Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Apple results lift investor confidence
Copyright The Financial Times Limited 2010.
Published: July 21 2010 08:37 | Last updated: July 21 2010 16:47
http://www.ft.com/cms/s/0/075a2bd0-9487-11df-b90e-00144feab49a.html


Wednesday 16:35 BST. Market rally? There’s an app for that!

Sparkling profits and an unusually upbeat forecast from tech-maverick Apple appeared to have restored investors’ faith in the US second-quarter earnings season and helped bolster broader confidence in Asia and Europe.

However, caution ahead of Fed chairman Ben Bernanke’s Senate testimony has left Wall Street struggling to transfer pre-market optimism into decent gains.

The FTSE All-World equity index is up 0.3 per cent and commodities are higher. The S&P 500 is down 0.3, even though results from the likes of Morgan Stanley and Coca-Cola were expected also to lend support.

US Treasury yields remain close to recent lows as the saturnine core bond sector remains wary.

Apple shares rose sharply in after-hours trading following the release of its earnings after the close on Tuesday, and its performance has undoubtedly supported the bullish argument.

But of greater significance, perhaps, for the optimists is that Wall Street on Tuesday had already managed to turn a near 1.3 per cent stumble into a 1.1 per cent gain before the sleek gadget-maker spoke.

The turnround was all the more impressive because it came following a further batch of initially poorly-received earnings, this time led by Goldman Sachs; the return of European debt and fiscal austerity fears; and another piece of worrying housing data.

Investors appeared happy to take comfort from the more positive, forward-looking element of the latter catalyst, the building permits. Such selective optimism is usually a prerequisite if the bulls are to have their day.

They will also be bolstered by yet another piece of M&A, this time Reckitt Benckiser’s £2.5bn purchase of condom maker SSL International of the UK.

However, this cheer faces severe tests over the next few sessions. Anxiety is likely to increase ahead of the results on Friday of the eurozone bank stress tests.

And later today, Federal Reserve chairman Ben Bernanke will be in front of the US Senate for his semi-annual testimony – an overly morose assessment of economic prospects may spook traders.

The FTSE Asia-Pacific index is up 0.4 per cent, with Sydney higher by 0.2 per cent, Shanghai up 0.3 per cent and Hong Kong climbing 1.1 per cent as higher commodity prices in Tuesday’s western session boosted resource trading groups.

● Europe. Bourses bounced from the open powered by the same drivers enjoyed in Asia but also supported by the SSL takeover. However, gains were trimmed after Wall Street’s expected rally at Wednesday’s bell failed to materialise. The FTSE Eurofirst 300 climbed 1.1 per cent and the FTSE 100 in London rose 1.5 per cent as miners and banks saw good gains.

● Forex. The yen is still in demand; suggesting pockets of fear still crave the perceived haven. The Japanese unit is up 0.3 per cent against the dollar at Y87.23 and higher by 0.9 per cent versus the euro at Y111.66.

Indeed, there is little evidence elsewhere in currency markets that the “risk-on” correlation trades are being adopted. The dollar, which would in the past have been expected to fall when broad market sentiment improves, is up 0.4 per cent on a trade-weighted basis and 0.6 per cent higher versus the euro, at $1.2805.

Sterling is down 0.6 per cent against the dollar at $1.5186 after suffering a “fat finger” plunge in early trading. The Bank of England monetary policy meeting minutes seem to have had little impact, despite talk of further quantitative easing.

● Debt. US Treasuries are seeing demand, with yields of the two-year note, at 0.58 per cent, close to historic lows. The 10-year yield is down 2 basis points at 2.94 per cent, with some traders apparently hoping that Mr Bernanke may hint at more QE in his testimony later.

European corporate and sovereign credit default swap benchmarks are tighter as a calmer mood prevails.

● Commodities. The complex is generally firmer, despite BHP’s cautious comments on demand. Oil gave up early gains after an unexpected build in US inventories and is down 0.6 per cent at $77.10 a barrel. Metals are firmer and this is helping push the Reuters-Jefferies CRB index higher by 0.2 per cent.

Gold is up 0.1 per cent at $1,193 an ounce. Its moves in recent weeks have been confounding many market-watchers, with usual drivers flitting in and out of favour.

Wednesday’s Market Menu
What’s affecting risk appetite

Risk on

● It’s all about Jobs: the earnings elegance of the black turtle-neck.

● M&A: £2.5bn bid for SSL is further evidence that some see value in the market.....

Risk off

● ....though Ocado’s weak IPO shows ebullience has its limits.

● Bank stress tests: anxiety over outcome may crimp sentiment.

● BHP: miner’s cautious demand outlook may weigh once Apple shine wears off.

● Asia. The region was generally higher as traders tracked Wall Street’s gains and Apple’s earnings boosted chipmakers. However, Tokyo, which normally enjoys a good technology story, slipped 0.2 per cent as the strength of the yen continued to hurt exporters.



Merkel hails ‘robust’ German recovery
ByQuentin Peel in Berlin
Copyright The Financial Times Limited 2010
Published: July 21 2010 14:15 | Last updated: July 21 2010 14:36
http://www.ft.com/cms/s/0/0b015848-94c4-11df-b90e-00144feab49a.html


Angela Merkel, the German chancellor, has praised the “really robust” recovery of the German economy, and the “small miracle” of declining unemployment across the country, but warned that there was still no room for manoeuvre for tax cuts in the foreseeable future.

In a staunch defence of her government’s policies, against the background of plummeting popularity in the latest opinion polls, she insisted that strict spending cuts were essential to restore a balanced budget, and that the coming year would still prove “very difficult”.

Speaking at an annual press conference on Wednesday to mark the end of the parliamentary session, Ms Merkel dismissed the latest opinion polls showing the three parties in her ruling centre-right coalition – her own Christian Democratic Union, the Bavaria-based Christian Social Union and the liberal Free Democratic party – with a record low level of support.

“I think the coalition has really pulled itself together,” she said, although she admitted that the level of public disagreement between the partners in the past had been “unacceptable”. She could not promise there would be no arguments in the future, but said such disputes would at least be on important matters of policy.

She also dismissed any speculation that she was getting tired of government. “I am still enjoying myself. You can be perfectly sure that you will see me again after the holidays,” she said with a smile.

The latest Forsa opinion poll, published by Stern magazine, shows the coalition parties with combined support of just 34 per cent, the lowest level for the three centre-right parties since the polling agency began the series in 1986. The poll put the FDP on just 4 per cent support – too low to win any seats in the Bundestag in a general election – while the CDU and CSU were on a joint figure of 30 per cent. The Green party had a record 19 per cent support.

In a separate poll by the Allensbach institute for the Frankfurter Allgemeine newspaper, Ms Merkel’s CDU and the opposition Social Democratic party were shown to be on a level pegging, with 31.5 per cent support each. The FDP had support of 6.5 per cent, the Greens 15.5 per cent and the radical left Linke 9.5 per cent.

The figures suggest that a “red-green” coalition might just win an outright majority in any election against Ms Merkel’s centre-right alliance, although the most likely outcome would be a stalemate.

In spite of widespread newspaper speculation about continuing divisions in the government, the chancellor showed herself confident and relaxed, looking forward to a holiday break.

She warned, however, of a heavy autumn legislative agenda, with health reform, energy policy – including a decision to extend the life of nuclear power stations – and reform of the Bundeswehr defence force all top government priorities.

She said that negotiations to share out tax revenues between the federal government, the 16 federal states and local authorities in Germany’s towns and cities would be very difficult, with each level of government having to make painful cuts in spending.

Her government was also determined to press ahead with negotiations on a new “international financial architecture”, she said. Berlin has been pushing for the widest possible agreement on an international bank levy or tax, and a financial transaction tax.

She defended the government’s unpopular decisions to support rescue packages for the debt-strapped Greek economy, and for other potential crisis-hit economies in the eurozone.

“Germany and its way of dealing with these issues have gained recognition,” she said. “The state proved itself capable of handling the crisis.”

She said that it was essential for members of the European Union to focus on curbing their budget deficits, and improving their competitiveness in the global market. The lack of competitiveness was the underlying cause of the Greek debt crisis, she said, not the activities of financial speculators on the markets.




BP to sell $7bn in assets to Apache
By Carola Hoyos and Ed Crooks in London
Copyright The Financial Times Limited 2010
Published: July 20 2010 18:32 | Last updated: July 21 2010 07:34
http://www.ft.com/cms/s/0/dc562cea-9422-11df-a3fe-00144feab49a.html


BP has announced plans to raise an estimated $8.7bn from asset sales, bringing the embattled oil group close to its initial target of raising $10bn from disposals to help pay for the cost of its huge oil spill in the Gulf of Mexico.

Most of the cash will come from a $7bn deal with Apache, the US independent oil and gas company, which is buying onshore gas assets in the US, Canada and Egypt.

BP has also said it will sell most of its assets in Vietnam and Pakistan, which are valued by analysts at about $1.7bn as it accelerates divestments in an attempt to allay concerns over its financial health.

Apache had been in talks over taking a stake in the giant Prudhoe Bay oil field in Alaska, in production for BP since 1977, but the two companies have not yet been able to agree a price.

BP is likely to announce further disposals, but its ability to reach a significant deal so soon, just over a month after the disposal plan was announced, will ease the pressure for it to make further sales quickly.

Apache is buying gas fields in Texas and New Mexico for $3.1bn, in western Canada for $3.25bn, and in Egypt’s Western Desert for $650m.

BP petrol sales recover in US

Sales at BP-branded petrol stations in the US have rebounded in the past week after months of vilification in the US media led to declines of 10 per cent or more at many of the outlets, writes Greg Farrell in New York.

Although BP owns only 245 petrol stations in the US, it has a substantial presence, supplying petrol to 110,000 retailers.

Distributors of BP-branded petrol said the past few months had been difficult – and were worsened by the failure to stop the flow of oil in late May and June from the Deepwater Horizon drilling station – with notable falls in sales in the south-eastern US, where sensitivity to the disaster is most acute.

At some stations on the Gulf coast, business was off by as much as 50 per cent, said John Kleine, executive director of the BP-Amoco Marketers Association, which represents BP distributors.

“There’s more business pain on the Gulf coast,” he said.

However, John Phelps, president of Carroll Independent Fuels, said: “A lot of stations have recovered and then some because they’ve been pricing more aggressively.”

While BP has refused to engage in wholesale price cuts of its products, “it has told the distributor community that if stations were impacted severely, there would be support”, he added.

The assets in total represent about 2 per cent of BP’s reserves, and are being sold for about 6.4 per cent of its market capitalisation last night. In total, they produce about 331m cubic feet of gas per day, and account for about 2.3 per cent of BP’s worldwide production.

Steven Farris, Apache’s chief executive, said in a statement: “This is a rare opportunity to acquire legacy positions from a major oil company… We seldom have an opportunity like this in one of our core areas, let alone three.”

The asset sale came as BP denied a report in the Times that Tony Hayward, chief executive, was to step down within the next 10 weeks.

The company rejected the Times report saying that Mr Hayward “remains CEO and has the full support of the board”.

Apache is a specialist in extending the lives of mature fields, as it has done very successfully with the Forties field in the North Sea that it bought from BP in 2003.

BP was advised by Standard Chartered; Apache by Goldman Sachs, BofA Merrill Lynch, Citi and JPMorgan.

Separately, BP has told staff and government officials in Pakistan and Vietnam that it intends to sell all its assets except its Castrol lubricants business.

In Pakistan, where it produces 173m cu ft of gas per day, BP intends to sell onshore and offshore oil and gas fields, some of which are already producing and others where BP holds the right to explore.

In Vietnam, where BP produces 63m cu ft of gas per day, the company wants to sell its Lan Tay and Lan Do fields and the related Nam Con Son and Phu My 3 pipelines. In total, the sales from both countries represent 2.7 per cent of BP’s natural gas production of 8.5bn cu ft per day.

Jason Kenney, analyst at ING, said: “This is an opportunity to clear out the closet. BP can get to $10bn quite easily,” he said, noting that the company was merely accelerating the divestments of non-core assets it would have otherwise sold over the next 3-5 years.

BP has also held discussions over selling its 60 per cent stake in Pan American Energy of Argentina worth about $9bn, as well as fields in Colombia and Venezuela.

Despite political opposition by some US lawmakers, BP is desperate to maintain its position in the deep waters of the Gulf of Mexico, one of its most important regions.

A senior BP officer told the FT last week that the company could “easily” raise $20bn from disposals, twice its original target of $10bn within the next 11 months.

Achieving this figure would negate the need for BP to raise funds by issuing new equity, he said.

Tony Hayward, BP’s chief executive, has told BP employees that the company had to show it had the cash to pay for its liabilities by the time it presents its second quarter earnings on July 27.





US to widen sanctions against N Korea
By Geoff Dyer in Beijing and Christian Oliver in Seoul
Copyright The Financial Times Limited 2010
Published: July 21 2010 13:40 | Last updated: July 21 2010 17:20
http://www.ft.com/cms/s/0/38e3d272-94bf-11df-b90e-00144feab49a.html


The US announced on Wednesday that it would widen sanctions on North Korea to more individuals and companies, in its latest gesture of solidarity with South Korea over the sinking of one of its warships earlier this year.

Speaking in Seoul, Hillary Clinton, the US secretary of state, said that Washington had done “intensive research” on the new targets for sanctions and warned of serious consequences if there were any new attacks by Pyongyang.

The sanctions announcement comes ahead of a combined US and South Korean naval exercise that starts this weekend. Designed as an act of deterrence against North Korea, it has turned into something of a battle of wills with China.

The initiatives are part of a combined response to the sinking of the Cheonan warship in March, killing 46 sailors, which Washington and Seoul blame on North Korea. Pyongyang has denied involvement and the United Nations Security Council has avoided directly blaming North Korea for the attack, partly as a result of Chinese influence.

“We are aiming very specifically, after much intensive research built on what was done before but not limited to that, to target the leadership, to target their assets,” Mrs Clinton told reporters in Seoul.

The US would also launch “new efforts with key governments to stop DPRK [North Korean] trading companies engaged in illicit activities from operating in those countries and banks in those countries from facilitating illicit transactions,” she said. The US may also look to expand travel restrictions on North Korean officials involved in proliferation. Mrs Clinton named no specific institutions or countries. North Korea’s richest allies are China and Iran.

The stepped-up sanctions are reminiscent of the freezing of $24m of North Korean assets in Banco Delta Asia, a Macao bank, in 2005.

One banker with experience in North Korea thought it unlikely that the US could exert much leverage. “Most of the financing is done with China and I do not think they are too vulnerable to the US,” he said.

The joint naval exercise will calm nerves in Seoul, where continued postponement of the exercise raised questions about whether Washington was vacillating under pressure from China, which has been strongly critical of the plan.

In an article in the People’s Daily last week, Major General Luo Yan said that the entry of a US aircraft carrier into the Yellow Sea between Korea and China would present a potential threat to “the heartland of Beijing and Tianjin”.

Quoting from Mao Zedong, he added: “China will never allow others to keep snoring beside our beds.”

However, there were some signs that the US has made concessions to China, given that the exercise this weekend will take place off the eastern side of the Korean peninsula.

Admiral Robert Willard, commander of the US Pacific Command, said that future drills would take place in the Yellow Sea, off Korea’s west coast.

The prevarications about the drill in Washington have left some domestic critics to claim that the US was establishing a dangerous precedent by letting China dictate what sort of naval vessels can operate in certain international waters. It comes at a time when China is pursuing its naval ambitions with greater confidence than in the past, including the holding of its own naval exercise in the Yellow Sea last weekend.

However, the crisis over the Cheonan has also allowed the US to remind other Asian countries about its central naval role in the region, to reinforce its ties with South Korea and Japan and to complicate Beijing’s efforts at rapprochement with Tokyo and Seoul.




Watchdog attacks US mortgage aid scheme
By James Politi in Washington
Copyright The Financial Times Limited 2010
Published: July 21 2010 06:29 | Last updated: July 21 2010 06:29
http://www.ft.com/cms/s/0/80960e92-9473-11df-be4d-00144feab49a.html


The Obama administration’s signature programme to help troubled homeowners is struggling to meet its objectives and suffers from a lack of “transparency and accountability”, according to a scathing assessment by the special inspector-general for the financial bail-out.

The watchdog, which has previously been critical of the Treasury department’s Home Affordable Modification Programme (Hamp), upped its criticism ahead of a Senate finance committee hearing scheduled for Wednesday morning on the progress of the 2008 bail-out, which included more than $50bn to aid the stricken US housing market.

The report charges that more than a year after Hamp began, the programme has not made an “appreciable dent” in foreclosure filings. The quarterly report also slammed the Treasury department for not providing realistic benchmarks for success of the programme, accusing it of “clinging” to a “meaningless” goal of helping 3m-4m Americans in making trial modifications to their mortgages.

“Treasury’s refusal to provide meaningful goals for this important programme is a fundamental failure of transparency and accountability that makes it far more difficult for the American people and their representatives in Congress to assess whether the programme’s benefits are worth its very substantial cost,” the report said.

On Tuesday, the Treasury department released its latest figures on loan modifications related to Hamp, saying that permanent modifications had risen by 13 per cent to almost 300,000 between March and April.

“As the number of homeowners receiving permanent modifications continues to increase, the administration’s comprehensive efforts are making an impact in the housing market’s overall recovery,” said David Stevens, a top housing official.

“Today, mortgage rates remain at historic lows, around 5 per cent; foreclosure starts are down 27 per cent from last year this time; and home prices and the pace of home sales have stabilised in recent months.”

Preventing successive waves of foreclosures from rippling across the US economy has proved to be an almost intractable problem since the housing crisis began for both the Bush and Obama administrations, which have struggled to be effective mediators between mortgage servicers and homeowners.

The protracted nature of the recession, with persistently high unemployment and no strong rebound in house prices, has made the task even harder.

Darrell Issa, the California congressman who serves as the top Republican on the House oversight committee, immediately seized on the inspector-general’s report to criticise the Obama administration.

“How many more reports will it take for Washington to wake up to the reality that dumping more good money after bad only prolongs and deepens the economic crisis that is costing millions of Americans their jobs and their homes?”

Other Republicans are expected to make similar criticisms at Wednesday’s hearing at which no administration officials are expected to testify. However, appearances will be made by Neil Barofsky, special inspector-general for the bail-out bill, and Elizabeth Warren, chair of the Congressional oversight panel and a leading candidate to head the new consumer protection agency created by financial reform legislation that will be enacted on Wednesday.