Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Investors drop risk after US GDP data
ByTelis Demos in London
Copyright The Financial Times Limited 2010
Published: July 30 2010 08:45 | Last updated: July 30 2010 14:50
http://www.ft.com/cms/s/0/810e448e-9ba3-11df-9ebd-00144feab49a.html


Friday 14:45 BST. Markets are quickening the sale of risk after US GDP growth in the second quarter came in lower than expected.

The FTSE All-World index is down 0.8 per cent, with the S&P 500 index opened down 0.7 per cent, on track for its a fourth successive day of losses. Benchmark US Treasury bonds yields are several basis points lower, and the yen saw new highs for the year.

Economists had forecast second-quarter GDP growth in the US of 2.5 per cent, but it was revealed today to be 2.4 per cent. The US also revised its first-quarter growth upwards, from 2.7 per cent to 3.7 per cent.

“The details suggest growth may have been weakening more than expected from a higher base,” said Sebastien Galy, currency strategist at BNP Paribas in New York. He said the yen could rise to its 2009 post-crisis high below Y85 to the dollar.

European markets are also down following the continent’s own mixed economic data, a turnround from recent trends, including slower German retail sales. The Eurofirst 300 index of big companies is 0.7 per cent lower, and “peripheral” European debts are being sold off.

The euro, however, is paring losses against the dollar following the GDP data, as investors bet on likelier interest rate increases in Europe. The yen is again in demand as a haven, gaining against higher-yielding currencies in Australia and Europe and reaching the highest level since November against the dollar.

The slowing economy was not entirely unexpected. On Thursday James Bullard, a regional Fed president, warned that the US risked a “Japanese-style outcome” if it did not consider using measures beyond the Fed funds rate to inject liquidity into the economy, including quantitative easing. Earlier in the week, the Fed’s Beige Book survey said that some regions were seeing slowing manufacturing activity.

Though earnings season has seen strong headline expectation-beating profit reports, and banks globally have enjoyed an uptick in confidence following the European stress tests, investors have been hesitant to buy shares and other risky assets without some sense that the world’s largest importer is on solid footing. Japan’s Nikkei, heavily reliant on exporting companies, has nosedived in the past two sessions as businesses warned of a third-quarter slowdown.

Even in Europe, where economic news has been surprisingly good of late, traders are keenly aware that it is exports – thanks in large part to a cheap euro – that have led German manufacturing activity into an expansion phase and unemployment to its lowest level since 2008.

“Germany and Europe’s other big economies are export-driven. We acknowledge that if there were to be a big problem in the US, it would have an impact on the eurozone,” said Astrid Schilo, an economist at HSBC.

• Europe. A bit of economic data weakness knocked markets at their open. Spanish unemployment ticked up higher than forecast and German retail sales were reported to have fallen more than forecast in June. Eurozone unemployment and inflation both matched expectations exactly – at 10 per cent and 1.7 per cent respectively.

In notable earnings, French construction giant Lafarge beat analysts’ profit projections but lowered its forecast. Renault and Michelin also came in well, with the carmaker’s sales rising and the tyre maker’s margins at record levels. France’s Cac 40 index is down 0.4 per cent, while the the UK’s FTSE 100 index is down 0.8 per cent and Germany’s Dax is 0.6 per cent lower.

• Asia. Regional bellwether Samsung joined Nissan and Hyundai on Thursday, reporting a strong second quarter but warning that second-half profits would not be as strong. Japan’s Nikkei 225 index was down 1.6 per cent as the yen strengthened, making Japan’s exports more expensive. Japanese industrial production and inflation figures also came in lower than expected.

The FTSE Asia-Pacific was down 0.4 per cent, with across-the-board losses. The Hang Seng index in Hong Kong slipped 0.3 per cent and the Shanghai Composite index dropped 0.4 per cent, coming off a two-month high. Australia’s S&P/ASX 200 was lower by 0.7 per cent.

• Currencies. Traders are selling risky currencies against the safe-haven yen. The New Zealand dollar is down 0.7 per cent against the yen, and the South African rand is also down 0.7 per cent. The yen is up 0.6 per cent against the US dollar, at Y86.39.

The euro is down 1 per cent against the yen, tumbling in the afternoon in spite of expected unemployment and inflation figures for the eurozone. The euro is down 0.4 per cent to $1.3019 against the US dollar, paring losses as traders flee the dollar post-GDP figures. The pound is near-flat against the buck at $1.5600.

• Debt. US Treasuries are seeing their heaviest demand in several sessions, with the 10-year yield down 6 basis points to 2.93 per cent. Japanese 10-years are down 3 basis points to yield 1.06 per cent, matching their post-crisis low.

Core German 10-year Bund yields are down 5 basis points as European investors embrace safer assets, at 2.67 per cent. Credit default swap spreads are widening in Greece, Portugal and Ireland. Greek two-year bond yields are up 24 basis points, and
Portuguese debt is also being sold off.
• Commodities. US crude oil is down 1.5 per cent to $77.18 a barrel after a week of inventory expansion has driven up supply. The US has reported a growing excess in its markets, a sign of a moderating economy, and Opec on Thursday said its production had continued to increase.

Gold is up 0.7 per cent to $1,168 an ounce. Deflationary fears in the US have counteracted the declining view of lending and currency risk in Europe and bullion has risen as the week has worn on. Also affecting the price, as the FT reported, was a swap between the Bank for International Settlements and big European banks.

Following the Global Market Overview on Twitter at @telisdemos




US growth slows in second quarter
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: July 30 2010 14:03 | Last updated: July 30 2010 15:05
http://www.ft.com/cms/s/0/a7b55d0a-9bd2-11df-9ebd-00144feab49a.html


US economic growth slowed in the second quarter of the year as a swelling trade deficit and weaker consumer spending dragged on the recovery.

Gross domestic product increased at an annualised rate of 2.4 per cent in the second quarter after growing by a revised 3.7 per cent in the first, according to official figures released on Friday. Output was slightly weaker than Wall Street analysts had projected, although the revision added a full percentage point to first-quarter growth.

The second quarter was the fourth consecutive period that the US economy expanded after four quarters of contraction, which had marked the longest recession since the Great Depression. However, the slowing rate of growth and stubborn unemployment have raised anxiety that the recovery is losing steam.

The disappointing data rattled US investors on Friday morning. The S&P 500 fell 1.2 per cent to 1088.31 in early trading with all 10 main sectors down and six dropping more than 1 per cent.

A surge in imports, which far outpaced exports, was the biggest drag on output. Meanwhile, the swing in inventories that had fuelled growth at the end of 2009 failed to provide much of a boost.

Consumer spending also slowed in the second quarter of the year, rising at a rate of 1.6 per cent following a 1.9 per cent rise in the first quarter. Consumers have been holding back amid uncertainty about employment and the housing market.

However, there were some positive signs within the report. Residential investment soared at a rate of almost 28 per cent after declining at the start of the year, and real final sales, which factor out inventories, rose at a rate of 1.3 per cent after a 1.1 per cent in the first quarter.

Also supporting growth was a jump in business investment in equipment and software, which grew at a rate of 21.9 per cent. Signs of capital spending are welcome because they signal that businesses are gaining confidence and could begin to ramp up hiring.

“Investment spending by businesses appears to be ramping up at a faster pace than we expected and, judging by the orders data for the second quarter,” said John Ryding and Conrad DeQuadros, of RDQ Economics.

The commerce department figures were released a week after Ben Bernanke, chairman of the Federal Reserve, told Congress that the economic outlook was “unusually uncertain”.

The Fed has said that it will take action if the economic recovery begins to stall. Fears of a slowdown have grown in recent weeks, with signs emerging of a double dip in the housing market and jobless claims remaining stubbornly high.

A separate report on Friday confirmed that consumer confidence is continuing to wane. The Thomson Reuters/University of Michigan survey of consumer sentiment fell to 67.8 in July from 76 in June.

Richard Curtin, they survey’s chief economist, said that “scarce jobs and stagnating incomes” are weighing upon the minds of consumers.




Fed reports paper profit on Bear and AIG bail-outs
By Francesco Guerrera in New York
Copyright The Financial Times Limited 2010
Published: July 30 2010 00:27 | Last updated: July 30 2010 00:27
http://www.ft.com/cms/s/0/309310ce-9b68-11df-8239-00144feab49a.html


The US public’s hope of getting repaid for the bail-outs of Bear Stearns and AIG in the financial crisis increased on Thursday after the Federal Reserve reported a paper profit for the first time on all the holdings of securities bought from the companies.

A rise in the value of the mortgage-related securities that caused Bear’s demise and AIG’s near-collapse enabled the Fed to report unrealised gains on all three vehicles it set up to hold assets from the two stricken financial groups.

The Fed’s paper profit on the three vehicles, known as Maiden Lane I, II and III, highlights the recovery in the value of securities that were once considered toxic, and could allay criticism of the federal bail-outs of large companies.

Ben Bernanke, Fed chairman, has repeatedly expressed confidence that the central bank will be repaid for its aid to the financial system.

As of Wednesday, the Maiden Lane portfolios’ unrealised gains – the difference between the market value of their securities and the outstanding amount of the authorities’ loans to the vehicles – stood at $10.8bn, official documents showed.

The two vehicles created to unburden AIG’s balance sheet of billions of dollars of troubled assets – Maiden Lane II and III – had been showing a paper profit for some time.

This week, Maiden Lane I – a $30bn vehicle that took on Bear’s worst assets, enabling JPMorgan Chase to buy the investment bank in March 2008 – also swung into the black. The improvement was driven by a rise in the value of residential mortgage-backed securities and commercial property loans, according to people familiar with the situation.

The paper profit means that, in theory, the Fed could sell all its holdings in the market and repay the loans, which have maturities of between six and 10 years. In practice, the securities are complex and illiquid and a rapid sale is unlikely.

At the height of the crisis, the Fed extended loans of more than $72bn to the three Maiden Lane vehicles to buy troubled securities from Bear and AIG.

Although the securities had suffered sharp falls in values during the credit crunch, most continued to pay interest and dividends to the authorities.

The Fed used the cash to reduce the outstanding amount of the loans, increasing its potential profits on the increase in the value of the securities.




Disney sells Miramax studio for $660m
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: July 30 2010 10:24 | Last updated: July 30 2010 13:12
http://www.ft.com/cms/s/0/79d354c0-9bb7-11df-9ebd-00144feab49a.html


Walt Disney said on Friday that it would sell Mirimax, the movie studio, to a group of investors for $660m as it focuses on its other film production brands.

The group acquiring Mirimax is Filmyard Holdings, and includes Ron Tutor, a construction executive, Tom Barrack, and his real estate investment firm Colony Capital.Through the acquisition, they will gain the rights to more than 700 movie titles, including Chicago, Shakespeare in Love and No Country for Old Men.

“Although we are very proud of Miramax’s many accomplishments, our current strategy for Walt Disney Studios is to focus on the development of great motion pictures under the Disney, Pixar and Marvel brands,” Robert Iger, Disney’s chief executive, said in a statement.

Filmyard will also receive the rights to certain books, development projects and will have the rights to the name “Mirimax”.

Disney has been in a deal-making mood lately, agreeing on Tuesday to buy Playdom, a two-year old company that makes social games for Facebook. It paid $563m to acquire the company, which will provide a new stage for Mickey Mouse and Iron Man.

The deal for Mirimax, which was founded by Bob and Harvey Weinstein and acquired by Disney in 1993, requires regulatory approval regulators but is expected to close by the end of the year.

Shares of Disney fell 0.97 per cent to $33.71 in pre-market trading in New York on Friday.








US banks in rush for cheap finance
By Francesco Guerrera and Aline van Duyn in New York and David Oakley in London
Copyright The Financial Times Limited 2010
Published: July 29 2010 22:39 | Last updated: July 29 2010 22:39
http://www.ft.com/cms/s/0/4c68466e-9b3d-11df-baaf-00144feab49a.html


US banks are taking advantage of improving earnings and growing investor demand to raise billions of dollars in debt at historically low interest rates, a move that could boost the sector’s profits in coming years.

The burst of fundraising in the US is in stark contrast to Europe where banks have struggled to issue debt as the eurozone crisis and worries about the financial industry have undermined market confidence.

The cheap finance locked in by big institutions such as JPMorgan Chase, US Bancorp, Goldman Sachs and Morgan Stanley in recent days marks a remarkable comeback for a sector that was shunned by investors during the financial crisis.

Less than two years after the government was forced to intervene to ease a dramatic credit crunch, US banks sold more than $7bn in debt last week – the largest weekly total since September 2009, says Dealogic.

US Bancorp, a Minneapolis-based lender, raised $1bn in five-year bonds at an interest rate of 2.45 per cent – one of the lowest ever paid by a bank.

Lower funding costs boost profits because they increase the margins earned by banks on their loans to consumers, companies and investors.

Wall Street executives say recent debt issues were triggered by “reverse inquiries” – informal approaches by fund managers seeking to raise their exposure to a sector they had largely avoided since the crisis.

“There is a bit of a food-fight among investors to get hold of paper from US banks,” an executive at a big bank said. “After leaving the sector alone for so long, there is renewed appetite.”

With US Treasury yields at record lows, investors seek alternatives that offer higher returns. Expectations that the Federal Reserve will keep rates at near-zero have further raised demand for bonds, as a low-interest, low-growth environment is best for such investments.

Recent earnings and the passage of financial rules also contributed to the surge in debt issuance. Goldman, Morgan Stanley and JPMorgan each issued $3bn bonds this month.

The spike in fundraising is enabling US banks to replace existing bonds with new, cheaper ones. Jean-Francois Tremblay, a Moody’s analyst, estimates that US banks have refinanced $200bn of the $372bn of debt coming due in 2010.

In Europe, analysts say banks have raised only 40 per cent of the €450bn they need this year.

But since publication of the stress tests there have been signs of improvement. This week BBVA, Spain’s second-biggest bank, sold the first bond by a Spanish lender since April.

Gregory Peters, at Morgan Stanley, said: “The banks that don’t need funding can do it, the smaller banks that do need funding probably can’t.”




Coffee hits 12-year high on Colombia shortage
By Javier Blas in London
Copyright The Financial Times Limited 2010
Published: July 30 2010 11:45 | Last updated: July 30 2010 13:12
http://www.ft.com/cms/s/0/c26406ce-9bc3-11df-9ebd-00144feab49a.html


Coffee prices on Friday hit their highest level in 12 years on the back of low availability of premium Arabica coffee from key producer Colombia, after a string of disappointing crops in the Latin American country.

In New York, ICE September Arabica coffee jumped 3.2 per cent to 178.75 cents a pound, the highest since February 1998. In London, Liffe September lower quality robusta coffee rose 3 per cent to $1,810 a tonne.

Industry executives believe prices could rise towards 200 cents a pound in New York before the arrival of the new Brazilian crop later this year. “Until October, it is going to be tight on high-quality coffee,” said one.

Colombia coffee production last year plunged to a 33-year low of 7.8m bags, each of 60kg, down nearly a third from 11.1m bags in 2008.

After a meeting with Brazilian officials, the London-based International Coffee Organisation said on Friday that the “current tight demand-supply situation” in the coffee market was “likely to persist in the near- to medium term.”

Executives said, nonetheless, that after the arrival of the Brazilian crop – which is expected to be the largest ever – prices should decline in early 2011.

Elsewhere in commodities markets on Friday, global wheat prices surged further, propelled by fears of lower production from Russia, Kazakhstan and Ukraine – three of the world’s top 10 exporters – because of a drought in the region.

In Paris, Liffe November European milling wheat hit €194.50 a tonne, the highest level in 22 months. The contract was later up 2.3 per cent at €192.30 a tonne.

In Chicago CBOT September soft winter wheat rose to a fresh 13-month high of $6.37 a bushel, up 1.5 per cent on the day. Wheat prices in Chicago, the global benchmark, have jumped 36.7 per cent per cent so far this month.

The International Grain Organisation on Thursday said wheat production would drop to 651m tonnes in 2010-11. That projection was down from the 664m tonnes it forecast last month and sharply lower than the 677m tonnes harvested in the 2009-10 season. The IGC said consumption would hover around 655m tonnes in 2010-11.

Industry executives fear that Russia could impose export limits if the drought damage is worse than currently expected, tightening supplies for importers in North Africa and the Middle East. Executives said bread price rises were likely.

Traders are also concerned about supplies from Canada, which exports the bulk of the world’s top quality, high-protein wheat. Planting in Canada’s prairies was delayed this year by unusually heavy rains and officials said output was expected to decline by at least 25 per compared with 2009.

Meanwhile, oil prices moved lower, but remained anchored within the trading range of $70-$80 a barrel that has been in place for most of the year. Nymex September West Texas Intermediate dropped 54 cents to $77.82 a barrel while ICE September Brent fell 48 cents to $77.11 a barrel.