Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Confident mood runs out of steam
By Dave Shellock in London, Robert Cookson in Hong Kong and Song Jung-a in Seoul
Copyright The Financial Times Limited 2010
Published: August 30 2010 04:20 | Last updated: August 30 2010 16:06
http://www.ft.com/cms/s/0/78d12832-b3df-11df-81aa-00144feabdc0.html


16:00 BST Investor risk appetite showed signs of faltering on Monday as the more confident mood seen at the end of last week following reassuring comments from Ben Bernanke ran out of steam.

US and European government bonds recouped some of Friday’s losses, sending yields lower, as investors digested the Federal Reserve chairman’s pledge to take action if the economic outlook deteriorated “significantly”.

The 10-year Treasury yield was down 7 basis points at 2.57 per cent, while the 10-year Bund yield was off 7bp at 2.13 per cent. Stocks on both sides of the Atlantic also edged lower, with the S&P 500 down 0.5 per cent and the FTSE Eurofirst 300 0.2 per cent lower. Activity in Europe was light due to a public holiday in the UK.

Wall Street’s retreat came in spite of figures showing an improvement in US consumer spending and income and a fresh burst of bid and merger-related activity.

It was a different story in Asia as sentiment was cheered – to some extent at least – by fresh economic stimulus measures from the Bank of Japan in the form of an expansion of a special lending programme for banks.

However, early investor enthusiasm flagged a bit after Japan’s central bank stopped short of taking aggressive action to halt the yen’s climb. The Nikkei closed 1.8 per cent higher, having jumped as much as 3 per cent before the BoJ announcement, while the yen has clawed back losses and is little changed against the US dollar.

The yen is hovering just beneath the Y85 level against the dollar in early New York trade, compared with near Y85.88 just before the BoJ announcement and Y85.22 late in New York on Friday.

The BoJ has faced mounting pressure to loosen policy in recent weeks after it kept its key interest rate at 0.1 per cent and refrained from expanding credit measures at a meeting in early August.

But there is scepticism about the effectiveness of the BoJ’s latest move and whether it will have any sustained impact on the yen.

Japanese stocks have fallen nearly 6 per cent since the BoJ’s last meeting amid concerns about faltering global growth and fears the yen’s surge will derail Japan’s export-led recovery. Japan’s economic growth was unexpectedly slow in the last quarter.

Investors in Asia were also encouraged by big gains on Wall Street on Friday after Mr Bernanke’s speech. The focus now is on a slew of key economic data due later this week for a better gauge of global economic outlook.

Australia’s S&P/ASX 200 advanced 1.9 per cent, South Korea’s Kospi gained 1.8 per cent and Hong Kong’s Hang Seng was 0.7 per cent higher.

Singapore’s Straits Times Index rose 0.5 per cent but property stocks retreated on fresh government steps to cool the real estate market.

The Australian market is at a six-day high, led by financials and resources.

Builders led the gains in South Korea after the government on Sunday announced measures to boost the sluggish property market, including a softening of mortgage lending regulations and tax breaks for first-time home buyers.




US spending and incomes pick up in July
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: August 30 2010 14:38 | Last updated: August 30 2010 14:38
http://www.ft.com/cms/s/0/c3b819c2-b430-11df-8208-00144feabdc0.html


The pace of consumer spending picked up in July, even as income growth remained tepid, signalling that demand is holding up in spite of persistent unemployment and a wavering economic recovery.

Personal consumption expenditure rose 0.4 per cent last month, commerce department figures showed on Monday. The increase was bigger than economists had projected and purchases were concentrated on long-lasting durable goods such as cars.

Incomes also rose in July, but at a more modest 0.2 per cent. Analysts argue that it will be difficult to sustain spending growth unless salaries rise faster as Americans continue to be faced with tight credit and diminished home equity.

In July, the savings rate fell to 5.9 per cent from 6.2 per cent in June.

Consumer spending accounts for about 70 per cent of economic activity in the US and economists have expressed concern that a new “epidemic of thrift” could hamper the recovery. In the second quarter of this year spending advanced at an annualised rate of 2 per cent but US retailers have reported a divide among luxury shoppers who can afford to spend freely and bargain retailers who are struggling to afford even low-end merchandise.

Ben Bernanke, chairman of the Federal Reserve, said in a speech last week in Jackson Hole, Wyoming, that much of the recent slowing in the US economy could be attributed to weaker-than-expected consumer spending.

“Consumer spending may continue to grow relatively slowly in the near term as households focus on repairing their balance sheets,” Mr Bernanke said.

Joshua Shapiro, chief US economist at MFR, argued that much of the July bump in spending was due to government transfer payments and a residual impact from the boost in home sales and prices earlier in the year.

“Neither of these is a sustainable source of spending increases, which ultimately must be financed by private sector job growth and consequent gains in wages and salaries,” Mr Shapiro said.

Meanwhile, the commerce department’s closely watched gauge of prices was muted in July, ticking up 0.1 per cent. The uptick should alleviate concerns that government measures to stimulate the economy will fuel inflation.




Intel to buy Infineon’s wireless chip business
By Helen Thomas in New York and Joseph Menn in San Francisco
Copyright The Financial Times Limited 2010
Published: August 29 2010 23:44 | Last updated: August 30 2010 06:56
http://www.ft.com/cms/s/2/51b83e10-b3bd-11df-81aa-00144feabdc0.html


Intel, the US chipmaker, has agreed to buy the wireless chip business of Germany’s Infineon.

Under the deal announced on Monday, Intel said it will pay approximately$1.4bn for the unit, which makes the chips used in Apple’s iPhones.

Intel’s move to bulk up in wireless comes on the heels of the company’s $7.7bn agreement this month to buy McAfee, the US security software company.

Intel is attempting to diversify away from its core business producing the chips that are used inside most personal computers.

It last week said that the purchase of McAfee, which puzzled analysts, would boost its efforts in mobile wireless, where it is already beginning to produce chips for smartphones.

The company sees security becoming a key area as billions of new devices are connected to the internet over the next few years and customers seek to access data on the move.

Underlining the logic behind its efforts to diversify, the chipmaker last week downgraded its sales outlook, warning that consumer demand for computers was slackening amid a lacklustre economic recovery. Intel now expects its third-quarter revenues to be about $11bn, down from the $11.6bn it forecast in its quarterly earnings report just six weeks ago.

Infineon this month confirmed it was talking to a number of parties about its wireless solutions business, which also counts Nokia and RIM among its customers. According to the German company’s annual report, its business ranks fourth in the market for wireless chips, with a 5.9 per cent share.

The unit had sales of €346m ($441m) in the last quarter to June, up about 38 per cent from the previous year, and an operating result of €24m.

Wireless solutions account for about 30 per cent of Infineon’s overall revenues, but was lossmaking at the operating level in the last fiscal year to September 2009.

Intel recently settled charges brought against it by the Federal Trade Commission, resulting from worries about how the chipmaker uses its dominance of the PC microprocessor market to restrict competition. The company makes the microprocessors used in four of every five of the PCs sold globally.

Evercore advised Intel on the deal while JPMorgan advised Infineon.







Axa cuts Goldman stake by half
By Justin Baer, Francesco Guerrera and Greg Farrell in New York
Copyright The Financial Times Limited 2010
Published: August 29 2010 21:30 | Last updated: August 29 2010 21:30
http://www.ft.com/cms/s/0/d762b99e-b3a1-11df-81aa-00144feabdc0.html


Goldman Sachs’ largest investor slashed its stake by more than half in the last quarter as the bank contended with civil fraud charges by US securities regulators and brutal market conditions that crimped its results.

Axa, the French insurance and wealth management company, reduced its holdings in Goldman by more than 16m shares in the three-month period ending on June 30, according to a recent US Securities and Exchange Commission filing. The sell-off reduced Axa’s holdings from about 5 per cent to 2.1 per cent, according to Bloomberg data.

Goldman’s shares fell 23 per cent during the quarter, beginning their slide in April after the SEC stunned Wall Street with charges that Goldman misled investors in an offering of a collateralised debt obligation, a financial instrument that pools debts that are subsequently sliced into various tranches of varying risk profiles.

The stock has erased some of those losses during the third quarter, spurred on by Goldman’s $550m (€430m) settlement in July, before sliding another 3 per cent.

On July 21, the bank reported an 83 per cent drop in quarterly profit as muted activity by corporate and institutional clients weakened trading results.

Axa’s sell-off appears part of a larger strategy to reshuffle its financial services holdings. During the same period, it pared stakes in US Bancorp and Barclays, while it added to its positions in Wells Fargo, Bank of America and Fifth Third Bancorp. Goldman and Axa officials declined to comment.

Axa closed the second quarter as Goldman’s seventh-biggest stockholder, with 10.6m shares, according to data compiled by Bloomberg. Two other top 10 investors, BlackRock and T Rowe Price, also pared their holdings during the period, shedding 1.6m and 4.2m shares, respectively.

Goldman shares have fallen 17 per cent this year.






Bank of Japan takes fresh stimulus steps
By Mure Dickie in Tokyo
Copyright The Financial Times Limited 2010
Published: August 30 2010 06:29 | Last updated: August 30 2010 15:28
http://www.ft.com/cms/s/0/92c0156e-b3ee-11df-81aa-00144feabdc0.html


Japan on Monday moved to shore up its fragile economic recovery, with the central bank announcing an extra Y10,000bn ($118bn) in cheap six-month financing and the government outlining a Y920bn ($10.8bn) package of stimulative measures.

However, the moves had been widely anticipated and economists warned they would fall far short of restoring confidence battered by slowing growth, warnings of a possible double-dip recession in the US and a recent rise in the yen.

Masaaki Shirakawa, Bank of Japan governor, cut short a visit to the US in order to hold the hastily-arranged policy board meeting that approved the new financing operation, an expansion of an existing Y20,000bn three-month scheme.

Naoto Kan, the prime minister, praised the decision as a "swift action to cope with the economic situation", but markets were unimpressed.

Tokyo's Nikkei shares index climbed more than 3 per cent ahead of the BoJ announcement, but then fell back to close up just 1.8 per cent. After falling sharply to near Y85.88 to the dollar on news of the unscheduled policy board meeting, the yen rose on its result and by late afternoon was trading at around Y85.

After the yen hit a 15-year high of Y83.57 last week, Mr Kan and his ministers have since stepped up efforts to talk the currency down to a level more comfortable for the exporters who remain the growth engine of the Japanese economy. In the outline of policies intended to boost growth issued by the government on Monday it promised to continue to watch markets closely for "excessive movements" and to take "firm measures when necessary".

Mr Shirakawa also cited the yen's strength alongside recent share price falls and weak US economic data as reasons why the BoJ had judged it "necessary to pay more attention to the downside risks" to economic activities and prices.

But the central bank had been widely expected to expand its financing operation at next week's scheduled policy board meeting and economists said the move would do little to address Japan's chronic deflation or boost growth.

"The economic impact will be negligible and any impact on the yen will be diluted by the lack of a stated intention to weaken the currency or step up quantitative easing," wrote Julian Jessop of Capital Economics in a research note.

Analysts say Japan's financial system already has plenty of liquidity, with the main problem not being a lack of funds but of credit-worthy borrowers. Already-low interest rates and continuing price falls also mean the new BoJ move will do little to discourage the inflow of money seeking a refuge from stalling US growth.

Pressure has been growing on Mr Kan to find ways to stimulate the economy amid an apparent stalling of its recovery from its sharpest post-war slump. In the three months to June, Japan's gross domestic product is initially estimated to have expanded at an annualised rate of just 0.4 per cent.

But while the government unveiled its outline of stimulative policies a day earlier than expected, Mr Kan's desire to avoid adding unduly to the state's already heavy debt burden means initial funding is to be limited to the relatively modest Y920bn available in budget reserves for the current fiscal year.

The package outline included measures to boost demand, including extension of subsidies for more energy efficient housing and consumer goods, as well as financing for small and medium sized companies, graduate employment and accelerated spending on making public facilities such as hospitals earthquake resistant.

Additional reporting by Michiyo Nakamoto in Tokyo