Today's Financial News Courtesy of The Financial Times

Today's Financial News Courtesy of The Financial Times


Markets await outcome of Fed meeting
By Telis Demos in London
Copyright The Financial Times Limited 2010
Published: August 9 2010 08:55 | Last updated: August 9 2010 12:10
http://www.ft.com/cms/s/0/e5d15262-a387-11df-a100-00144feabdc0.html


Monday 12.00 BST. Traders are bullish ahead of the US Federal Reserve’s meeting on Tuesday, which is anticipated to introduce some easing measures following last week’s report that the US shed more jobs than expected.

Signs abound of optimism about the pick-up in growth that could follow from looser US monetary conditions, though their rise is easing as traders weigh the serious concerns that easing would signal.

The broad FTSE Eurofirst 300 index is up 1.3 per cent as commodities prices rise, adding to slight gains in Asian markets and a late rise in US shares on Friday. The yen is lower as traders sell “safe haven” currencies, though it is rising, and the euro and pound are weaker.

“Easing is seen as a positive, a way for the Fed to acknowledge it has seen slowing and take quick action,” said James Hughes, market analyst at CMC Markets in London. “But it can also prompt a pessimistic outlook because it acknowledges conditions are getting worse. Markets will swing about until we see some decisive action.”

The futures market is pricing in a 0.4 per cent higher level for the US’s S&P 500 index, after the index had narrowed its losses going into the close on Friday.

US Treasuries are flat, however, as traders contemplate what measures the Fed’s Open Market Committee is likely to take following a downbeat turn in US economic indicators and dovish comments from officials of late, including chairman Ben Bernanke.

“It’s a close call, but we expect an announcement that the proceeds from maturing or prepaid [mortgage-backed securities] will be reinvested in the bond market, most likely Treasuries,” said Jan Hatzius, chief economist at Goldman Sachs. “However, it is also very possible that the committee will require more time for a shift.”

The Market Eye

Is the sovereign default crisis over? The risk hasn’t gone away, certainly, but markets seem to be thinking of other things at the moment, preferring the longer-term worry of default to the short-term risk of growth sputtering out. In spite of global growth fears, “peripheral” European sovereign credits are on the march – though credit default swap prices still remain highly elevated. The Spanish 10-year fell near 4 per cent yield last week, and the Portuguese bond fell below 5 per cent. Greek 2-years are also below 10 per cent. Stock markets are also rallying on the possibility the US could add to its debt burden with further stimulus and Fed buying of bonds, ignoring the longer-term risks. Bond investors still can’t get enough US Treasuries, even with another auction looming this week. Japanese government bonds are also near-record low yields, despite Tokyo’s own massive debt and recent warning that it may see the need for stimulus.

Mr Hatzius also suggested the market’s reaction itself in the near-term could be a guide to the Fed’s course. If markets continue to rebound in anticipation of a shift, the Fed could be forced to deliver something so as not to risk the recovery of financial conditions and “hasten the transition to further easing steps”.

Stocks and other risk assets such as oil had fallen on Friday after the US said the economy lost more jobs than expected, with the private sector contributing less hiring than hoped. Speculators are now heavily betting against the dollar – moreso than at any point during the financial crisis – as they expect further weakening, and policy easing, in the US.

A very strong earnings season for companies globally, which has helped shares recover from their 2010 lows in June, has not brought with it signs of accelerating economic growth. Goldman Sachs over the weekend downgraded its forecast for the US economy in 2011, estimating growth at only 1.5 per cent from now until the second quarter of next year – though that did not change its forecast for the rest of 2010.

The slump in US confidence has had spill-over affects on other parts of the globe as well, and traders will be closely watching central bank action this week, including a meeting of the Bank of Japan and a key report from the Bank of England.

In Japan, shares have been hit – including a further drop earlier today – by a climbing yen that is the result of investors selling the dollar. The rising yen has hit exporting companies, the core of the Japanese economy. Tomorrow’s rate meeting for the BoJ will, like the Fed’s, be closely watched. Similarly, no formal measures are expected, though it is likely the language of the bank will reflect heightened anxiety, according to economists.

• Asia. Shares in the region were up 0.1 per cent, paring earlier losses as investors muted their initial reaction to the US jobs report. The Nikkei 225 average was down 0.7 per cent after the widely read Goldman Sachs report also downgraded its outlook on Japan’s growth, citing the rising yen and expiring government stimulus programmes.

Shares in China were higher, however, with the mainland Shanghai Composite index up 0.6 per cent, and Hong Kong’s Hang Seng index up 0.5 per cent. Key economic figures released this week are expected to show slowing in the economy, which in China is a bit of a relief as that may reduce pressure on prices and help to deflate potential bubbles in property and local bank lending.

• Europe. A surprisingly strong showing for German exports in June, growing 3.8 per cent in the quarter, helped to spark a strong opening led by energy and industrial groups. The FTSE 100 index in the UK is up 1.4 per cent, and Germany’s Dax index is up 1.3 per cent. France’s CAC 40 index is 1.6 per cent higher, in spite of the Bank of France forecasting a dip in GDP growth in the third quarter, from 0.4 per cent to 0.3 per cent.

As earnings season winds down, with more than two-thirds of companies having already reported, investors will be closely tracking economic news. The BoE will put out its inflation report on Wednesday, which will give colour on its decision to hold rates steady last week. On Friday, full eurozone quarterly GDP data will also be released.

• Debt. Trading is light ahead of the central banks’ announcements. US Treasury 10-year yields are flat after falling to new 2010 lows on Friday, to 2.81 per cent. The two-year US bond yield remained at record low levels, at 0.51 per cent, adding 1 basis point, and 30-year US bonds were up 3 basis points as the curve steepened.

The move last week, in which 5- and 10-year bonds were the most heavily bought, suggested a growing expectation of Fed easing. Those are the bonds most likely to be purchased by the Fed to add cash to the economy.

Japanese 10-year bond yields were down 4 basis points to 1.03 per cent, nearing their post-crisis low point of 1 per cent. The Japanese central bank is increasingly expected to initiate some kind of easing of its own following Yoshihiko Noda, finance mininster, saying that the government was giving “utmost attention” to the yen’s moves.

• Currencies. Indicators of global risk appetite began to turn lower. The New Zealand dollar is down 0.3 and the South African rand is down 0.5 per cent against the yen. The Canadian dollar, tied to commodity prices, is lower by 0.2 per cent against the US dollar.

The pound is also softer, down 0.1 per cent against the dollar at $1.5963. The euro is down 0.2 per cent at $1.3262. The pair’s recent rise to four-month highs against the greenback has cooled following still dovish remarks from the European Central Bank and a continued pause by the BoE.

The yen was shedding its losses against the US dollar, down just 0.2 per cent to Y85.56. The yen is near post-crisis highs, and a 15-year peak for the yen looms below Y85 against the dollar. It nearly touched that level last week after the jobs report, but has held so far as investors fear sparking a backlash by Japanese authorities.

• Commodities. Benchmark crude oil is up 1.1 per cent to $81.59 a barrel. The turnround in risky assets of late has not much affected oil, which has remained at three-month highs near $81. As hurricane season looms in the US Gulf of Mexico, potentially interrupting supply, prices will have a difficult time moving much further down.

The effects of a Russian drought, fires and subsequent ban on wheat exports is spilling over into other commodity markets such as barley, and potentially even meat and other grains. Though the surge in prices in the soft market has had little impact on energy and industrial commodities, a sustained rise could raise fears of inflation in food prices. Wheat is down 3 per cent on the day, potentially accommodative of risk-taking.

Gold is gaining as investors anticipate a flood of paper money following easing measures from central banks around the world. It is up 0.3 per to $1,203 an ounce.






Fed set to downgrade outlook for US
By James Politi in Washington
Copyright The Financial Times Limited 2010
Published: August 8 2010 19:15 | Last updated: August 8 2010 19:15
http://www.ft.com/cms/s/0/dedcb986-a316-11df-8cf4-00144feabdc0.html


The Federal Reserve is set to downgrade its assessment of US economic prospects when it meets on Tuesday to discuss ways to reboot the flagging recovery.

Faced with weak economic data and rising fears of a double-dip recession, the Federal Open Market Committee is likely to ensure its policy is not constraining growth and to use its statement to signal greater concern about the economy. It is, however, unlikely to agree big new steps to boost growth.

Smaller measures to help the economy could initially take the form of a decision to reinvest proceeds from maturing mortgage-backed securities held by the US central bank, thereby preventing the Fed’s balance sheet from shrinking naturally.

Investors will also examine closely any changes to the pledge made by the FOMC in June to “employ its policy tools as necessary to promote economic recovery and price stability”, which could be hardened if policymakers choose to signal the potential for more aggressive move to boost the economy in the future.

But even if that happens, most economists believe that it would take several more months of poor data for the Fed to actually begin a new round of asset purchases on the scale of those carried out during the recession.

In congressional testimony last month, Ben Bernanke noted “unusual uncertainty” in the economic outlook and in a speech last week the Fed chairman warned of a “considerable way to go” before the US achieves a full recovery.

Although Fed policymakers still believe the basic trajectory of the economy remains one of moderate expansion, there may be more attention given to heightened dangers of a sharp slowdown. “The FOMC will have to tone down its assessment of the economy in view of recent weak indicators on real growth, real consumption spending and employment,” said Brian Bethune and Nigel Gault, economists at Global Insight.

The latest poor reading came in Friday’s monthly employment report, which showed the US private sector creating only 71,000 jobs in July – not enough to keep up with population growth, let alone bring down the unemployment rate. That followed news a week earlier that growth in US gross domestic product slowed from an annualised rate of 3.7 per cent in the first quarter to 2.4 per cent in the second quarter.

“Given how low inflation already is, and given the potential for the recovery to falter, we expect Fed officials will highlight downside risks and signal a bias to ease in the FOMC statement,” said Jim O’Sullivan, chief economist at MF Global.

There is little, if any, doubt that the FOMC will maintain interest rates at their current low target range of 0-0.25 per cent.









Wheat surge gives way to bout of profit taking
By Javier Blas in London and Isabel Gorst in Nizhny Novgorod
Copyright The Financial Times Limited 2010
Published: August 9 2010 11:24 | Last updated: August 9 2010 11:24
http://www.ft.com/cms/s/0/902b23a0-a39c-11df-a100-00144feabdc0.html


Wheat prices fell on Monday on profit taking after the cereal surged to a two-year high last week on the back of Russia’s ban on grain exports. The country’s crop has been devastated by the worst drought in more than a century.

In spite of Friday and Monday’s losses, wheat prices are still up 50 per cent since mid-June. Farmers’ marketing advisers, such as the Canadian Wheat board, have told wheat farmers to sell on the rally, putting a break of rising global cereal prices.

In Chicago, CBOT September wheat fell 2.8 per cent to $7.05 a bushel. In Paris, Liffe November European milling wheat fell 0.7 per cent to €208.0 a tonne.

But barley prices rose in early trading. Traders quoted European feeding barley at €225 a tonne, above current wheat prices, up 7.1 per cent from last week’s quotes. Stronger barley prices are likely to push meat and poultry prices higher.

The export ban, meanwhile, is creating a logistical bottleneck in Russia. The US agricultural attaché in Moscow said at the weekend that between 2m and 2.5m tonnes of contracts already signed were affected by the ban. Russian grain associations said on Monday that ports in the country were struggling to handle a surge in grain supplies as farmers and traders raced to ship supplies out of the country before an export ban came into force on August 15.

Russia’s Grain Union said long lines of trucks bearing grain were waiting outside the Black Sea port of Novorossiysk. Grain terminals at Tuapse, another Black Sea port, were also under pressure to load tankers as trucks and railcars brought growing volumes of grain to the coast, the Moscow based lobby group said.

Vladimir Putin decided to curb grain exports last week as reports about Russia’s failing harvest drove a surge in global wheat and food prices. The temporary ban on foreign grain sales will come into force on August 15 and run until the end of the year, the Russian prime minister said.

Although not yet in force, the ban is creating a logistical headache for Russian ports and transport systems. Three grain terminals at Novorossiysk are capable of loading up to 30,000 tonnes of grain a day, too little to handle the growing demand from exporters. Storage facilities at the port are limited, traders said.

The grains market is likely to trade sideways until Thursday, when the US Department of Agriculture will release its closely watched monthly report, updating its view on global supplies for wheat, corn and soyabeans, among others.

On other commodities markets on Monday, base metals prices rallied amid low supplies for tin and copper ore. On the London Metal Exchange, tin for delivery in three months hit a fresh two-year high of $21,350 a tonne, up 3.2 per cent.

Copper rose 1.3 per cent to $7,475 a tonne and aluminium moved up 0.8 per cent to $2,217 a tonne. Other base metals also moved higher.

Oil prices also rose. Nymex September West Texas Intermediate rose 92 cents to $81.62 a barrel, while ICE Spetmber Brent rose 97 cents to $81.13 a barrel.







US to pay big sums for Wall St tip-offs
By Jean Eaglesham and Brooke Masters in New York
Copyright The Financial Times Limited 2010
Published: August 8 2010 22:30 | Last updated: August 8 2010 22:30
http://www.ft.com/cms/s/0/efa8a32a-a31a-11df-8cf4-00144feabdc0.html


New US whistleblowing incentives within the Dodd-Frank financial reform act – that could net informants multimillion dollar pay-outs – are likely to generate a surge in allegations against US-listed companies and Wall Street banks, lawyers say.

The Securities and Exchange Commission is expecting a sharp increase in tip-offs from senior employees and third parties prompted by potential seven-figure bounties.

“The scale of the awards reflects the high quality of whistleblower we hope to get – people within a company, broker or other regulated firm that we might not have heard from before,” Stephen Cohen, an SEC official, told the Financial Times. “We’re expecting a tremendous response.”

The substantive new financial incentives for securities fraud whistleblowers are part of the sweeping Wall Street reforms that became law last month.

People who provide original information that leads to a successful SEC enforcement action will now be entitled to 10 per cent to 30 per cent of any sanction imposed over $1m – including a share of the proceeds from any related regulatory action or shareholders’ lawsuit.

“We’ve seen recent settlements of SEC actions of up to $800m . . . this is a tremendous incentive for people to blow the whistle and for entrepreneurial law firms to represent them,” said John Coffee, a law professor at Columbia University.

Similar whistleblowing payments for actions for fraud against the government, under the false claims act, have spawned a multibillion dollar industry of law firms specialising in healthcare claims.

“We’re predicting that there are going to be more cases, based on the experience under the false claims act,” said Tim Coleman, a partner at Freshfields Bruckhaus Deringer, the law firm.

However, financial industry bodies and lawyers representing companies warned that the scale of the potential pay-outs could generate rogue tip-offs by disaffected employees, wasting resources for both the employer and regulator.

“Our only concern is if this were to encourage malicious whistleblowing – people making stuff up to cause trouble,” said the Association for Financial Markets in Europe.

“The company will end up being cleared, but investigations still take up a great deal of time and resources. This [provision] will need careful monitoring.”

The SEC insisted it could cope with the expected influx of new allegations.

“We already have systems in place, which we’re improving, for dealing with thousands of tips every year,” Mr Cohen said. “If this canhelp us to bring cases more efficiently and quickly, it will make us a more effective regulator.”






US companies act on pay clawback rules
By Helen Thomas in New York
Copyright The Financial Times Limited 2010
Published: August 8 2010 21:30 | Last updated: August 8 2010 21:30
http://www.ft.com/cms/s/0/5ef44782-a30e-11df-8cf4-00144feabdc0.html


Big US companies are putting in place measures to claw back executive pay and adapting their board structure ahead of new corporate governance rules that will come into force as part of financial reform legislation.

Of the 100 largest public companies, a record 71 now operate a clawback policy through which they can reclaim senior management’s compensation under certain circumstances, an annual survey by Shearman & Sterling, a law firm, has found.

That has jumped from 56 companies which had such a policy last year, and has more than doubled since 2007.

The Dodd-Frank financial reform act, signed into law by President Obama last month, requires all public companies to implement a mandatory clawback system where there is an accounting restatement, whether or not fraud or misconduct is a factor.

But Linda Rappaport, head of the executive compensation and benefits practice at Shearman & Sterling, argued that companies would have to reconsider their clawback policies in light of the new rules. Four-fifths of policies in the survey are executed at the board’s discretion, while some cover more employees than required by the act.

“The reform act provision is going to set a baseline,” Ms Rappaport said. “Whether boards choose to keep in place broader clawbacks will be an interesting policy question.”

With the Securities and Exchange Commission poised to introduce rules aimed at making it easier for shareholders to nominate directors, US companies are bracing themselves for greater federal oversight of corporate governance, as the US shifts from its traditional director-centric model towards greater engagement of shareholders in decision-making.

Pressure from activist shareholders and proxy advisory firms has already prompted substantial changes in US boardrooms in recent years.

Only six of the top 100 companies now have a “poison pill” takeover defence mechanism in place, down from a third six years ago, while about a fifth have a staggered board – containing different classes of directors – down from a half.

At 59 of the companies, the chief executive is now the only director not deemed to be independent, up from 49 last year.

However, the continued tendency of US companies to combine the roles of chairman and chief executive could come under fire.










German exports surge points to rebound
By Daniel Schäfer in Berlin
Copyright The Financial Times Limited 2010
Published: August 9 2010 11:14 | Last updated: August 9 2010 11:14
http://www.ft.com/cms/s/0/bbbbf6f6-a398-11df-a100-00144feabdc0.html


German exports rose in June to the highest level since the collapse of the investment bank Lehman Brothers sent the global economy into a tailspin two years ago, in the latest sign of the rebound in Europe’s largest economy.

Seasonally adjusted exports rose by 3.8 per cent on the month to €86.5bn in June, data from the German federal statistics office showed.

While this marked a considerable slowdown to the revised 7.9 per cent growth in May, the absolute export value stood at its highest since October 2008, just after the insolvency of Lehman Brothers.

The import value of €72.4bn grew by 1.9 per cent month-on-month, a new record in absolute figures.

“The import value for June 2010 was the highest ever reported since the beginning of compiling foreign trade statistics for the Federal Republic of Germany in 1950,” the federal statistics office said.

The data underscored the strength of Germany’s recovery from the deepest recession since the second world war. It added to anecdotal evidence from the country’s key sectors, such as chemicals, cars and engineering goods, where executives have been reporting overflowing order books in recent weeks, thanks to buoyant demand from Asia and a weak euro exchange rate.

Analysts are forecasting that Germany’s gross domestic product could have risen by as much as 2 per cent in the second quarter, which would be the highest growth since the country’s reunification in 1990.

The German chamber of industry and commerce (DIHK) added to the rosy picture on Monday when it forecast that exports would jump by 11 per cent this year and almost reach record 2008 levels of €984bn next year.

“Within three years, the crisis in exports will have been overcome,” the DIHK said, adding that the rise in German exports would beat the growth in global trade.

However, the DIHK warned that persistent risks, such as European austerity measures and a slowdown in Chinese growth, could still derail the rapid upswing.

“It is necessary to keep an eye on the development of the US economy, the dynamic growth in China, the savings measures in the eurozone and the scarcity of commodity offer,” said the DIHK.

This added to warnings by analysts and executives who say the second half of the year would see a slowdown in growth and that it could take several years until production comes back to levels achieved before the crisis.

“We will see a slowdown in the second half of this year, as some of Germany’s important export countries, such as the US, have problems,” said Bernd Weidensteiner at Commerzbank.

Germany’s seasonally-adjusted foreign trade balance stood at a surplus of €12.3bn in June, the same level as had been reported a year earlier.






News Corp pulls back from China TV
© Reuters Limited
August 9, 2019
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HONG KONG, August 9 – Rupert Murdoch’s News Corp said on Monday that it will sell control of its three Chinese TV channels to a fund backed by China’s second largest media company, in a pullback from the market after years of difficulty.

The deal would see China Media Capital acquire a controlling stake in News Corp’s Xing Kong, Xing Kong International and Channel Mainland China channels, along with its Fortune Star Chinese movie library, News Corp said in a statement.

Established in 2009, China Media Capital is a private equity fund with 5 billion yuan ($739m) in assets under management and a focus on investments in the media industry.

It is backed by Shanghai Media Group (SMG), China’s No 2 media company and the dominant player in Shanghai, as well as China Development Bank and China Broadband Capital.

The move could mark the beginning of a wind down for News Corp in China’s tightly-controlled media market, which has proved highly frustrating to the company and its western peers after numerous limitations and restrictions by Beijing.

The terms of the deal were not disclosed, but the three channels combined were generating no more than $50m annually in revenue at the time of the deal, said Vivek Couto, a media analyst at Media Partners Asia.

“News Corp, after two decades in China, has done the inevitable in the last few years,” Couto said. “They see the best option to grow in the market is to make sure the business is in control of local hands.”

Couto predicted that China Media Capital could eventually sell off the company, or even take it public.

“This partnership is an extension of our long-term co-operation with News Corp,” China Media Corp Chairman Li Ruigang, who is also president of SMG, said in a statement. “The entry of Chinese capital into the international media market will help facilitate its changes and development. Today’s [Monday] agreement represents a first step into that direction.”

News Corp and global rivals like Time Warner and Viacom held out great hopes for China when they launched TV channels there starting in the late 1990s, hoping to attract mass audiences in a nation with 1.3bn potential viewers.

But their efforts have been met largely with disappointment, as China has limited their mass distribution largely to the southern province of Guangdong and strictly limited their ability to attract audiences in other parts of the country.