Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Murky outlook for consumer outweighs corporate strength
By Telis Demos in London
Copyright The Financial Times Limited 2010
Published: August 4 2010 09:13 | Last updated: August 4 2010 14:02
http://www.ft.com/cms/s/0/ac0fc754-9f93-11df-927b-00144feabdc0.html


Wednesday 14.40 BST. Strong corporate earnings could not stop risk markets from adding to a further sell-off from market highs, as the outlook for consumer-led growth around the world becomes increasingly murky.

The risk appetite picture is mixed. The FTSE All-World stock index is slightly lower. European and Asian shares are lower, but Wall Street has opened higher. Oil and US Treasury yields are now rising following stronger than expected US employment figures.

Earlier, a run in the yen brought the Japanese currency nearer to its 15-year high below Y85 to the dollar. Uncertainty about the US economy has driven investors seeking havens from risk away from the dollar – normally in demand in such markets – and into the arms of the yen. The yield on Japanese 10-year bonds dropped to a fresh post-crisis low, at just 1 per cent.

But a silver lining in the labour market has eased risk revulsion. Data foreshadowing Friday’s non-farm payroll report in the US looked good. ADP reported 42,000 jobs created in the private sector in July, above expectations of 40,000. Markets have responded by pushing US stock futures higher, pointing to an opening in positive territory.

Meanwhile, the corporate picture continued to look brighter. Toyota, Japan’s biggest company, added its name to the list of carmakers that have topped forecasts and raised their projections for second-half profits. And a series of European banks, led bly Lloyds Banking Group, also lowered their provisions for losses on bad loans.

The Market Eye

It is nothing new for traders to be focused on spending and services activity. The worst day of an otherwise terrific July for markets was when the US consumer confidence survey was sharply disappointing. The S&P 500 index dropped nearly 3 per cent on the news. No less an authority than Ben Bernanke, US Fed chairman, has said “rising demand from households” will be key to maintain the recovery.

The weak US consumption data on Tuesday is not an indication of Fed thinking, as it was backward-looking to June. But markets are clearly not so discriminating. Take auto sales. Despite Toyota’s report, and rising sales across all automakers in July, traders are focused on JD Power’s seasonally adjusted sales rate for July – which is below expectations. That number is “carrying the day for the ‘consumer bears’,” say analysts at Credit Sights. The global sector is down 1 per cent on the day, after defying the broader dip in shares on Tuesday.

Yet sentiment is likely to remain restrained, as a slew of negative economic data has given credence to a belief that the US could ease monetary policy to support its recovery, even if it does not change policy at its meeting on August 10. Such a move could drive bonds higher and the dollar lower.

“A consistent pattern is starting to emerge of continued caution among investors about the outlook for financial markets,” said Simon Derrick, chief currency strategist at BNY Mellon. He added that, based on the relative outperformance of the euro despite a decline in risk appetite, “what is also clear is that the focus of concerns has moved very clearly from the eurozone towards the US”.

The chief worry is about the consumer, and whether there will be enough demand to support a global recovery once industries’ inventory restocking subsides. On Tuesday, US June home purchases fell to a record low as the savings rate ticked upwards, leading Wall Street’s S&P 500 index to dip 0.5 per cent.

Today, Australia’s service sector activity was said to have dipped in July, and the eurozone’s Markit services purchasing managers index and retail sales figures came in below forecasts. China also said its inventory restocking cycle was easing, putting the onus on consumers to pick up as business demand slackens.

☼ Factors to watch. The US’s own services index, the ISM non-manufacturing index, is due later in the day. But the big report is still the non-farm payroll. Reuters today polled a group of the most accurate forecasters. They expected the headline figure, which includes government jobs to be below expectations, at a loss of 70,000 jobs, versus 65,000 in the broader forecast.

The Bank of England’s monetary policy committee announces its decision on interest rates on Thursday. Few bank-watchers actually expect a rate rise – though you wouldn’t know that from the way the pound has been surging of late, nearing $1.60. ☼

• Europe. Banks are down across Europe, in spite of strong earnings reports. Another clutch of European banks reported earnings that topped estimates, including Lloyds Banking Group, Société Générale and Standard Chartered. Profitability was driven by lower provisions for bad loans, as it was for HSBC and BNP Paribas earlier in the week.

Without their support, the FTSE Eurofirst 300 is down 0.1 per cent. The leading decliners are retail shares, thanks to weakening measures of consumer demand. The UK’s FTSE 100 index is down 0.3 per cent after the UK’s services PMI missed expectations. Germany’s Dax index is up 0.3 per cent, as the country’s own service sector was found to be expanding at its fastest rate in three years.

• Asia. The Nikkei led decliners in the region, down 2.1 per cent. The yen’s push brought further fears for Japanese companies, whose exports would become more expensive if the yen were to remain at such elevated levels..

After its central bank declined to raise rates, Jakarta’s IDX composite index was up 0.3 per cent, as were other Asian emerging markets. Hong Kong’s Hang Seng was up 0.7 per cent, and Shanghai was up 0.1 per cent. China said growth would slow in the current quarter, which would also moderate inflation pressures – the key worry for Asian property and manufacturing sectors.

Mumbai’s Sensex was up 0.6 per cent, as the government looks more likely to tackle inflation. Street protests at high prices have put pressure on the finance ministry to reverse course and support rate increases planned by the central bank.

• Currencies. Investors were easing their flight from risk in the afternoon.

The yen is now up 0.1 per cent against the US dollar at Y85.74, down from its peak at Y85.29 earlier. Gains peaked in the Asian session after Japan’s finance minister said he was “watching closely”, sparking fears that Japan could intervene to counterbalance the yen’s rise, and more so after the ADP figures. The yen is also now up just 0.2 per cent against the South African rand, and flat against the New Zealand dollar.

The dollar is also showing a bit of strength elsewhere. The euro and the pound are slightly weaker versus the dollar after hitting fresh multi-month highs during Tuesday’s session. The euro is down 0.2 per cent at $1.3210, and the pound is 0.1 per cent weaker at $1.5938.

• Bonds. “Haven” debt was seeing strength earlier, but has eased. Japanese 10-year yields fell to their lowest since 2002, dropping 4 basis points to 1.00 per cent. On Monday, US 2-year bond yields reached all-time lows.

But US Treasury benchmark 10-year bonds are flat at to 2.92 per cent. German Bund yields are rising, now down just 1 basis point, to 2.60 per cent. The US said it will auction off $74bn of 3, 10 and 30-year bonds, raising supply concerns that put downward pressure on bond demand.

US corporate bonds are at record levels of demand. Jim Reid, strategist at Deutsche Bank, said in a report that of the 10 lowest-coupon US-dollar corporate bonds ever issued, all have occurred in the past 14 months, as investors make a striking shift from equities into fixed income.

• Commodities. Gold is higher as risk aversion grows and the dollar weakens, up 1.4 per cent to $1,202 an ounce, regaining the 1,200 level for the first time in two weeks. It has rallied, alongside bonds and the yen, after seeing three-month lows in July.

US WTI crude oil is up by a few cents at $82.59 a barrel. It rallied sharply when risk assets were accumulated at the beginning of March, reaching three-month highs, also supported by storm warnings for the Gulf of Mexico.

Follow the Global Market Overview on Twitter at @telisdemos





ADP says US companies add 42,000 jobs
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: August 4 2010 13:57 | Last updated: August 4 2010 13:57
http://www.ft.com/cms/s/0/bc072404-9fc0-11df-927b-00144feabdc0.html


US companies added a better-than-expected 42,000 workers in July, as small businesses started to pick up some of the hiring slack.

July hiring picked up from the previous month, when the private sector added a modest 19,000 workers, according to ADP Employer Services. Analysts expected the closely watched survey to show that businesses added 30,000 employees last month.

The US private sector has added jobs in each of the last six months, but the increases have been tepid, as wary businesses have been hesitant to ramp up hiring. ADP said that with monthly hiring averaging 37,000 jobs in the last half-year there was “no evidence of acceleration” in private sector employment.

Small businesses were the biggest bright note last month, adding 21,000 jobs. Businesses with fewer than 50 employees have struggled to compete with bigger companies that have greater access to credit, but July was their best month for hiring in two years.

Medium-sized businesses matched that success, also hiring 21,000 new workers, while hiring at big companies with more than 500 employees was flat.

Joshua Shapiro, chief US economist at MFR, said the ADP data was indicative of “a painfully slow healing process in the labour market”.

The US services sector continued to lead job creation in July, adding 63,000 employees. Businesses that produce goods, however, shed 21,000 employees and the manufacturing sector cut 6,000 workers.

Firings at factories could cast more doubt over manufacturing, which was leading the recovery earlier in the year. On Monday, the Institute of Supply Management said that US manufacturing activity slowed in July, falling to its lowest level since last December.

ADP’s survey is closely watched for its ability to foreshadow the government’s official non-farm payroll report, which will be released on Friday.

Those figures are expected to show that the US economy lost 63,000 jobs in July with the unemployment rate ticking up to 9.6 per cent. However, private sector employment is projected to rise by 90,000.





Deep-water drilling ban might end early
By Anna Fifield in Washington and Sheila McNulty in Houston
Copyright The Financial Times Limited 2010
Published: August 4 2010 00:19 | Last updated: August 4 2010 00:19
http://www.ft.com/cms/s/0/27423302-9f54-11df-8732-00144feabdc0.html


The Obama administration’s moratorium on deep-water drilling in the Gulf of Mexico could be lifted earlier than its November 30 expiry date if oil companies show they have improved their spill containment and response plans, the drilling watchdog said on Tuesday.

The US Bureau of Ocean Energy Management – previously the Minerals Management Service – will on Wednesday start holding public forums on the deep-water drilling moratorium, opening in New Orleans and continuing in California, Alaska, Mississippi and Texas over the next six weeks.

The forums would focus on drilling and workplace safety, spill containment and spill response, in an effort to develop a “level of comfort” that would allow the interior department to lift the moratorium, said Michael Bromwich, director of the bureau.

Thefour oil majors will on Wednesday present a proposed spill containment plan – Mr Bromwich called it “enormously expensive” at $1bn (€755m, £627m) – which would see containment units kept on the sea floor, ready for immediate deployment in case of a spill.

The plan was a sign of how seriously oil groups were now taking safety, he said.

Academics and environmentalists will also give their opinions on the ban, imposed after the catastrophic BP oil spill, which has blocked drilling at 33 exploratory wells in the gulf and stopped any new deep-water projects being approved.

It is in place until November 30 but Mr Bromwich said the facts might allow it to be lifted “in a principled way some time earlier than that”.

In passing the Clear Act drilling safety law last week, lawmakers in the House of Representatives suggested the moratorium could be lifted on a case-by-case basis, rather than all drillers having to wait for everyone to get the green light.

However, Mr Bromwich said that such an approach would be too arbitrary – relying on the inherently subjective judgment of each inspector – and that he preferred the moratorium to be lifted according to categories of wells and equipment.

“I feel much more comfortable in creating broad-based principles and broad categories by which we can say we feel comfortable with allowing this category of rig to drill even in deep water,” Mr Bromwich said.

This came as BP began its “static kill” of the leaking Macondo well to seal it permanently, pumping heavy drilling “mud” slowly down from the top of the well, pushing the oil back into the reservoir and then sealing it with cement.

Admiral Thad Allen, national incident commander, said, however, that the well would also need to be killed from the bottom, with a relief well pumping cement in later this month, before BP could permanently abandon it.

“The relief wells are the answer,’’ he said. “This thing won’t truly be sealed until the relief wells are done.”

Separately, Harry Reid, the Democratic leader in the Senate, on Tuesday scrapped plans to bring a “drill and spill bill” to the floor this week.

In the face of almost-certain defeat, Mr Reid delayed discussion of the bill, which would combine promotion of clean energy with new oil spill laws until at least September, after this month’s recess.











Intel agrees anti-trust settlement with US
By Richard Waters in San Francisco
Copyright The Financial Times Limited 2010
Published: August 4 2010 01:03 | Last updated: August 4 2010 01:03
http://www.ft.com/cms/s/2/53878274-9f53-11df-8732-00144feabdc0.html


Intel on Tuesday agreed a settlement with US regulators that would bring the curtain down on a decade-long series of anti-trust investigations around the world.

Details of the agreement between the world’s largest chipmaker and the Federal Trade Commission will be unveiled in Washington on Wednesday morning, both side said.

Speaking before a deal was concluded, one person familiar with the process said it would involve Intel agreeing to change some of its business practices, though the FTC does not have the power to levy fines in competition cases.

The US regulators accused Intel of using “threats and rewards” to discourage PC makers from buying chips from smaller rival Advanced Micro Devices, for instance by paying them for exclusive deals to buy only Intel chips. Intel has denied the charges.

The settlement will be put out for public comment before it is finalised, an Intel spokesman said. He refused to comment on terms of the deal.

A resolution of the US investigation has appeared increasingly likely in recent weeks. In late June the FTC set a one-month deadline for the conclusion of settlement talks. The deadline was extended, to midnight this Thursday, to allow final details to be agreed.

Intel has already been hit with penalties by anti-trust authorities in Europe, Japan and South Korea, including a record €1.06bn (then $1.44bn) fine imposed by Brussels. Last year it paid AMD $1.25bn to end a civil complaint.





Motorola and Verizon team up for TV tablet
By Kenneth Li and Paul Taylor in New York
Copyright The Financial Times Limited 2010
Published: August 3 2010 20:31 | Last updated: August 3 2010 20:31
http://www.ft.com/cms/s/2/9b5704d8-9f32-11df-8732-00144feabdc0.html


Motorola is developing a digital tablet device that will allow users to watch television on it, as the US mobile phone group attempts to chip away at a market established by Apple’s popular iPad.

The device, which will have a 10-inch screen and operate on Google’s Android software, could launch as early as this autumn in the US.

It was expected to tie closely to Verizon’s FiOS digital pay-television service, people briefed on the plans said. Motorola also manufactures the TV set-top boxes for the FiOS television service.

The tablet market is seen as the next battle ground in the mobile devices war that has pit myriad device makers and Microsoft, Google and Research in Motion against Apple.

The iPad has become a hit for Apple, lifting the company from number seven to number three in the worldwide market for notebooks and other portable computers, according to Deutsche Bank.

The Motorola tablet’s integration with TV is a key competitive advantage against rival developers.

But the company that invented the cell phone has made no secret of its exploration of a market resurrected by the iPad.

By working with Verizon Wireless, which owns a 25 per cent share of the US television market where it operates and a 29 per cent share of broadband customers, Motorola will not be seen as upsetting the lucrative business of pay TV.

Sanjay Jha, chief executive of of the Illinois-based company’s mobile devices business, said in May Motorola was exploring tablet options using Google’s Android smartphone software.

“We’re very focused on participating in this convergence between mobility and home, and I actually think you will see some products from us in a very short period of time,” he said, without providing details.

Months ahead of the iPad’s launch this year, Apple failed to convince TV programmers to either lower the price of TV show sales or sell a package of the top shows that was seen undercutting traditional TV pay models.

In spite of Apple’s robust sales of tablets and phones, devices running Google’s Android operating system secured a 27 per cent market share in the US in the first six months of the year, ahead of iPhone’s 23 per cent share, according to audience tracking group Nielsen.

Like a flood of tablets set to hit the market, Motorola’s device aims to address other perceived weaknesses of the iPad.

It will support Adobe Flash, the software that underpins some 90 per cent of web videos. Apple has backed an alternative standard, HTML 5, on its iPhone and iPad devices.

Motorola’s device is expected to be thinner and lighter than the iPad and to let users share its wireless data connection with nearby devices.

It will be built with two cameras, one for taking photos and the other facing the user for video conferencing.

Motorola, Google and Verizon declined to comment.







Toyota lifts 2010 profit forecast to $4bn
By Jonathan Soble in Tokyo
Copyright The Financial Times Limited 2010
Published: August 4 2010 08:43 | Last updated: August 4 2010 08:43
http://www.ft.com/cms/s/0/776bb52a-9f80-11df-8732-00144feabdc0.html


Toyota raised its full-year net profit forecast by nearly 10 per cent on Wednesday after it reported strong earnings for the first quarter, extending the Japanese carmaker’s recovery in spite of recent quality-related problems.

The world’s largest automobile producer continued to benefit from aggressive cost cuts, a more robust world economy and government subsidies on fuel-efficient vehicles.

Those factors helped Toyota return to profit in the second half of last year after an unprecedented loss in the fiscal year to March 2009, and have more than compensated for the drag on sales in some markets caused by its recall of close to 10m vehicles worldwide.

Toyota’s announcement on Wednesday confirmed the widely held view by analysts that its original forecast in May was overly conservative.

It now expects net profit of Y340bn ($4bn) in the financial year to March 2011, compared with its previous forecast of Y310bn. It said full-year operating profits would be Y330bn, compared with its previous forecast of Y280bn.

The carmaker earned Y190.5bn in net profit in the three months to June 30, a sharp turnround from its Y77.8bn net loss last year before its recovery took hold.

The carmaker has announced a series of measures to try to regain its credibility in the wake of the recalls, which have stemmed mostly from sticky accelerator pedals, out-of-position floormats and a defect in software controlling the braking system of the Prius hybrid hatchback.

Toyota has come in for harsh criticism, especially in the US, and faces class-action lawsuits in North America.

The company kept its dollar assumption at Y90 but warned about the lack of visibility because of currency movements. The yen hit an 18-month high against the dollar on Wednesday at Y85.32.






Saudis join UAE in BlackBerry curbs
By Robin Wigglesworth and Andrew England in Abu Dhabi and Paul Taylor in New York
Copyright The Financial Times Limited 2010
Published: August 3 2010 19:06 | Last updated: August 4 2010 00:53
http://www.ft.com/cms/s/0/be04d61e-9f27-11df-8732-00144feabdc0.html


Saudi Arabia has ordered its main mobile network operators to block unspecified BlackBerry services from Friday. The move has escalated a dispute between Research in Motion, the Canadian manufacturer of BlackBerry devices, and governments such as the United Arab Emirates, which has threatened to ban BlackBerrys because of security concerns.

The communications and information technology com mission said it had asked “Saudi Telecom Co, Mobily and Zain Saudi Arabia to (immediately) stop the BlackBerry service for businesses and individuals in the kingdom starting August 6”.

The commission said the ban would last until the kingdom’s three mobile phone operators “fulfil the regulatory requirements it has requested”. The CITC said it informed the three mobile telecommunications providers more than a year ago of the need to ensure that BlackBerry devices used in the kingdom met “regulatory requirements”.

While the commission did not identify which BlackBerry services it wants blocked, it is believed the Saudi authorities, like those in the UAE, are most concerned at the possible use of encrypted e-mail and messaging services by terrorists.

Saudi Arabia is the largest market in the region for RIM and a ban would result in about 700,000 BlackBerry users losing access to at least some of their BlackBerry services.

The UAE’s threat to block BlackBerry services has left business in the Gulf’s commercial hub struggling to come to terms with its effect on their operations. Etisalat and Du, the UAE’s two state-controlled telecoms operators, have sought to reassure subscribers by sending text messages to their BlackBerry users and taking out full-page advertisements in newspapers, pledging to come up with substitutes for the smartphone, such as free iPhone, Nokia or Samsung devices.

Some question whether that would be an adequate solution if the UAE ban were enforced on October 11. Aside from users’ familiarity, BlackBerrys are deeply embedded in the IT infrastructure of many companies.

“Our executives are highly dependent on mobile communications to manage our operations across the region,” said the head of a regional private equity firm. “To suggest we revert to life without the BlackBerry is akin to asking us to drop e-mails altogether, in favour of postal communications.”

The UAE says BlackBerry has been operating outside its legal framework, an issue that has not been resolved despite three years of negotiations with RIM.