July 21 (Bloomberg) -- Asian stocks rose as technology companies were boosted by Apple Inc.’s better-than-estimated earnings, while the dollar weakened ahead of testimony to Congress by Federal Reserve Chairman Ben S. Bernanke.
The MSCI Asia Pacific Index gained 0.3 percent to 115.76 as of 10:57 a.m. in Tokyo, with about two stocks advancing for each one that declined. Futures on the Standard & Poor’s 500 Index lost 0.2 percent after the gauge climbed 1.1 percent yesterday. The dollar traded near a two-month low versus the euro and was at 87.24 yen in Tokyo from 87.51 yen in New York yesterday.
Equities were boosted after Apple posted a 78 percent surge in third-quarter profit as customers flocked to the new iPad tablet computer. Bernanke gives his semi-annual report on the economy to Congress today and tomorrow amid diminishing expectations that interest rates will rise soon.
“The global economy is slowing down, but concern about a double-dip recession is fading,” said Hiroichi Nishi, an equities manager in Tokyo at Nikko Cordial Securities Inc.
Nine of 10 industries in the S&P 500 advanced yesterday as commodity producers and homebuilders, which defied the earlier slump, led gains after a U.S. government report showed building permits, a gauge of future construction, rose 2.1 percent last month. Taiwan’s Taiex index rose 0.3 percent and South Korea’s Kospi index climbed 0.7 percent, both gaining for a second day. The Nikkei 225 Stock Average rose 0.2 percent.
Apple Boost
Samsung Electronics Co., which supplies semiconductor chips for Apple products, increased 1.6 percent. LG Chem Ltd., the iPhone battery supplier that reported record quarterly profit yesterday, gained 3.6 percent. Catcher Technology Co., which supplies metal parts for the iPhone, climbed 1.8 percent.
The dollar traded at $1.2899 per euro from $1.2880 yesterday, when it touched $1.3029, the lowest since May 10. The euro was at 112.53 yen from 112.70 yen.
“Disappointing economic data and diminishing expectations the Federal Reserve will raise rates have pushed down the dollar,” said Satoru Ogasawara, a foreign-exchange analyst and economist in Tokyo at Credit Suisse AG. “The dollar may fall to 85 yen in the short term.”
Australia Gains
Australia’s currency traded at 88.22 U.S. cents from 88.39 cents yesterday, when it gained 1.8 percent. It reached 88.71 cents on July 14, the most since May 14. The currency was at 76.979 yen from 77.35 yen.
“Commodity currencies will continue to follow equity markets,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. “Bernanke’s testimony is the other thing driving the U.S. dollar weakness with people expecting him to be dovish.”
The cost of protecting Asia-Pacific bonds from non-payment declined, according to traders of credit-default swaps.
The Markit iTraxx Asia index of 50 investment-grade borrowers outside Japan dropped for a third day, falling 4 basis points to 127 basis points in Hong Kong, the lowest level since July 15, according to Credit Agricole CIB and CMA prices. The Markit iTraxx Japan index fell 4 basis points to 126 basis points in Tokyo, also the lowest since July 15, Morgan Stanley and CMA prices show.
Tuesday, July 20, 2010
Facing Pension Woes, Maine Looks to Social Security
Lawmakers in Maine have found an unusual tool for tackling their state’s pension woes: Social Security.
Just as workers in the private sector participate in Social Security in addition to any pension plan at their companies, most states put their workers in the federal program along with providing a state pension.
Maine and a handful of others, however, have long been holdouts, relying solely on their state pension plans. In addition, most states have excluded some workers — often teachers, firefighters and police — from the national retirement system and its associated costs, 6.2 percent of payroll for the employer and an equal amount for the worker.
Now, Maine legislators have prepared a detailed plan for shifting state employees into Social Security and are considering whether to adopt it. They acknowledge it will not solve their problem in the short term but see long-term advantages.
Some variation on this idea could ultimately appeal to other states grappling with their own exploding pension costs and, in extreme cases, quietly looking for help from Washington. In troubled states, some employees have wondered whether they might be allowed to begin paying in and collecting from the federal system even before they have contributed a career’s worth of taxes.
The potential effect on the Social Security program is hard to estimate. Maine’s proposal would mean new members and a small additional source of payroll tax revenue for the federal system.
Even if it fully embraces the proposal, Maine will have to come up with a considerable sum to sustain its existing pension plan, presumably through some combination of taxes and service cuts. After a phase-in period, Social Security would cover part of state retirees’ benefits, with the state pension as the remainder. Many pension plans in corporate America coordinate their benefits in this way.
The proposal has the advantage of not reducing promised benefits, guaranteed by the constitution in many states. The change would not be cheap, but it would reduce the role of Maine’s pension fund and thus the risk of having to suddenly cover giant losses down the road.
A Social Security spokesman said the agency did not expect many of the holdout states to join, citing the cost of participation. The only other state known to have talked recently about adding Social Security is Louisiana.
More than six million public employees work outside the Social Security system, including roughly 1.7 million teachers in California, Illinois and Texas, and nearly two million employees of all types in Alaska, Colorado, Massachusetts, Nevada and Ohio, as well as Louisiana and Maine. For years, these and other states have insisted they could provide richer pensions at a lower cost, both to workers and taxpayers, because of investments.
Some of those states’ pension plans now have shortfalls so large that they need outsize contributions. Virtually all state pension funds have had big losses in the last two years, but the go-it-alone states appear especially vulnerable.
Not only are these states trying to provide richer benefits with smaller contributions than the payroll tax for Social Security, but they have promised to do it for workers who can retire 10 and sometimes 20 years younger.
With pension costs ballooning and taxpayers lashing out, many workers in states with deeply underfunded plans fear their benefits will be cut. Those being asked to put more into their pension funds complain they feel caught up in Ponzi schemes. Some wish they had been part of Social Security after all.
“Had I known back then, I would not have stayed in Illinois,” said John Gebhardt, a university employee in that state, which keeps teachers and university personnel out of Social Security. He has even offered to pay both his own and his employer’s payroll tax to join Social Security, but was told no.
Maine lawmakers who support shifting state workers into Social Security say they believe it would be fairer. Social Security may not be sexy, but it is portable.
A recent study in Maine underscored the penalty paid by the mobile work force. Only one in five state employees stays around long enough to get a full pension. The majority leave, taking neither a pension nor any Social Security credits with them. This practice, not investment gains, has sustained the state’s pension system.
Just as workers in the private sector participate in Social Security in addition to any pension plan at their companies, most states put their workers in the federal program along with providing a state pension.
Maine and a handful of others, however, have long been holdouts, relying solely on their state pension plans. In addition, most states have excluded some workers — often teachers, firefighters and police — from the national retirement system and its associated costs, 6.2 percent of payroll for the employer and an equal amount for the worker.
Now, Maine legislators have prepared a detailed plan for shifting state employees into Social Security and are considering whether to adopt it. They acknowledge it will not solve their problem in the short term but see long-term advantages.
Some variation on this idea could ultimately appeal to other states grappling with their own exploding pension costs and, in extreme cases, quietly looking for help from Washington. In troubled states, some employees have wondered whether they might be allowed to begin paying in and collecting from the federal system even before they have contributed a career’s worth of taxes.
The potential effect on the Social Security program is hard to estimate. Maine’s proposal would mean new members and a small additional source of payroll tax revenue for the federal system.
Even if it fully embraces the proposal, Maine will have to come up with a considerable sum to sustain its existing pension plan, presumably through some combination of taxes and service cuts. After a phase-in period, Social Security would cover part of state retirees’ benefits, with the state pension as the remainder. Many pension plans in corporate America coordinate their benefits in this way.
The proposal has the advantage of not reducing promised benefits, guaranteed by the constitution in many states. The change would not be cheap, but it would reduce the role of Maine’s pension fund and thus the risk of having to suddenly cover giant losses down the road.
A Social Security spokesman said the agency did not expect many of the holdout states to join, citing the cost of participation. The only other state known to have talked recently about adding Social Security is Louisiana.
More than six million public employees work outside the Social Security system, including roughly 1.7 million teachers in California, Illinois and Texas, and nearly two million employees of all types in Alaska, Colorado, Massachusetts, Nevada and Ohio, as well as Louisiana and Maine. For years, these and other states have insisted they could provide richer pensions at a lower cost, both to workers and taxpayers, because of investments.
Some of those states’ pension plans now have shortfalls so large that they need outsize contributions. Virtually all state pension funds have had big losses in the last two years, but the go-it-alone states appear especially vulnerable.
Not only are these states trying to provide richer benefits with smaller contributions than the payroll tax for Social Security, but they have promised to do it for workers who can retire 10 and sometimes 20 years younger.
With pension costs ballooning and taxpayers lashing out, many workers in states with deeply underfunded plans fear their benefits will be cut. Those being asked to put more into their pension funds complain they feel caught up in Ponzi schemes. Some wish they had been part of Social Security after all.
“Had I known back then, I would not have stayed in Illinois,” said John Gebhardt, a university employee in that state, which keeps teachers and university personnel out of Social Security. He has even offered to pay both his own and his employer’s payroll tax to join Social Security, but was told no.
Maine lawmakers who support shifting state workers into Social Security say they believe it would be fairer. Social Security may not be sexy, but it is portable.
A recent study in Maine underscored the penalty paid by the mobile work force. Only one in five state employees stays around long enough to get a full pension. The majority leave, taking neither a pension nor any Social Security credits with them. This practice, not investment gains, has sustained the state’s pension system.
SKS Microfinance plans to raise $350m in IPO
SKS Microfinance, India’s largest lender to the poor, aims to raise about $350m this month by selling a 21.6 per cent stake in an initial public offering expected to spark a wave of listings by equity-strapped Indian microfinance companies.
SKS will be one of the biggest microfinance companies to go public since the controversial 2008 share offering of Mexico’s Compartamos tore the close-knit world of global microfinance institutions apart with a soul-searching debate about the ethics of profiting from the poor.
Microfinance was born in the 1970s as an idealistic effort to provide small loans to the rural poor to save them from the clutches of traditional moneylenders.
Muhammad Yunus, the Nobel Peace Prize-winning founder of Bangladesh’s Grameen Bank – the world’s most famous microlender – has criticised the commercialisation of the industry, saying profit-oriented microlenders are little different to the loan sharks they once set out to replace.
However, Vikram Akula, the former McKinsey consultant who founded SKS, says Indian microfinance companies must go public if they are to meet the huge unmet demand for more affordable credit from the poor, a market he estimates to be worth about $50bn.
“The view of Professor Yunus is that microfinance should be a social business – no profit, no loss,” he said.
“We feel the only way to get $50bn is to go to the commercial capital markets and the only way to convince them to back you is not to be profitable, but very profitable.”
Mr Akula said SKS, which says it has 7m borrowers in 19 Indian States, also plans to boost its revenues through alliances with large companies to distribute their products – such as mobile phones and water purifiers – even as it provides rural consumers with the microloans needed to buy the items.
The microlender has already been running pilot projects with Nokia, the world’s largest handset maker, Unilever, the Anglo-Dutch consumer goods company, and Bajaj Allianz, the insurer, to distribute their goods and services, although Mr Akula said such lending represented a tiny fraction of its outstanding $960m loan portfolio.
“We have built a large distribution network in rural India,” said the SKS founder.
“We believe we can leverage this network to distribute financial products of other institutions to our members at a cost lower than other institutions”.
SKS will be one of the biggest microfinance companies to go public since the controversial 2008 share offering of Mexico’s Compartamos tore the close-knit world of global microfinance institutions apart with a soul-searching debate about the ethics of profiting from the poor.
Microfinance was born in the 1970s as an idealistic effort to provide small loans to the rural poor to save them from the clutches of traditional moneylenders.
Muhammad Yunus, the Nobel Peace Prize-winning founder of Bangladesh’s Grameen Bank – the world’s most famous microlender – has criticised the commercialisation of the industry, saying profit-oriented microlenders are little different to the loan sharks they once set out to replace.
However, Vikram Akula, the former McKinsey consultant who founded SKS, says Indian microfinance companies must go public if they are to meet the huge unmet demand for more affordable credit from the poor, a market he estimates to be worth about $50bn.
“The view of Professor Yunus is that microfinance should be a social business – no profit, no loss,” he said.
“We feel the only way to get $50bn is to go to the commercial capital markets and the only way to convince them to back you is not to be profitable, but very profitable.”
Mr Akula said SKS, which says it has 7m borrowers in 19 Indian States, also plans to boost its revenues through alliances with large companies to distribute their products – such as mobile phones and water purifiers – even as it provides rural consumers with the microloans needed to buy the items.
The microlender has already been running pilot projects with Nokia, the world’s largest handset maker, Unilever, the Anglo-Dutch consumer goods company, and Bajaj Allianz, the insurer, to distribute their goods and services, although Mr Akula said such lending represented a tiny fraction of its outstanding $960m loan portfolio.
“We have built a large distribution network in rural India,” said the SKS founder.
“We believe we can leverage this network to distribute financial products of other institutions to our members at a cost lower than other institutions”.
Sunday, July 18, 2010
Mercedes-Benz steers at India
Mercedes-Benz has launched an aggressive strategy to target the luxury sports car market in India, as it expects strong demand growth for high-end vehicles over the next 10 years.
Leading European luxury carmakers are looking to expand into one of the fastest growing emerging markets for high-end cars and Mercedes-Benz has picked India over China to launch its latest super sports car.
EDITOR’S CHOICE
Mercedes eyes closer ties with BMW - Sep-09
Germans still have breathing space on CO2 - Sep-08
Mercedes versus BMW - Sep-05
BMW considers low-emission supermini - Jul-31
Profits soar at Mercedes - Jul-26
McLaren gets Santander as sponsor - Jun-29
“Enjoying luxury and investing in a Mercedes-Benz today in India is much more socially acceptable than five to 10 years ago,” said Wilfried Aulbur, chief executive of Mercedes-Benz India at the launch of the right-hand drive SLS AMG in New Delhi.
“For Mercedes-Benz, the sky is the limit in India. This car is a brand shaper. I do believe the Indian market will be one of the key markets for luxury cars worldwide and we expect strong double-digit growth over the next few years.”
China, which boasts more than 900,000 dollar millionaires, has already become a big player in the luxury car market and this demand is spreading to India.
According to Capgemini and Merrill Lynch Wealth Management research, India’s 120,000 dollar millionaires hold roughly a third of the country’s gross national income and this number is increasing rapidly.
“India’s luxury car market will grow in leaps and bounds over the next few years driven by two major trends,” said Mr Aulbur. “First, disposable incomes are likely to grow by at least a factor of five over the next five to 10 years and, second, there is a significant mindset change observable with Indian consumers.”
Mercedes-Benz India, which saw a record 79 per cent growth in year-on-year sales for the first half of this year, chose India for its second launch of the supercar after Germany, a strong statement from the company about how it regards the future potential of the Indian luxury car market.
Since its presentation in January, there have been 10 confirmed sales in India of the SLS AMG worth a minimum of Rs2m ($405,721) each and although Mr Aulbur declined to comment on sales projections, people close to the company said achieving a further 10 by the end of the year was a realistic target.
The company, which started trading in India in 1994, was a pioneer in the luxury car market, launching the E-Class in 1995. Mercedes-Benz has 30,000 cars on India’s roads and holds second place to BMW as the largest seller of luxury cars with Audi in third place.
While the luxury car market constitutes less than 1 per cent of the overall car market in India, it is growing fast. Companies such as Mercedes, BMW, Porsche, Rolls-Royce and Bentley have all set up manufacturing plants in India.
Meanwhile, Ferrari is looking to open its first dealership in Mumbai in the next six to eight months, entering the market at a time when supercar manufacturers such as Bugatti and Aston Martin are trying their luck.
Leading European luxury carmakers are looking to expand into one of the fastest growing emerging markets for high-end cars and Mercedes-Benz has picked India over China to launch its latest super sports car.
EDITOR’S CHOICE
Mercedes eyes closer ties with BMW - Sep-09
Germans still have breathing space on CO2 - Sep-08
Mercedes versus BMW - Sep-05
BMW considers low-emission supermini - Jul-31
Profits soar at Mercedes - Jul-26
McLaren gets Santander as sponsor - Jun-29
“Enjoying luxury and investing in a Mercedes-Benz today in India is much more socially acceptable than five to 10 years ago,” said Wilfried Aulbur, chief executive of Mercedes-Benz India at the launch of the right-hand drive SLS AMG in New Delhi.
“For Mercedes-Benz, the sky is the limit in India. This car is a brand shaper. I do believe the Indian market will be one of the key markets for luxury cars worldwide and we expect strong double-digit growth over the next few years.”
China, which boasts more than 900,000 dollar millionaires, has already become a big player in the luxury car market and this demand is spreading to India.
According to Capgemini and Merrill Lynch Wealth Management research, India’s 120,000 dollar millionaires hold roughly a third of the country’s gross national income and this number is increasing rapidly.
“India’s luxury car market will grow in leaps and bounds over the next few years driven by two major trends,” said Mr Aulbur. “First, disposable incomes are likely to grow by at least a factor of five over the next five to 10 years and, second, there is a significant mindset change observable with Indian consumers.”
Mercedes-Benz India, which saw a record 79 per cent growth in year-on-year sales for the first half of this year, chose India for its second launch of the supercar after Germany, a strong statement from the company about how it regards the future potential of the Indian luxury car market.
Since its presentation in January, there have been 10 confirmed sales in India of the SLS AMG worth a minimum of Rs2m ($405,721) each and although Mr Aulbur declined to comment on sales projections, people close to the company said achieving a further 10 by the end of the year was a realistic target.
The company, which started trading in India in 1994, was a pioneer in the luxury car market, launching the E-Class in 1995. Mercedes-Benz has 30,000 cars on India’s roads and holds second place to BMW as the largest seller of luxury cars with Audi in third place.
While the luxury car market constitutes less than 1 per cent of the overall car market in India, it is growing fast. Companies such as Mercedes, BMW, Porsche, Rolls-Royce and Bentley have all set up manufacturing plants in India.
Meanwhile, Ferrari is looking to open its first dealership in Mumbai in the next six to eight months, entering the market at a time when supercar manufacturers such as Bugatti and Aston Martin are trying their luck.
Asia Stocks, Currencies Drop, Bond Risk Gains on Recovery Risk
July 19 (Bloomberg) -- Asian stocks fell the most in more than two weeks, regional currencies declined and bond risk increased on concern the global economic recovery is faltering.
The MSCI Asia Pacific excluding Japan Index lost as much as 1.3 percent to 390.04 and traded at 391.81 at 10:53 a.m. in Singapore, heading for its biggest decline since July 1. South Korea’s won fell the most this month, leading a drop in higher- yielding currencies, and bond risk climbed the most in six weeks. Standard & Poor’s 500 Index futures gained 0.2 percent after the gauge slumped 2.9 percent Friday.
U.S. consumer confidence sank to the lowest level in a year and Bank of America Corp., Citigroup Inc. and General Electric Co. reported worse-than-estimated revenue on July 16. Chinese premier Wen Jiabao said on a trip to Shaanxi province that the global recovery was slow and New Zealand reported the jobless rate was likely to stay “elevated” over coming quarters.
The results “point to a U.S. economy in a recovery mode that is at best is patchy,” said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “The recovery may require fiscal stimulus to get to a point of being self-sustaining.”
Almost two shares fell for every one that gained on the MSCI Asia Pacific excluding Japan Index. The gauge has tumbled 6 percent this year on concern European efforts to curb deficits and Chinese moves to cool property prices will hurt growth. The Japanese market is closed today.
Australia’s S&P/ASX 200 Index sank 1.2 percent to 4,367.90 and New Zealand’s NZX 50 Index fell 0.6 percent, while South Korea’s Kospi declined 0.1 percent.
James Hardie, Samsung
James Hardie Industries SE, the biggest seller of home siding in the U.S., slumped 1.5 percent in Sydney on concern demand for its products will fall. Samsung Electronics Co., which gets a fifth of its sales in America, sank 0.9 percent in Seoul. BHP Billiton Ltd., the world’s largest mining company, lost 1 percent in Sydney.
China Petroleum & Chemical Corp., Asia’s biggest oil refiner, also known as Sinopec, and PetroChina Co., the country’s largest oil company, dropped as much as 1.8 percent.
An oil spill caused by an explosion in the northeastern Chinese port city of Dalian has “seriously” polluted 11 square kilometers of sea and “slightly” affected 50 square kilometers of water, the Xinhua News Agency reported.
South Korea’s won dropped on concern a faltering recovery in the U.S., the biggest economy, will hurt exports and curb demand for emerging-market assets. The won fell 0.9 percent to 1,214.35 per dollar. Malaysia’s ringgit fell 0.5 percent.
Asian Currencies
“It’s going to be a negative day for Asian currencies,” said Dariusz Kowalczyk, Hong Kong-based senior economist at Credit Agricole CIB. “We’ve seen a pretty substantial increase in global risk aversion, particularly from the U.S., which led investors to pare long positions in risk assets.”
The yen was little changed against the euro at 111.88 from 111.96 in New York last week, after earlier rising to 111.53, the strongest since July 13.
Australia’s dollar fell to a one-week low after Prime Minister Julia Gillard called an election, prompting speculation the central bank will refrain from raising interest rates during the campaign. Australia’s currency fell as much as 0.6 percent to 86.33 U.S. cents.
The cost of protecting Asian bonds from default surged. The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan climbed 9 basis points to 137 basis points as of 8:23 a.m. in Singapore, the biggest jump since June 4, prices from Credit Agricole CIB and CMA show.
Oil for August delivery dropped as much as 51 cents, or 0.7 percent, to $75.50 a barrel on the New York Mercantile Exchange and traded at $75.82 at 11:13 a.m. Singapore time.
The MSCI Asia Pacific excluding Japan Index lost as much as 1.3 percent to 390.04 and traded at 391.81 at 10:53 a.m. in Singapore, heading for its biggest decline since July 1. South Korea’s won fell the most this month, leading a drop in higher- yielding currencies, and bond risk climbed the most in six weeks. Standard & Poor’s 500 Index futures gained 0.2 percent after the gauge slumped 2.9 percent Friday.
U.S. consumer confidence sank to the lowest level in a year and Bank of America Corp., Citigroup Inc. and General Electric Co. reported worse-than-estimated revenue on July 16. Chinese premier Wen Jiabao said on a trip to Shaanxi province that the global recovery was slow and New Zealand reported the jobless rate was likely to stay “elevated” over coming quarters.
The results “point to a U.S. economy in a recovery mode that is at best is patchy,” said Tim Schroeders, who helps manage about $1.1 billion at Pengana Capital Ltd. in Melbourne. “The recovery may require fiscal stimulus to get to a point of being self-sustaining.”
Almost two shares fell for every one that gained on the MSCI Asia Pacific excluding Japan Index. The gauge has tumbled 6 percent this year on concern European efforts to curb deficits and Chinese moves to cool property prices will hurt growth. The Japanese market is closed today.
Australia’s S&P/ASX 200 Index sank 1.2 percent to 4,367.90 and New Zealand’s NZX 50 Index fell 0.6 percent, while South Korea’s Kospi declined 0.1 percent.
James Hardie, Samsung
James Hardie Industries SE, the biggest seller of home siding in the U.S., slumped 1.5 percent in Sydney on concern demand for its products will fall. Samsung Electronics Co., which gets a fifth of its sales in America, sank 0.9 percent in Seoul. BHP Billiton Ltd., the world’s largest mining company, lost 1 percent in Sydney.
China Petroleum & Chemical Corp., Asia’s biggest oil refiner, also known as Sinopec, and PetroChina Co., the country’s largest oil company, dropped as much as 1.8 percent.
An oil spill caused by an explosion in the northeastern Chinese port city of Dalian has “seriously” polluted 11 square kilometers of sea and “slightly” affected 50 square kilometers of water, the Xinhua News Agency reported.
South Korea’s won dropped on concern a faltering recovery in the U.S., the biggest economy, will hurt exports and curb demand for emerging-market assets. The won fell 0.9 percent to 1,214.35 per dollar. Malaysia’s ringgit fell 0.5 percent.
Asian Currencies
“It’s going to be a negative day for Asian currencies,” said Dariusz Kowalczyk, Hong Kong-based senior economist at Credit Agricole CIB. “We’ve seen a pretty substantial increase in global risk aversion, particularly from the U.S., which led investors to pare long positions in risk assets.”
The yen was little changed against the euro at 111.88 from 111.96 in New York last week, after earlier rising to 111.53, the strongest since July 13.
Australia’s dollar fell to a one-week low after Prime Minister Julia Gillard called an election, prompting speculation the central bank will refrain from raising interest rates during the campaign. Australia’s currency fell as much as 0.6 percent to 86.33 U.S. cents.
The cost of protecting Asian bonds from default surged. The Markit iTraxx Asia index of credit-default swaps on 50 investment-grade borrowers outside Japan climbed 9 basis points to 137 basis points as of 8:23 a.m. in Singapore, the biggest jump since June 4, prices from Credit Agricole CIB and CMA show.
Oil for August delivery dropped as much as 51 cents, or 0.7 percent, to $75.50 a barrel on the New York Mercantile Exchange and traded at $75.82 at 11:13 a.m. Singapore time.
Treasury Bids Rise 18% as Investors Surpass Dealers
July 19 (Bloomberg) -- For the first time since the government started collecting the data, central banks, mutual funds and U.S. banks are buying more government securities at Treasury auctions than Wall Street’s bond dealers.
Foreign and domestic investors bidding directly at note and bond auctions bought 57 percent of the $1.26 trillion in Treasuries sold by the government this year, up from 45 percent during the same period in 2009 and as little as 32 percent for all of 2008, according to government data compiled by Bloomberg. Bids compared with the amount of debt sold, the bid-to-cover ratio, rose 18 percent from last year’s 14-year high, according to data that Treasury started collecting in 1994.
The combination of the lowest U.S. inflation rate in four decades and continuing concerns that the global recovery will falter is boosting bonds even as yields on 10-year notes fall below 3 percent, the lowest since April 2009. The surge in demand through so-called direct and indirect bids is helping drive down rates for U.S. President Barack Obama as he grapples with a budget deficit that’s forecast to swell 14 percent to a record $1.6 trillion.
“The economic backdrop is favorable for Treasuries,” said Thomas Girard, who helps manage $115 billion in fixed income at New York Life Investment Management in New York. “There’s no fear of inflation. The bigger fear is deflation.”
Consumer Confidence Tumbles
Yields on 10-year notes fell 13 basis points last week to 2.92 percent, according to BGCantor Market Data. That’s 88 basis points above the record low of 2.04 percent reached on Dec. 18, 2008, after the collapse of New York-based Lehman Brothers Holdings Inc. spurred investors to seek only the safest government securities.
The two-year yield dropped to an all-time low of 0.577 percent on July 16 as a report showed confidence among U.S. consumers tumbled to the lowest level in a year.
Trading of bills, notes and bonds was shut in Japan today for a holiday.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 66.5, the lowest since August and less than the most pessimistic forecast of economists surveyed by Bloomberg News. Consumer prices excluding energy and food remained at a 44-year low of 0.9 percent in June for a third consecutive month, the Labor Department said the same day.
The drop in sentiment followed the Labor Department’s July 2 report showing that the U.S. lost 125,000 jobs in June, the first decline since December. Retail sales excluding autos have slid for two consecutive months for the first time since 2008, while new home sales plunged to a record low in May after reaching a 20-month high of 446,000 in April.
U.S. GDP
The American economy grew 2.7 percent in the first three months of 2010, expanding for a third straight quarter after the longest recession since the Great Depression. U.S. gross domestic product will increase 3.1 percent this year, according to estimates from 54 economists compiled by Bloomberg.
“The data shift that we had from the first quarter to the second quarter has been fairly dramatic and came sooner than many investors would have expected,” said Eric Pellicciaro, New York-based head of global rates investments at BlackRock Inc., which manages about $1 trillion in bonds. “Treasuries are still attractive.”
Even bond-market bears such as primary dealer Morgan Stanley have trimmed forecasts for U.S. yields to rise in the second half of the year, with slow growth likely to keep the Federal Reserve from increasing record low borrowing rates into 2011. The target for overnight loans between banks has been zero to 0.25 percent since December 2008.
Primary Dealers
Morgan Stanley of New York has lowered its estimate for the 10-year note’s yield at the end of the 2010 to 3.5 percent from 5.5 percent at the start the year. The median projection of 55 forecasts in a Bloomberg News survey is 3.36 percent, down from 3.80 percent in June.
Primary dealers, which are required to bid in government auctions and act as the trading partner to the New York Fed, have won the lowest proportion of Treasuries in auctions since the government began releasing the data in 2003.
Increasing demand for longer-term debt from central banks moving out of the euro and into dollar assets has helped keep yields low, said Jeffrey Rosenberg, a credit strategist at Charlotte, North Carolina-based Bank of America Corp. China holds $867.7 billion of Treasuries, making it the biggest lender to the U.S.
“The auction participation data and the holdings data show an increase in holdings in the long-term,” said Rosenberg. International investors have displayed “comfort with moving out the curve,” he said.
China’s Holdings
Purchases by China in recent months have focused on longer- term debt, unlike in 2008, when most of the cash went into Treasury bills. While China has slashed its bill holdings by nine-tenths to $6.8 billion as the global credit crunch eased, total holdings are up 8.3 percent in the 12 months through May, with notes and bonds due in two years or more surging 46 percent, the Treasury said July 16.
Custodial holdings of Treasuries at the Fed for accounts including central banks have increased 4.7 percent this year to a record $2.29 trillion.
“This has been a pretty ferocious flight-to-quality,” said Wan-Chong Kung, who helps manage $89 billion at FAF Advisors in Minneapolis, the asset-management arm of U.S. Bancorp. “Investors more broadly are embracing the idea of a slower U.S. economy where inflation is not a problem.”
‘Paralyzed With Uncertainty’
Spending by companies and consumers has slowed as economic data has shown signs of weakening. Companies in the Standard & Poor’s 500 Index have stockpiled a record $2.3 trillion of cash and equivalents. At the same time, consumer credit has declined in 15 of the last 16 months, while factory orders fell 1.4 percent in May, the biggest drop in 14 months, the Commerce Department said.
Companies “are paralyzed with uncertainty,” said Barr Segal, a managing director at Los Angeles-based TCW Group Inc., who helps oversee $72 billion in fixed-income assets. “They’re sitting on cash. There’s a lot of powder there that’s going nowhere. It is in a way deflationary.”
Almost 87 percent of the 23 companies in the S&P 500 that reported earnings since July 12, including Alcoa Inc. of New York and Santa Clara, California-based Intel Corp., have beaten analysts’ forecasts for earnings per share, data compiled by Bloomberg show. General Electric Co. in Fairfield, Connecticut, Bank of America and four other companies reported sales that trailed projections.
Earnings Projections
While analyst estimates compiled by Bloomberg show that profits at S&P 500 companies are forecast to increase by 34 percent in 2010 and 18 percent in 2011, investors remain concerned the earnings expansion is being driven by cost reductions rather than sales growth, Segal said.
Investment funds and U.S. banks have been among the biggest direct buyers of Treasuries this year. Banks held $1.48 trillion in Treasuries and agency debt as of June 30, up 2.1 percent from the end of 2009, according to Fed data.
Depository institutions bought $1.2 billion of the $13 billion in 30-year U.S. bonds auctioned on June 10, $3.1 billion of those offered on March 11 and $2.7 billion of the $16 billion sale on Feb. 11, Treasury data show.
“There is definitely a sense that banks are reluctant to lend and are parking reserves either at the Fed, in Treasuries or other non-consumer lending assets,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “Banks have tightened their standards and even if their standards remained the same, the position of consumers has deteriorated with the economy under stress. It’s more difficult to get a car loan, it’s more difficult to get a mortgage.”
Auctions Peak
Company borrowing slid 29 percent in the first half of the year to $528 billion amid a dearth of business investment, Bloomberg data shows.
The drop in debt issuance comes with Treasury auctions starting to decline after reaching record levels. Monthly fixed- coupon sales of Treasuries decreased 7.3 percent to $178 billion in June from $192 billion in April.
Primary dealers told U.S. officials in February that the increase in direct bids from investors at auctions risked distorting prices in the $7 trillion market for U.S. government debt, according to people involved in the discussions at the time. The firms said the rise in direct bids may increase borrowing costs for the Treasury and taxpayers if dealers bid less aggressively because of higher volatility at the sales.
‘Bidding Behavior’
“The change in bidding behavior should increase the volatility around auctions,” Joe Leary and Brett Rose, New York-based strategists at primary dealer Citigroup Inc., wrote in a July 14 report. “A counter effect that comes along with an increased number of direct bidders is increased competition. This recent change in auction behavior may not be completely adverse for Treasury borrowing costs.”
The U.S. deficit rose $68.4 billion in June to $1 trillion for the fiscal year that ends Sept. 30, the government said July 13. Tax receipts have increased 0.5 percent to $1.6 trillion while spending has declined 2.8 percent to $2.6 trillion.
The S&P 500, the benchmark gauge for U.S. equities, has fallen 4.5 percent this year while Treasuries have risen 6.2 percent, according to Bank of America Merrill Lynch indexes.
Globally, bond returns topped stock gains by the widest margin in nine years in the first half as optimism about the global economic recovery waned.
The MSCI World Index of 24 developed countries fell 9.5 percent, including dividends, in the first half of 2010, while bonds gained 4.2 percent, the Bank of America Merrill Lynch Global Broad Market Index shows.
“The bond market has finally come to the conclusion that we’re going to have shallow growth and low inflation for years to come,” said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc. in New York. “That’s being manifested in the auction process. It’s a bullish environment for Treasuries.”
Foreign and domestic investors bidding directly at note and bond auctions bought 57 percent of the $1.26 trillion in Treasuries sold by the government this year, up from 45 percent during the same period in 2009 and as little as 32 percent for all of 2008, according to government data compiled by Bloomberg. Bids compared with the amount of debt sold, the bid-to-cover ratio, rose 18 percent from last year’s 14-year high, according to data that Treasury started collecting in 1994.
The combination of the lowest U.S. inflation rate in four decades and continuing concerns that the global recovery will falter is boosting bonds even as yields on 10-year notes fall below 3 percent, the lowest since April 2009. The surge in demand through so-called direct and indirect bids is helping drive down rates for U.S. President Barack Obama as he grapples with a budget deficit that’s forecast to swell 14 percent to a record $1.6 trillion.
“The economic backdrop is favorable for Treasuries,” said Thomas Girard, who helps manage $115 billion in fixed income at New York Life Investment Management in New York. “There’s no fear of inflation. The bigger fear is deflation.”
Consumer Confidence Tumbles
Yields on 10-year notes fell 13 basis points last week to 2.92 percent, according to BGCantor Market Data. That’s 88 basis points above the record low of 2.04 percent reached on Dec. 18, 2008, after the collapse of New York-based Lehman Brothers Holdings Inc. spurred investors to seek only the safest government securities.
The two-year yield dropped to an all-time low of 0.577 percent on July 16 as a report showed confidence among U.S. consumers tumbled to the lowest level in a year.
Trading of bills, notes and bonds was shut in Japan today for a holiday.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 66.5, the lowest since August and less than the most pessimistic forecast of economists surveyed by Bloomberg News. Consumer prices excluding energy and food remained at a 44-year low of 0.9 percent in June for a third consecutive month, the Labor Department said the same day.
The drop in sentiment followed the Labor Department’s July 2 report showing that the U.S. lost 125,000 jobs in June, the first decline since December. Retail sales excluding autos have slid for two consecutive months for the first time since 2008, while new home sales plunged to a record low in May after reaching a 20-month high of 446,000 in April.
U.S. GDP
The American economy grew 2.7 percent in the first three months of 2010, expanding for a third straight quarter after the longest recession since the Great Depression. U.S. gross domestic product will increase 3.1 percent this year, according to estimates from 54 economists compiled by Bloomberg.
“The data shift that we had from the first quarter to the second quarter has been fairly dramatic and came sooner than many investors would have expected,” said Eric Pellicciaro, New York-based head of global rates investments at BlackRock Inc., which manages about $1 trillion in bonds. “Treasuries are still attractive.”
Even bond-market bears such as primary dealer Morgan Stanley have trimmed forecasts for U.S. yields to rise in the second half of the year, with slow growth likely to keep the Federal Reserve from increasing record low borrowing rates into 2011. The target for overnight loans between banks has been zero to 0.25 percent since December 2008.
Primary Dealers
Morgan Stanley of New York has lowered its estimate for the 10-year note’s yield at the end of the 2010 to 3.5 percent from 5.5 percent at the start the year. The median projection of 55 forecasts in a Bloomberg News survey is 3.36 percent, down from 3.80 percent in June.
Primary dealers, which are required to bid in government auctions and act as the trading partner to the New York Fed, have won the lowest proportion of Treasuries in auctions since the government began releasing the data in 2003.
Increasing demand for longer-term debt from central banks moving out of the euro and into dollar assets has helped keep yields low, said Jeffrey Rosenberg, a credit strategist at Charlotte, North Carolina-based Bank of America Corp. China holds $867.7 billion of Treasuries, making it the biggest lender to the U.S.
“The auction participation data and the holdings data show an increase in holdings in the long-term,” said Rosenberg. International investors have displayed “comfort with moving out the curve,” he said.
China’s Holdings
Purchases by China in recent months have focused on longer- term debt, unlike in 2008, when most of the cash went into Treasury bills. While China has slashed its bill holdings by nine-tenths to $6.8 billion as the global credit crunch eased, total holdings are up 8.3 percent in the 12 months through May, with notes and bonds due in two years or more surging 46 percent, the Treasury said July 16.
Custodial holdings of Treasuries at the Fed for accounts including central banks have increased 4.7 percent this year to a record $2.29 trillion.
“This has been a pretty ferocious flight-to-quality,” said Wan-Chong Kung, who helps manage $89 billion at FAF Advisors in Minneapolis, the asset-management arm of U.S. Bancorp. “Investors more broadly are embracing the idea of a slower U.S. economy where inflation is not a problem.”
‘Paralyzed With Uncertainty’
Spending by companies and consumers has slowed as economic data has shown signs of weakening. Companies in the Standard & Poor’s 500 Index have stockpiled a record $2.3 trillion of cash and equivalents. At the same time, consumer credit has declined in 15 of the last 16 months, while factory orders fell 1.4 percent in May, the biggest drop in 14 months, the Commerce Department said.
Companies “are paralyzed with uncertainty,” said Barr Segal, a managing director at Los Angeles-based TCW Group Inc., who helps oversee $72 billion in fixed-income assets. “They’re sitting on cash. There’s a lot of powder there that’s going nowhere. It is in a way deflationary.”
Almost 87 percent of the 23 companies in the S&P 500 that reported earnings since July 12, including Alcoa Inc. of New York and Santa Clara, California-based Intel Corp., have beaten analysts’ forecasts for earnings per share, data compiled by Bloomberg show. General Electric Co. in Fairfield, Connecticut, Bank of America and four other companies reported sales that trailed projections.
Earnings Projections
While analyst estimates compiled by Bloomberg show that profits at S&P 500 companies are forecast to increase by 34 percent in 2010 and 18 percent in 2011, investors remain concerned the earnings expansion is being driven by cost reductions rather than sales growth, Segal said.
Investment funds and U.S. banks have been among the biggest direct buyers of Treasuries this year. Banks held $1.48 trillion in Treasuries and agency debt as of June 30, up 2.1 percent from the end of 2009, according to Fed data.
Depository institutions bought $1.2 billion of the $13 billion in 30-year U.S. bonds auctioned on June 10, $3.1 billion of those offered on March 11 and $2.7 billion of the $16 billion sale on Feb. 11, Treasury data show.
“There is definitely a sense that banks are reluctant to lend and are parking reserves either at the Fed, in Treasuries or other non-consumer lending assets,” said Ian Lyngen, a government bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “Banks have tightened their standards and even if their standards remained the same, the position of consumers has deteriorated with the economy under stress. It’s more difficult to get a car loan, it’s more difficult to get a mortgage.”
Auctions Peak
Company borrowing slid 29 percent in the first half of the year to $528 billion amid a dearth of business investment, Bloomberg data shows.
The drop in debt issuance comes with Treasury auctions starting to decline after reaching record levels. Monthly fixed- coupon sales of Treasuries decreased 7.3 percent to $178 billion in June from $192 billion in April.
Primary dealers told U.S. officials in February that the increase in direct bids from investors at auctions risked distorting prices in the $7 trillion market for U.S. government debt, according to people involved in the discussions at the time. The firms said the rise in direct bids may increase borrowing costs for the Treasury and taxpayers if dealers bid less aggressively because of higher volatility at the sales.
‘Bidding Behavior’
“The change in bidding behavior should increase the volatility around auctions,” Joe Leary and Brett Rose, New York-based strategists at primary dealer Citigroup Inc., wrote in a July 14 report. “A counter effect that comes along with an increased number of direct bidders is increased competition. This recent change in auction behavior may not be completely adverse for Treasury borrowing costs.”
The U.S. deficit rose $68.4 billion in June to $1 trillion for the fiscal year that ends Sept. 30, the government said July 13. Tax receipts have increased 0.5 percent to $1.6 trillion while spending has declined 2.8 percent to $2.6 trillion.
The S&P 500, the benchmark gauge for U.S. equities, has fallen 4.5 percent this year while Treasuries have risen 6.2 percent, according to Bank of America Merrill Lynch indexes.
Globally, bond returns topped stock gains by the widest margin in nine years in the first half as optimism about the global economic recovery waned.
The MSCI World Index of 24 developed countries fell 9.5 percent, including dividends, in the first half of 2010, while bonds gained 4.2 percent, the Bank of America Merrill Lynch Global Broad Market Index shows.
“The bond market has finally come to the conclusion that we’re going to have shallow growth and low inflation for years to come,” said George Goncalves, head of interest-rate strategy at Nomura Holdings Inc. in New York. “That’s being manifested in the auction process. It’s a bullish environment for Treasuries.”
UK boosts Afghan aid to speed troop exit
UK spending on aid projects in Afghanistan is to rise by 40 per cent as the government attempts to set a path for withdrawing troops from the country by 2015.
Andrew Mitchell, the international development secretary, said on Sunday that securing progress in the country was his “number one priority” at the same time as he indicated that other countries such as India could receive far less of the £7.3bn of the international aid budget.
The decision by David Cameron, the prime minister, to prioritise Afghanistan for extra spending is part of a push to use international development as a way of bolstering national security and military objectives.
British forces suffered four deaths in a 24-hour period over the weekend, bringing to 322 the number of UK soldiers killed since the conflict began in 2001.
Mr Cameron and Sir David Richards, the new chief of defence staff, both believe that the US and UK must make greater efforts to make political progress in Afghanistan alongside the security effort, with aid projects a crucial way of winning local support.
Sir David has said the military mission will have “failed” if troops are not withdrawn by 2015, though Liam Fox, the defence secretary, said “non-combat” troops could remain beyond that date.
Mr Fox has said previously that Britain was only in Afghanistan to safeguard its own national security rather than to support the redevelopment of the country.
In a speech on Monday, Mr Mitchell will say “well-spent aid” in Afghanistan is in the UK’s interest because it promotes political progress and supports the military’s work to bring security and peace to the country.
”While the military bring much-needed security, peace will only be achieved by political progress backed by development,” he will say.
The government has already committed £500m on Afghan aid projects over the next five years. Mr Mitchell said an “aid watchdog” would oversee the programme after accusations that previous projects had proved ineffective.
Spending will be targeted at education, policing, emergency food and medicine, and jobs and training.
In a Sunday interview for the BBC’s Politics Show, Mr Mitchell said the government had looked “very carefully” at how money was being spent in Afghanistan. ”We’ve found some additional funding from less good programmes, so in principle we have an additional 40 per cent going into the development budget,” he said.
His department is reviewing how it spend its £7.3bn aid budget and has already said some countries, such as China and Russia, will no longer receive it. Aid to India is also being looked at as the country “roars out of poverty”, Mr Mitchell said.
Andrew Mitchell, the international development secretary, said on Sunday that securing progress in the country was his “number one priority” at the same time as he indicated that other countries such as India could receive far less of the £7.3bn of the international aid budget.
The decision by David Cameron, the prime minister, to prioritise Afghanistan for extra spending is part of a push to use international development as a way of bolstering national security and military objectives.
British forces suffered four deaths in a 24-hour period over the weekend, bringing to 322 the number of UK soldiers killed since the conflict began in 2001.
Mr Cameron and Sir David Richards, the new chief of defence staff, both believe that the US and UK must make greater efforts to make political progress in Afghanistan alongside the security effort, with aid projects a crucial way of winning local support.
Sir David has said the military mission will have “failed” if troops are not withdrawn by 2015, though Liam Fox, the defence secretary, said “non-combat” troops could remain beyond that date.
Mr Fox has said previously that Britain was only in Afghanistan to safeguard its own national security rather than to support the redevelopment of the country.
In a speech on Monday, Mr Mitchell will say “well-spent aid” in Afghanistan is in the UK’s interest because it promotes political progress and supports the military’s work to bring security and peace to the country.
”While the military bring much-needed security, peace will only be achieved by political progress backed by development,” he will say.
The government has already committed £500m on Afghan aid projects over the next five years. Mr Mitchell said an “aid watchdog” would oversee the programme after accusations that previous projects had proved ineffective.
Spending will be targeted at education, policing, emergency food and medicine, and jobs and training.
In a Sunday interview for the BBC’s Politics Show, Mr Mitchell said the government had looked “very carefully” at how money was being spent in Afghanistan. ”We’ve found some additional funding from less good programmes, so in principle we have an additional 40 per cent going into the development budget,” he said.
His department is reviewing how it spend its £7.3bn aid budget and has already said some countries, such as China and Russia, will no longer receive it. Aid to India is also being looked at as the country “roars out of poverty”, Mr Mitchell said.
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