govern pricing and revenue sharing from oil and gas blocks.
BG Group Plc, the U.K.’s third-largest natural-gas producer, withdrew from a block in April with state-run Oil & Natural Gas Corp., citing the absence of clear documentation on the validity of its contract.
“Investors have been waiting so long for a verdict,” said Taina Erajuuri, who helps manage more than 1 billion euros ($1.3 billion) of emerging market stocks at Helsinki-based Fim Asset Management, including Reliance Industries. “There is this need for clarity, one way or the other.”
India, which imports more than 75 percent of its crude oil needs, is keen to attract investment to reduce dependence on overseas purchases and develop domestic supplies critical to sustaining its expansion. The world’s second-fastest growing major economy is forecast to account for 15 percent of the global increase in energy demand to 2030, according to the International Energy Agency.
Family Dispute
The dispute stems from a 2005 agreement dividing the Reliance business, brokered by Mukesh, 53, and Anil’s mother after the family patriarch, Dhirubhai Ambani, died without leaving a will. The accord required Reliance Industries to supply 28 million cubic meters of gas a day for 17 years at $2.34 per million British thermal units.
The government subsequently set a price of $4.20 per million British thermal units in September 2007 for gas contracts in the Krishna Godavari basin.
Anil’s Reliance Natural told the Supreme Court that the government’s decision on gas prices could not be implemented retroactively. Reliance Industries countered that it cannot comply with the contract because gas can neither be sold nor bought by either party without the government’s approval.
Proposed Plant
The government maintains the state alone has the power to fix gas prices, assign customers and approve gas sales. In an affidavit filed on Sept. 1, the government said it wasn’t interested in the brothers’ agreement and only wants to protect its rights as the owner of the gas.
The Bombay High Court ordered Reliance Industries on June 15 to honor the agreement and supply the fuel, which was meant for a power plant near New Delhi that has yet to be constructed. The Supreme Court ruling is scheduled for 10:30 a.m. local time today, according to the court’s website.
Losing the case could shave as much as $600 million off Reliance Industries’ annual earnings, Moody’s Investors Service said Oct. 19.
Reliance Industries started production from the KG-D6 field in April last year and produces about 64 million cubic meters of gas a day, Executive Director P.M.S. Prasad said in March. All of the fuel is sold to customers including fertilizer plants, power stations and chemical plants selected by the government. Peak production of 80 million cubic meters a day may be reached this year, doubling the availability of gas in the country.
The case is SLP(C) No. 14997/2009 between Reliance Natural Resources and Reliance Industries in India’s Supreme Court.
U.K. Inflation Threat Underestimated, JPMorgan Says
May 6 (Bloomberg) -- Investors underestimate the threat inflation poses to U.K. gilt returns, and should seek protection from higher consumer prices no matter who wins today’s election, according to JPMorgan Chase & Co.
Britain’s record budget deficit means the next government will be left with few options besides raising levies including the sales tax, which will push consumer prices higher, Jasper Falk, the bank’s global head of inflation trading, said in an interview. Investors should still “keep buying protection” such as index-linked bonds or swaps because the Bank of England will likely be forced to keep its benchmark interest rate at a record low to foster the economic recovery, Falk said.
“There is potentially going to be a knee-jerk reaction in the bond market after the election, but beyond that I see a major move in inflation,” Falk said. “All three parties are being criticised for not addressing the deficit more explicitly. But one thing they are likely to do if they become the next government is to raise taxes. You are likely to see a spike in short-term inflation.”
JPMorgan’s latest survey in March showed more respondents expect British inflation to be above the central bank’s target of 2 percent in two to five years. In the euro region, an increased number of investors expected below-average inflation.
Prime Minister Gordon Brown and his rivals, Conservative leader David Cameron and Liberal Democrat chief Nick Clegg, have been trying to persuade voters their policies are best to tackle a budget gap that widened to 11.5 percent of gross domestic product last year, the biggest among the Group of Seven nations.
Consumer Price Growth
U.K. annual consumer-price growth accelerated to 3.4 percent in March, data released on April 20 showed, near the 14- month high of 3.5 percent reached in January. Inflation expectations, as measured by the 10-year yield difference between regular and index-linked bonds, were little changed from the level at the start of the year, standing at 295 basis points as of 2:15 p.m. in London.
In the euro region, the crisis engulfing Greece and the risk that it might spread to other indebted nations, such as Portugal and Spain, may lead to a decline in inflation, Falk said.
The JPMorgan survey, which the bank said is monitored by central banks including the Federal Reserve, the European Central Bank and the Bank of England, showed 66 percent of respondents expect U.K. inflation to be above target, compared with 57 percent in the previous report in November. Of the total, 17 percent expect consumer price growth to be “significantly” above 2 percent.
‘Tale of Two Cities’
By contrast, 17 percent of respondents said inflation in the 16-nation euro region will fall “below average” in the medium term, compared with 12 percent in the previous survey. Some 52 percent of investors in the survey expect inflation in the region to be close to target.
“The inflation story in the U.K. and the euro zone is a tale of two cities,” said Falk. “The shift we’ve seen in our latest survey is the softening of expectations in the euro area and the hardening of expectations in the U.K. What might have prevented a sell-off in the euro-zone inflation market is probably concern over potential tax increases in the near term.”
British index-linked bonds underperformed both U.S. Treasury Inflation-Protected Securities (TIPS) and German inflation debt, returning 2.5 percent compared with 3.1 percent from TIPS and 3.3 percent from German securities, according to Bank of America Merrill Lynch’s indexes.
Britain’s record budget deficit means the next government will be left with few options besides raising levies including the sales tax, which will push consumer prices higher, Jasper Falk, the bank’s global head of inflation trading, said in an interview. Investors should still “keep buying protection” such as index-linked bonds or swaps because the Bank of England will likely be forced to keep its benchmark interest rate at a record low to foster the economic recovery, Falk said.
“There is potentially going to be a knee-jerk reaction in the bond market after the election, but beyond that I see a major move in inflation,” Falk said. “All three parties are being criticised for not addressing the deficit more explicitly. But one thing they are likely to do if they become the next government is to raise taxes. You are likely to see a spike in short-term inflation.”
JPMorgan’s latest survey in March showed more respondents expect British inflation to be above the central bank’s target of 2 percent in two to five years. In the euro region, an increased number of investors expected below-average inflation.
Prime Minister Gordon Brown and his rivals, Conservative leader David Cameron and Liberal Democrat chief Nick Clegg, have been trying to persuade voters their policies are best to tackle a budget gap that widened to 11.5 percent of gross domestic product last year, the biggest among the Group of Seven nations.
Consumer Price Growth
U.K. annual consumer-price growth accelerated to 3.4 percent in March, data released on April 20 showed, near the 14- month high of 3.5 percent reached in January. Inflation expectations, as measured by the 10-year yield difference between regular and index-linked bonds, were little changed from the level at the start of the year, standing at 295 basis points as of 2:15 p.m. in London.
In the euro region, the crisis engulfing Greece and the risk that it might spread to other indebted nations, such as Portugal and Spain, may lead to a decline in inflation, Falk said.
The JPMorgan survey, which the bank said is monitored by central banks including the Federal Reserve, the European Central Bank and the Bank of England, showed 66 percent of respondents expect U.K. inflation to be above target, compared with 57 percent in the previous report in November. Of the total, 17 percent expect consumer price growth to be “significantly” above 2 percent.
‘Tale of Two Cities’
By contrast, 17 percent of respondents said inflation in the 16-nation euro region will fall “below average” in the medium term, compared with 12 percent in the previous survey. Some 52 percent of investors in the survey expect inflation in the region to be close to target.
“The inflation story in the U.K. and the euro zone is a tale of two cities,” said Falk. “The shift we’ve seen in our latest survey is the softening of expectations in the euro area and the hardening of expectations in the U.K. What might have prevented a sell-off in the euro-zone inflation market is probably concern over potential tax increases in the near term.”
British index-linked bonds underperformed both U.S. Treasury Inflation-Protected Securities (TIPS) and German inflation debt, returning 2.5 percent compared with 3.1 percent from TIPS and 3.3 percent from German securities, according to Bank of America Merrill Lynch’s indexes.
Phillies’ Security to Subdue On-Field Fans After Taser Incident
May 6 (Bloomberg) -- The Philadelphia Phillies said fans entering the field of play at Citizens Bank Ballpark during games will be apprehended by team security and not police, a decision that came after a 17-year-old was subdued with a Taser.
The Phillies said in a statement that the policy applies to “ordinary circumstances” of field intrusion and that violators would be turned over to the Philadelphia police on the field for handcuffing and subsequent charging.
“If greater force is necessary, requiring the assistance of Philadelphia police in making the apprehension, such assistance will be employed,” the Phillies said.
The Phillies said they will continue to prosecute all fans who run onto the field during a game to the maximum extent of the law, which could include jail time of up to one year and a $2,500 fine.
During a May 3 game against the St. Louis Cardinals, a towel-waving fan eluded security while running in circles in the outfield at Citizens Bank Park for about 30 seconds. He was then subdued by a Philadelphia police officer who used his Taser stun gun.
Philadelphia Police Commissioner Charles Ramsey said video of the incident was reviewed and it was determined that the officer acted within department guidelines.
The fan, Steve Consalvi of Gilbertsville, Pennsylvania, has apologized for his “foolish act” and was charged with defiant trespass, disorderly conduct and resisting arrest.
The following night, a 34-year-old man also ran onto the field of play during a game against the Cardinals as the crowd booed and some fans chanted “Tase him!” He was arrested and faces charges including marijuana possession, criminal mischief and disorderly conduct.
While Pennsylvania Governor Ed Rendell was among those to question the use of stun guns by police to subdue fans who run onto the field, many Major League Baseball players have said it’s an appropriate action, fearing for their safety.
“If you don’t want to get Tased, don’t go on the field,” Cardinals pitcher Adam Wainwright told reporters. “There’s absolutely nothing wrong with getting Tased if you’re on the field.”
The Phillies said in a statement that the policy applies to “ordinary circumstances” of field intrusion and that violators would be turned over to the Philadelphia police on the field for handcuffing and subsequent charging.
“If greater force is necessary, requiring the assistance of Philadelphia police in making the apprehension, such assistance will be employed,” the Phillies said.
The Phillies said they will continue to prosecute all fans who run onto the field during a game to the maximum extent of the law, which could include jail time of up to one year and a $2,500 fine.
During a May 3 game against the St. Louis Cardinals, a towel-waving fan eluded security while running in circles in the outfield at Citizens Bank Park for about 30 seconds. He was then subdued by a Philadelphia police officer who used his Taser stun gun.
Philadelphia Police Commissioner Charles Ramsey said video of the incident was reviewed and it was determined that the officer acted within department guidelines.
The fan, Steve Consalvi of Gilbertsville, Pennsylvania, has apologized for his “foolish act” and was charged with defiant trespass, disorderly conduct and resisting arrest.
The following night, a 34-year-old man also ran onto the field of play during a game against the Cardinals as the crowd booed and some fans chanted “Tase him!” He was arrested and faces charges including marijuana possession, criminal mischief and disorderly conduct.
While Pennsylvania Governor Ed Rendell was among those to question the use of stun guns by police to subdue fans who run onto the field, many Major League Baseball players have said it’s an appropriate action, fearing for their safety.
“If you don’t want to get Tased, don’t go on the field,” Cardinals pitcher Adam Wainwright told reporters. “There’s absolutely nothing wrong with getting Tased if you’re on the field.”
Canadian Stocks Fall on Concerns European Debt Crisis to Spread
May 5 (Bloomberg) -- Canadian stocks fell for a third day, led by oil companies, as protests over Greek austerity measures turned violent and concern mounted that the country’s debt crisis will spread to other European nations.
Suncor Energy Inc., Canada’s largest oil and gas company, declined 5.4 percent as oil futures dropped below $80 a barrel for the first time in five weeks. Kinross Gold Corp., Canada’s third-biggest gold producer, sank 4.4 percent after saying it’s buying a stake in Red Back Mining Inc. Public Storage Canadian Properties, which rents storage space in Canada, jumped 29 percent on a bid to take the company private.
The Standard & Poor’s/TSX Composite Index decreased 155.73 points, or 1.3 percent, to a two-month low of 11,875.13.
“People are worried about Europe,” said David Baskin, president of Baskin Financial Services Inc. in Toronto, which manages C$350 million ($340 million). “Greece is a mess; they’re killing people on the streets. They don’t know what to make of it, and when people are uncertain, they sell.”
The S&P/TSX has slumped 2.7 percent this week for the biggest three-day loss since January as the euro has fallen to a 13-month low against the U.S. dollar. The Reuters/Jefferies CRB Commodity Index fell to its lowest level in five weeks.
Energy and raw materials companies make up 45 percent of Canadian stocks by market value.
‘Grave Contagion‘
Axel Weber, a council member of the European Central Bank, said today Greece’s fiscal crisis threatens “grave contagion effects.”
Greece, Spain, Ireland and the UK had budget deficits of at least 10 percent of gross domestic product last year and Italy’s national debt rose to 116 percent of GDP, according to the European Union’s statistical agency.
Three people were killed today after Greeks protesting proposed spending cuts and tax increases burned down a building containing a bank branch. The country’s biggest airport canceled all flights as air-traffic controllers joined a general strike.
Crude oil futures dropped 3.3 percent, adding to a 4 percent decline yesterday. The S&P/TSX Energy Index sank 2.7 percent, the most since Oct. 28.
Suncor tumbled 5.4 percent to C$32.51. Canadian Natural Resources Ltd., Canada’s second-largest energy company by market value, decreased 4.1 percent to C$73.83. Cenovus Energy Inc., the oil company spun off from EnCana Corp. in December, slumped 3 percent to C$27.76.
Pharmacy-benefits manager SXC Health Solutions Corp. led the S&P/TSX with a 7 percent retreat to C$63.01 before the release of its first-quarter earnings. SXC shares have still nearly doubled over the past nine months.
Banks Fall
The S&P/TSX Financials Index declined to its lowest level since Mar. 11 as banks slipped. Royal Bank of Canada, the country’s biggest bank, lost 0.8 percent to C$61.21. Toronto- Dominion Bank, its largest domestic rival, decreased 1.6 percent to C$73.60. Bank of Montreal, the No. 4 bank by assets, slumped 2.2 percent to C$60.93.
Brokerage GMP Capital Inc. climbed 3.3 percent to C$12.03, snapping a 14-day streak of declines.
Kinross fell 4.4 percent to C$18.21 after announcing it is buying a 9.4 percent stake in Red Back for C$600 million ($582 million). TD analyst Greg Barnes cut his rating on Kinross to “hold” from “buy,” telling clients, “the rationale behind the investment is unclear to us.”
Thomson Reuters Rises
Financial news and information provider Thomson Reuters Inc. climbed 3 percent to a two-year high of C$38.02 after being added to TD analyst Vince Valentini’s “action list” of top stocks.
Producers of coal used in steel mills rallied as China’s benchmark coal price rose the most in four months. Western Coal Corp. surged 6.9 percent to C$5.59 to lead the S&P/TSX. Grande Cache Coal Corp. gained for the first time in 11 days, advancing 9.5 percent to C$6.46. Teck Resources Ltd. increased 0.5 percent to C$37.44.
Public Storage Canadian Properties soared 29 percent, the most in at least 18 years, to C$18.10. An entity controlled by B. Wayne Hughes, the company’s chairman and majority owner, and his daughter, Tamara Gustavson, offered to buy the rest of the company private for C$17 a unit. Public Storage Canadian Properties’ independent directors said an independent valuation found the company’s fair value is C$20 to C$24 a unit.
Suncor Energy Inc., Canada’s largest oil and gas company, declined 5.4 percent as oil futures dropped below $80 a barrel for the first time in five weeks. Kinross Gold Corp., Canada’s third-biggest gold producer, sank 4.4 percent after saying it’s buying a stake in Red Back Mining Inc. Public Storage Canadian Properties, which rents storage space in Canada, jumped 29 percent on a bid to take the company private.
The Standard & Poor’s/TSX Composite Index decreased 155.73 points, or 1.3 percent, to a two-month low of 11,875.13.
“People are worried about Europe,” said David Baskin, president of Baskin Financial Services Inc. in Toronto, which manages C$350 million ($340 million). “Greece is a mess; they’re killing people on the streets. They don’t know what to make of it, and when people are uncertain, they sell.”
The S&P/TSX has slumped 2.7 percent this week for the biggest three-day loss since January as the euro has fallen to a 13-month low against the U.S. dollar. The Reuters/Jefferies CRB Commodity Index fell to its lowest level in five weeks.
Energy and raw materials companies make up 45 percent of Canadian stocks by market value.
‘Grave Contagion‘
Axel Weber, a council member of the European Central Bank, said today Greece’s fiscal crisis threatens “grave contagion effects.”
Greece, Spain, Ireland and the UK had budget deficits of at least 10 percent of gross domestic product last year and Italy’s national debt rose to 116 percent of GDP, according to the European Union’s statistical agency.
Three people were killed today after Greeks protesting proposed spending cuts and tax increases burned down a building containing a bank branch. The country’s biggest airport canceled all flights as air-traffic controllers joined a general strike.
Crude oil futures dropped 3.3 percent, adding to a 4 percent decline yesterday. The S&P/TSX Energy Index sank 2.7 percent, the most since Oct. 28.
Suncor tumbled 5.4 percent to C$32.51. Canadian Natural Resources Ltd., Canada’s second-largest energy company by market value, decreased 4.1 percent to C$73.83. Cenovus Energy Inc., the oil company spun off from EnCana Corp. in December, slumped 3 percent to C$27.76.
Pharmacy-benefits manager SXC Health Solutions Corp. led the S&P/TSX with a 7 percent retreat to C$63.01 before the release of its first-quarter earnings. SXC shares have still nearly doubled over the past nine months.
Banks Fall
The S&P/TSX Financials Index declined to its lowest level since Mar. 11 as banks slipped. Royal Bank of Canada, the country’s biggest bank, lost 0.8 percent to C$61.21. Toronto- Dominion Bank, its largest domestic rival, decreased 1.6 percent to C$73.60. Bank of Montreal, the No. 4 bank by assets, slumped 2.2 percent to C$60.93.
Brokerage GMP Capital Inc. climbed 3.3 percent to C$12.03, snapping a 14-day streak of declines.
Kinross fell 4.4 percent to C$18.21 after announcing it is buying a 9.4 percent stake in Red Back for C$600 million ($582 million). TD analyst Greg Barnes cut his rating on Kinross to “hold” from “buy,” telling clients, “the rationale behind the investment is unclear to us.”
Thomson Reuters Rises
Financial news and information provider Thomson Reuters Inc. climbed 3 percent to a two-year high of C$38.02 after being added to TD analyst Vince Valentini’s “action list” of top stocks.
Producers of coal used in steel mills rallied as China’s benchmark coal price rose the most in four months. Western Coal Corp. surged 6.9 percent to C$5.59 to lead the S&P/TSX. Grande Cache Coal Corp. gained for the first time in 11 days, advancing 9.5 percent to C$6.46. Teck Resources Ltd. increased 0.5 percent to C$37.44.
Public Storage Canadian Properties soared 29 percent, the most in at least 18 years, to C$18.10. An entity controlled by B. Wayne Hughes, the company’s chairman and majority owner, and his daughter, Tamara Gustavson, offered to buy the rest of the company private for C$17 a unit. Public Storage Canadian Properties’ independent directors said an independent valuation found the company’s fair value is C$20 to C$24 a unit.
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