Today's Financial News Courtesy of The Financial Times

Today's Financial News Courtesy of The Financial Times


Selling resumes after weak US jobs data
By Telis Demos in London
Copyright The Financial Times Limited 2010
Published: August 12 2010 09:28 | Last updated: August 12 2010 17:50
http://www.ft.com/cms/s/0/5f68d724-a5dd-11df-9cb9-00144feabdc0.html


Thursday 17.45 BST. Investors are seeking safer assets as they respond to fresh disappointments in labour markets and adjust to the week’s downgrades of the global growth outlook by the US Federal Reserve and other central banks.

Generally, the mood was sour. The FTSE All-World stock index is down 0.5 per cent, with the S&P 500 index falling 0.5 per cent following following a fresh report that jobless claims in the US had risen again.

Oil is slipping further below the $80 a barrel mark it reached in July, and gold is also finally joining the risk-off move, rising to a one-month high during US trading. Further growth worries came from Australia, where the unemployment rate unexpectedly rose.

Investors were also seeing risk in typically safe markets as well. Even the Japanese yen became a bit chancier on Thursday. The rise of the yen was reversed after Japan’s central bank said it was watching the yen closely, prompting fears of intervention to lower the currency’s value.

Record-low levels in US and German government bonds also spooked some bond traders. On Thursday, bond yields rose as some investors sought assets that offered them a slightly higher return.

“Bonds will remain very well-supported, but at the same time, people realise putting money into two-year bonds and getting 0.5 per cent isn’t something they want to do for the rest of their life,” said Gary Jenkins, strategist at Evolution Securities.

The euro was the primary beneficiary of the search for some kind of yield. Investors sought out European shares that, backed by strong earnings, had hit dividend yields well above 4 per cent as shares fell on Wednesday. The FTSE Eurofirst 300 index rose 0.2 per cent, driven by higher-yielding defensive sectors.

“Funds right now are searching for yield and income. They’re not getting it from central banks, or interest rates. In this hunt for income, Europe is one of the best markets globally,” said Karen Olney, European equity strategist at UBS.

The European Central Bank, in its monthly report, also offered no indication it would soon join the Fed in loosening policy and lowering interest rates. The ECB said that while growth had probably peaked in the second quarter, “the available data for the third quarter are better than expected” and “inflation expectations remain firmly anchored”.

☼ Factors to watch. The eurozone GDP growth estimate is out on Friday. The big variable is Germany’s GDP growth, also out on Friday. Germany has been Europe’s engine of late, with its export economy powering ahead thanks to the cheaper euro. Germany is expected to grow 1.3 per cent quarter-over-quarter, versus 0.2 per cent in the previous pair of quarters. ☼

• United States. A slower-than-expected rise in import prices – suggesting the Fed is right to be worried that price pressure is downward, not upward – add to economic worry following a surprise jump in unemployment claims by 20,000 spooked investors.

“That’s now two weeks in a row of lousy claims numbers. It clearly represents something more than a one-week seasonal adjustment problem,” said David Wyss, chief economist at Standard & Poor’s.

A cautious earnings report from Cisco, a closely watched technology bellwheter, has also driven the Nasdaq to underperform on the day. The tech-heavy index is down 0.9 per cent, while the big-company Dow Jones Industrial Average index is down 0.5 per cent.

• Europe. European economic data were also disappointing. Eurozone industrial output surprisingly fell 0.1 per cent in June, after economists had forecast a 0.7 per cent gain over May. Greece reported its GDP shrunk another 1.5 per cent in the second quarter.

Shares were buoyed, however, by a potential deal between energy giants Vendanta and Cairn and strong results by Europe’s biggest beverage company. Anheuser-Busch InBev reported better-than-expected results powered by the World Cup, helping the rest of the sector to lead European sub-sectors. The FTSE Eurofirst 300 index is down just 0.2 per cent.

The FTSE 100 index was up 0.4 per cent after tumbling following the US jobs report, with pushes to the upside led by high-yielding sectors like pharmaceuticals. Germany’s Dax index is down 0.3 per cent, as shares in automaker Daimler tumbled.

• Asia. Shares opened much lower but pared their losses over the course of the session. Japan’s Nikkei 225 average was down 0.8 per cent, with losses easing in the final hour of trading. Shares of technology exporters were hit hard, along with automakers.

In Hong Kong, the benchmark Hang Seng index was down 1.2 per cent. Shares of mainland Chinese banks were hit by concerns over Beijing reining in loan growth and their exposure to off-balance sheet loans. The Shanghai Composite index fell 1.2 per cent.

Following its jobs report, Australia’s S&P/ASX 200 lost 1.2 per cent. South Korea’s Kospi fell 2.1 per cent after the central bank did not raise rates, citing slowing demand in developed markets, though it did not lower its full-year outlook for growth.

• Currencies. The yen’s weakness is not likely to continue. Global custodians, the biggest banks in the forex market, said they had purchased more yen, suggesting that underlying demand for the safe-haven currency has not waned, even if traders were backing away. The yen is down 0.8 per cent at Y85.91.

The euro is up 0.1 per cent, at $1.2860 against the greenback, supported by flows into higher-yielding European equities. The pound is down 0.4 per cent to $1.5577.

Export currencies in high-growth countries are only showing tepid risk appetite. The Australian dollar is up 0.2 per cent against the US dollar and the Canadian dollar is up 0.4 per cent. The New Zealand dollar and South African rand, after spending much of the session down against their carry partner, the yen, are now higher.

• Debt. Ten-year US Treasury yields are up 5 basis point to 2.74 per cent. Ten-year German Bunds are flat, yielding 2.42 per cent after yields rose earlier.

The Bund had reached a record low level on Wednesday as investors fret about a European spillover from US troubles and fled peripheral debts in Ireland and Spain. Ireland is facing a fresh banking crisis and Spain said it would continue to expand infrastructure spending, despite previously saying it would be cut as a core part of its austerity and fiscal balance package.

Neil Mellor, a currency strategist at BNY Mellon, said that they had noted an outflow from peripheral, French and Italian bonds into German debt in the past month, as well as general selling for the euro.

“There are clearly issues to be resolved as far as the eurozone’s debt problems,” he said.

• Commodities. Benchmark US crude oil is falling again, down 2 per cent to $76.45 a barrel, after falling nearly $4 on Wednesday. Growth fears and a report that a watched US tropical storm failed to develop have knocked oil off a three-month high.

Gold is rising, up 1.3 per cent to $1,212 an ounce. Trading has been muted by liquidations of gold as traders fled all risk, but bullion is now climbing as the US Fed’s decision to buy Treasuries raises longer-term inflation worries.

Additional reporting contributed by Song Jung-a in Seoul

Follow the Global Market Overview on Twitter @telisdemos






US jobless claims hit six-month high
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: August 12 2010 14:11 | Last updated: August 12 2010 14:11
http://www.ft.com/cms/s/0/299441ae-a60c-11df-9cb9-00144feabdc0.html


New claims for jobless benefits continued to climb last week, rising to the highest level in six months as the US labour market’s struggles persist.

Initial jobless claims rose by 2,000 to 484,000, labour department figures showed on Thursday. Economists expected new claims to shrink at the beginning of August, but a sluggish recovery has kept companies cautious about hiring.

The less volatile four-week average of new claims for unemployment benefits was also elevated, with an average of 473,500 weekly filings made in the past month.

Analysts have argued that jobless claims need to fall close to 400,000 per week before the economy can consistently add jobs. Joshua Shapiro, chief US economist at MFR, notes that at the current level of claims, the economy should be shedding 200,000 workers a month.

Last week, official figures showed that the US shed 131,000 workers in July. Most of that was due to a decline in government employment, but private sector hiring was also weak.

The number of Americans continuing to claim jobless benefits eased by 118,000 to 4.452m. That number has been improving in recent weeks, however some of this is attributed to the long-term unemployed seeing their benefits expire.

The states suffering the most were New York, New Jersey and Ohio, where job cuts in construction and manufacturing inflated requests for benefits.

On Tuesday the US House of Representatives voted to approve an additional $26bn in aid to states to save public sector jobs for teachers, police officers and firefighters that were facing cuts.




Whitacre to step down as GM chief
By John Reed in London
Copyright The Financial Times Limited 2010
Published: August 12 2010 13:33 | Last updated: August 12 2010 16:32
http://www.ft.com/cms/s/0/fffcc520-a609-11df-9cb9-00144feabdc0.html



In a surprise change of leadership at General Motors, Ed Whitacre said that he was stepping down as chief executive on September 1 to be replaced by Dan Akerson, a veteran telecoms boss and member of the US carmaker’s board, who will also replace him as chairman at year-end.

Mr Whitacre, a former head of AT&T, said the decision to step down as head of the bailed-out Detroit carmaker was his own, and the transition would be “very smooth”.

The announcement came at the end of a presentation on Thursday to financial analysts and media as GM reported second-quarter net income of $1.3bn – its second consecutive quarterly profit and its biggest since 2004 – and as it prepared to file documentation for an initial public offering with the Securities and Exchange Commission.

The appointment of a new chief executive with no previous car industry experience at the helm of the US government-controlled carmaker caught analysts off-guard.

Mr Whitacre, 68, is credited with simplifying GM’s organisation, eliminating bureacracy, bringing in more effective managers and transforming its culture.

However, his Texan accent andlack of automotive credentials made him an odd fit in Detroit. While heading GM he still commuted on weekends to his home in San Antonio.

“It was my public duty to help return this company to greatness, and I didn’t want to stay a day beyond that, really,” Mr Whitacre said on a conference call. “There’s a foundation in place, and a good foundation.”

He said GM’s board had been aware of his plans since he accepted the position last year after sacking Fritz Henderson, a veteran of the company.

“The board was ready to act when I told them the timing was right for me to step down as CEO,” he said. “We are going to have a smooth, seamless transition here, and I’m very comfortable with it.”

Mr Akerson joined GM’s board last July when the company emerged from bankruptcy protection after restructuring its balance sheet and restructuring its operations with about $60bn of US and Canadian government aid.

He has been at private equity firm Carlyle Group since 2003 – currently as head of global buyouts – and previously served as chief executive of US telecoms groups XO Communications and Nextel Communications.

Mr Akerson, who is 61, declined to comment on his plans before he had taken over as chief executive and had had a chance “to get my feet on the ground”.

“Ed is still at the helm [and] once the transition is made, in a September timeframe, I would be ready to articulate specifics,” he said.

He said that it was a “fair assumption” that he would not make drastic changes at the carmaker. “This is a great company with great people,” he added. “At this stage, the biggest management transition is me.”

GM’s North American business earned $1.6bn before interest and tax, more than the $1.2bn it earned in the first quarter, but the company reported a pre-tax loss in Europe – where it makes Opel and Vauxhall cars – and weaker earnings in Asia and Latin America than in the first quarter.

The results will allow GM to bolster its business case to potential investors in the planned IPO, which is aimed at repaying US and Canadian taxpayers who bailed the company out as it reorganised in Chapter 11 protection last year.

GM is due to file a registration statement with the SEC laying the ground for the IPO in the coming days, although it has not commented on the timing. The Detroit News, citing unnamed insiders, reported that the filing would take place on Friday.

Commenting on GM’s earnings, Chris Liddell, chief financial officer, said he was “pleased with our progress on achieving our business objectives”.

GM’s quarterly net income of $1.3bn, or $2.55 a share, compared with a $12.9bn net loss reported in the year-ago quarter. It reported net earnings of $865m in the first quarter of this year.

Sales and revenue totalled $33.2bn, compared with $23bn in the second quarter of 2009.

The company said it generated $3.9bn of cash from its operating activities during the quarter and ended the period with $32.5bn in cash and marketable securities.

GM Europe lost $200m before interest and taxes, though that was smaller than its $500m first-quarter loss .

The international division, mainly comprising GM’s Asian and Latin American operations, earned $700m before tax, down from $1.2bn in the first quarter of this year. Overseas sales now make up the bulk of business at the US company, which sells more vehicles in China than it does in the US.

The company’s two Detroit-area rivals, Ford Motor and Chrysler, are also reporting improved earnings after deep restructurings and the rebound of US car sales from the 27-year low they hit in 2009.

Ford reported its best quarterly profit in six years in the three months to end-June, with its earnings driven mainly by the turnround in North America.

Chrysler, which is run by its Italian 20 per cent shareholder Fiat, this week reported a narrower net loss of $172m for the second quarter. Sergio Marchionne, its chief executive, said the carmaker – which like GM was bailed out by US and Canadian taxpayers – might upgrade its earnings outlook later this year, and was on track for its own IPO in 2011.




Eurozone industrial output falls in June
By Stanley Pignal in Brussels
Copyright The Financial Times Limited 2010
Published: August 12 2010 11:47 | Last updated: August 12 2010 11:47
http://www.ft.com/cms/s/0/121ff468-a5f9-11df-9cb9-00144feabdc0.html


Industrial production in the eurozone fell unexpectedly in June, prompting concerns over the strength of the economic recovery.

Factory output dropped 0.1 per cent, against forecasts of a 0.6 per cent jump, in line with the trend over the previous three months. But the bad news was tempered by an upward revision of the May figure, from 0.9 per cent to 1.1 per cent growth, according to seasonally-adjusted data from the European Commission.

Unlike most recent economic statistics in the eurozone, there was little to distinguish the so-called “core” members that have performed strongly against the “peripheral” economies plagued by acute fiscal problems.

In fact, Germany (-0.5 per cent) and France (-1.6 per cent) accounted for the bulk of the shortfall, though Greece, Spain and Portugal also saw retrenchment in industrial production.

Eurozone quarterly gross domestic product figures for the second quarter are released on Friday morning. Forecasters are looking for a quarter-on-quarter rise of between 0.5 and 1 per cent, driven by German growth well above 1 per cent.

Industrial production is known to be a volatile series, and analysts underlined that bullish data from July business surveys pointed to a stabilisation – if not an outward recovery – of factory output in the intervening months.

But the fall in industrial output echoes lacklustre figures in China and the US in June.

“It’s definitely too soon to declare the eurozone manufacturing boom over,” said Peter Vanden Houte, economist at ING. “Year-on-year industrial production still rose 8.2 per cent in June. That said, with the US and China showing signs of slowing, it would be foolish to believe that Europe would remain unaffected.”

Manufacturing has been among the healthier of Europe’s economic sectors, aided by restocking and burgeoning exports on the back of a depreciated euro. However, there are concerns that lack of consumer demand from inside the eurozone could eventually hamper industrial output in the second part of the year, particularly if global demand sags.

The drop in industrial output was caused overwhelmingly by lower production in consumer goods, in particular durables such as home appliances and furniture. That drop more than offset higher energy and capital goods production.





Greece sinks deeper into recession
By Kerin Hope in Athens
Copyright The Financial Times Limited 2010
Published: August 12 2010 13:02 | Last updated: August 12 2010 13:31
http://www.ft.com/cms/s/0/d002baf2-a607-11df-9cb9-00144feabdc0.html


Greece sank deeper into recession in the second quarter, according to provisional data released on Thursday by the national statistics service.

A sharp rise in the year-on-year jobless rate from 8.5 per cent to 12.5 per cent in May – a record increase – also reflected worsening conditions in the real economy, said analysts.

Jobs are mainly being cut in small and medium-sized companies, which were the first to be affected by the country’s debt crisis.

“The second half of 2010 will be difficult ... there’s been a very steep decline in construction and the fourth quarter won’t be supported by tourism revenues,” said Platon Monokroussos, a senior economist at EFG Eurobank.

Greece has adopted severe austerity measures in return for a €110bn ($143bn, £91bn) bail-out in May by the European Union and International Monetary Fund.

Elstat, the statistics service, estimated the economy had shrunk 3.5 per cent in the three months to the end of June from the same period last year. It said second-quarter gross domestic product had been 1.5 per cent lower than in the first three months of the year.

“A fall in investment and a significant reduction in public consumption contributed to the decline in GDP ... This was partly offset by an improved trade balance,” Elstat said.

Anke Richter, executive director of research at Conduit Capital Markets, said the 1.5 per cent contraction was more than the 1.1 per cent forecast by economists.

“But turning around a sovereign’s finances is a medium-term project, so it is important not to place too much stock in today’s figures ... 2011 will be the crunch year that will decide Greece’s fate,” she said.

However, Elstat warned that the year-on-year figure could be revised because the way in which quarterly statistics are compiled has recently been changed.

Greece passed legislation this year to make its statistical office independent after admitting that successive governments had fudged economic statistics for political reasons.

A former senior International Monetary Fund official was hired to head Elstat and an official from Eurostat, the European Union statistics service, was appointed to its board.

Experts from the IMF and the EU said in Athens last week that the economy was on track to shrink by 4 per cent this year because of the impact of tax rises and spending cuts.

George Papaconstantinou, finance minister, was slightly more optimistic, forecasting a contraction of 3-3.5 per cent this year.





China Mobile search engine to rival Google
By Kathrin Hille in Beijing
Copyright The Financial Times Limited 2010
Published: August 12 2010 15:34 | Last updated: August 12 2010 15:34
http://www.ft.com/cms/s/0/d028e734-a618-11df-9cb9-00144feabdc0.html


Xinhua, China’s official news agency, and China Mobile, the world’s largest mobile operator, are setting up a mobile search company together, the two state groups said on Thursday.

The move comes amid upheaval in the Chinese online search market as other players attempt to grab market share following Google’s partial exit from the market earlier this year in a dispute with the government over censorship.

However, the joint venture’s political significance is expected to far outweigh its commercial impact.

Spokespeople at Xinhua were unavailable to comment, but the news agency filed a report about its own deal describing it as a propaganda manoeuvre.

“The co-operation is an important move to serve the … party and the state, thoroughly protect the national interest, safeguard China’s information security, strengthen the establishment of a public opinion front in the new media, and broaden the domestic and overseas propaganda influence and the public opinion guidance capability of the Chinese mainstream media,” said Zhou Xisheng, Xinhua’s deputy publisher, according to the news agency’s report.

The venture comes amid an attempt by the Chinese government to have its largest media groups drown out dissenting voices on the internet by building new media platforms themselves.

Leading state media are also in a forceful overseas push. Xinhua launched an English-language television network earlier this year, and a state media-backed fund agreed this week to acquire a majority stake in three television channels owned by News Corp.

The government’s policy of allowing telecoms operators and broadcasters to enter each others' markets has also served as a powerful incentive for many state-owned companies to branch out.

CCTV, China’s main state broadcaster, has teamed up with China Unicom, the second-largest mobile operator, to develop a search engine. People’s Net, the website of the Chinese Communist party’s mouthpiece, is also working on a search engine.

With 420m internet users, China has the world’s largest internet population, but search companies say its internet search market, with Rmb2.67bn ($393.4m) in revenues in the second quarter, still has years of growth ahead.

China Mobile Ltd, the telecoms company’s Hong Kong-listed unit, said the agreement was signed by its state-owned parent, but did not release any further details.

Analysts suggested the tie-up’s effect on search groups such as Google and Chinese market leader Baidu would be limited.

“I see little or no impact in internet search, but there might be a certain impact in mobile search,” said Li Zhi, search expert at Beijing internet research group Analysys.

“There will be no impact in terms of traffic,” said Wallace Cheung, an analyst at Credit Suisse. He added that as mobile search was only in its early stages in China and companies had yet to find a way to monetise it, its significance for Baidu and other search companies was still unclear.