Asian stocks and commodities dropped a third day, while regional bond risk jumped to a two-year high, on concern Europe’s debt crisis will worsen. The euro touched the lowest level in more than a decade against the yen.
The MSCI Asia Pacific Index sank 1.9 percent at 11:57 a.m. in Tokyo, set for its lowest close since July 2009. Standard & Poor’s 500 futures rose 0.3 percent after two-day drop that left the U.S. gauge within 1 percent of levels commonly seen as a bear market. S&P’s GSCI Index of raw materials dropped 0.7 percent, paced by oil and copper. The euro was at 101.39 yen after earlier dropping to 100.76, the weakest since June 2001.
Goldman Sachs Group Inc. cut its global growth forecasts and predicted recessions in Germany and France. European finance ministers meeting yesterday considered “technical revisions” to a July deal for a second Greek bailout, fueling concern bondholders may have to take bigger losses on the nation’s debt. Exporters led losses in Asia after automakers reported weaker- than-forecast North American sales and before data today forecast to show U.S. factory orders stalled.
“Investors are focused on European sovereign debt, they’re focused on European banks, and they’re worried about the end game for Greece and the possible contagion to Italy and Spain, and right now that’s trumping everything else,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a Bloomberg Television interview. His firm oversees $3.66 trillion as the world’s largest asset manager. “The market is not likely to bottom until we see some signs of clarity in Europe.”
Stocks Slump
About three shares fell for every one that gained on MSCI’s Asia Pacific Index, which started the fourth quarter with a 2.6 percent drop yesterday. The gauge is down 21 percent for the year. Japan’s Nikkei 225 Stock Average slipped 1.6 percent and the Kospi Index tumbled 4.6 percent in South Korea, where financial markets were closed for a holiday yesterday. China remains shut for the rest of the week.
Toyota Motor Corp. slipped 2.5 percent in Tokyo after Asia’s largest automaker reported a 17 percent drop in U.S. sales. Hyundai Motor Co. and affiliate Kia Motors Corp. dropped at least 2.5 percent each after their sales gains missed analyst expectations. Kawasaki Kisen Kaisha Ltd. sank 5 percent as Japan’s third-biggest shipping line by sales forecast a full- year net loss because of lower transport rates.
The world economy will probably expand 3.8 percent this year and 3.5 percent in 2012, compared with earlier predictions of 3.9 percent for 2011 and 4.2 percent for next year, Goldman Sachs economists Jan Hatzius and Dominic Wilson wrote in an Oct. 3 report. The brokerage lowered its forecast for earnings growth in Asia excluding Japan in a separate report today.
U.S. Economy
The S&P 500 slumped 2.9 percent yesterday to close at the lowest level since Sept. 8, 2010. The benchmark U.S. stocks gauge has dropped 19 percent since April 29, when it climbed to the highest level since 2008. A Commerce Department report today may show factory orders were little changed in August, after a 2.4 percent gain the prior month, according to economists surveyed by Bloomberg.
Yields on 10-year Treasuries climbed two basis points to 1.77 percent after dropping 16 basis points yesterday. The rate on 30-year bonds sank 19 basis points yesterday to the lowest level since January 2009 after the Federal Reserve bought $2.5 billion of longer-term debt. Thirty-year yields were two basis points higher at 2.75 percent today.
Japan’s bonds rose, dragging 30-year yields down 1.6 basis points to 1.905 percent. The Ministry of Finance will sell 2.2 trillion yen ($28.7 billion) of 10-year bonds today.
Europe’s Politicians
The euro traded at $1.3211, after earlier touching $1.3164, the weakest since Jan. 13. German Finance Minister Wolfgang Schaeuble opposed moves to increase the scale of the euro rescue fund, damping speculation of a breakthrough in talks to quell the crisis.
Speaking to reporters early today after chairing a meeting of euro finance chiefs, Luxembourg Prime Minister Jean-Claude Juncker gave no details about a possible recalibration of the debt exchange for Greece. The July agreement had called for investors to contribute 50 billion euros ($66 billion) to a 159 billion-euro rescue.
“If we don’t get a resolution in Greece, we may see a disorderly default,” said Koichi Kurose, chief economist in Tokyo at Resona Bank Ltd. which oversees the equivalent of $68 billion in assets. “The politicians are all over the place.”
The Australian dollar dropped as much as 0.5 percent to 94.77 U.S. cents before trading little changed at 95.29 cents. It pared losses after data today showed the nation’s trade surplus in August was the widest since June 2010. The Reserve Bank of Australia may keep interest rates unchanged at 4.75 percent today, according to economists surveyed by Bloomberg.
Korea CPI, Exports
South Korea’s won weakened to 1,204.91 per dollar, compared with the Sept. 30 close of 1,178.10. The currency fell to its weakest level since July 2010. South Korea’s consumer prices rose 4.3 percent in September from a year earlier, down from a 5.3 percent gain in August that was the biggest in three years, while exports climbed in September at the slowest pace in three months, government data showed.
The cost of insuring Asia-Pacific corporate and sovereign bonds against non-payment jumped, with the Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increasing 11 basis points to 275, Credit Agricole SA prices show. That’s set for its highest close since May 1, 2009, according to CMA, which is owned by CME Group Inc., and compiles prices quoted by dealers in the privately negotiated market.
The Markit iTraxx Australia index rose 10 basis points to 238, according to Credit Agricole. The gauge is headed for its highest close since May 18, 2009, CMA prices in New York show.
Oil, Metals
Oil for November delivery dropped 1.2 percent to $76.68 a barrel in electronic trading on the New York Mercantile Exchange. Futures fell yesterday to the lowest settlement in more than a year. U.S. crude inventories climbed for a second week, an Energy Department report tomorrow may show. Libya aims to raise production to more than 500,000 barrels a day by the end of this month, according to Nuri Berruien, the chairman of state-run National Oil Corp., in Tripoli yesterday. The nation pumped 100,000 barrels a day in September.
Three-month copper dropped 2.6 percent to $6,810 a metric ton on the London Metal Exchange, set for a fifth day of declines. Zinc slipped 0.8 percent, nickel dropped 2.8 percent and aluminum declined 0.8 percent.
To contact the reporter on this story: Shiyin Chen in Singapore at schen37@bloomberg.net
To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Monday, October 3, 2011
Sunday, October 2, 2011
Apple Loses in Surging India Smartphone Market By Ketaki Gokhale - Oct 2, 2011
Apple Inc. (AAPL), the world’s largest smartphone maker, is having trouble selling iPhones in India, a market with 602 million active subscribers.
Apple, which will introduce a new iPhone version tomorrow, ships fewer handsets to the world’s second-largest mobile-phone market than it does to Norway. Nokia Oyj (NOK1V) and Research In Motion Ltd. (RIM) sell more devices in India, where smartphone shipments are forecast to grow almost 70 percent a year until 2015, helping mitigate their market-share losses in the U.S. and Europe.
Sales for the world’s biggest company by market value are hindered because Indian wireless carriers, which started third- generation networks this year, have yet to offer nationwide services fast enough to take advantage of iPhone features, said Gus Papageorgiou, an analyst at Scotia Capital Inc. in Toronto.
“Networks in India are just not conducive for Apple -- 3G networks aren’t quite where they are in Western Europe and North America,” he said. “RIM got the right product, the right timing, the right app.”
Apple shipped 62,043 iPhones to India in the quarter ending June 30, or fewer than to Norway, Belgium or Israel, according to estimates by Framingham, Massachusetts-based researcher IDC.
BlackBerry Messenger
Apple accounted for 2.6 percent of India’s smartphone shipments in the quarter ended June 30, trailing RIM’s 15 percent, Samsung Electronics Co.’s 21 percent and Nokia’s 46 percent, IDC estimates.
“The iPhone only really works when you have Wi-Fi,” said Kshma Shah, a 25-year-old interior designer in Mumbai. “3G has barely started in India, and on 2G you just can’t have the same experience.”
The world’s largest maker of tablet computers also shipped about 21,150 iPads to India in the same period, or 0.2 percent of its global total, according to IDC.
RIM’s BlackBerry Messenger instant-messaging service is popular because it was one of the first, and it functions well on networks a generation behind the speeds offered in the U.S. and Europe, Papageorgiou said.
“Only a few of my friends have iPhones,” said Mahafareenn Sarkari, a 25-year-old dance instructor in Mumbai. “BlackBerry is where everybody is, so it made sense for me to be on it, too.”
RIM’s ‘Wave’
RIM, which entered India in 2004, plans to extend its lead over Apple after expanding distribution to 80 cities from 15 starting last year, said Krishnadeep Baruah, director of marketing for Waterloo, Canada-based RIM in India.
“We want to ride this wave,” Baruah said. “This is really the time to expand into the emerging towns and cities.”
That contrasts with RIM’s struggles worldwide, with its stock falling 61 percent this year. At least five RIM executives have left since March, and the company sold half as many PlayBook tablets in the second quarter as analysts had forecast on average.
Nokia has more than 200,000 outlets in India and offers 13 smartphone models, Vilsha Kapoor of New Delhi-based Six Degrees PR, hired by Nokia to handle public relations, said in an e-mail.
The Espoo, Finland-based company is seeking to reverse its global performance. Shares are down 45 percent this year, and it is eliminating at least 7,500 jobs as Apple takes global market share and Asian competitors push the price of smartphones below $100.
68 Percent Growth
Smartphone shipments in India are poised to jump almost eightfold, or an average of 68 percent a year, to 81.5 million units by 2015, according to IDC.
Apple products aren’t as accessible in India because consumers can’t buy iPhones, iPads and iTunes songs from company stores or its website. Apple sells through licensed resellers, including a Reliance Industries Ltd. subsidiary and Tata Group’s Croma.
“Apple continues to invest in India as a growing market for the company,” Alan Hely, a London-based spokesman for Apple, said in an e-mailed response.
Steve Dowling, a Cupertino, California-based spokesman for Apple, declined to comment.
In China, Apple operates six stores, including its highest- grossing ones worldwide. Revenue in China, Taiwan and Hong Kong increased six times to $3.8 billion in the quarter ended June, Apple Chief Executive Officer Tim Cook said in July.
‘Pathetic’ Advertising
Apple may be relying more on word-of-mouth among India’s wealthy, said Harish Bijoor, who runs his own brand consulting firm in Bangalore.
“They don’t see a big enough market for their products to make it worthwhile,” Bijoor said. “They’ve barely done any advertising. It’s pathetic, really.”
Cost is also an issue in a country where the World Bank estimates that about 900 million people live on less than $2 a day.
The cheapest iPhone 4 costs $705 at Reliance’s iStore, while the cheapest iPad 2 sells for about $603. In Apple’s U.S. online store, the iPhone 4 starts at $199 with an AT&T Inc. contract and the iPad starts at $499.
BlackBerrys under $200 made up 40 percent of their shipments in India in the quarter ended June 30, said T.Z. Wong, an analyst for IDC.
“I don’t think Apple is a brand for the masses,” said Ajit Joshi, managing director of Croma, which also sells other brands besides Apple. “It’s a brand for the classes.”
The masses may be getting wealthier as India’s new five- year plan aims for 9 percent growth in gross domestic product. India last year joined the top dozen countries with the most millionaires, according to a report by Capgemini and Merrill Lynch Global Wealth Management in June.
Salaries in India also are set to rise the most in the Asia-Pacific region this year, according to an Aon Hewitt LLC survey released in March 8.
“It’s a brand-in-waiting,” said Viren Razdan, managing director of consulting firm Interbrand’s Mumbai office. “Apple is waiting for infrastructure and consumer maturity.”
To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Apple, which will introduce a new iPhone version tomorrow, ships fewer handsets to the world’s second-largest mobile-phone market than it does to Norway. Nokia Oyj (NOK1V) and Research In Motion Ltd. (RIM) sell more devices in India, where smartphone shipments are forecast to grow almost 70 percent a year until 2015, helping mitigate their market-share losses in the U.S. and Europe.
Sales for the world’s biggest company by market value are hindered because Indian wireless carriers, which started third- generation networks this year, have yet to offer nationwide services fast enough to take advantage of iPhone features, said Gus Papageorgiou, an analyst at Scotia Capital Inc. in Toronto.
“Networks in India are just not conducive for Apple -- 3G networks aren’t quite where they are in Western Europe and North America,” he said. “RIM got the right product, the right timing, the right app.”
Apple shipped 62,043 iPhones to India in the quarter ending June 30, or fewer than to Norway, Belgium or Israel, according to estimates by Framingham, Massachusetts-based researcher IDC.
BlackBerry Messenger
Apple accounted for 2.6 percent of India’s smartphone shipments in the quarter ended June 30, trailing RIM’s 15 percent, Samsung Electronics Co.’s 21 percent and Nokia’s 46 percent, IDC estimates.
“The iPhone only really works when you have Wi-Fi,” said Kshma Shah, a 25-year-old interior designer in Mumbai. “3G has barely started in India, and on 2G you just can’t have the same experience.”
The world’s largest maker of tablet computers also shipped about 21,150 iPads to India in the same period, or 0.2 percent of its global total, according to IDC.
RIM’s BlackBerry Messenger instant-messaging service is popular because it was one of the first, and it functions well on networks a generation behind the speeds offered in the U.S. and Europe, Papageorgiou said.
“Only a few of my friends have iPhones,” said Mahafareenn Sarkari, a 25-year-old dance instructor in Mumbai. “BlackBerry is where everybody is, so it made sense for me to be on it, too.”
RIM’s ‘Wave’
RIM, which entered India in 2004, plans to extend its lead over Apple after expanding distribution to 80 cities from 15 starting last year, said Krishnadeep Baruah, director of marketing for Waterloo, Canada-based RIM in India.
“We want to ride this wave,” Baruah said. “This is really the time to expand into the emerging towns and cities.”
That contrasts with RIM’s struggles worldwide, with its stock falling 61 percent this year. At least five RIM executives have left since March, and the company sold half as many PlayBook tablets in the second quarter as analysts had forecast on average.
Nokia has more than 200,000 outlets in India and offers 13 smartphone models, Vilsha Kapoor of New Delhi-based Six Degrees PR, hired by Nokia to handle public relations, said in an e-mail.
The Espoo, Finland-based company is seeking to reverse its global performance. Shares are down 45 percent this year, and it is eliminating at least 7,500 jobs as Apple takes global market share and Asian competitors push the price of smartphones below $100.
68 Percent Growth
Smartphone shipments in India are poised to jump almost eightfold, or an average of 68 percent a year, to 81.5 million units by 2015, according to IDC.
Apple products aren’t as accessible in India because consumers can’t buy iPhones, iPads and iTunes songs from company stores or its website. Apple sells through licensed resellers, including a Reliance Industries Ltd. subsidiary and Tata Group’s Croma.
“Apple continues to invest in India as a growing market for the company,” Alan Hely, a London-based spokesman for Apple, said in an e-mailed response.
Steve Dowling, a Cupertino, California-based spokesman for Apple, declined to comment.
In China, Apple operates six stores, including its highest- grossing ones worldwide. Revenue in China, Taiwan and Hong Kong increased six times to $3.8 billion in the quarter ended June, Apple Chief Executive Officer Tim Cook said in July.
‘Pathetic’ Advertising
Apple may be relying more on word-of-mouth among India’s wealthy, said Harish Bijoor, who runs his own brand consulting firm in Bangalore.
“They don’t see a big enough market for their products to make it worthwhile,” Bijoor said. “They’ve barely done any advertising. It’s pathetic, really.”
Cost is also an issue in a country where the World Bank estimates that about 900 million people live on less than $2 a day.
The cheapest iPhone 4 costs $705 at Reliance’s iStore, while the cheapest iPad 2 sells for about $603. In Apple’s U.S. online store, the iPhone 4 starts at $199 with an AT&T Inc. contract and the iPad starts at $499.
BlackBerrys under $200 made up 40 percent of their shipments in India in the quarter ended June 30, said T.Z. Wong, an analyst for IDC.
“I don’t think Apple is a brand for the masses,” said Ajit Joshi, managing director of Croma, which also sells other brands besides Apple. “It’s a brand for the classes.”
The masses may be getting wealthier as India’s new five- year plan aims for 9 percent growth in gross domestic product. India last year joined the top dozen countries with the most millionaires, according to a report by Capgemini and Merrill Lynch Global Wealth Management in June.
Salaries in India also are set to rise the most in the Asia-Pacific region this year, according to an Aon Hewitt LLC survey released in March 8.
“It’s a brand-in-waiting,” said Viren Razdan, managing director of consulting firm Interbrand’s Mumbai office. “Apple is waiting for infrastructure and consumer maturity.”
To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Friday, September 30, 2011
Global Company Bond Sales Plunge on ‘Armageddon’ Scenarios: Credit Markets By Tim Catts and Ben Martin - Sep 30, 2011
Corporate bond offerings worldwide plunged in the third quarter to the lowest level since Lehman Brothers Holdings Inc.’s 2008 failure as Europe’s sovereign debt crisis caused investors to shun all but the safest securities.
Hewlett-Packard Co. (HPQ), the world’s largest maker of personal computers, and Santa Clara, California-based chipmaker Intel Corp. (INTC) led borrowers issuing $545.4 billion of bonds in the past three months, according to data compiled by Bloomberg. Issuance fell 41 percent from the second quarter and 38 percent from a year ago as offerings by financial firms and junk-rated companies largely evaporated.
Relative borrowing costs jumped to the highest in more than two years after Standard & Poor’s stripped the U.S. of its top credit grade in August and debt swaps signaled a near-certain probability of Greece defaulting. The Federal Reserve failed to ignite issuance after saying it would replace $400 billion of short-term debt in its portfolio with longer-term Treasuries to stave off recession and lower interest rates.
“Nobody likes buying debt when everyone’s putting out stories that Armageddon is around the corner,” Michael Johnson, chief market strategist at Scottsdale, Arizona-based broker- dealer M.S. Howells & Co., said by telephone. “The underlying problems in the corporate market aren’t there, but that’s being masked until we can figure out what Europe’s going to do.”
‘Risk-Off Sentiment’
The extra yield investors demand to own investment-grade corporate bonds globally instead of government debt grew to 264 basis points on Sept. 26, the widest since July 2009, according to Bank of America Merrill Lynch index data. Yields for issuers rated below Baa3 by Moody’s Investors Service and less than BBB- by S&P rose to 9.72 percent, the most since December 2009.
“There’s a risk-off sentiment that’s tied to a lack of a believable solution in Europe and a lack of any firm guidance on the U.S. economy from Washington,” said Zane Brown, fixed- income strategist at Lord Abbett & Co. in Jersey City, New Jersey. “The cynics in fixed-income are waiting to see proof before they buy in again.”
Elsewhere in credit markets, the cost to protect U.S. and European company debentures rose as a measure of stress in debt markets increased by the most in three weeks. Hovnanian Enterprises Inc. bonds tumbled after the homebuilder offered to exchange $220 million of notes. Relative yields on emerging market debt soared.
The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, gained 1.3 basis points to a mid- price of 141.1 basis points as of 12:01 p.m. in New York, according to Markit Group Ltd.
Swap Spreads
The Markit iTraxx Europe Index of credit-default swaps linked to 125 companies with investment-grade ratings jumped 8.5 basis points to 199.25, according to JPMorgan Chase & Co. at 11:30 a.m. in London.
The indexes, which typically rise as investor confidence deteriorates and fall as it improves, gained as two-year interest-rate swap spreads increased on concern that Europe’s sovereign debt crisis and a sluggish U.S. economy will derail the global recovery.
The difference, or spread, between the two-year swap rate and the comparable-maturity Treasury note yield climbed 2.12 basis points to 32.32 basis points as of 10:41 a.m. in New York. The measure has risen from 23.37 since the end of July as investor concern has mounted that Europe’s fiscal imbalances will harm bank balance sheets. It added 3.7 basis points on Sept. 9 to 34.89.
Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Hovnanian Bonds
Hovnanian’s $797 million of 10.625 percent notes due in October 2016 tumbled 4.4 cents to 75 cents on the dollar as of 10:31 a.m. in New York after a 5.3 cents drop yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The senior secured bonds are yielding 18.5 percent, up from 15 percent on Sept. 27, the data show.
The Red Bank, New Jersey-based homebuilder is offering to exchange senior notes with coupons ranging from 6.25 percent to 11.875 percent and maturities from 2014 through 2017 for up to $220 million of new 2 percent senior secured bonds due 2021, according to a statement distributed by Globe Newswire on Sept. 28. Hovnanian, the largest homebuilder in New Jersey, said the offer will expire on Oct. 26 and that the early tender and consent time is at 5 p.m. in New York on Oct. 12.
Leveraged Loans
The S&P/LSTA U.S. Leveraged Loan 100 index decreased 0.09 cent to 89.07 cents on the dollar. The measure, which tracks the 100 largest dollar-denominated first-lien leveraged loans, has dropped from 94.22 on June 30 and fell to 87.47 on Aug. 26, the lowest level since December 2009.
In emerging markets, relative yields rose 18 basis points to 459 basis points, according to JPMorgan’s EMBI Global index. The index has expanded from 259 basis points on Jan. 5 and 289 since the end of June.
Corporate bond offerings in the U.S. fell to $193.4 billion in the third quarter versus $314.7 billion in the three months ended June 30, Bloomberg data show. Issuance rebounded to $72.1 billion in September after falling last month to the lowest level since May 2010.
Palo Alto, California-based Hewlett-Packard, raised $4.6 billion of debt on Sept. 13 in a four-part offering, Bloomberg data show. Its $1.3 billion of 3 percent, five-year notes paid a spread of 215 basis points, compared with a 90 basis point spread on bonds with a similar maturity sold four months earlier. Intel, the world’s biggest manufacturer of computer chips, sold $5 billion of five-, 10- and 30-year bonds on Sept. 14 in its first offering of non-convertible debt since 1987, Bloomberg data show.
Junk Bond Sales
U.S. junk-bond issuance fell 72 percent to $25.1 billion in the third quarter, the least since speculative-grade borrowers sold $12.2 billion during the three months through March 2009. Offerings of the debt all but froze in August at $1 billion after S&P cut the U.S. credit rating by one notch from AAA. Companies priced $18 billion of high-yield bonds in July.
Spreads on U.S. speculative-grade bonds expanded 261 basis points in the third quarter to 816, the widest since 820 in October 2009, Bank of America Merrill Lynch index data show. Relative yields on investment-grade debt widened 90 basis points to 254, the data show.
Investor Playbook
“The way investors looked at the third quarter was they basically went back to the playbook from 2008 and 2009 and said what matters the most was protecting their capital,” said Jim Casey co-head of syndication and leveraged finance at JPMorgan, which helped manage 13.1 percent of U.S. junk-debt offerings in the quarter, more than any other bank, Bloomberg data show. “They were very concerned about principal and not particularly worried about income.”
Banks worldwide issued $285.8 billion of debentures this quarter, the least since they sold $204 billion in the final three months of 2002, Bloomberg data show.
Deutsche Bank AG (DBK), Germany’s biggest lender, sold 1.5 billion euros ($2.04 billion) of two-year floating-rate notes yesterday that were priced at 98 basis points more than Euribor, in the first sale of public, senior unsecured bonds by a European bank in more than two months. The Frankfurt-based bank raised 118.6 million euros by selling floating-rate securities to domestic investors in July, paying no premium to Euribor, Bloomberg data show.
Portugal, Ireland Cuts
Turmoil in the region had deterred issuers from tapping the market as spreads on European investment-grade corporate bonds widened 144 basis points to the most since May 2009. Spreads on Bank of America Merrill Lynch’s EMU Corporate Index were at 313 basis points on Sept. 26 and narrowed to 309 basis points yesterday.
Investment-grade bond sales since the start of July dropped to 58 billion euros, down 56 percent on the previous quarter and 61 percent from the third-quarter last year, Bloomberg data show.
Moody’s cut Portugal’s debt ranking to Ba2, the second level of junk, from Baa1 on July 5. The ranking company downgraded Ireland to Ba1 from Baa3 a week later. It lowered Greece’s rating to Ca on July 25 and S&P reduced its grade to an equivalent CC two days later.
‘Broken’ Bond Market
Contracts protecting against a default by the country for five years rose to 60.6 percent upfront, according to data provider CMA. That’s in addition to 5 percent a year, meaning it would cost $6.06 million initially and $500,000 annually to protect $10 million of Greece’s debt. The prices signaled a 98 percent chance of default within five years on Sept. 12, up from about 80 percent on June 30.
While German lawmakers yesterday ratified expanded powers for the region’s 440 billion-euro rescue fund to prevent a default, investor concern has mounted the economic recovery is faltering amid the ongoing sovereign debt turmoil.
“We’re still very much in the middle of an illiquid, broken corporate bond market,” Simon Ballard, a credit strategist at RBC Capital Markets in London, said by telephone. “Cash and capital preservation are still some of the key driving strategies behind investment and for that reason issuance has been very muted.”
The U.S. economy grew at a 1.3 percent pace in the second quarter, faster than the 1.2 percent median forecast of economists surveyed by Bloomberg, revised Commerce Department figures showed yesterday. Gross domestic product may expand at a “very modest” 2 percent rate in the second half of this year as Europe’s crisis creates a “drag on growth,” wrote Adrian Miller, a New York-based fixed-income strategist at Miller Tabak Roberts Securities LLC, in an e-mail yesterday.
“Market sentiment would suggest that a Greek default or a restructuring of some kind has been anticipated,” Justin D’Ercole, head of investment-grade syndicate for the Americas at Barclays Capital in New York, said in a telephone interview. “The uncertainty around how that’s going to play out is what’s holding all markets up.”
To contact the reporters on this story: Tim Catts in New York at tcatts1@bloomberg.net; Ben Martin in London at bmartin38@bloomberg.net.
To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; Paul Armstrong at parmstrong10@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Hewlett-Packard Co. (HPQ), the world’s largest maker of personal computers, and Santa Clara, California-based chipmaker Intel Corp. (INTC) led borrowers issuing $545.4 billion of bonds in the past three months, according to data compiled by Bloomberg. Issuance fell 41 percent from the second quarter and 38 percent from a year ago as offerings by financial firms and junk-rated companies largely evaporated.
Relative borrowing costs jumped to the highest in more than two years after Standard & Poor’s stripped the U.S. of its top credit grade in August and debt swaps signaled a near-certain probability of Greece defaulting. The Federal Reserve failed to ignite issuance after saying it would replace $400 billion of short-term debt in its portfolio with longer-term Treasuries to stave off recession and lower interest rates.
“Nobody likes buying debt when everyone’s putting out stories that Armageddon is around the corner,” Michael Johnson, chief market strategist at Scottsdale, Arizona-based broker- dealer M.S. Howells & Co., said by telephone. “The underlying problems in the corporate market aren’t there, but that’s being masked until we can figure out what Europe’s going to do.”
‘Risk-Off Sentiment’
The extra yield investors demand to own investment-grade corporate bonds globally instead of government debt grew to 264 basis points on Sept. 26, the widest since July 2009, according to Bank of America Merrill Lynch index data. Yields for issuers rated below Baa3 by Moody’s Investors Service and less than BBB- by S&P rose to 9.72 percent, the most since December 2009.
“There’s a risk-off sentiment that’s tied to a lack of a believable solution in Europe and a lack of any firm guidance on the U.S. economy from Washington,” said Zane Brown, fixed- income strategist at Lord Abbett & Co. in Jersey City, New Jersey. “The cynics in fixed-income are waiting to see proof before they buy in again.”
Elsewhere in credit markets, the cost to protect U.S. and European company debentures rose as a measure of stress in debt markets increased by the most in three weeks. Hovnanian Enterprises Inc. bonds tumbled after the homebuilder offered to exchange $220 million of notes. Relative yields on emerging market debt soared.
The Markit CDX North America Investment Grade Index, which investors use to hedge against losses on corporate debt or to speculate on creditworthiness, gained 1.3 basis points to a mid- price of 141.1 basis points as of 12:01 p.m. in New York, according to Markit Group Ltd.
Swap Spreads
The Markit iTraxx Europe Index of credit-default swaps linked to 125 companies with investment-grade ratings jumped 8.5 basis points to 199.25, according to JPMorgan Chase & Co. at 11:30 a.m. in London.
The indexes, which typically rise as investor confidence deteriorates and fall as it improves, gained as two-year interest-rate swap spreads increased on concern that Europe’s sovereign debt crisis and a sluggish U.S. economy will derail the global recovery.
The difference, or spread, between the two-year swap rate and the comparable-maturity Treasury note yield climbed 2.12 basis points to 32.32 basis points as of 10:41 a.m. in New York. The measure has risen from 23.37 since the end of July as investor concern has mounted that Europe’s fiscal imbalances will harm bank balance sheets. It added 3.7 basis points on Sept. 9 to 34.89.
Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Hovnanian Bonds
Hovnanian’s $797 million of 10.625 percent notes due in October 2016 tumbled 4.4 cents to 75 cents on the dollar as of 10:31 a.m. in New York after a 5.3 cents drop yesterday, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The senior secured bonds are yielding 18.5 percent, up from 15 percent on Sept. 27, the data show.
The Red Bank, New Jersey-based homebuilder is offering to exchange senior notes with coupons ranging from 6.25 percent to 11.875 percent and maturities from 2014 through 2017 for up to $220 million of new 2 percent senior secured bonds due 2021, according to a statement distributed by Globe Newswire on Sept. 28. Hovnanian, the largest homebuilder in New Jersey, said the offer will expire on Oct. 26 and that the early tender and consent time is at 5 p.m. in New York on Oct. 12.
Leveraged Loans
The S&P/LSTA U.S. Leveraged Loan 100 index decreased 0.09 cent to 89.07 cents on the dollar. The measure, which tracks the 100 largest dollar-denominated first-lien leveraged loans, has dropped from 94.22 on June 30 and fell to 87.47 on Aug. 26, the lowest level since December 2009.
In emerging markets, relative yields rose 18 basis points to 459 basis points, according to JPMorgan’s EMBI Global index. The index has expanded from 259 basis points on Jan. 5 and 289 since the end of June.
Corporate bond offerings in the U.S. fell to $193.4 billion in the third quarter versus $314.7 billion in the three months ended June 30, Bloomberg data show. Issuance rebounded to $72.1 billion in September after falling last month to the lowest level since May 2010.
Palo Alto, California-based Hewlett-Packard, raised $4.6 billion of debt on Sept. 13 in a four-part offering, Bloomberg data show. Its $1.3 billion of 3 percent, five-year notes paid a spread of 215 basis points, compared with a 90 basis point spread on bonds with a similar maturity sold four months earlier. Intel, the world’s biggest manufacturer of computer chips, sold $5 billion of five-, 10- and 30-year bonds on Sept. 14 in its first offering of non-convertible debt since 1987, Bloomberg data show.
Junk Bond Sales
U.S. junk-bond issuance fell 72 percent to $25.1 billion in the third quarter, the least since speculative-grade borrowers sold $12.2 billion during the three months through March 2009. Offerings of the debt all but froze in August at $1 billion after S&P cut the U.S. credit rating by one notch from AAA. Companies priced $18 billion of high-yield bonds in July.
Spreads on U.S. speculative-grade bonds expanded 261 basis points in the third quarter to 816, the widest since 820 in October 2009, Bank of America Merrill Lynch index data show. Relative yields on investment-grade debt widened 90 basis points to 254, the data show.
Investor Playbook
“The way investors looked at the third quarter was they basically went back to the playbook from 2008 and 2009 and said what matters the most was protecting their capital,” said Jim Casey co-head of syndication and leveraged finance at JPMorgan, which helped manage 13.1 percent of U.S. junk-debt offerings in the quarter, more than any other bank, Bloomberg data show. “They were very concerned about principal and not particularly worried about income.”
Banks worldwide issued $285.8 billion of debentures this quarter, the least since they sold $204 billion in the final three months of 2002, Bloomberg data show.
Deutsche Bank AG (DBK), Germany’s biggest lender, sold 1.5 billion euros ($2.04 billion) of two-year floating-rate notes yesterday that were priced at 98 basis points more than Euribor, in the first sale of public, senior unsecured bonds by a European bank in more than two months. The Frankfurt-based bank raised 118.6 million euros by selling floating-rate securities to domestic investors in July, paying no premium to Euribor, Bloomberg data show.
Portugal, Ireland Cuts
Turmoil in the region had deterred issuers from tapping the market as spreads on European investment-grade corporate bonds widened 144 basis points to the most since May 2009. Spreads on Bank of America Merrill Lynch’s EMU Corporate Index were at 313 basis points on Sept. 26 and narrowed to 309 basis points yesterday.
Investment-grade bond sales since the start of July dropped to 58 billion euros, down 56 percent on the previous quarter and 61 percent from the third-quarter last year, Bloomberg data show.
Moody’s cut Portugal’s debt ranking to Ba2, the second level of junk, from Baa1 on July 5. The ranking company downgraded Ireland to Ba1 from Baa3 a week later. It lowered Greece’s rating to Ca on July 25 and S&P reduced its grade to an equivalent CC two days later.
‘Broken’ Bond Market
Contracts protecting against a default by the country for five years rose to 60.6 percent upfront, according to data provider CMA. That’s in addition to 5 percent a year, meaning it would cost $6.06 million initially and $500,000 annually to protect $10 million of Greece’s debt. The prices signaled a 98 percent chance of default within five years on Sept. 12, up from about 80 percent on June 30.
While German lawmakers yesterday ratified expanded powers for the region’s 440 billion-euro rescue fund to prevent a default, investor concern has mounted the economic recovery is faltering amid the ongoing sovereign debt turmoil.
“We’re still very much in the middle of an illiquid, broken corporate bond market,” Simon Ballard, a credit strategist at RBC Capital Markets in London, said by telephone. “Cash and capital preservation are still some of the key driving strategies behind investment and for that reason issuance has been very muted.”
The U.S. economy grew at a 1.3 percent pace in the second quarter, faster than the 1.2 percent median forecast of economists surveyed by Bloomberg, revised Commerce Department figures showed yesterday. Gross domestic product may expand at a “very modest” 2 percent rate in the second half of this year as Europe’s crisis creates a “drag on growth,” wrote Adrian Miller, a New York-based fixed-income strategist at Miller Tabak Roberts Securities LLC, in an e-mail yesterday.
“Market sentiment would suggest that a Greek default or a restructuring of some kind has been anticipated,” Justin D’Ercole, head of investment-grade syndicate for the Americas at Barclays Capital in New York, said in a telephone interview. “The uncertainty around how that’s going to play out is what’s holding all markets up.”
To contact the reporters on this story: Tim Catts in New York at tcatts1@bloomberg.net; Ben Martin in London at bmartin38@bloomberg.net.
To contact the editors responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net; Paul Armstrong at parmstrong10@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Thursday, September 29, 2011
Air India May Seek $2 Billion in Bond Sales to Cut Dependence on Bailout By Karthikeyan Sundaram - Sep 29, 2011
Air India Ltd., the state-owned carrier struggling with losses, plans to raise 100 billion rupees ($2 billion) selling bonds as it works to reduce dependence on government bailouts.
The bond sale is part of a turnaround plan the airline has submitted to the government, Vayalar Ravi, India’s civil aviation minister, said in an interview in his New Delhi office on Sept. 28. The government hasn’t yet decided on giving sovereign guarantee for the bonds, he said without specifying a timeframe for the sale.
Air India is also aiming to “monetize” its land and buildings by renting them out to other government offices in a bid to generate cash, Ravi said. The carrier, which has reported annual losses every year since a merger with Indian Airlines in 2007, has piled up 442 billion rupees of debt after ordering 111 planes from Airbus SAS and Boeing Co. (BA)
“It’s a balance between commercial business interest and debt burden,” Ravi said. “Commercial business interest needs to be looked into by Air India.”
The minister said Air India’s board is yet to submit its recommendation on the Boeing 787 Dreamliner to the government. The carrier has ordered 27 of the jets, and is due to get the first one in the fourth quarter after more than three years of delay.
Air India had a domestic market share of 17.4 percent in August as rivals Jet Airways (India) Ltd. and discount carrier IndiGo lured customers. Mumbai-based Jet Airways had a market share of 26.3 percent while IndiGo had 18.8 percent, according to data from the aviation ministry.
Air India has got 32 billion rupees from government since April 2009 to help pay salaries and maintain services. The carrier is asking for 175 billion rupees from the state as it is losing 260 million rupees a day.
In August, the government also helped the airline secure jet fuel on credit from state-run refiners for as many as three months to help ease a cash shortage.
To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
The bond sale is part of a turnaround plan the airline has submitted to the government, Vayalar Ravi, India’s civil aviation minister, said in an interview in his New Delhi office on Sept. 28. The government hasn’t yet decided on giving sovereign guarantee for the bonds, he said without specifying a timeframe for the sale.
Air India is also aiming to “monetize” its land and buildings by renting them out to other government offices in a bid to generate cash, Ravi said. The carrier, which has reported annual losses every year since a merger with Indian Airlines in 2007, has piled up 442 billion rupees of debt after ordering 111 planes from Airbus SAS and Boeing Co. (BA)
“It’s a balance between commercial business interest and debt burden,” Ravi said. “Commercial business interest needs to be looked into by Air India.”
The minister said Air India’s board is yet to submit its recommendation on the Boeing 787 Dreamliner to the government. The carrier has ordered 27 of the jets, and is due to get the first one in the fourth quarter after more than three years of delay.
Air India had a domestic market share of 17.4 percent in August as rivals Jet Airways (India) Ltd. and discount carrier IndiGo lured customers. Mumbai-based Jet Airways had a market share of 26.3 percent while IndiGo had 18.8 percent, according to data from the aviation ministry.
Air India has got 32 billion rupees from government since April 2009 to help pay salaries and maintain services. The carrier is asking for 175 billion rupees from the state as it is losing 260 million rupees a day.
In August, the government also helped the airline secure jet fuel on credit from state-run refiners for as many as three months to help ease a cash shortage.
To contact the reporter on this story: Karthikeyan Sundaram in New Delhi at kmeenakshisu@bloomberg.net
To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Wednesday, September 28, 2011
Gold Tumbles as Rout in Stocks, Commodities Forces Some Investors to Sell By Glenys Sim - Sep 28, 2011
Gold fell for a second day, paring a 12th quarterly gain, as concern European leaders may not stem the region’s debt crisis hurt stocks and commodities, forcing some investors to sell the metal to cover losses elsewhere.
Immediate-delivery gold lost as much as 1.5 percent to $1,584.38 an ounce, and traded at $1,593.35 at 8:27 a.m. in Singapore. December-delivery bullion lost as much as 2 percent to $1,586.20 an ounce in New York.
Gold has fallen on “traders needing cash for margin calls on weak equity prices and newfound strength in the U.S. dollar,” Jonathan Barratt, managing director at Commodity Broking Services Pty., wrote in a report. “The turmoil in Europe only seems to be getting worse.”
Lawmakers in Germany, Europe’s largest economy, are set to vote today on boosting the region’s rescue fund amid resistance by the European Commission to impose bigger writedowns on bank holdings of Greek government debt than those previously agreed.
U.S. stocks ended a three-day rally yesterday and commodities are headed for the biggest quarterly slump since 2008 as European and International Monetary Fund officials return to Greece today to try put in place a package that will help the country stave off default. The dollar was little changed against a six-currency basket after rising yesterday.
Gold is still up 12 percent this year on concern that there may be another global recession as the debt crisis, which has Greece on the brink of default, worsens. The precious metal, which reached an all-time high of $1,921.15 on Sept. 6, has risen 6.2 percent since the end of June.
Cash silver lost as much as 2.5 percent to $29.105 an ounce, while December-delivery futures shed as much as 3.5 percent to $29.095 an ounce. Spot platinum dropped as much as 1.4 percent to $1,505.32 an ounce, while palladium was little changed at $620.75 an ounce.
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Immediate-delivery gold lost as much as 1.5 percent to $1,584.38 an ounce, and traded at $1,593.35 at 8:27 a.m. in Singapore. December-delivery bullion lost as much as 2 percent to $1,586.20 an ounce in New York.
Gold has fallen on “traders needing cash for margin calls on weak equity prices and newfound strength in the U.S. dollar,” Jonathan Barratt, managing director at Commodity Broking Services Pty., wrote in a report. “The turmoil in Europe only seems to be getting worse.”
Lawmakers in Germany, Europe’s largest economy, are set to vote today on boosting the region’s rescue fund amid resistance by the European Commission to impose bigger writedowns on bank holdings of Greek government debt than those previously agreed.
U.S. stocks ended a three-day rally yesterday and commodities are headed for the biggest quarterly slump since 2008 as European and International Monetary Fund officials return to Greece today to try put in place a package that will help the country stave off default. The dollar was little changed against a six-currency basket after rising yesterday.
Gold is still up 12 percent this year on concern that there may be another global recession as the debt crisis, which has Greece on the brink of default, worsens. The precious metal, which reached an all-time high of $1,921.15 on Sept. 6, has risen 6.2 percent since the end of June.
Cash silver lost as much as 2.5 percent to $29.105 an ounce, while December-delivery futures shed as much as 3.5 percent to $29.095 an ounce. Spot platinum dropped as much as 1.4 percent to $1,505.32 an ounce, while palladium was little changed at $620.75 an ounce.
To contact the reporter for this story: Glenys Sim in Singapore at gsim4@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Tuesday, September 27, 2011
Coffee Falls in Robusta Rout While Starbucks Cup Costs $1.50: Commodities By Isis Almeida - Sep 27, 2011
Farmers from Vietnam to Brazil will supply a record robusta crop in the marketing year that begins next month, extending a slump in coffee futures that spurred Kraft Foods Inc. (KFT) and J.M. Smucker Co. to cut prices.
Production will rise 5.4 percent to 3.29 million metric tons (54.9 million 60-kilogram bags) in the 2011-12 season, the U.S. Department of Agriculture estimates. Vietnam and Brazil, the biggest producers, will reap the most beans ever. Robusta traded on the NYSE Liffe exchange in London fell 26 percent since March, and will drop another 5 percent to $1,884 a metric ton by Dec. 31, according to the mean in a Bloomberg survey of 16 brokers, traders and analysts.
Robusta, the second most-consumed coffee after arabica, is reversing a rally that more than doubled prices in the 12 months ended in March as shortages emerged. That was part of a global surge in food prices that the United Nations estimates reached a record in February. U.S. food-price inflation will be as much as 3.5 percent next year, compared with as much as 4 percent this year, the USDA estimates.
“Vietnam will have a record crop next season and supply will be readily available for roasters, which had to rely on stocks after the country ran out of beans earlier this year,” said Keith Flury, a commodities analyst at Rabobank International in London. “Increased availability will pressure prices, helping ease costs for roasters and consumers.”
Robusta futures reached a three-year high of $2,672 in March as an unusually long rainy season in Indonesia cut output by 12 percent to 7.95 million bags. While production in the world’s third-largest grower probably dropped another 16 percent to 6.66 million bags in the harvest that began in April, the decline will be more than offset by the biggest suppliers.
Vietnam Harvest
Output in Brazil, which started its 2011-12 harvest in July, will rise 14 percent to 14.5 million bags, the USDA estimates. Vietnam’s harvest, which begins next month, will yield 9.8 percent more at 19.9 million bags, the data show. Futures traders are already anticipating the surge in supply of the beans used mostly in instant coffee, with robusta for November delivery trading at $1,932 on Sept. 26.
Prices for arabica, favored by Starbucks Corp. (SBUX), dropped 16 percent to $2.408 a pound on ICE Futures U.S. in New York since Sept. 1, also reacting to traders’ expectations of increasing supply. Brazil will harvest a record crop next year, according to Volcafe, a unit of ED&F Man Holdings Ltd. The USDA is forecasting the biggest Central American supply in a decade.
Green Coffee
The flood of beans will add to European coffee stockpiles that already rose 35 percent to 13.66 million bags this year as Vietnamese farmers accelerated exports to take advantage of a three-year high in prices, data from the European Coffee Federation show. The figure includes robusta and arabica. Stockpiles of green, or unroasted, coffee in U.S. warehouses monitored by the Green Coffee Association of New York jumped 19 percent to almost 4.74 million bags this year.
The anticipated price slump may be curbed if the Vietnam Coffee and Cocoa Association implements a plan to stockpile beans to avoid domestic shortages, said Kona Haque, an analyst at Macquarie Group Ltd. in London. Vietnam exporters agreed this month to stockpile 420,000 tons of beans for 2011-12, Luong Van Tu, chairman of the association, said yesterday.
Macquarie predicts robusta will average $1,919 in 2012, about 2 percent more than estimated in the Bloomberg survey. Robusta averaged $1,836 since NYSE Liffe started trading the 10- ton contract in 2008.
Marketing Year
Global robusta production will exceed demand by almost 4.1 million bags in the coming season, according to ABN Amro Bank NV and VM Group. Macquarie anticipates a surplus of 2.5 million bags, the most in four years, compared with a shortfall of about 700,000 bags in the current marketing year.
Robusta output in Ivory Coast, the fifth-biggest grower, will rise almost 10 percent to 2.3 million bags, according to the USDA. Production will also expand in Guinea, Madagascar, Laos, Malaysia, Tanzania and Togo, according to the Washington- based government department.
While stockpiles are rising and futures slumping, consumer prices may take longer to react because roasters and retailers need to work through inventories accumulated at higher costs.
Starbucks, the world’s largest coffee-shop operator, bought most of the coffee it needs for the year ending in September 2012, Troy Alstead, the Seattle-based company’s chief financial officer, said in a conference call in July. A 12-ounce brewed coffee from Starbucks in the U.S. ranges from $1.50 to $1.75, according to Alan Hilowitz, a spokesman for the company.
Retail Prices
Kraft, which owns the Maxwell House brand, reduced prices for some products by 6 percent last month after raising them three times in 2010, the Northfield, Illinois-based company said Aug. 23. Smucker, which owns the Folgers brand, reduced costs for the majority of its coffee products sold in U.S. by an average 6 in August, the Orrville, Ohio-based company said in a statement on Aug. 16.
U.S. retail prices for roasted coffee averaged almost $3.91 a pound last year, the most since 1997, according to data compiled by the International Coffee Organization in London.
“A fall in prices won’t feed through to us immediately because we already have stocks,” said Bryan Stockley, the managing director of Coburg Coffee Co., a London-based roasting company founded almost a half century ago. “It may take six months or more.”
To contact the reporter on this story: Isis Almeida in London at Ialmeida3@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at Ccarpenter2@bloomberg.net.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Production will rise 5.4 percent to 3.29 million metric tons (54.9 million 60-kilogram bags) in the 2011-12 season, the U.S. Department of Agriculture estimates. Vietnam and Brazil, the biggest producers, will reap the most beans ever. Robusta traded on the NYSE Liffe exchange in London fell 26 percent since March, and will drop another 5 percent to $1,884 a metric ton by Dec. 31, according to the mean in a Bloomberg survey of 16 brokers, traders and analysts.
Robusta, the second most-consumed coffee after arabica, is reversing a rally that more than doubled prices in the 12 months ended in March as shortages emerged. That was part of a global surge in food prices that the United Nations estimates reached a record in February. U.S. food-price inflation will be as much as 3.5 percent next year, compared with as much as 4 percent this year, the USDA estimates.
“Vietnam will have a record crop next season and supply will be readily available for roasters, which had to rely on stocks after the country ran out of beans earlier this year,” said Keith Flury, a commodities analyst at Rabobank International in London. “Increased availability will pressure prices, helping ease costs for roasters and consumers.”
Robusta futures reached a three-year high of $2,672 in March as an unusually long rainy season in Indonesia cut output by 12 percent to 7.95 million bags. While production in the world’s third-largest grower probably dropped another 16 percent to 6.66 million bags in the harvest that began in April, the decline will be more than offset by the biggest suppliers.
Vietnam Harvest
Output in Brazil, which started its 2011-12 harvest in July, will rise 14 percent to 14.5 million bags, the USDA estimates. Vietnam’s harvest, which begins next month, will yield 9.8 percent more at 19.9 million bags, the data show. Futures traders are already anticipating the surge in supply of the beans used mostly in instant coffee, with robusta for November delivery trading at $1,932 on Sept. 26.
Prices for arabica, favored by Starbucks Corp. (SBUX), dropped 16 percent to $2.408 a pound on ICE Futures U.S. in New York since Sept. 1, also reacting to traders’ expectations of increasing supply. Brazil will harvest a record crop next year, according to Volcafe, a unit of ED&F Man Holdings Ltd. The USDA is forecasting the biggest Central American supply in a decade.
Green Coffee
The flood of beans will add to European coffee stockpiles that already rose 35 percent to 13.66 million bags this year as Vietnamese farmers accelerated exports to take advantage of a three-year high in prices, data from the European Coffee Federation show. The figure includes robusta and arabica. Stockpiles of green, or unroasted, coffee in U.S. warehouses monitored by the Green Coffee Association of New York jumped 19 percent to almost 4.74 million bags this year.
The anticipated price slump may be curbed if the Vietnam Coffee and Cocoa Association implements a plan to stockpile beans to avoid domestic shortages, said Kona Haque, an analyst at Macquarie Group Ltd. in London. Vietnam exporters agreed this month to stockpile 420,000 tons of beans for 2011-12, Luong Van Tu, chairman of the association, said yesterday.
Macquarie predicts robusta will average $1,919 in 2012, about 2 percent more than estimated in the Bloomberg survey. Robusta averaged $1,836 since NYSE Liffe started trading the 10- ton contract in 2008.
Marketing Year
Global robusta production will exceed demand by almost 4.1 million bags in the coming season, according to ABN Amro Bank NV and VM Group. Macquarie anticipates a surplus of 2.5 million bags, the most in four years, compared with a shortfall of about 700,000 bags in the current marketing year.
Robusta output in Ivory Coast, the fifth-biggest grower, will rise almost 10 percent to 2.3 million bags, according to the USDA. Production will also expand in Guinea, Madagascar, Laos, Malaysia, Tanzania and Togo, according to the Washington- based government department.
While stockpiles are rising and futures slumping, consumer prices may take longer to react because roasters and retailers need to work through inventories accumulated at higher costs.
Starbucks, the world’s largest coffee-shop operator, bought most of the coffee it needs for the year ending in September 2012, Troy Alstead, the Seattle-based company’s chief financial officer, said in a conference call in July. A 12-ounce brewed coffee from Starbucks in the U.S. ranges from $1.50 to $1.75, according to Alan Hilowitz, a spokesman for the company.
Retail Prices
Kraft, which owns the Maxwell House brand, reduced prices for some products by 6 percent last month after raising them three times in 2010, the Northfield, Illinois-based company said Aug. 23. Smucker, which owns the Folgers brand, reduced costs for the majority of its coffee products sold in U.S. by an average 6 in August, the Orrville, Ohio-based company said in a statement on Aug. 16.
U.S. retail prices for roasted coffee averaged almost $3.91 a pound last year, the most since 1997, according to data compiled by the International Coffee Organization in London.
“A fall in prices won’t feed through to us immediately because we already have stocks,” said Bryan Stockley, the managing director of Coburg Coffee Co., a London-based roasting company founded almost a half century ago. “It may take six months or more.”
To contact the reporter on this story: Isis Almeida in London at Ialmeida3@bloomberg.net
To contact the editor responsible for this story: Claudia Carpenter at Ccarpenter2@bloomberg.net.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sunday, September 25, 2011
Rupee’s Drop in ‘So Short a Time’ Is a Concern, Reserve Bank’s Gokarn Says By Shamim Adam - Sep 25, 2011
The decline in the Indian rupee in “so short a time” as a result of volatility in global markets is a concern, Reserve Bank of India Deputy Governor Subir Gokarn said.
Sharp movements in the currency can be disruptive and tend to trigger panic, he said in a speech in Washington yesterday. India has not intervened with an exchange-rate target in mind for a long time and there are no plans to change the policy, he said.
“It is a matter of some concern that we depreciate so much in so short a time but we have to put that into perspective,” Gokarn said. “This is a global phenomenon. There is nothing specific in the country that is driving this process.”
Asian currencies had their biggest weekly drop since 1998 last week as concern the global economy is headed for a recession dimmed the outlook for exports and prompted investors to favor safer bets than emerging-market assets. India’s rupee ended its worst week in 18 years, losing 4.6 percent.
The currency closed at 49.43 per dollar in Mumbai on Sept. 23. This month, the rupee has fallen 6.8 percent even as the Group of 20 Nations sought to quell the turmoil in financial markets.
“We do see that very sharp movements intra-hour or intra- day can be disruptive,” Gokarn said. “They tend to trigger panic, entry or exit. In that situation, we feel that there is some merit in smoothing, infusing dollars to ensure that movement is moderated. That is something we would consider.”
‘High’ Inflation
Inflation in India “remains high” and will probably remain in a range of 9 percent to 10 percent until November, Gokarn said.
The Reserve Bank boosted India’s repurchase rate for the sixth time this year on Sept. 16, raising benchmark borrowing costs 25 basis points to 8.25 percent as policy makers seek to tame the fastest inflation among the biggest emerging markets. Indian wholesale prices rose 9.78 percent from a year earlier in August.
Economic indicators are signaling a slowdown in growth, Gokarn said. India’s $1.7 trillion economy expanded 7.7 percent in the three months ended June 30 from a year earlier, the slowest pace of growth since the last quarter of 2009.
“All of the momentum indicators are showing signs of moderation,” the deputy governor said. “Tax collections are starting to ease off. When we track growth, it’s clearly come down to below 8 percent.”
To contact the reporter on this story: Shamim Adam in Washington at sadam2@bloomberg.net
To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Sharp movements in the currency can be disruptive and tend to trigger panic, he said in a speech in Washington yesterday. India has not intervened with an exchange-rate target in mind for a long time and there are no plans to change the policy, he said.
“It is a matter of some concern that we depreciate so much in so short a time but we have to put that into perspective,” Gokarn said. “This is a global phenomenon. There is nothing specific in the country that is driving this process.”
Asian currencies had their biggest weekly drop since 1998 last week as concern the global economy is headed for a recession dimmed the outlook for exports and prompted investors to favor safer bets than emerging-market assets. India’s rupee ended its worst week in 18 years, losing 4.6 percent.
The currency closed at 49.43 per dollar in Mumbai on Sept. 23. This month, the rupee has fallen 6.8 percent even as the Group of 20 Nations sought to quell the turmoil in financial markets.
“We do see that very sharp movements intra-hour or intra- day can be disruptive,” Gokarn said. “They tend to trigger panic, entry or exit. In that situation, we feel that there is some merit in smoothing, infusing dollars to ensure that movement is moderated. That is something we would consider.”
‘High’ Inflation
Inflation in India “remains high” and will probably remain in a range of 9 percent to 10 percent until November, Gokarn said.
The Reserve Bank boosted India’s repurchase rate for the sixth time this year on Sept. 16, raising benchmark borrowing costs 25 basis points to 8.25 percent as policy makers seek to tame the fastest inflation among the biggest emerging markets. Indian wholesale prices rose 9.78 percent from a year earlier in August.
Economic indicators are signaling a slowdown in growth, Gokarn said. India’s $1.7 trillion economy expanded 7.7 percent in the three months ended June 30 from a year earlier, the slowest pace of growth since the last quarter of 2009.
“All of the momentum indicators are showing signs of moderation,” the deputy governor said. “Tax collections are starting to ease off. When we track growth, it’s clearly come down to below 8 percent.”
To contact the reporter on this story: Shamim Adam in Washington at sadam2@bloomberg.net
To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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