Today's Financial News Courtesy of The Financial Times
Risk assets inch higher amid political uncertainty
By Telis Demos in London
Copyright The Financial Times Limited 2010
Published: August 23 2010 09:28 | Last updated: August 23 2010 17:48
http://www.ft.com/cms/s/0/20daf020-ae87-11df-9f31-00144feabdc0.html
Monday 17.30 BST. Stocks are enjoying the continuing upswing in bidding activity, though the broader markets are only hesitantly embracing risk amid political uncertainty, especially after Australia’s election.
The FTSE All-World index is up 0.4 per cent, as European markets gain after economic data and further M&A activity – including a report of new bidders for Potash to rival BHP Billiton’s $39bn approach.
After Hewlett-Packard said it was bidding $1.6bn for 3Par – which rival Dell has been after for $1.15bn. The S&P 500 index is up 0.1 per cent, picking up from a one-month low, though the Nasdaq Composite index is down slightly as HP and other tech shares fall. The market may like deals overall, but not necessarily this deal.
Risk appetite generally was hardly surging. Shares were flat across Asia earlier, oil has given up gains and the yen is stronger against the US dollar. The haven Swiss franc hit a record high against the euro and government bonds are little moved – all suggesting that gains do not necessarily reflect a broader confidence in the global economy.
“The market’s cognitive dissonance continues, with ten-year Treasury yields mired, almost intransigently, at the 2.6 per cent level, while a variety of other news ... all seem at odds with financial markets that are truly discounting a double-dip,” said Jason DeSena Trennert of Strategas Research Partners.
Markets are rarely in a good cast when political uncertainty spikes up, and risky assets suffered as Australia’s election ended in deadlock, with close races still being counted. Labor and the conservatives are said to project to be three short of the seats necessary to form a government, and independent MPs yet to commit to either the coalition led by Julia Gillard, prime minister, or the opposition.
As the results came in, Australia’s S&P/ASX 200 index fell, though it rose to close flat, and the Aussie dollar and oil were down. The result raises the prospect of Australia, among the fastest-growing developed economies, being stuck in policy neutral. A potential controversial resource tax on mining companies notably will remain in limbo – which Ms Gillard has said would remain, though conservatives would scrap it.
“The introduction of the government’s mining tax and the recent rolling over in global business confidence . . . has the potential to keep projects in the planning stage. Without the commitment of new mining investment, questions about a successful transition from public to private growth drivers will intensify,” said Gavin Stacey, economist at Barclays Capital.
In Japan, indecision of a different sort reigned. The Nikkei has lifted in recent days on the potential of a new stimulus package – either in the form of yen intervention or fiscal stimulus – being put together. But the plan still is not any closer to reality after Naoto Kan, prime minister, met with the Bank of Japan, but said he did not discuss the yen nor monetary easing.
However, the Aussie dollar has rebounded during European trading – and mining companies’ shares have jumped up – as investors assess the shape of Australia’s government and swim with the tide of companies bidding for acquisitions.
“The prospect of a coalition government may mark an end to the mining tax plans that had been mooted by Labor, “ said Ben Potter, market strategist at brokerage IG Markets. “Traders especially in the mining sector will be keeping more than a weather eye on the situation in Canberra.”
☼Looking ahead. The US’s manufacturing sector was sent for a loop last week when the Philadelphia branch of the Federal Reserve said that factory activity in its region was slowing, even though economists still expected some growth. The Chicago Fed’s PMI is set for later this month, and the Richmond Fed will report on Tuesday.
If they disappoint, it could set up a potentially devastating fall in the US’s broader Institute of Supply Management index that reports at the beginning of the month.
“We are really shaping up for an epic first week of September next week,” said Jim Reid, strategist at Deutsche Bank. The US’s non-farm payroll figures are released Friday of that week. ☼
• Europe. The UK’s FTSE 100 index was up 0.8 per cent, led by banks. Miners were also higher, as hopes were raised that political necessity would lead Ms Gillard to give up the resource tax. Anglo American leads the way up 1 per cent, and BHP Billiton and Rio Tinto are up 0.5 and 0.6 per cent respectively.
The FTSE Eurofirst 300 index is up 0.6 per cent, though the eurozone purchasing manager index was softer than expected. The services component, especially in France, surprisingly gained. Germany’s Dax index of blue-chip companies was up 0.1 per cent, while the CAC 40 index in France was higher by 0.8 per cent.
Big company shares were further boosted by news of potential new deals: Suitors are after Allied Irish Bank’s stake in a Polish outfit, Bank Zachodni. HSBC is considered the frontrunner in an auction for South Africa’s fourth-largest bank, currently controlled by Old Mutual. There is also talk, though unconfirmed, of a takeover by SAB Miller of Carlton & United Breweries which brews Foster’s lager; and of Campbell Soup breaking up United Biscuits.
• Asia. The Nikkei 225 average was down 0.7 per cent, after no further details on stimulus were available. The average touched its lowest point of the year last week, as the yen strengthens amid panic buying by fearful investors seeking “safe havens”. A stronger yen hurt’s Japan’s core export companies.
The Hang Seng index in Hong Kong was down 0.6 per cent, and mainland China’s Shanghai index was down 0.1 per cent. Blackstone agreed to invest in its first residential property development in the mainland.
Those falls were balanced by strong gains in emerging Asia. The IDX Composite index in Jakarta was up 0.4 per cent, to its highest level of the year. The IDX is up 24 per cent in 2010. Malaysia’s FTSE Bursa KLCI was up 0.6 per cent, also to its 2010 high.
• Currencies. The Australian dollar is almost flat after falling as much as 1 per cent earlier. It is down a fraction at $0.8935 as some investors gave a vote of confidence to the economy. Grid-lock may, after all, be exactly what is desired if investors fear the resource tax.
The yen was 0.5 per cent stronger against the greenback, at Y85.21. The yen has traded in a tight range around Y85 as investors seek to move it higher against the dollar but remain wary about the prospect of intervention by Tokyo to lower the currency’s value.
• Debt. Risk appetite seemed to be easing after rising expectations of deflation sent bonds to record-low yields globally. The yield on Japanese 10-year bonds is up 1 basis point, to 0.93 per cent. JGBs have seen record low yields, as have longer-term German Bunds and short-term US Treasuries.
Yield on 10-year US Treasuries, a key measure of risk appetite, was flat at 2.61 per cent ahead of an auction of $100bn new bonds.
Yields on 10-year Bunds were up 1 basis point to 2.28 per cent, off their record low reached at the end of last week. Two year Bunds were flat, while 30-year Bund yields were also 2bp higher. Spreads between Bunds and European peripheral debt were tighter, indicating some return of risk tolerance in those markets.
• Commodities. Oil has defied weakening global growth and surging supply to remain near $75 a barrel. It fell last week to a six-week low, however, and was lower earlier in Asia. It has started falling as the US opened, giving up small gains from earlier. It is down 1.1 per cent to $73.02.
Additional reporting by Song Jung-a in Seoul
Follow the Global Market Overview on Twitter: @telisdemos
Eurozone growth loses some momentum
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2010
Published: August 23 2010 11:23 | Last updated: August 23 2010 11:23
http://www.ft.com/cms/s/0/22618c94-ae99-11df-9f31-00144feabdc0.html
The eurozone’s rapid growth spurt lost some momentum in August with a robust performance by Germany failing to make up for a weaker pace of expansion in France and near stagnation elsewhere in the 16-country region.
Purchasing managers’ indices pointed to a still-solid pace of expansion in private sector activity, suggesting growth is remaining buoyant in the third quarter of this year. However, they showed prospects hanging largely on the fates of Germany and France, the region’s two largest economies.
“Growth in the rest of the euro area slowed to near stagnation, and services even contracted again as austerity measures bit,” said Chris Williamson, chief economist at Markit, which produces the survey.
The eurozone expanded rapidly in the three months to June, when gross domestic product rose by 1 per cent compared with the previous quarter, powered by a dramatic 2.2 per cent expansion in Germany, the region’s largest economy.
With the purchasing managers’ indices regarded as providing indicator of likely trends in coming months, the latest readings will boost hopes of growth continuing at a brisk pace, even if the US economy slows.
But they will intensify worries about eurozone divergences, with the region’s prospects marred by weak growth in southern European countries such as Spain and Greece – where fears remain over the stability of their public finances.
The composite eurozone index, covering manufacturing and service sectors, fell from 56.7 in July to 56.1 in August, a two-month low. With a figure above 50 indicating an expansion in activity, that represented the 13th consecutive month of growth. Markit said August’s figure was consistent with GDP expanding at a quarterly rate of 0.7 per cent.
Germany continued to push ahead of other eurozone countries. Its composite index rose to a four-month high of 59.3, up from 59.0 in July. In a significant development, the improvement resulted from a pick-up in activity in the service sector – which was expanding at the fastest pace in three years. That pointed to a broadening of the country’s economic recovery, which has been led by engineering exports, especially to China. That could help it withstand a global slowdown.
In contrast, France’s composite index dipped from 59.7 in July to 59.0 in August, the lowest for five months. But Markit argued that the survey still pointed to a robust recovery continuing, with manufacturing and service companies reporting stronger increases in new work and private-sector employment rising for the fourth month running.
Slow PC sales raise fears over tech recovery
By Robin Kwong in Taipei
Copyright The Financial Times Limited 2010
Published: August 23 2010 13:54 | Last updated: August 23 2010 13:54
http://www.ft.com/cms/s/2/5368a182-aeb3-11df-9f31-00144feabdc0.html
Weaker-than-expected consumer PC sales at the start of the key back-to-school shopping season in the US are casting doubt on the sustainability of the technology sector recovery and may force computer makers to cut prices sharply, analysts have warned.
Strong consumer demand for PCs last year, even in otherwise depressed economies such as Europe and the US, powered the global technology sector to a rapid rebound.
Microsoft, maker of the Windows operating system, posted a 22 per cent rise in its revenues in the quarter ended June, while Taiwan's tech manufacturing-focused economy grew by 8.2 per cent.
This boosted confidence among leading computer makers. Acer, the world’s second-biggest PC company, in June revised its forecast for the third quarter upwards, to 15 per cent higher than the second quarter compared with a previous forecast of 10 per cent. JT Wang, chairman, said at the time that average PC selling prices were rising for the first time in five years. “It’s a very rare event in our industry but consumers are still happy,” he said.
But signs are now pointing to consumers turning away from continuing to buy PCs in record amounts, particularly in the US. Acer said its July shipments were 38 per cent lower than June’s, and on average PC sales in the US were down 15 per cent in July, according to Jenny Lai, analyst at CLSA.
July is a typically slow month for the PC industry, but more worrying is the latest sales data that show a further deterioration in the first week of August. “August should be the start of the back to school sales season, so this is very unusual,” Ms Lai says.
In discussing its otherwise strong third-quarter earnings last Thursday, Hewlett-Packard singled out weak consumer demand for notebooks as a trouble spot, which analysts say has been exacerbated by competition from Apple’s iPad tablet computers.
HP is more exposed to consumer sentiment than Dell, the third-biggest, with close to half of HP’s PC shipments headed for households.
Ryan Lee, analyst at Taipei-based Topology Research Institute, says the US back-to-school season is “supposed to give a lift to shipments, but that is just not there.”
Mr Lee says some PC makers have adapted by switching to cheaper and less powerful components, but if demand remains weak, “It is quite likely that they will need to cut prices, because you can’t make too many adjustments on components without consumers noticing.”
A 5-10 per cent cut is most likely, according to CLSA’s Ms Lai. “If they cut prices in the US they’ll cut prices globally as well,” she adds.
Most PC makers, however, so far seem unperturbed. Acer this month reaffirmed its guidance and said the July sales drop was due to temporary adjustments before “the introduction of more competitive IT products using Intel’s new CPU and chip set design starting in August and September.”
Michael Dell, Dell chairman, said last week that “demand trends continue to be favourable.” Only Asus, the world’s fifth-biggest PC brand, has said it would adjust prices in September to reflect falling component prices.
While PC makers and their processor suppliers are reiterating a solid outlook in their most recent earning calls, Shane Rau, a director at research firm IDC, says the “softness” in demand is causing concern and that 2011 remains a wild card in terms of sustainable unit growth.
Additional reporting by Joseph Menn in San Francisco
HP makes rival offer for 3Par
By Alan Rappeport and Helen Thomas in New York
Copyright The Financial Times Limited 2010
Published: August 23 2010 13:47 | Last updated: August 23 2010 15:55
http://www.ft.com/cms/s/2/0e77d746-aeb3-11df-9f31-00144feabdc0.html
Hewlett-Packard on Monday made good on its promise to press ahead with its strategic objectives in spite of the departure of Mark Hurd, its chief executive, by attempting to break up an agreed deal between Dell and 3Par, the data storage company.
On Monday, HP said it would pay $1.6bn, or $24 a share, for 3Par, which makes high-end storage systems and data management products that help reduce power and energy costs for companies storing information. The offer represents a 33.3 per cent premium above the $1.15bn bid that Dell made last Monday.
“HP’s proposal offers superior value to 3Par’s shareholders. Our global reach, strong routes to market and commitment to innovation uniquely position HP as the ideal fit for 3Par,” said Dave Donatelli, general manager of HP’s Enterprise Servers, Storage and Networking unit.
If 3Par accepts the HP’s unsolicted offer it could close by the end of the year. HP said that it was approved by its board of directors and did not require any additional financing.
HP has been making acquisitions in recent years, including the deals for EDS, 3Com and Palm, in a bid to extend the company’s reach beyond its traditional areas of business computers and printers.
Last week’s offer by Dell was seen as threat to rivals such as HP, IBM and EMC as the computer maker pushed its way into the IT services business and looked to gain a stronger foothold in the growing world of “cloud computing”. Dell has been lagging behind HP in its efforts to broaden the company’s business and ease its dependence on low-margin PC sales.
Under the terms of the original transaction, Dell will have certain rights to match HP’s proposal, should it be deemed superior by the board of 3Par. The deal between 3Par and Dell included a termination fee of $53.5m.
HP said the acquisition of 3Par would accelerate its “converged infrastructure” strategy, which helps its customers organise their servers, data storage and networks on one platform.
The rival bid from HP comes as it seeks new leadership in the wake of the ousting of Mark Hurd, its former chief executive. Last week the Palo Alto-based company’s acting chief executive, Cathie Lesjak, reassured investors that its “winning strategy” remained intact.
On Monday, shares of HP slipped by 2.94 per cent to $38.68 in mid-morning trading, while 3Par’s stock price jumped 40.8 per cent to $25.40.
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