Good Morning Ladies & Gentlemen,
The Federal Reserve's decision to raise its discount rate shows that the global recovery is on track and other central banks can afford to keep withdrawing emergency measures, former policy makers and economists said.
"It's another minor step in a long march towards normalization," said former Bank of England official Charles Goodhart. "The Fed has already moved some way to reducing credit easing, as has the ECB, as has the Bank of England."
The Fed Thursday raised the rate charged to banks for direct loans by a quarter-point to 0.75%, the first increase since June 2006. The Fed said it was a "normalization" of lending that wouldn't affect monetary policy, and the main federal funds rate would remain low for an "extended period."
The move came as policy makers debate how to withdraw measures designed to haul their economies out of the worst global recession since World War II. While the European Central Bank has already ended some of its emergency liquidity tools, the Euro-region economy almost ground to a halt in the fourth quarter and its task is complicated by Greece's fiscal crisis.
The Bank of England is concerned the UK economy may lapse back into a recession and expects inflation to undershoot its target over the next two years. The Bank of Japan says it's still tackling the "critical challenge" of deflation, while unemployment in the US and Euro region is around 10%.
The Fed's decision nevertheless increased speculation that the US recovery will be strong enough to allow it to tighten policy in the fourth quarter. The Dollar strengthened 0.8% against the Euro since Thursday's announcement, trading at $1.3518 at 1 p.m. in London.
Bruno Lafont, chief executive officer of Lafarge SA, the world's biggest cement maker, said the move may be good news. "This increase shows some confidence in the economic pickup," he told reporters in Paris Friday.
The ECB has already halted lending unlimited funds for 12 months and may stop other measures at its next meeting on March 4. While President Jean-Claude Trichet has signaled that its benchmark rate is "appropriate" for now, a faster global recovery may prompt him to tighten sooner.
The ECB has more reason than the Fed to think about a tightening of its policy in summer.
Liquidity in the Euro region is abundant and the central bank is well-advised to focus on this to avoid inflationary risks. Inflation is not a problem right now, but if you wait for too long you may have to increase rates in a way which will hurt economic growth.
The Bank of England is leaving the option open to resume bond-buying if needed after pausing its 200-billion Pound (308 billion) program this month. The UK economy returned to growth in the fourth quarter of last year, expanding 0.1% from the previous three months. Policy maker Kate Barker said in an interview published by the Belfast-based Newsletter Friday that the economic recovery will be "quite hesitant."
The Fed's move may also prove a boon to an export-led recovery by bolstering the Dollar, at the expense of the Euro, some economists said. The single currency has lost 6% this year on concerns over swelling budget deficits and the impact of Greece's debt crisis on the stability of the Euro region.
All told though, whilst China has been on holiday, Global markets have been driven by speculation over when (as opposed to if) Central Banks will start taking back their cash; inevitable of course, but most of 2009's gains were on the strength of the stimulus packages as we know.
On to those numbers for the week that was: |
| US Markets
How the US did this week ..... |
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 US stocks, commodities and the Dollar gained as lower-than-estimated rise in inflation fueled speculation the Federal Reserve will keep its benchmark interest rate near a record low to safeguard the economic recovery.
The Standard & Poor's 500 Index increased 0.2% to 1,109.17 at 4:33 p.m. in New York and rallied 3.1% this week, its best gain since November. Oil, copper and aluminum prices rose at least 0.9%, sending the S&P GSCI Index to a one-month high. The Dollar Index jumped as much as 1.2% before paring the gain to 0.2% after the government consumer prices report. Treasury Inflation Protected Securities show expectations for inflation fell the most in two weeks.
The cost of living increased 0.2% last month and consumer prices excluding energy and food unexpectedly fell for the first time since 1982, a sign the economic recovery is not stoking inflation. The report eased concern that the central bank would need to raise its federal funds rate to ward off price increases. The central bank Thursday boosted the rate it charges for direct loans to banks for the first time since 2006.
Seven of 10 industry groups in the S&P advanced Friday, with financial shares contributing the most to the advance. The index has rallied this week as economic and earnings reports signaled the nation's recovery from the recession was gaining momentum.
Yields on fixed-rate Treasuries were little changed after the labour Department's CPI report. Prices had slumped earlier after Thursday's discount rate increased raised concern policy makers are moving close to raising borrowing costs. St. Louis Fed President James Bullard said the central bank may not lift its benchmark rate until 2011.
The breakeven rate between 10-year TIPS and comparable conventional US notes fell as much as seven basis points, or 0.07 percentage point, to 2.26%, the most on an intraday basis since 5 February. It touched 2.49% on 11 January, the highest level this year.
Most banks mentioned in the note moved higher on Friday. Bank of New York Mellonimproved 3.5% to $28.66, Northern Trust Corp rose 4.1% to $54.60 and Morgan Stanley rose 0.6% to $27.41. JPMorgan Chase bucked the trend, retreating 0.9% to $40.03.
Citigroup strengthened 7.4% during the week to $3.42, boosted by filings that revealed hedge funds run by prominent investors such as George Soros and John Paulson had increased their holdings in the bank in the last quarter.
Also in the financial sector Charles Schwab, an independent broker, gained 5.2% to $18.73 Friday as Goldman Sachs raised the stock to "neutral" from "sell" and increased the price target on the stock to $18.
A number of retail giants reported encouraging quarterly figures during the week. Department store operator JC PenneyThursday rose 6.6% to $27.66 on its fourth-quarter results. It reported better profits than many expected, and said same-store sales would be in the "low single digits" for the full fiscal year. The stock was up 11% on the week.
Whole Foods gained 13.1% to $33.66 over the week following the release of its results on Tuesday.
Walmart reported comparable-store sales that failed to match expectations, but still rose 1% on the week to $53.49.
Shares in Walgreens the largest US drugstore chain, gained 3.9% during the week to $34.86 as it announced it was to buy rival Duane Reade for $1.1bn. |
| European Markets
What has been happening in Europe this week ..... |
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 European stocks rose for a fifth day, extending the biggest weekly gain since July, after Nestle SA forecast sales growth will accelerate, overshadowing an unexpected increase in the Federal Reserve's discount rate.
Nestle, the world's largest food company, advanced to a two-year high. Shire Plc surged to the highest level in more than nine years after the drugmaker reported better-than- expected earnings. Lonza Group AG jumped 4.1% amid speculation that former Swiss Justice Minister Christoph Blocher may purchase a stake.
The Dow Jones Stoxx 600 Index rose 0.5% to 250.3, bringing this week's gain to 3.9%. European shares had opened lower after the Fed lifted the discount rate by a quarter point to 0.75%, signaling a retreat from its unprecedented actions to halt the deepest financial crisis since the Great Depression.
The Stoxx 600 has fallen 3.8% from this year's high on Jan. 19 amid concern that efforts by Greece, Spain and Portugal to curb their budget deficits will harm the economic recovery and as China moved to restrict lending to stop its economy from overheating. The measure has still surged 58% from a 12-year low on March 9 amid record-low interest rates in the US and Europe and about $12 trillion of commitments from governments worldwide to revive the economy.
National benchmark indexes climbed in 16 out of 18 western European markets. France's CAC 40 gained 0.6%, as did the UK's FTSE 100. Germany's DAX added 0.7%.
GERMANY
German stocks rose, with the benchmark DAX Index posting the longest winning streak this year, as a report showed consumer prices in the US rose less than anticipated, offsetting the Federal Reserve's unexpected discount-rate increase.
Daimler AG and Bayerische Motoren Werke AG led European automakers higher. Metro AG and MAN SE rose more than 2%. Conergy AG and Q-Cells SE fell as analysts cut their estimates for the shares.
The DAX rose 0.7% to 5,722.05 in Frankfurt, extending its weekly gain to 4%, the biggest since October. The benchmark gauge has fallen 5.4% from this year's high on Jan. 4. The broader HDAX Index gained 0.6% Friday.
Daimler rose 2.6% to 32.30 Euros, while BMW increased 3.5% to 30.44 Euros. Porsche SE advanced 2.2% to 37.97 Euros. The Dow Jones Stoxx 600 Automobiles and Parts Index gained 1.9%, the best performance among 19 industry groups in Europe's Stoxx 600 Index.
Metro, Germany's biggest retailer, climbed 2.3% to 39.25 Euros, while MAN gained 2.3% to 54.13 Euros.
Deutsche Bank, Germany's biggest bank, increased 1.3% to 47.91 Euros, while smaller competitor Commerzbank AG gained 1.2% to 5.84 Euros.
Manz Automation jumped 6.2% to 61 Euros. The German solar-cell maker said it won about 25 million Euros ($33.8 million) of orders, lifting the backlog at the end of January to 70 million Euros.
Comdirect Bank climbed 4.7% to 7 Euros. The online broker controlled by Commerzbank was raised to "accumulate" from "hold" at Equinet AG, which said it expects "a positive earnings trend in 2010" and "an improvement of the market environment."
Conergy tumbled 4.2% to 81.9 Euro cents as Equinet cut its price estimate for the solar company by 20% to 40 Euro cents. Q-Cells lost 1.5% to 7.63 Euros as Berenberg Bank reduced its share-price forecast 13% to 6.50 Euros.
FRANCE
France's CAC 40 Index advanced 21.71, or 0.6%, to 3,769.54 in Paris, for a weekly gain of 4.7%. The SBF 120 Index increased 0.5% Friday.
Carrefour dropped 72 cents, or 2%, to 34.92 Euros, after three days of gains. Europe's largest retailer said profit unexpectedly slid 70% last year on impairment charges linked to closing stores in Italy and refurbishing outlets elsewhere in Europe. Net income from recurring operations fell to 385 million Euros ($519 million), missing analyst estimates.
Groupe Danone, the world's biggest yogurt maker, advanced 74 cents, or 1.7%, to 43.74 Euros, gaining for a fourth day. Nestle SA, the world's biggest maker of coffee, bottled water and pet food said sales growth will accelerate this year.
GDF Suez climbed 37 cents, or 1.3%, to 27.56 Euros, increasing for a fourth day. JPMorgan Chase & Co. raised its recommendation on shares of the owner of Europe's largest natural-gas network to "overweight" from "neutral."
Schneider Electric climbed 1.56 Euros, or 2%, to 81.21 Euros, gaining for a fifth day. Kepler raised its recommendation on shares of the world's biggest maker of circuit breakers to "buy" from "reduce."
Sodexo, the world's second-largest catering company, increased 1.29 Euros, or 3.1%, to 42.66 for the biggest gain in six weeks. Cheuvreux added the shares to its "selected list," an upgrade from "outperform."
Thales plunged 4.09 Euros, or 12%, to 29.62, for its biggest decline since April 2000. Europe's second-biggest defense-electronics maker posted a net loss in 2009 of 128 million Euros, compared with net income of 650 million Euros in the previous year. The company said that it is reducing its dividend to 50 cents a share.
BELGIUM
The Bel 20 in Brussels closed out the trading day and week Friday on 2,527.73, up 0.37%.
Belgian chemical group Solvay reported a greater than expected 150% rise in fourth quarter operating profit on Thursday after cost-cutting and lower energy prices helped offset a fall in sales.
Solvay, the world's leading maker of soda ash, said its focus in 2010 would be optimal reinvestment after the 4.5 billion Euro ($6.18 billion) sale of its pharmaceutical division to Abbott labouratories (ABT.N).
"Thanks to its growth initiatives, its competitive positions and the measures taken in the last two years, Solvay is prepared in case of a longer crisis. Market conditions remain challenging," the company said in a statement.
The company had recurring earnings before interest and tax (REBIT) of 313 million Euros, beating the average forecast of 217 million Euros from a Reuters poll of nine analysts.
In the year-earlier period, Solvay had REBIT of 125 million Euros, hit by plunging plastics demand and inventory writedowns.
Wednesday, the National Bank of Belgium said in a report that the gross domestic product or GDP increased 0.3% sequentially in the fourth quarter, slower than the 0.7% growth in the previous quarter. A year ago, the GDP was down 2.1%.
Year-on-year, the GDP dropped 0.8% in the fourth quarter, compared to the 3.2% fall in the preceding quarter.
In the whole year of 2009, the GDP was down 3% from the previous year.
The National Bank of Belgium also announced the same day that the trade deficit stood at Eur 0.1 billion in November, narrowing from Eur 1.5 billion deficit a year ago.
Exports increased 3% on an annual basis to Eur 16.1 billion in November, while imports dropped 5.4% to Eur 16.2 billion.
For the September to November period, exports and imports decreased by 4.8% and 9.1% , respectively compared to the same period of the previous year.
THE NETHERLANDS
In Amsterdam the AEX finished the week on 325.60, a rise of 0.40%.
ING Wednesday posted a fourth-quarter loss of 712 million (£618m) - more than double market forecasts.
The Dutch bancassurer had said it would make a loss after paying back 5 billion in state aid, plus penalties. Analysts said the results cast a shadow over the group's plans to spin off its insurance business and refocus as a leading European retail bank.
ING said it planned to spend the rest of this year working on how to split off its insurance arm - making a trade sale, or its preferred option of a demerger.
Some in the market had expected an IPO late this year.
A majority of Dutch people want Greece to leave the Euro, Dutch daily De Telegraaf reported on Wednesday based on a poll it commissioned.
The poll among 5,300 Dutchmen showed some 92% felt Greece should leave the Euro currency, while more than 90% of the respondents are also in favour of the Netherlands and Germany exiting the Euro zone and getting their own currency back, the paper said.
Based on the poll, more than 60% of the respondents are worried about developments in Greece, because banks which have bought Greek debt may run into trouble and cause a new crisis, the paper said.
Dutch bancassurer SNS Reaal posted a surprise 2009 profit on Thursday as its insurance business rebounded along with a general improvement in financial markets.
SNS reported a profit of 17 million Euros ($23.34 million), against a Reuters poll estimate for a loss of 22 million. In 2008 the company lost 504 million Euros, due almost entirely to its Reaal insurance business.
SNS, which provides retail banking services and financial products for retail customers and small-to-midsize businesses, said it took a net charge of 28 million Euros for the Oct. 2009 failure of Dutch retail bank DSB [DSB.UL].
The company has struggled with weakness in its property finance unit, which was heavily exposed to markets that suffered during the credit crisis. SNS said that the unit lost 219 million Euros in 2009 and that it was working to unwind its international portfolio by 2012.
The company also said it would not pay a 2009 dividend. Were it to pay a dividend it would also have to pay a substantial coupon on the remaining state aid it received in Oct. 2008.
SWITZERLAND
Zurich's SMI ended the session Friday on 6,709.68, up 1.09% for the day.
The world's second-largest reinsurer, Swiss Re, swung to a 2009 net profit but just missed expectations as it wrote down 1.9 billion Swiss Francs on corporate bond hedges. "The group believes now is an appropriate time to re-establish targets. Swiss Re aims to achieve a return on equity of 12% over the cycle," said Chief Executive Stefan Lippe, adding this target reflected lower investment returns as the company shifts to lower-risk investments.
Lippe, appointed after the company was forced to turn to competitor Berkshire Hathaway for a costly 3 billion Franc convertible loan a year ago, has said Swiss Re will only go after the most profitable business, even if this means missing out on some sales.
His safety-first approach and low catastrophe payouts widened Swiss Re's operating margins, enabling it to reward shareholders with an improved dividend of 1.00 franc after it paid out only a nominal sum of 0.10 francs for 2008. Swiss Re increased its shareholder equity by 5.7 billion francs, giving it more breathing space as it tries to earn enough to repay Berkshire, owned by billionaire investor Warren Buffett, and to illustrate a return to capital strength by winning back the coveted 'AA' credit rating it lost in the crisis.
Switzerland's producer and import prices rose 0.3% month-on-month in January, the Federal Statistical Office reported Monday. Economists had expected producer and import prices to rise just 0.1%, as seen in the previous month.
On an annual comparison, producer and import prices were down 1.3% in January, smaller than the 2.5% decrease in the previous month. The decline in January was smaller than the consensus forecast of 1.5%.
Engineering group ABB Ltd. has reported a net profit of $540 million for the fourth quarter.
The Swiss-Swedish company more than doubled its net profit compared with $213 million earned in the same period of 2008.
Earnings per share are $0.24 from $0.09 the previous year.
Zurich-based ABB said Thursday that orders measured in US Dollar rose 4% during the fourth quarter but fell 5% in local currencies.
Revenues dropped 4% to $8.76 billion as demand for the company's process automation and robotics products dropped sharply.
ABB says the outlook for 2010 remains uncertain because of the overall economic climate.
AUSTRIA
Vienna's ATX rounded out a volatile week on 2,573.19, up 0.44%.
Official figures from the Österreichische Kontrollbank have confirmed that Austrian Pensionskassen generated a 9% average return in 2009, as equity equalled return.
The 11 funded company pension schemes averaged a return on investments of 12.6% last year while the six multi-employer funds reached 8.41%.
India expects 1.3 trillion US Dollar investment from Austria in the next seven years. Speaking at the meeting of India-Austria Joint Economic Forum in New Delhi Wednesday, the Commerce Minister, Anand Sharma invited Austria to participate in the creation and management of world class infrastructure in India.
He emphasised that the large skilled human resource base of India with Austria`s technology and investment will create a win-win situation for both the countries. He said despite global economic melt down the bilateral trade reached about USD 1,193 million in 2008-09.
On multilateral trade fund, he asserted that India is committed to rule based trading system. Sharma said it is important that regulations and related procedural costs are minimised for ensuring inclusive trade growth.
AIR correspondent adds that India exports drugs, pharmaceuticals and fine chemicals, transport equipment, machinery and instruments, gems and jewellery to Austria and imports iron and steel, electronic goods, petroleum and organic chemicals.
Last year, Vienna Airport faced some difficult times. Slovakian-based SkyEurope, which had set up a base at the airport in March 2007 and started flights to 30 destinations, ceased operating on 1 September.
Although overall airport traffic at Vienna was down 8.3% in 2009 to 18.1 million passengers, demand on eastern European routes fell by a more significant 15%.
Traffic data for national carrier Austrian, now effectively under Lufthansa control, reveals that demand on its 'Focus East' network was down 10.3%, while to the rest of Europe (including domestic), it was down just 5.1%. Long-haul traffic was down 19%, which is reflected in Vienna reporting a drop in passenger numbers to the US of 34% (Austrian dropped Chicago O'Hare services, while Delta ditched Atlanta flights) and the Far East of 18%.
Over the last three years, airberlin and its Austrian partner NIKI have gradually been increasing their share of passenger traffic at the airport from 12.2% in 2007, to 13.7% in 2008 and 16.7% in 2009.
With NIKI starting at least six new routes during February and March, this share is likely to grow to close to 20% in 2010.
Austrian has revealed in its third quarter presentation last October that it intends in future to "... focus on volume markets ... but continue to serve niche markets in CEE (Central and Eastern Europe)".
This will be achieved by focusing on the larger western markets and to operate fewer 50-seaters and replace them with 737-800s, leading to a significant cut in unit costs.
SWEDEN
The OMX in Stockholm completed the trading session Friday on 957.27, up 1.09%.
The Swedish central bank is expected to raise interest rates at a faster pace than earlier forecast in the next 12 months, results of a survey released on Wednesday showed.
TNS SIFO Prospera's survey of money market players showed the Riksbank's repo rate at 1.4% in 12 months, higher than the 1.2% seen in January. The repo rate is seen at 2.8% in two years in the latest survey compared to 2.6% in the previous poll. On February 11, the Riksbank left the repo rate unchanged at 0.25% and said it will begin to raise the repo rate in the summer or early autumn.
Economic growth forecasts for the next two years have been revised upwards since last survey without affecting inflation, thus demonstrating higher real economic growth expectations, the TNS SIFO Prospera said. Gross domestic product growth is forecast at 2.4% for the first year, better than the 2.2% predicted in the January survey. Annual growth is seen at 2.7% in the second year from now versus 2.5% expected in January. Annual inflation expectations for the first year as well as the second year were left unchanged at 1.6% and 2.4%, respectively.
Further, 82% of the money market players believe that the inflation the second year from now will stay within the Riksbanken's 1%-3 % tolerance band, the survey found. The ratio was 81% in the January survey.
TNS SIFO Prospera has been commissioned by Sveriges Riksbank to conduct a series of surveys, twelve times a year, aiming at mapping expectations of inflation, GDP and future repo rates in Sweden among money market players. The mandate also includes mapping expectations of future GDP-growth and repo rates, for money market players also the five year government bond rate, the SEK/Eur and SEK/USD rates.
The actual capacity utilization rate in the Swedish mining and manufacturing industries increased to a seasonally adjusted 79.5% in the December quarter from 78.3% in the September quarter, Statistics Sweden said on Tuesday.
Capacity utilization in the intermediate goods industry increased by 2.7 percentage points to 80.1% during the fourth quarter while capacity utilization in the capital goods industry increased by 0.1 percentage points to 76.7%.
Compared to the fourth quarter of 2008, the capacity utilization rate decreased by 3 percentage points.
Statistics Sweden also said on Tuesday that the total stocks in the country's industrial sector decreased 11.1% year-on-year in the December quarter.
The machinery industry registered the largest decrease in stock, falling 25.3%. Inventories fell 19.2% in the motor vehicles industry.
Compared to the September quarter, inventories were down 3.4%.
DENMARK
In Copenhagen, the OMX drew the week to a close at 358.76, up 0.05% - in other words, flat on the day.
Goldman Sachs has removed Danish pharma company H Lundbeck from its "conviction buy" list, but kept the "buy" rating on the shares.
The broker also decreased the price target on Lundbeck's stock to DKK123 from DKK135.
Denmark's domestic producer prices index rose 1.5% month-on-month in January, taking the annual rise to 2.8%, data released by the Statistics Denmark showed Monday.
Producer prices for manufactured goods grew 3% month-on-month and import prices rose 0.5%.
Statistics Denmark said on Wednesday that the number of active unemployed in the country stood at 196,000 in the December quarter, up from 180,000 in the September quarter.
At the same time, the number of employed fell sharply to 2.70 million - the lowest level in nearly six years.
The DKK11.8 billion (Eur1.6 billion) BankPension scheme is investigating the possibility of making virgin hedge fund allocations. The Danish hybrid fund is still considering whether to initiate small hedge fund commitments in a move to alter its risk profile, but no investments are likely to be made.
Danish private equity fund Axcel aims to raise $1 billion this year through an initial public offering (IPO) of shares in Danish jewelry maker Pandora, two investment bank sources told Reuters on Wednesday.
Axcel owns almost 60% of Pandora, whose revenue grew to around 3 billion Danish crowns ($550 million) last year from 1.9 billion in 2008.
"I think it will be this year. Otherwise a consortium would not be set up and meetings held," one of the sources said, speaking on condition of anonymity.
Top executives at Axcel and Pandora declined to comment.
Three planned European private-equity-backed IPOs have been pulled this month due to weak investor interest.
FINLAND
The OMX in Helsinki headed into the weekend on 6,672.06, up 0.19%.
Finnish utility Pohjolan Voima (PVO) said on Wednesday it planned renewable energy projects worth three billion Euros ($4.1 billion) over the next 20 years in addition to a proposed new nuclear reactor.
The company said plans include the transformation of two coal plants into biofuel gasification plants by 2020 as well as a possible new offshore wind farm.
"Our aim is that by 2030 we have (new nuclear reactor) Olkiluoto 4 plus renewable energy projects worth 3 billion Euros," PVO's Chief Executive Timo Rajala told Reuters.
Rajala said the final size of the investment would depend on whether PVO gets approval to build a new nuclear reactor.
Wednesday, the Statistics Finland announced that the producer price index or PPI for manufactured products dropped 0.1% year-on-year in January, slower than the 2.6% fall in the previous month.
On a monthly basis, the PPI increased 1.1% in January, faster than the 0.4% growth in the preceding month.
Export price index declined 1.7% on an annual basis in January, compared to the 4% fall in the previous month. At the same time, import price index decreased 0.2%, after falling 1.9% in December. Month-on- month, export prices were up 0.4% and import prices rose 1%.
Meanwhile, the wholesale price index or WPI slipped 0.7% year-on-year in January, compared to the 2.8% fall in the prior month. The WPI increased 1.3% compared to the preceding month.
Statistics Finland said on Tuesday that the country's unemployment rate stood at 8.2% by end-2009, well over the 6.4% rate recorded a year ago.
The jobless rate among under 25s hit 21.5% in 2009 compared to 16.5% in 2008.
They also said that wage and salary earnings in the country slid 2% year-on-year in the December quarter, accelerating from the 1.5% fall in the previous quarter.
The growth in wages and salaries slowed down or turned negative in nearly all the main industries in the December quarter. Wages fell 9.8% annually in the manufacturing and was down 4.4% in the construction sector.
Wages increased only in the private educational services sector, up 7.1%, the statistical agency said.
Wages and salaries were down 1% in the whole of 2009 when compared to 2008.
NORWAY
Oslo's OBX finalised the numbers Friday by closing at 324.24, up 1.22%.
Citigroup Inc. and two units must defend a lawsuit over alleged misrepresentations in the sale of more than $115 million in derivatives to seven Norwegian municipalities in 2007, a US judge ruled.
In an order dated Tuesday and made public Wednesday, US District Judge Victor Marrero in Manhattan denied a motion by Citigroup to dismiss the claims. Citigroup had argued in part that the case shouldn't be heard in New York.
The judge said he was persuaded, at this stage of the proceedings, that "the essential core of the alleged fraud occurred in New York. The defendants concocted and implemented their allegedly fraudulent marketing strategy in New York." Judge Marrero didn't rule on the merits of the claims, just that they should be allowed to proceed.
Citigroup was sued in August 2009 by seven Norwegian municipalities and the bankruptcy estate of Terra Securities ASA over the sale of notes linked to a tender option bond fund managed by a unit of Citigroup Global Markets.
The lawsuit alleged the notes were misrepresented as safe, conservative investments. The notes lost significant value a few months after they were purchase by the municipalities. Terra eventually fell into bankruptcy.
Statistics Norway reported on Monday that the country's trade surplus stood at NOK 34.4 billion in January, up from the NOK 31.1 billion in the previous month. A year ago, a surplus of NOK 32.4 billion was recorded.
Exports dropped 5.8% year-on-year to NOK 63.5 billion in January. Exports excluding crude oil, natural gas & condensates climbed 7.5%.
At the same time, imports slid 17.1% to NOK 29.0 billion - the lowest monthly import value since April 2006.
They also said that the total number of dwelling starts in the country stood at 1,280 in December, down from 1,562 a year ago.
A total of 19,497 dwelling starts were registered during 2009, down 24% from 2008's levels.
Utility floor space started for holiday houses and residential garages went down by 19% in 2009 compared to 2008.
SPAIN
The IBEX in Madrid called time on trading Friday at 10,676.70, up 0.97%.
Spain's gross domestic product decreased 0.1% quarter-on-quarter in the three months through December, data released by the National Statistics Institute showed on Wednesday, confirming preliminary estimates. The economy had contracted 0.3% in the third quarter.
The confirmation means the Spanish economy has now been mired in recession for seven quarters.
On a yearly basis, the GDP slumped 3.1%, also confirming preliminary figures after the 4% decrease in the preceding quarter.
In the whole of 2009, Spain's economy contracted 3.6%.
New orders received by Spanish industries grew 6.2% annually in December, following the 1.5% decrease in the preceding month, the country's National Statistics Institute said on Tuesday.
This marks the first annual increase in new orders since July 2008.
By economic destination of goods, new orders surged 28.2% in the capital goods component, while that in the energy component was up 20.2%.
At the same time, industrial turnover fell 2.9% annually, following the 3.9% decrease in the preceding month.
In the whole of 2009, industrial turnover slid 21.7% while new orders were down 22.1%.
The Conference Board leading economic index for Spain stood at 109.6 in December, up from 109.3 in the previous month, the Conference Board said on Wednesday.
Four of the six components that make up the leading index increased in December. Positive contributions came from order books survey, the Spanish equity price index, job placings and the Spanish contribution to the Euro M2 money supply.
On the other hand, the capital equipment component of industrial production and the inverted long-term government bond yield declined.
At the same time, the Conference Board coincident economic index - a measure of current economic activity - was flat at 99.5.
PORTUGAL
Lisbon's PSI Generali finished the session on 2,669.34, a gain of 0.93% for the day.
The board of Portuguese cement producer Cimpor said on Wednesday a modified offer by Brazilian steelmaker CSN to buy at least a third of Cimpor at 6.18 Euros a share did not reflect the company's fair value.
The board said it recommended to shareholders not to sell their shares in Cimpor, which is the target of stake purchases by two other Brazilian companies.
Cimpor shares had closed 1.4% lower at 5.80 Euros in Lisbon on Wednesday before the board statement.
CSN on Friday raised its bid for Portugal's largest cement maker from 5.75 Euros but offered to buy a smaller stake rather than control of the company. Cimpor's board had previously rejected CSN's initial takeover bid.
Votorantim Cimentos, Brazil's largest cement producer, paid 154.45 million Euros ($211 million) for an additional 3.93% stake in Portuguese rival Cimpor, which is the target of stake purchases by two other Brazilian companies.
Wednesday, the Statistics Portugal announced that the jobless rate stood at 10.1% in the fourth quarter, up from 9.8% recorded in the previous quarter. A year ago, the jobless rate was 7.8%.
The number of unemployed totaled 563.3 thousand persons in the fourth quarter, larger than the 547.7 thousand persons in the previous quarter.
In the year of 2009, the average unemployment rate was 9.5%, up from 7.6% in 2008. The number of unemployed totaled 528.6 thousand persons, up 23.8% from the previous year.
ITALY
Italy's benchmark FTSE MIB gained 86.21, or 0.4%, to 21,772.33, bringing this week's rally to 3.5%.
Ansaldo STS rose 34 cents, or 2.4%, to 14.25 Euros, a third gain this week, after shares of Finmeccanica SpA's railway technology unit rose above their 20- day moving average.
EEMS Italia climbed 6.8 cents, or 6%, to 1.20 Euros. Intermonte Sim SpA reiterated a "buy" rating on the company that assembles and tests memory chips.
Fiat SpA rose 1.9 cents, or 2.3%, to 8.33 Euros, erasing Thursday's decline. Automobile stocks were the second-best performers in Europe Friday. Cheuvreux, which has an "underperform" rating on the Italian carmaker, said in a note that "despite definitely weaker European car demand this year, Fiat's 1.5 billion-Euro trading profit guidance is not out of reach."
Exor SpA, Fiat's main shareholder, gained 19 cents, or 1.7%, to 11.55 Euros.
Pirelli & C. advanced 0.9 cents, or 2.3%, to 39.4 cents, the highest in more than a month. Morgan Stanley reiterated an "overweight" recommendation on the tiremaker before fourth-quarter results and said it expects Pirelli to "beat consensus by more than 10%" at the tires unit, triggering upgrades.
GREECE
The Athex in, you guessed it, Athens rounded out the week on 1,927.62, a rally of 2.42% for the session.
The prime minister of Greece has ordered a parliamentary investigation to uncover any mishandling of the country's finances in the run-up to its debt crisis, at the same time as saying he is not seeking European money to bail out the nation.
George Papandreou, Greek's socialist leader, said the commission would be established to assess the actions from 2004 to 2009, when the rival conservatives were in power.
Mr Papandreou, who is under pressure to produce a scapegoat for the crisis, wants to prove to other European Union leaders that no stone has been left unturned in questioning how the situation occurred.
Greece owes some €220bn (£190bn) to overseas banks, equivalent to 115pc of its gross domestic product.
In a speech to a meeting of his cabinet, Mr Papandreou said: "We haven't asked for money from German, French, Italian or any other taxpayers. What we want is political support to end profiteering and the defamation of our country."
Mr Papandreou is also trying to separate the country's national statistics agency from its finance ministry - to solve an age-old problem of politically-manipulated statistics - while trying to push through a three-year fiscal consolidation plan.
Meanwhile Angela Merkel, the German Chancellor, criticised investment banks for the role they may have played in helping Greece to mask its fiscal problems: "It would be a disgrace if it turned out to be true that banks that already pushed us to the edge of the abyss were also party to falsifying Greek statistics." Her comments were in reference to a derivatives deal arranged by Goldman Sachs in 2001 which allowed the Greek government to mask its budget deficit by deferring interest payments.
George Papaconstantinou, the country's finance minister, said the Goldman deal was entirely legal and within EU guidelines at the time.
European finance ministers urged Greece to take tough measures to rein in the country's massive deficit. Eurogroup Chairman Jean-Claude Juncker said on Monday that Greece agreed to come up with more measures if necessary. Additional measures should cover revenue-increasing actions.
Greece would announce additional measures to cut its deficit if its current steps fail to be on target by March 16. The country had pledged to cut its massive budget deficit from 12.7% of GDP in 2009 to around 3% by 2012.
Following a meeting of Eurozone finance ministers, Juncker said it would be unwise to discuss the details of the potential aid for Greece. Eurozone leaders last Thursday decided to support Greece in its efforts to tackle its huge debt. |
| The UK Market
Did it follow the Global trend ..... |
 Disposal hopes helped lift BT Group as the FTSE 100 moved higher for a fifth straight day.
BT bounced from a seven-month low amid speculation the telecoms group could sell its Italian wireline operations to help narrow its pension fund deficit.
Swisscom, which owns Italian broadband provider Fastweb, said at an investor day on Thursday that it expected more consolidation in Italy, and flagged up BT as a potential seller.
Deutsche Bank also played down speculation that BT could pursue a rights issue to cure its pension fund. The £9bn actuarial deficit at the end of 2009 is likely to be a peak, it said.
Ratings agency Fitch has taken a calmer view of the problem than Standard and Poor's, which this week cut BT's credit rating to one notch above junk.
BT shares were up 2.4% on Friday at 118.6p, although they were 3.2% lower on the week.
Meeker-than-expected US inflation data helped buoy the wider market, which was led by Dollar earners such as Unilever, up 2.7% to £19.47, and British American Tobacco, ahead 2.5% to £22.25.
The FTSE 100 ended higher by 33.08, or 0.6%, to 5,358.17. That took its gain for the week to 4.2%, the biggest such advance since July.
Shire jumped 4.6% to £13.70, leading the blue-chip risers, after its quarterly earnings beat market expectations by 32%. The drugmaker also said it expected 2010 earnings to top $1.16 a share, 10 cents more than consensus expectations, after product sales and royalties beat forecasts across the board.
Other drugmakers were mixed, with AstraZeneca edging up 1.2% to £28.30 amid rehashed speculation that it might bid for Dendreon, the US cancer treatment specialist.
But GlaxoSmithKline closed down 0.7% to £12.35 after US regulators warned against long-term use of asthma drugs, including Advair, its top-selling treatment.
Tullow Oil gained 1.7% to £12.30 after its chief executive said its production from Uganda could far exceed expectations.
With the right development plan, the site could yield 350,000 barrels of oil per day at full production, against a current target of 150,000 barrels in three years, chief executive Aidan Heavey said.
Anglo American led the miners lower, losing 1.8% to £24.57½ after in-line 2009 results were overshadowed by problems in Brazil.
The group's Minas Rio iron ore project required an extra $1.1bn and the value of its Amapa mine was written down by $1.5bn. Anglo last year paid nearly $7bn for the Brazilian sites, a price many feel was far too high.
Other miners tracked metals prices lower as the Dollar rallied, with the precious metals sub-sector falling hardest. Fresnillo was off 1.5% to 774p and Randgold Resources lost 1.4% to £46.99, while Petropavlovsk was down 2.8% to 944p.
Wolseley was off 1.8% to £14.39 after one of its main US competitors, Builders FirstSource, said the link between housing starts and new construction work had broken down. The US group was at a loss to explain why a recovery in housing starts was not translating into more units under construction.
Cluff Gold jumped 13.1% to 70p after the west African gold miner said it had received an approach regarding a possible bid.
It was rumoured that a Canadian company was behind the approach, with Golden Star Resources mentioned among the potential predators. Chief executive Algy Cluff, a former owner of The Spectator magazine, was said to have agreed to open the company books.
Gulfsands Petroleum dropped 5.5% to 245p after it plugged and abandoned the first of four planned exploration wells in Syria.
Rockhopper Exploration rose 10.4% to 69p and Desire Petroleum added 7.8% to 117p.
Trading Emissions edged 1.8% higher to 85p after shareholders of the carbon trading group failed to agree to its reverse takeover of Leaf Clean Energy.
Holders with 62.1% of the stock voted in favour of the deal, short of the 75% requirement.
Moore Capital Management, Trading Emissions' 16% holder, last week switched allegiance and said it would vote against the deal. Leaf Clean Energy was marked down 3.2% to 60p.
Clarity Commerce Solutions, a software provider for the leisure industries, gained 9.1% to 42p after it won a contract with amusement park operator Merlin Entertainments.
Oxford Catalysts lost 0.9% to 54p after early investor IP Group cut its stake. |
| Asia Pacific Regional Markets
Did they set the tone or follow the lead ..... |
 JAPAN
Japan's Nikkei stock average fell 2.1% on Friday, with resource-linked shares such as Mitsui & Co hurt after the US Federal Reserve's discount rate hike jolted commodities prices.
Property shares tumbled after real estate investment advisory firm Davinci Holdings said its liabilites exceeded assets, highlighting risks for the sector, while Mizuho Financial dropped after a brokerage downgrade on recapitalisation concerns.
The Fed's discount rate hike lifted the Dollar to a one-month high against the Yen, boosting exporters in early trade but they lost ground as investors became nervous about how overseas markets would respond to the Fed's move.
The benchmark Nikkei lost 212.11 points to 10,123.58 but still eked out gains of 0.3% on the week for its second week of gains in a row. Volume on the first section was subdued but the best this week.
The broader Topix fell 1.7% to 889.08.
The Fed said it would raise the interest rate it charges banks for
Resource shares took a hit as both oil and gold were sold, with oil falling more than a Dollar to below $78 a barrel and gold shedding more than 1%. Metals slid.
Mitsubishi Corp lost 1.7% to 2,212 Yen and fellow trading house Mitsui & Co shed 3.2% to 1,352 Yen. Itochu Corp fell 3% to 701 Yen.
Smelter Toho Zinc fell 4.8% to 394 Yen and ferronickel producer Pacific Metals lost 3.4% to 651 Yen.
Real estate developer Mitsui Fudosan lost 4.3% to 1,461 Yen and Mitsubishi Estate also shed 4.3% to 1,354 Yen. The real estate subindex .IRLTY.T shed 3.8% to become the biggest loser among the subindexes.
Mizuho Financial Group, Japan's second-largest bank, lost 2.8% to 171 Yen after Goldman Sachs cut Mizuho's rating to "sell" from "neutral" on Friday.
Toyota Motor Corp fell 1.8% to 3,300 Yen. President Akio Toyoda saying he intends to give a "sincere explanation" about the company's series of safety recalls when he testifies in front of US lawmakers next week.
A House oversight panel said it had also issued a subpoena for internal documents Toyota had fought to keep sealed in a legal battle with a former employee who says the automaker routinely hid evidence of safety problems.
Trading volume was subdued, with 1.8 billion shares changing hands on the Tokyo exchange's first section, well below the average daily volume last month of roughly 2.6 billion shares, and also below last year's daily average of 2.3 billion shares.
Declining shares outnumbered advancing ones by nearly 9 to 1.
SOUTH KOREA
Seoul shares declined on Friday, extending earlier losses to 1.7% on the US Fed's discount rate hike, led by banks and builders including KB Financial Group and Hyundai E&C.
The Korea Composite Stock Price Index (KOSPI) finished down 27.29 points to 1,593.90.
Foreign investors remained net buyers for a fourth consecutive session, purchasing a net 43.8 billion won ($37.95 million) worth of stocks.
Banks led declines, with KB Financial Group losing 3.46% and Hana Financial Group dropping 3.64%.
Losses in construction issues further fueled the downward run.
Daewoo Engineering & Construction lost 1.73% and Hyundai Engineering & Construction shed 2.13%.
Retail issues outperformed amid expectations of strong sales over the Lunar New Year holiday in February.
Shinsegae Co, the country's No.1 retailer, rose 0.78% and GS Shopping gained 3.64%.
HONG KONG
Hong Kong shares tumbled 2.6% on Friday to their lowest level in over a week as banks came under pressure after the US Federal Reserve raised the discount rate, sparking fears of further monetary tightening.
Investors are bracing for further losses next week, when markets in mainland China reopen after a week-long holiday and get their first chance to react to the latest policy tightening move by the People's Bank of China.
The PBOC's surprise announcement on Feb 12 of an increase in banks' reserve requirements, the second hike this year, weighed on Chinese shares in Hong Kong all week as traders feared a bearish reaction in Shanghai.
Short-selling, which involves selling borrowed shares in the hopes of buying them back when prices fall, rose 8.2% from 4.5% on Thursday, according to broker estimates.
The benchmark Hang Seng Index suffered its biggest one-day percentage drop in two weeks on Friday, ending down 528.13 points at 19,894.02, its lowest level since Feb. 10. For the week, the blue-chip index lost nearly 2%.
The China Enterprises Index of top locally listed mainland Chinese stocks closed down 2.91% at 11,263.83..
Market turnover rose to HK$42.89 billion ($5.52 billion) from Thursday's HK$34 billion.
Banking shares led declines after the Fed said it would raise the interest rate it charges banks for emergency loans to 0.75% from 0.5%, taking a step towards normalising emergency policy used to fight the worst financial crisis since the Great Depression.
Investors largely brushed aside the Fed's assurances that no tightening for the broader US economy, such as a policy rate hike, was on the cards soon.
Hang Seng heavyweight HSBC Holdings, one of the world's leading banks, fell 1.8%.
Ample supplies of cheap money at near-zero interest rates fueled a stock market rally in Asia in 2009 which saw the Hang Seng surge a blistering 52%.
Chinese lenders also succumbed to fears of more policy tightening by Beijing after the long Lunar New year holiday as it clamps down on loans in a bid to keep the economy from overheating. Bank of Communications and ICBC slipped 3.8% and 3%, respectively.
Underscoring the growing gloom in the market, shares of Chinese health food firm Ruinian International fell 7.7% on their debut as the broader market slump weighed on its HK$900 million ($115.9 million) initial public offering.
CHINA
Chinese markets remained closed for Chinese New Year.
TAIWAN
Likewise the Taiwan market, closed for Chinese New Year.
THE PHILIPPINES
Share prices on the Philippine Stock Exchange continued to trek lower on Friday with local players taking their cue from adverse local developments like the government's record-high budget deficit announced on Thursday.
The PSE index ended the week in the red, closing at 2,978.53, for a decline of 21.41 points or 0.71%.
Local players ignored developments overnight in New York where the Dow Jones Industrial Average continued to regain its footing as it approached the 10,400 mark.
In particular, the market was concerned about the government's fiscal deficit which came in at P298 billion for 2009. This was the highest ever recorded deficit in peso terms, although it is second only to the P210-billion deficit recorded in 2002 when computed as a percentage of total economic output.
Trading remained relatively light with only 1.05 billion shares changing hands by the end of trading, worth P2.33 billion.
Decliners outnumbered advancers, 75 to 35, with 58 shares remaining unchanged.
All sectoral indices declined, except for the financials index which managed to rise by 1.1% on the back of stock price increases for Metropolitan Bank and Trust Co. and the Bank of the Philippine Islands. Metrobank ended at P42.50 per share while BPI closed at P45 apiece.
SINGAPORE
Friday saw the Straits Times Index close down 0.44% in line with Regional Indices to end at 2,757.14.
In Singapore, DBS Group Holdings eased 0.1% and developer CapitaLand was down 0.5%.
Oversea-Chinese Banking Corp bucked the trend. The number two lender added 0.23% after expressing cautious optimism about prospects following its best profit in six quarters, helped by stronger trading profits and gains from its insurance unit.
Singapore inched down 0.06% on the week, faring the worst in the region behind Thailand and Malaysia which each gained 0.3%.
Technology-based conglomerate ST Engineering has posted a 27% rise in net profit to $129.7m for 4Q09 ended Dec 31, 2009 as revenue increased 9% to $1.47b. For the full year 2009, net profit dipped 6.3% to $443.9m even though revenue rose 3.8% to $5.5b. A higher allowance for stock obsolescence in FY09 - $48.7m compared with $22.5m in FY08 - had been charged to the company's profit from operations.
The company expects to achieve a higher turnover and a comparable pretax profit figure for FY10 compared with FY09. A final dividend of $0.1028 per share has been proposed for the current quarter.
Singapore's government said the economy will expand faster than initially expected this year, adding to evidence of a sustained regional recovery that has prompted policy makers to end some stimulus measures.
Gross domestic product will increase 4.5% to 6.5% in 2010 after shrinking 2 % last year, the trade ministry said in a statement Friday
INDONESIA
The Jakarta Composite Index ended the session Friday down 0.22% to close at 2,554.38.
In Jakarta, gas distribution company Perusahaan Gas Negara was down 1.4%, top palm oil firm SMART dropped 8.2% and miner Indo Tambangraya Megah ended 2% lower.
MALAYSIA
Share prices on Bursa Malaysia closed lower Friday, as investors reduced their holdings ahead of the weekend, dealers said.
At close, the FTSE Bursa Malaysia Kuala Lumpur Composite Index (FBM KLCI) slid 1.33 points to 1,257.67, dragged down by gaming counters like Genting and Genting Malaysia.
Despite two days of Chinese New Year post-rally, the local bourse was unable to break the next immediate resistance level of 1,273 this week after surpassing the 1,256 level.
The FBM KLCI, which opened 0.64 of a point lower at 1,258.36 this morning, moved between 1,255.78 and 1,259.26 during trading.
The Finance Index declined 2.77 points to 11,001.94, the Industrial Index shed 3.22 points to 2,601.01 and the Plantation Index was 2.95 points lower at 6,277.11.
The FBM Emas Index dwindled 26.229 points to 8,453.87, the FBM70 lost 67.09 points to 8,264.26 and the FBM Ace Index was 51.12 points lower at 4,327.28.
Losers thumped gainers by 470 to 166 while 259 counters were unchanged, 435 untraded and 28 others suspended.
Total volume rose to 623.157 million shares worth RM1.159 billion from Thursday's closing of 598.452 million shares valued at RM998.257 million.
Turnover on the Main Market rose to 540.66 million shares worth RM1.14 billion from 488.791 million units valued at RM971.34 million Thursday.
The Ace market volume dropped 38.712 million units worth RM8.377 million from Thursday's close of 75.383 million shares worth RM20.283 million.
Warrants, however, advanced to 35.194 million shares worth RM4.119 million versus 30.3 million shares worth RM4.077 million Thursday.
Main market debutant, Homeritz Corporation, which was also among the actives, gained half sen to 65.5 sen.
Other actives, Malaysian Airline System-Ord Rights eased 5.5 sen to 6.5 sen, Frontken Corp Bhd-Ord Rights lost one sen to six sen and Genting shed 18 sen to RM6.36 sen.
Of the heavyweights, Sime Darby added three sen to RM8.52, Maybank was unchanged at RM6.89, CIMB Group slipped four sen to RM12.56 while Tenaga added one sen to RM7.99.
Consumer products accounted for 41.11 million shares traded on the Main Market, industrial products 97.448 million, construction 27.364 million, trade and services 237.663 million, technology 19.474 million, infrastructure 10.903 million, finance 55.561 million, hotels 7.512 million, properties 30.983 million, plantations 12.003 million, mining 2,000, REITs 588,800 and closed/fund 50,100.
THAILAND
In Bangkok, buying of big energy firms ahead of results helped push the market into positive terrain on Friday.
PTT, Thailand's largest energy firm, which announced a 2009 dividend of 8.5 Baht per share early in the day, climbed 2.8%, and top refiner Thai Oil gained 2.5%.
In general, though, the Thai market was still worried by the prospect of political turbulence, centred on a court ruling on Feb. 26 on whether the assets of former Prime Minister Thaksin Shinawatra were illegally amassed and should be confiscated.
Charoen Pokphand Foods, Thailand's biggest chicken exporter, said its net profit surged in the fourth quarter, meeting analysts' forecasts, as the economic recovery boosted sales and overseas businesses contributed good earnings.
October-December net profit was 2.11 billion Baht ($63.5 million) compared with 305 million Baht a year before and a record 4.12 billion Baht in the third quarter.
The result was in line with the 2.11 billion Baht forecast by Thomson Reuters' StarMine SmartEstimates, which predicts future earnings by putting more weight on recent forecasts by top-rated analysts.
Its 2009 net profit was 10.19 billion Baht, up from the previous year's 3.13 billion Baht due to higher prices for its products, the lower cost of raw materials, higher gross margins and better returns on investment in overseas businesses.
INDIA
The BSE 30-share Sensex was provisionally down 143.14 points or 0.88%, up close to 110 points from the day's low and off close to 120 points from the day's high. Global stocks and US index futures fell after the US Federal Reserve raised its discount rate for the first time since the financial crisis. The the latest Fed move stoked expectations that a hike in the Fed's main policy rate could follow sooner than many had anticipated.
Realty, metal, auto, IT and banking stocks fell. Index heavyweight Reliance Industries edged lower. Capital goods stocks cut early losses. The market breadth was weak.
A bout of volatility was witnessed in the second half of the trading session. The market staged a strong intraday rebound in mid-afternoon trade after a sharp slide in afternoon trade. The BSE Sensex recouped nearly all the intraday losses in late trade. However, the intraday rebound proved short-lived. The market once lost ground towards the close of the trading session.
C. Rangarajan, the prime minister's economic adviser, Friday said that India's economy is likely to grow at over 7.2% in the current fiscal year ending March 2010. The prime minister's economic advisory council said on Friday that inflation was a down-side risk to its projected growth rate of at least 8.2% in 2010/11, and any policy action would have to factor in the "significant" danger of high food inflation spreading into broader prices.
Although the large deficits this year and the last year did have a counter-cyclical impact, it is necessary to initiate measures towards fiscal consolidation in the forthcoming budget, the council said in its review of the financial year 2009/10. The fiscal imbalance is a matter of concern and the process of consolidation must begin in the next financial year itself, the prime minister's economic advisory council said on Friday.
The wholesale price inflation is seen at around 8.5% by the end of March, Rangarajan said. He also said that the government's market borrowing in the next fiscal year ending March 2011 is likely to be around or slightly lower than Rs 4,51,000 crore ($97 billion) in the current fiscal year
Coming back to stocks, a foreign brokerage predicts that Indian equity and equity-linked offerings may jump by as much as 33% this year as companies and the government tap a growing pool of domestic capital as the economy recovers. Indian companies may raise $25 billion to $30 billion in share sales in 2010, up from $22 billion last year.
Food inflation picked up for the fourth straight week in early February, heightening worries it was driving headline inflation past official forecasts and increasing the chance of the Reserve Bank of India (RBI) pushing up rates.
Food prices rose 17.97% in the 12 months to 6 February 2010 after an annual rise of 17.94% in the previous week, data released on Thursday showed. The fuel price index rose an annual 9.89% in the same week, down from a rise of 10.4% on year the previous week. Rising prices are a huge headache for the Congress-led government, particularly high food prices that may overshadow government efforts to cut spending and the fiscal deficit in a 26 February 2010 budget. Inflation in manufacturing picked up to 6.55% from about 5% in December, a sign that inflationary pressures were spreading to other sectors of the economy.
Climbing food and fuel costs along with a pick up in manufacturing prices are expected to push headline wholesale price inflation (WPI) from 8.56% in January to 10% by March, according to some analysts and India's chief statistician Pronab Sen. The RBI is widely expected to raise borrowing rates after it surprised markets last month with a bigger-than-expected rise in banks' cash reserve requirements and given that inflation has already topped its revised end-March forecast of 8.5 %.
On Wednesday, Farm Minister Sharad Pawar said food prices have started to ease and will dip further next month, while Finance Minister Pranab Mukherjee said higher food prices continue to be a worry.
The next major trigger for the stock market is the Union Budget 2010-2011 on 26 February 2010. Among the key issues, analysts and economists expect the Finance Minister to provide a road map for the introduction of the key direct and indirect tax reforms viz. the direct tax code (DTC) and the Goods & Services Tax (GST) in the Budget. The GST will enable the Indian corporate sector to get much-needed relief from a multiplicity of state and Central taxes. However, several critical issues need to be resolved before it can be put in place. The Finance Minister must utilize this opportunity to effect a smooth transition to this new system.
The hope of direct tax reform has risen with the release of the draft Direct Tax Code by the government in calendar 2009. The Direct Taxes Code is supposed to replace the Income Tax Act by consolidating and amending income tax provisions for all categories of people and institutions. The DTC proposes doing away with tax exemptions and bringing under the tax purview a number of entities including trusts that pay no tax at the moment. The thrust of the new code is to promote efficiency and equity by eliminating distortions in the tax structure, introducing moderate levels of taxation and expanding the tax base.
Meanwhile, the government may increase excise duties as a first step towards a gradual winding down of fiscal stimulus measures. It may also raise the service tax rate to 12% from 10%. It may be recalled that the government had slashed the Central Value Added Tax (Cenvat) rate for excise duty from 14% to 8% in two rounds starting in December 2008. It had also cut service tax by 2 percentage points. These reductions were effected in order to provide a stimulus to domestic industry. Since the overall prospects for growth are much brighter Friday, the finance minister may withdraw a part of the stimulus in order to boost tax revenue.
The Finance Minster may project a lower fiscal deficit for 2010-11 based on higher revenue projections due to economic rebound. It remains to be seen if there are structural reforms to reduce the subsidy burden such as decontrol of petrol and diesel prices as recommended by the Kirit Parikh committee recently.
It also remains to be seen if there is any progress on financial sector reforms. The pending financial sector reforms include raising the foreign direct investment (FDI) cap in private sector insurance companies from 26% to 49% - a Bill for which is pending in Parliament.
As far as government expenditure is concerned, the thrust areas could be agriculture, water resources, power, roads & other infrastructure projects and social sector schemes.
Meanwhile, the follow-on public offer of Rural Electrification Corporation (REC) received lackluster response from investors. The FPO was subscribed meager 0.07 times by 15:00 IST on the first day of bidding for the issue Friday, 19 February 2010, NSE data showed. The government has set the floor price of the follow-on public offer of Rural Electrification Corporation (REC) at Rs 203 per share. The issue, which will be open between 19-23 February 2010, will see the sale of 12.87 crore equity shares and an offer for sale of 4.29 crore government owned shares. Like in the case of NTPC, the issue will take the French auction route, but will give flexibility to bidders to scale down their bid quote. REC will reserve 50% the shares on offer for institutional bidders, while retail investors will get 35%.
As per provisional figures, the BSE 30-share Sensex was down 143.14 points or 0.88% to 16,184.70. The barometer index fell 25.90 points at the day's high of 16,301.94 in late trade. The Sensex declined 253.23 points at the day's low of 16,074.58 in afternoon trade.
The S&P CNX Nifty was down 43.25 points or 0.88% to 4844.50 as per provisional figures.
The market breadth, indicating the overall health of the market was weak. On BSE, 687 shares advanced as compared with 2040 that declined. A total of 69 shares remained unchanged.
Among the 30-member Sensex pack, 25 shares declined while only 2 of them managed gains. The BSE Mid-Cap index fell 1.47% and the BSE Small-Cap index fell 1.69%. Both the indices underperformed the Sensex. BSE clocked turnover of Rs 3833 crore, lower than Rs 3998.03 crore on Thursday, 18 February 2010.
Index heavyweight Reliance Industries (RIL) fell 1.34%, extending Thursday's near 4% slide. The government has reportedly demanded another $2.7 million from RIL towards royalty and profit petroleum payments on gas produced from the Krishna-Godavari (KG) D6 for the six-month period from April-September 2009, arguing that the company did not take into account the marketing margin it levies while calculating the dues.
Meanwhile, RIL may reportedly raise its offer for LyondellBasell that will include cash and stock options for shareholders and creditors. It had offered a deal that would value the bankrupt petrochemicals maker at about $13.5 billion, but earlier this week the target firm settled a dispute with creditors, paving the way for an exit from bankruptcy.
Rate sensitive auto fell as government is widely expected to raise excise duties on automobiles in Union Budget 2010-2011 next week. India's biggest tractor maker by sales Mahindra & Mahindra (M&M) fell 1.8% falling for the second straight day.
India's largest commercial vehicle maker by sales Tata Motors fell 1.61% falling for the second straight day. Tata Motors on Tuesday said it will hike commercial vehicle prices by up to 2% on account of new emission norms. The company also announced plans of bidding for a Rs 350-crore defense contract to supply light bullet-proof vehicles.
The company said on Monday its global vehicle sales for January nearly doubled to 85,714 units from a year earlier. The sales include UK-based luxury brands Jaguar and Land Rover, whose sales nearly trebled in the month to 16,269 units from a year ago, the company said in a statement. It had earlier said domestic sales, including trucks, buses and cars, jumped an annual 77 % in January.
But, India's largest car maker by sales Maruti Suzuki India reversed early losses and rose 0.83% after a senior official of the company told the media that the firm will add 3,000 employees in the next three years. Maruti Suzuki's head of human resources, S.Y.Siddiqui was quoted by the media as saying that the company is also investing Rs 200 crore to add showrooms and stockyards.
A hike in excise duty will raise the cost of owning new vehicles. Coupled with the recent price hikes across segments, and the price increases likely in April 2010 on account of the change in emission norms, these potential price increases on excise duty increase may dampen demand.
On the flip side, bus makers Ashok Leyland and Tata Motors may benefit in case of further allocation of government expenditure towards the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) in the Union Budget 2010-11. Bus demand has been boosted this year by an order for 15,000 buses under JNNURM
Metal stocks declined after London Metal Exchange copper fell more than 1% on Friday, under pressure from a firmer Dollar and a surprise hike in the US Federal Reserve discount rate.
Hindalco Industries, Steel Authority of India, Sterlite Industries , Hindustan Zinc , JSW Steel fell by between 1.15% to 4.23%.
Tata Steel, the world's number 8 steelmaker by capacity fell 2.57%, declining for the second straight day. With just a day away from the scheduled mothballing of the Teesside Cast Products plant (owned by Tata Steel-controlled Corus) in north-east England, the area mayor, Ray Mallon, has reportedly confirmed that a consortium may be interested in rescuing the plant. In a note to the media, the mayor said he did not want to raise false hopes but he regarded the consortium as credible and called for them to be given every assistance by Tata and the government.
Tata Steel on Tuesday posted its first consolidated quarterly profit in four quarters and said reviving global demand would further boost earnings in the three months to March 2010. After trading hours on Tuesday, Tata Steel said its consolidated net profit for the December 2009 quarter, which includes its UK unit Corus, fell 42%, although higher prices and increased volumes led to a rise in its operating profit margins.
Tata Steel said its consolidated net profit in the October-December period fell to Rs 473 crore from Rs 814 crore last year. Revenue fell 20% to Rs 26,069 crore. The stock rose 2.23% on Tuesday ahead of the result.
Rate sensitive realty shares fell on expectations of rate hike by the central bank to tame inflation. Indiabulls Real Estate, Sobha Developers, Omaxe, Akruti City, Orbit Corporation, Ansal Properties and Infrastructure and DLF fell by between 2.38% to 6.69%.
Unitech fell 1.55% extending losses for the straight third day. Recently Telenor bought a further 7.15% stake in its telecom joint venture Unitech Wireless by pumping in additional Rs 2022 crore of fresh equity.
Unitech and DLF would be the chief beneficiaries if the government providers thrust to affordable housing projects in the Union Budget 2010-11 next week.
Rate sensitive banking shares fell on talks the central bank will hike policy rates to tame rising inflation. India's largest private sector bank by net profit ICICI Bank fell 1.1%, declining for the second straight day. Its ADR rose 0.99% on Thursday. India's largest bank by net profit and branch network State Bank of India fell 1.89%, declining for the second straight day. India's second largest private sector bank by net profit HDFC Bank rose 0.14% to Rs 1686.10. The sock came off the day's low of Rs 1660. Its ADR rose 2.47% on Thursday.
The central bank said last week it will introduce from 1 April 2010 a new base rate to price credit more transparently, replacing the existing benchmark prime lending rate (BPLR).The Reserve Bank of India said the base rate will be the new reference rate for determining lending rates. According to draft guidelines, the RBI has proposed that the actual lending rate charged to borrowers would be the base rate plus borrower-specific charges including product-specific operating cost, credit-risk premium and tenure premium said.
India's largest engineering and construction firm by sales Larsen & Toubro fell 0.34% to Rs 1471.25. The stock came off the day's low of Rs 1445.90. Larsen & Toubro reportedly plans wind power projects in Gujarat, Maharashtra and Tamil Nadu for captive use. It is also investing about Rs 8000 crore to generate 700-800 megawatts (MW) of hydro power from projects in Himachal Pradesh, Uttarakhand and Arunachal Pradesh. The company said last week it won orders worth Rs 582 crore.
India's largest power equipment maker by sale Bharat Heavy Electricals (Bhel) fell 0.31% to Rs 2366.30. The stock came off the day's low of Rs 2341.30. The company will reportedly sign a pact with UK-based Sheffield Forgemasters next week to upgrade manufacturing of castings and forgings.
The government may levy customs duty on import of equipment for power projects in Union Budget 2010-11, which may give a fillip to domestic manufacturers of boilers, turbines and generators. The levy of import duty on equipment for power projects will benefit companies such as Bhel and L&T.
Software majors fell as Federal Reserve's discount rate hike could crimp economic recovery. US is the biggest export market for Indian IT firms. India's third largest IT exporter by sales Wipro fell 0.88%. Its ADR rose 0.52% on Thursday. India's second largest IT exporter by sales TCS fell 0.94%. India's largest IT exporter by sales Infosys Technologies fell 0.26%. Its ADR fell 0.78% on Thursday.
Tata Consultancy Services (TCS) and Wipro are reportedly among the 37 global organisations, including IBM and HP, vying for the UK government's cloud computing project. Out of the total project, the cloud component alone is valued at Rs 2,200 crore.
The IT sector is looking for an extension of the tax holiday for the Software Technology Park of India (STPI) scheme. The government provides tax benefits under Section 10 (A) of Income Tax Act for units set up in the Software Technology Parks of India (STPIs), which is due to expire on 31 March 2011 (FY 2011). If the scheme is extended by one more year till 31 March 2012 (FY 2012), it will boost projected FY 2012 earnings of IT firms
MTNL rose 1.6% on reports the government has appointed the comapny as the official telecom provider for the Commonwealth Games and sanctioned Rs 182 crores for setting up the necessary communication facilities.
Unichem labouratories gained 0.68% to Rs 340.50, off the session's low of Rs 335, after the company got certification of suitability from European Directorate for two drugs Zolpidem Tartrate and Meloxicam.
AUSTRALIA
Australia's S&P/ASX 200 Index fell 0.4% to 4,635.10 at the close of trading in Sydney.
Ardent Leisure Group, a trust that invests in Australian leisure and entertainment properties, slumped 4.5% to A$1.49 after the stock was downgraded to "hold" from "buy" at Deutsche Bank AG.
Boart Longyear, an Australian provider of drilling services to mining companies, slumped 7.3% to 32 Australian cents after swinging to a full-year loss and deciding not to pay a final dividend.
Fortescue Metals Group, Australia's third- biggest producer of iron ore, declined 1.4% to A$4.89 after it said first-half profit plunged 94%.
Foster's Group fell 2.7% to A$5.50. Australia's biggest beer and winemaker was downgraded to "underweight" from "neutral" at JPMorgan.
Lihir Gold slipped 2.5% to A$2.72. The second-largest gold mining company on the Australian stock exchange was downgraded to "sector perform" from "outperform" at RBC Capital.
National Australia Bank, Australia's fourth- largest bank, fell 2.7% to A$25.25. The lender posted fiscal first-quarter profit that was unchanged from a year ago, after rivals reported higher earnings in a strengthening economy.
Paperlinx jumped 3% to 69 Australian cents. Australia's largest papermaker, which reported a first- half net loss, said debt refinancing is progressing well.
NEW ZEALAND
New Zealand shares finished higher Friday as positive sentiment following Sky Television's better than expected results stimulated some buying late in the trading day.
New Zealand's NZX 50 Index gained 0.2% to 3,107.09 in Wellington.
Auckland International Airport, New Zealand's largest, gained 2.2% to NZ$1.85. The company said it will raise a total of about NZ$126.4 million after successfully completing a share sale.
Sky Network Television, New Zealand's largest pay-television operator, advanced 1.9% to NZ$4.80. The company said first-half profit rose as it sold more of its interactive MySky receiver to increase revenue per customer.
Turners Auctions, New Zealand's largest auctioneer, surged 16% to NZ$1.45. Full-year net income rose to NZ$3.3 million from NZ$1.1 million a year earlier.
Pike River Coal finished flat at NZ$0.93 although it announced that its inaugural shipment of hard coking coal had now left New Zealand for India.
Heavyweight Fletcher Building fell 1.0% to NZ$7.92 on profit taking after the building company's shares rallied following better than expected first half results on Wednesday.
Allied Farmers share price plummeted 11.3% to NZ$0.11. The company said movement was due to the NZX reversing a decision on Monday to include the company in the NZX-50 index.
NZX said although Allied Farmer met criteria for inclusion in the index, the significance of its acquisition of Hanover Finance had distorted the ranking.
Lyttelton Port Company's shares remained flat at NZ$2.45; the company confirmed well flagged news it had committed to negotiations for a merger with its main South Island rival Port Otago. |
| Global Commodities
'Food for thought' or 'a Grain of truth' ..... |
 Crude oil prices rose on Thursday, brushing aside further evidence of demand weakness in the US, while base metals also moved higher.
Nymex March West Texas Intermediate rose $1.73 to $79.06 a barrel while ICE April Brent gained $1.51 to $77.78 a barrel.
Petrol inventories rose by 1.7m barrels, slightly above the consensus forecast for an increase of 1.5m barrels.
Nymex March RBOB unleaded gasoline traded slightly more than 2 cents higher at $2.0275 a gallon.
Distillate stocks (including heating oil) fell 2.9m barrels, almost double the consensus forecast for a drop of 1.5m barrels. Nymex March RBOB unleaded gasoline rose 2.3 cents, or 1.2%, at $2.0300 a gallon.
The Baltic Dry Index, the benchmark for freight costs for bulk commodities such as iron ore, coal, and grains, rose 1.6% to 2,704 points.
In 2009, total dry freight volumes dropped 45% to about 1.1m dry lots from around 2.1m lots in 2008, according to shipping broker Freight Investor Services. A dry lot is defined as either one-time charter day or 1,000 tonnes of voyage-based ocean transportation. However, this year has seen a sharp recovery in trading volumes as China's demand for coal and iron ore has risen.
Raw sugar prices have fallen 13% since reaching a 29-year high above 30 cents a Pound at the start of February, prompting some traders to ask if the rally for sugar could have ended.
ICE March raw sugar rose 0.5% to 26.24 cents a Pound while Liffe May white sugar lost 0.9% at $707.4 a tonne, down from the $767 all-time high reached in late January.
Copper rose 1.4% to $7,260 a tonne. The global copper market recorded a substantial surplus of 209,300 tonnes last year, down 44.9% from the surplus of 380,000 tonnes for the previous year, according to a monthly report released on Thursday by the World Bureau of Metal Statistics. Refined copper output increased 0.9% to 18.64m tonnes while consumption rose 1.8% to 18.43m tonnes.
Tin rose 1% to $16,925 a tonne as PT Timah of Indonesia, the world's second largest producer, predicted prices could breach $20,000 a tonne in the second half of 2010.
The lead market recorded a 19,900 tonne supply deficit last year, following a shortfall of 93,000 tonnes in 2008, according to the WBMS. Global demand increased 1.9% to 8.9m tonnes in 2009 but refined production rose 2.7%.
Lead firmed 0.4% at $2,300 a tonne. |
| Global Currencies
In for a Penny, in for a Pound ..... |
The Dollar climbed to an eight-month high on a trade-weighted basis this week after the US Federal Reserve announced it was raising the rate at which it charges banks for emergency loans.
The Fed announced late on Thursday that it was lifting the discount rate by a quarter of a percentage point to 0.75% and the length of loans would be returned to an overnight period from 30 days.
Although many had expected such a move as being one of the first steps by the Fed towards normalising monetary policy, the timing - outside any scheduled policy meeting - unnerved the market.
The Dollar index, which tracks its progress against a basket of six leading currencies, rose 0.5% over the week to 80.635 after briefly surpassing 81, its strongest level since June.
The Dollar also touched a nine-month high against the Euro and the Pound and hit a five-month peak against the Swiss franc before paring gains late in New York.
The Dollar rose 0.2% to $1.3602 against the Euro over the week, climbed 0.1% to SFr1.0763 against the Swiss franc and gained 1.5% to $1.5472 against the Pound.
Sterling suffered elsewhere on news on Thursday of a further deterioration of the UK government's finances.
Figures on Friday showing a sharp drop in UK retail sales raised fears that the economy was headed for a double-dip recession.
During the week, the Pound fell 1.3% to £0.8794 against the Euro.
The Pound did advance against the Yen, however, climbing 0.4% to Y141.78 on the week as the Japanese currency suffered heavily in the wake of the Fed's decision to raise its discount rate.
Analysts said the Yen came under pressure as the move increased the attractiveness of the Japanese currency, relative to the Dollar, as a funding currency for carry trades.
During the week, the Yen fell 1.9% to Y91.65 against the Dollar, lost 1.7% to Y124.66 against the Euro and dropped 3.1% to Y82.31 against the Australian Dollar.
South Korea's won declined and other Asian currencies pared gains this week as concern about deficit funding in the European Union and a move by the Federal Reserve to raise its discount rate cooled demand for regional assets.
The Bloomberg-JPMorgan Asia Dollar Index, which tracks the 10 most-actively traded local currencies against the greenback, fell for a second day after the Fed Thursday said it will raise the rate charged to banks for direct loans by a quarter point to 0.75%. The increase spurred concern the global economic rebound will slow after stimulus programs are unwound.
The Won weakened 0.8% this week to 1,160.5 per Dollar and the Philippine peso dropped 0.1% to 46.275, according to data compiled by Bloomberg. Indonesia's rupiah was little changed at 9,335 from 9,340 at the end of last week. China's financial markets will re-open next week.
The Indonesian Rupiah and the Won each gained more than 28% in the past year as near-zero rates in the US gave traders cheap financing for investing in developing nations.
The increase in the discount rate is another step in the Fed's gradual retreat from the unprecedented actions brought in to halt the deepest financial crisis since the Great Depression. The MSCI Asia Pacific Index of stocks fell 2%.
Malaysia's Ringgit declined from a four-week high after the Fed Thursday said it will raise the rate charged to banks for direct loans by a quarter point to 0.75%, effective Friday. The Fed left the benchmark overnight lending rate in a range of zero to 0.25% at a meeting on Jan. 27.
The Philippine central bank has "additional space" before it finally exits an easy monetary policy after the Federal Reserve raised its discount rate to banks for direct loans, Deputy Governor Diwa Guinigundo said Friday.
The Peso also slid after the government reported Thursday a deficit of 298.5 billion pesos ($6.4 billion) for last year, more than any annual shortfall since at least 1985 when Bloomberg data began, and above the government's estimate. The official target for 2010 was kept at 293.2 billion Pesos.
Elsewhere, Thailand's Baht was little changed this week at 33.18 per Dollar from 33.20 on 12 February. Singapore's Dollar held steady at S$1.4151. Markets in China and Taiwan remain closed for the Lunar New Year holidays. |
| China
Key news eminating from China this week ..... |
 If there is one thing that gets investors twitchy, it is the fear that China is losing its appetite for US government bonds. As the biggest and most liquid pool of assets in the world, the US Treasury market lies at the heart of the global financial system and allows the American government to finance its trillion-Dollar budget deficits. Until recently, China has been the largest foreign official holder of US debt. That is why the latest release of Treasury International Capital (Tic) data, showing that China's holdings of Treasuries fell by a record amount in December, has caused something of a stir. China's holdings fell by $34.2bn to $755.4bn from the previous month, prompting renewed jitters that the country was diversifying from Treasuries over fears about their future value. China's holdings have fallen from a peak of $801.5bn in May 2009, and the data come at a time of heightened political friction between Beijing and Washington over issues such as Barack Obama's meeting with the Dalai Lama, US weapons sales to Taiwan, and pressure on China to revalue the renminbi. But most analysts believe the December dip in China's holdings of US Treasuries more likely has more mundane explanations. They also caution against reading too much into the Tic data, which is prone to big monthly swings and is subject to so-called transactional bias. Tic data is further clouded as the true holdings of Asian central banks such as the People's Bank of China are obscured by their use of custodians in big financial centres offshore. Dealers believe China may have made significant purchases in the past year through Hong Kong and London. Treasury holdings by Hong Kong rose to $152.9bn in December - up from $77.2bn in Dec 2008. Meanwhile, UK holdings of Treasuries have also surged, reaching $302.5bn in December, from $230.1bn in October. In terms of China's portfolio of Treasuries in the Tic report, the December data show a further big reduction in holdings of short-dated bills and buying of longer-dated coupon debt. China's T-bill holdings dropped by $38.8bn in December while its holdings of notes rose by $4.6bn. Rather than selling any of its holdings, China appears to have let the bills mature and then used some of the proceeds to buy longer-dated coupons, analysts say. Extending its purchases along the yield curve is, partly, a sign of China's confidence in the US government's ability to service its debt. The Tic data show that China has not diversified into US equities or corporate bonds. During the financial crisis, China built up holdings of short-dated T-bills from $14bn in mid-2008 to $210bn by May 2009 and they are now back around $70bn. The latest data is consistent with them shrinking the T-bill mountain rapidly, although there is more to come, as the likely underlying desirable holdings of T-bills is probably nearer $20bn. China is simply fine tuning its portfolio and as US banks and consumers continue deleveraging, there will be enough domestic demand to buy Treasuries. The most probable cause of China's decline in Treasury purchases, is simply that the country's foreign reserves grew at a slower pace in December. And even if China is shifting out of US Treasuries, it would not necessarily cause trouble in the market as long as other buyers step into the breach. Indeed, US Treasury yields remain well inside last summer's peaks as other countries have stepped up their buying. Significantly, Japan overtook China as the biggest foreign holder of US Treasuries in December, and its monthly purchases have been consistently rising since May. The country, which is seen as having a more stable relationship with the US, held $768.8bn of Treasuries in December, an increase of $142.8bn from the previous year. Analysts see little rationale for China to reduce its Treasury holdings dramatically, given that such a move would be likely to have severe consequences for Beijing. If Chinese demand for Treasuries disappeared and it started selling, US interest rates would rise, analysts say. This could throttle a US economic recovery, damage Chinese exports, and also reduce the value of China's existing vast holdings of Treasuries as yields rose and prices fell, damaging a key plank of its currency reserves. Moreover, China's currency link with the US Dollar entails there is a limit to how far they can diversify their foreign reserves. "So long as China's currency is loosely pegged to the US Dollar, they will need to recycle their trade surplus Dollars back into US assets," says a senior investment adviser at Deutsche Bank. Which is yet another reason why Tic data is being closely watched. If the latest numbers mark the beginnings of a diversification by China away from US Treasuries and other Dollar assets, a widely speculated rise in the value of the renminbi against the Dollar is on the cards. ********************************************* In most industries, the largest customers can demand better terms from a company when they place big orders. But in private equity, investors have for many years been prepared to accept the same terms, however much they invest. This is now changing, according to some of the world's biggest buy-out bosses. David Rubenstein, co-founder of the Carlyle Group, told last week's Super Return conference in Berlin that big investors were starting to ask for special terms on custom accounts tailored especially for them. "You will see many more of these special accounts as the big LPs [limited partner investors] demand special terms," Mr Rubenstein said. The latest to do so is China Investment Corp, the Chinese sovereign wealth fund, which has agreed to invest $1.5bn in three special accounts managed by Lexington Partners, Goldman Sachs and Pantheon Ventures. The three groups are among the world's biggest specialist investors in the secondary private equity market, in which second-hand interests in buy-out and venture capital funds are traded by investors. They have all agreed to manage $500m of CIC's money in custom accounts that are separate from their main funds. CIC and the three secondary groups declined to comment. The terms of these custom accounts are secret. But people familiar with the agreements said CIC had sought preferential terms on its investment, including lower fees and a promise to transfer knowledge about the secondary market. Some private equity secondary groups that did not agree to set up custom accounts for CIC argue that doing so would create too many conflicts with their other investors. Coller Capital, the world's biggest secondary investor, has decided against taking money from investors through custom accounts. "Splitting portfolios creates transfer pricing issues and there will be winners and losers," said the founder of Coller Capital, the world's biggest secondary investor. "We are not clever enough to manage the conflicts." However, these criticisms have been dismissed as sour grapes by people familiar with the three groups that won mandates from CIC. A person familiar with the agreements said CIC could cherry-pick which of the investments made by the three secondary managers it wanted to include in its own custom accounts. Another person familiar with the deals said CIC had discussed sending some of its own investment staff to be trained by the secondary fund managers. This reflects another trend Mr Rubenstein highlighted in Berlin last week: the disintermediation of private equity groups by some investors. Tired of paying fees to private equity managers, some big public pension funds and sovereign wealth funds are establishing their own teams to invest directly. The investments by CIC mirror similar although smaller moves by two large Korean groups, the National Pension Scheme and the Korea Investment Corporation, which have put large amounts of money into the secondary market via custom accounts. Specialists in the secondary market said CIC's timing seemed propitious, with deal flow in the secondary market expected to pick up this year, as prices recover from a year of turmoil. Cogent Partners, the secondary market adviser, said discounts to net asset value for private equity assets had narrowed from about 60% in the first half of 2009 to about 28% at the end of last year. ********************************************* Bank of Communications, one of China's biggest lenders, is considering a multibillion-Dollar capital raising to bolster its stretched balance sheet. Shanghai-based BoCom is looking at raising about $4bn and has asked investment banks to submit proposals, according to people familiar with the situation. Record levels of lending in recent months have left the country's top banks short of capital. Meanwhile, Chinese authorities are pushing lenders to boost their financial strength and to cool loan growth to stop the economy overheating. People familiar with the matter expect the BoCom fundraising to involve a rights offering in Shanghai and Hong Kong - the bank is listed in both. "I think we are looking at $2bn or so for the Hong Kong portion," said one person. "Bankers could meet company management in the next few days." The form and final amount of fundraising has not been finalised and could even exceed $5bn, according to people familiar with the matter. Officials at BoCom were not available to comment on Wednesday. The capital-raising plans will be closely watched by HSBC, which owns close to 20% of the mainland's fifth-largest lender. Assuming BoCom pushes ahead with a sizeable rights offering, the UK-based lender faces having to spend at least several hundred million Dollars to maintain the level of its stake. BoCom's tier one capital adequacy ratio - a key measure of financial strength - fell to 6.61% as of September 30 last year, the lowest among the country's six largest publicly traded banks. Lenders on the mainland extended Rmb9,600bn ($1,404bn) in new loans last year as part of Beijing's huge economic stimulus programme. However, the lending spree weakened the capital base of most of the country's major lenders. According to estimates by BNP Paribas, China's top 11 publicly traded banks may need to raise a combined Rmb368bn to boost tier one ratios above 12%. A senior official at the Chinese banking regulator said in December the country's banks would need to raise Rmb500bn this year from capital markets to boost their core capital. Agricultural Bank of China will raise up to Rmb200bn from an initial public offering, Li Fuan, acting head of one of the departments of the China Banking Regulatory Commission said. The country's listed banks would issue new equity or bonds worth Rmb300 to Rmb400bn, he added. ********************************************* New Delhi on Wednesday offered Beijing the protection of the Indian navy to help it to secure shipping lanes in the Indian Ocean that are crucial for the energy needs of its fast-growing economy. Pallam Raju, India's minister of state for defence, said India was "happy" to assist China to keep open vital sea lanes between the Middle East and Asia in order to guard against piracy or conflict. The minister said New Delhi "understands that [China] needed to protect its oil interests" - in explanation of an increasing Chinese presence across the Indian Ocean and its naval expansion. "It's about oil," he said. Mr Raju's appeal for collabouration contrasts starkly with deep-seated anxieties expressed by Indian naval officers and policymakers about the encroachment by China in the Indian Ocean. They view port-building activities in Gwadar in Pakistan and Hambantota in Sri Lanka and the construction of a special economic zone in Mauritius with suspicion. Built for commercial use, they say the facilities can, nevertheless, easily be turned over as anchorages for warships. Yet military analysts believe China is a long way from having a worldwide network of military bases. The potential discussions with India coincide with a debate in China in academic and military circles about establishing overseas military facilities. China has long eschewed a strategy of building overseas bases which it believed would be expensive and diplomatically risky, especially given its stated goal of non-interference in other countries' affairs. But as a result of its participation in anti-piracy naval operations off the coast of Somalia last year, there has been discussion of need to improve support and supply arrangements in strategic locations for Chinese ships, notably in the South China Sea and in the Indian Ocean. Several members of the Chinese military have written newspaper articles calling for new "support facilities" for the Chinese navy to be established. India announced this week that it is to deploy two more mountain divisions - about 30,000 troops - in its north-eastern region, which borders China. That is seen as a response to Beijing's greater assertiveness in a territorial dispute about the Indian state of Arunachal Pradesh. Mr Raju told the Financial Times that New Delhi was prepared to collabourate with Beijing to guarantee safe passage of supplies. He said China and India had similar interests to secure trade, particularly in regard to energy and resources. Both China and India have sent warships as part of an international mission to fight piracy off the coast of east Africa. Some senior Indian policy advisers are less sanguine. MK Rasgotra, a former foreign secretary and an adviser to prime minister Manmohan Singh, said China was trying to copy the US and UK in having offshore naval bases far from its own coast. But he described the strategy as belonging to a "bygone era". A Chinese bid to gain a foothold in the Maldives had been recently thwarted, he said. Mr Raju said New Delhi was more concerned about China's role in Pakistan than its infrastructure development in South Asia, loosely termed as the "string of pearls" strategy intended to contain India. He said China, a major arms supplier to Pakistan, needed to play a greater role in bringing stability to the nuclear-armed country wracked with a Taliban insurgency. New Delhi lags behind Beijing's naval might. China has three times the number of combat vessels as India and five times the personnel. |
| Summary
The coming week looks like ..... |
Overseas shares traded in the United States fell on Friday as Chinese stocks dipped ahead of the reopening of China's mainland markets after a week-long holiday.
Hong Kong shares, which trade through the Lunar New Year holiday, fell 2.6%. Investors are bracing for further losses next week when markets get their first chance to react to China's latest policy tightening measures.
Investors also weighed the US Federal Reserve's move to increase the interest rate it charges banks for emergency loans. Some investors see the increase in the so-called discount rate as a sign the Fed is coming closer to raising interest rates.
The Bank of New York Mellon index of leading American Depositary Receipts (ADRs) fell 0.4% while the US benchmark S&P 500 index .SPX rose 0.3%.
Big Chinese companies lost ground in New York. China Life, the world's top life insurer by market value, fell 1.3% to $66.36, while Aluminium China fell 2% to $23.63.
Japanese stocks were also lower in New York following a sell-off in Tokyo as investors worried about the hike in the discount rate, fears that seemed largely to have worn off among US investors by Friday afternoon.
Mitsui & Co, which has a strong presence in heavy industry and natural resources, fell 2.4% to $301.61, while banking stock Nomura Holdings fell 2.3% to $7.10.
The Bank of New York Mellon index of leading Asian ADRs lost 1%.
European shares traded in New York also fell even after the FTSEurofirst 300 index of top European shares edged to its highest level in three weeks.
Ben Bernanke's semi-annual testimony on the outlook for monetary policy and the economy next Wednesday will be a chance for the Fed chairman to recalibrate what the market is pricing in on the US rate outlook if he so chooses.
While EuroDollar futures have fallen after the US discount rate hike, Euribor and short Sterling prices are proving somewhat more resilient as the market has assimilated the impact of fiscal problems in the Euro zone and the fragile state of the UK economy.
If ECB and BOE officials want to give the market a different steer before their March policy meetings, next week will also be the time to do it.
Greek, Portuguese and Spanish sovereign CDS and yield spreads against Bunds may have retreated from recent peaks after the EU leaders' political pledges of support for Greece but sovereign event risk remains high and Greece is far from off the hook.
Each Euro zone sovereign debt auction is being closely scrutinized for signs that investor appetite for Euro zone paper, or a particular country's debt, is flagging and Greece's planned 10-year syndication in the next week or two will again be treated as the acid test of such appetite and as a gauge of what sort of prices markets will exact to buy such paper.
Jitters caused by a short-lived spike in commercial bank borrowing at the ECB's overnight facility have highlighted the market's focus on which institutions can/cannot access cash in money markets. Against this backdrop, attention is shifting to the ECB's final offering of six-month funds in March and whether the central bank will add a spread to the refi rate.
As the date nears and the market starts to get clearer indications of how large commercial banks' uptake will be, ripple effects could start to be felt across asset classes since the operation will show just how reliant banks still are on cheap central bank funds and the potential impact of emergency lending measures being unwound.
World stocks this week made their second consecutive weekly gain, the first time they will have managed this since November, as financial markets break free of a near-obsessive fascination with Greece-related news and start to refocus on a positive earnings season (72% of the S&P firms that have reported have beaten expectations according to TR proprietary research as of February 18).
Concern about sovereign credit risk has inevitably affected corporate credit markets, with banks in the frontline. Still, there could be a silver lining for financials, and especially for those which have low exposure to Greece or other southern European countries, as long as nothing upsets the market's view that European interest rates might stay lower for longer than they might otherwise have done. Earnings from RBS, Lloyds Banking Group, Commerzbank, Credit Agricole and Natixis will determine whether the sector extends the rebound seen this week after strong results from the likes of Barclays and BNP Paribas.
All told, eyes on China next week I feel as the 'Tiger' awakens after a week of partying! |
As always, I will keep you posted with major developments as/when they occur in the week ahead.
In the meantime, I wish you all a very pleasant weekend.
Market Newsletter Written By
Adrian Page
Managing Director
Financial Page International | |
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