Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times

Fears mount over slowing global demand
By Alan Beattie and James Politi in Washington, Kevin Brown in Singapore and Geoff Dyer in Beijing
Copyright The Financial Times Limited 2010.
Published: July 1 2010 19:14 | Last updated: July 1 2010 19:14
http://www.ft.com/cms/s/0/fa81dd7c-8536-11df-9c2f-00144feabdc0.html


Fears grew that the global recovery is faltering on Thursday after a slew of data pointed to weaker global demand led by slower growth in China.

Figures showed manufacturing output slowing across large parts of the world, posing further challenges to leading economies as they attempt to shore up shaky fiscal positions without falling back into recession.

In Asia – the world’s production powerhouse whose economies are still largely dependent on export demand – manufacturing activity indices for China, South Korea, Taiwan, India and Australia all showed weaker activity for June.

The overall level of factory activity still suggested production was expanding but at a more moderate rate than in recent months.

“China’s recovery remains solid but is clearly moderating from the very fast pace set at the start of the year,” said Brian Jackson, strategist at RBC Capital Markets in Hong Kong. But he added that concerns over weaker growth might cause China to restrict appreciation in the renminbi, which has been allowed some flexibility in the past two weeks. “A slowdown in activity in the months ahead may prompt some in Beijing to argue for a halt,” he said.

Last weekend’s G20 meeting in Toronto was marked by concern in some quarters, notably the US, that overly rapid fiscal tightening would deprive the global economy of much-needed domestic demand. Some economists are concerned that with monetary policy in the US and western Europe reaching the limits of what it can do, the weakness of demand risks letting the world economy slide back into recession.

Although Thursday’s data were well short of suggesting that, they did underline that many parts of the world economy were struggling for momentum.

Figures for the US also suggested the economy was losing impetus in spite of being well short of its productive capacity and receiving unprecedented support from monetary and fiscal policy. The Institute for Supply Management’s manufacturing index fell from 59.7 in May to 56.2 in June, a much larger drop than most economists had predicted. Although any reading above 50 indicates an expansion in manufacturing activity, this is now the second consecutive monthly drop in the index.

Unemployment in the US appears stuck at just below 10 per cent, and hopes that it might start falling received a setback yesterday as new claims for unemployment benefits unexpectedly rose. David Semmens, US economist at Standard Chartered Bank, said the jobless claims figures were “a timely reminder that firings in the US remain elevated and appetite from employers for hirings remains anemic”.

In the eurozone, an update to the manufacturers’ purchasing managers’ index showed its ninth month of expansion, but at a moderate rate that is not using up the spare productive capacity. Germany, whose highly competitive export manufacturers have benefited from slides in the euro in recent months, led the other countries in the rate of growth.

“The second quarter most likely represents a peaking in the rate of expansion of manufacturing output, as growth slows in coming months,” said Chris Williamson, chief economist at Markit, who produces the index.

He estimated that eurozone manufacturing has only recovered about 40 per cent of the output lost during the recession.

Nick Beecroft, FX Consultant at Saxo Bank, said: “This looks like the day that fears of a double-dip recession in the US, with all its attendant unpleasant consequences for the US budget deficit, finally trumped eurozone bank and debt concerns.”






Holdout senator says she will vote for reform
By Tom Braithwaite in Washington
Copyright The Financial Times Limited 2010
Published: July 2 2010 02:13 | Last updated: July 2 2010 02:13
http://www.ft.com/cms/s/0/1f014b28-856f-11df-aa2e-00144feabdc0.html


The Wall Street reform bill appears destined for final passage after Maria Cantwell, one of two Democratic senators to have opposed the legislation, said she would now back it.

Two of the four Republican senators who have wavered in their support of the bill are ultimately expected to vote in favour, potentially making Ms Cantwell the key final swing vote.

Ms Cantwell, a senator from the state of Washington, said on Thursday night that “tough new regulations on derivatives” that were added to the text during the marathon session in Congress last week had improved it.

“This legislation is not perfect, and I will continue to push for even bolder action – including a return to the Glass-Steagall separation of commercial and investment banking – to rein in Wall Street, put an end to the concept of ‘too-big-to-fail’,” she said. “But this bill makes significant strides toward preventing the kind of financial meltdown that we saw in the fall of 2008.”

The death of Robert Byrd, the Democratic senator from West Virginia, and a non-committal stance from Scott Brown, a Republican who had previously supported the bill, left senior Democrats without the 60 votes they need to secure final passage.

With the support of Ms Cantwell they are closer to victory. At an earlier vote in May the bill passed the Senate 59-39, with four Republicans voting in favour; Ms Cantwell and Russ Feingold, a Democrat from Wisconsin, voting against; and two other Democratic senators, including the ailing Mr Byrd, not voting.

This week has seen a concerted effort from Chris Dodd, the Senate banking committee chairman, and Barney Frank, the House financial services committee chairman, to persuade the wavering Mr Brown to back the bill.

Mr Dodd and Mr Frank reconvened a conference committee to reopen the bill and remove a $19bn bank fee that Mr Brown said was preventing him from voting in favour. However, even after the change, the Massachusetts senator said he was still reflecting on his final vote.

The bill’s backers had hoped to deliver the legislation to Barack Obama, US president, on Friday to allow him to sign it into law before the July 4 holiday. They will miss that deadline, the latest in a series to be broken, and are aiming for final passage in two weeks after the Senate goes on a week’s recess.

Even with the change of heart from Ms Cantwell, the Democratic leadership will still need the votes of two of the four wavering Republicans, which comprise Chuck Grassley of Iowa and Susan Collins and Olympia Snowe from Maine, in addition to Mr Brown.

“I will vote in support of the conference report because it makes great strides toward our ultimate goal: bringing all standard derivatives on to exchanges and clearing houses, with aggregate position limits and strong anti-manipulation tools,” said Ms Cantwell.

Some of the modifications made during the conference session have added doubt over the extent of the exemption for non-financial companies from margin requirements, attracting Ms Cantwell but sparking a last-ditch lobbying effort from business groups.







US collects $10.3bn from Citi bail-out
By Francesco Guerrera in New York
Copyright The Financial Times Limited 2010
Published: July 1 2010 22:21 | Last updated: July 1 2010 22:21
http://www.ft.com/cms/s/0/f7cb7ac8-8538-11df-9c2f-00144feabdc0.html


The US government has collected more than $10bn in cash, dividends and securities from its bail-outs of Citigroup – a sign that the financial sector’s quick rebound from the crisis is helping the authorities to make money on rescue programmes.

The government’s gains on its Citi investments reached $10.3bn on Thursday after it completed the sale of a second tranche of shares in the financial group at a profit of about $700m.

The latest sale was smaller and less lucrative than the first divestment of government shares, which yielded a $1.3bn profit, but marks another step in the authorities’ drive to end their part-ownership of one of the world’s biggest banks.

On top of the $2bn profit on the sale of its shares in Citi, the government has also earned $3bn in dividends on $5.3bn-worth of preferred shares it owns in the bank.

The authorities received the shares for free after scrapping an insurance policy on $250bn of Citi’s troubled assets last year. The US Treasury and the Federal Deposit Insurance Corporation, which hold the preferred shares, are expected to sell them in the medium term. The US still holds about 18 per cent of Citi, down from 34 per cent at the height of the turmoil.

A profitable exit from Citi – the most high-profile group saved by the US government during the crisis – is crucial to the administration’s efforts to minimise the public cost of the substantial aid doled out in 2008 and 2009. The US Treasury is still expecting to lose $105bn on the $550bn troubled asset relief programme.

However, officials have said that the Tarp injections into banks will be profitable, with most of the losses expected to come from investments in the housing market, car companies and the insurer AIG. The huge mortgage finance companies Fannie Mae and Freddie Mac, whose bail-outs are outside Tarp, are also expected to cost US taxpayers billions of dollars.

The authorities poured some $45bn of taxpayers’ funds into Citi in December 2008 as huge losses on subprime-related products threatened its future.

Citi repaid $20bn a year later but, because of its perilous financial health, it had to agree to convert the remainder into common stock at $3.25 a share.

Citi said on Thursday that it was “pleased” with the Treasury’s profit on the share sale. The Treasury said it expected to continue selling the rest of its stake in the market through its agent, Morgan Stanley.

The statement will dent the hopes of some sovereign wealth funds, including the Qatar Investment Authority, which are believed to be interested in buying part of the Treasury’s stake at a discount.

Linus Wilson, finance professor at the University of Louisiana, urged Washington to accelerate its divestment with a secondary offering after Citi’s second-quarter results next month.

Apple targets on-demand film market
By Matthew Garrahan in Los Angeles
Copyright The Financial Times Limited 2010
Published: July 1 2010 23:01 | Last updated: July 1 2010 23:01
http://www.ft.com/cms/s/0/4bffbb68-8539-11df-9c2f-00144feabdc0.html


Apple is on course to become the second-largest provider of paid on-demand movies in the US by the end of 2010, leapfrogging Time Warner Cable and setting itself up as viable competitor to the cable TV industry.

The group’s iTunes store, which sells movies to buy or rent electronically, has grown faster than video-on-demand services operated by Comcast and Time Warner Cable, the two largest cable providers, according to Screen Digest, the media research firm.

Screen Digest is projecting that more people will be buying or renting movies via iTunes than on Time Warner Cable’s video-on-demand service by the end of the year.

The firm estimates that movie spending on iTunes will have overtaken the video-on-demand service operated by Comcast, the largest provider, by 2014. “This year we expect Apple will generate $280m in movie spending from 35m transactions, compared with Time Warner Cable, which will generate $160m from 31m transactions,” said Arash Amel, research director for digital media at Screen Digest.

Comcast would generate $385m from 90m transactions in 2010, he added. But its share of consumer spending is expected to decline in line with Apple’s growth. “By 2014, we predict Apple will be $470m from 56m transactions while Comcast will be $400m from 108m.”

Apple’s growth is worrying for the cable industry, which has traditionally used video-on-demand to drive subscriptions.

Cable operators are offering free on-demand movies and TV shows bundled with subscriptions to prevent customer churn. “Cable operators have ceded ground in paid video-on-demand to Apple,” said Mr Amel. “Apple’s growth shows consumers don’t just want to watch movies on their TVs.”

Hollywood is increasingly interested in video-on-demand as digital piracy spirals and sales of DVDs decline. Nine movie websites offering illegal copies of films were shut down in the US this week as part of a government crackdown.

“Apple’s paid-on-demand services provide a legal alternative to illegal movies,” said Mr Amel. But he added that Hollywood could not afford to be complacent about the biggest threat to its future. “Piracy for the movie business in the next decade is already threatening to be what it was for the music industry in the last decade.”