Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Rally resumes after supportive US data
By Jamie Chisholm, Global Markets Commentator in London
Copyright The Financial Times Limited 2010
Published: September 2 2010 07:37 | Last updated: September 2 2010 17:41
http://www.ft.com/cms/s/0/291c733e-b653-11df-86ca-00144feabdc0.html


Thursday 17:25 BST. Traders are again adding to risky bets following a batch of supportive US data, but the mood is markedly less ebullient than witnessed during the previous session’s “melt up”, when better-than-expected Chinese and American factory data powered a wholesale rush into stocks.

The S&P 500 in New York is up 0.5 per cent, also aided by confirmation that the trend for M&A continues following a private equity purchase of Burger King for $4bn.

Commodities are generally firmer, and core bonds are again under the cosh, but the yen, the market’s current haven proxy darling, is moving higher.

The FTSE All-World equity index is up 0.5 per cent, primarily reflecting Asia’s attempts to play catch-up with Wall Street’s 3 per cent surge on Wednesday.

That bounce was the second time in consecutive months that US stocks had enjoyed a powerful first day of trading, and some commentators had expressed fears that Wednesday’s risk rally had more to do with a determination to put fresh funds to work than any sober assessment of the day’s data catalysts.

It certainly appears investors were being highly selective in deciding which reports would drive sentiment. For while the China and US PMI numbers were better than forecast, European factory surveys and the US private-sector jobs numbers were disappointing.

The Vital Statistics

Technical factors may also have been behind Wednesday’s sharp rally on Wall Street. It will not have gone unnoticed by many traders that the benchmark S&P 500 had on the previous day bounced off the 1,040 level for the third time in 5 sessions. Such support can provide a springboard as bears are confounded. Now the bulls must contend with the 50 day moving average of 1,081, and later the 200-day MA at 1,116.

However, Thursday’s data out of the US, including weekly initial jobless claims, retail sales updates, and factory orders and pending home sales for July have also been well received.

These reports have helped to cap, for now, fears about a US “double-dip”, and leant credence, in the eyes of many, to September’s nascent rally.

That said, many traders may be reluctant to enter fresh positions ahead of Friday’s non-farm payrolls data.

● Europe. Cautiously mixed characterises the region’s trading, with exchanges clawing back from initial falls to hold levels following Wednesday’s bounce.

The FTSE Eurofirst 300 is down 0.1 per cent and London’s FTSE 100 gained 0.1 per cent, the latter helped by oil and metal stocks.

● Asia. Stock markets extended the month’s gains as the overnight US manufacturing data helped double-dip fears recede.

The Market Eye

Another baby-step on the road to “normalisation” occurred on Thursday when the Swedish central bank raised interest rates for the second meeting in a row as it noted inflationary pressures may rise “as the labour market improves and economic activity strengthens”. Welcome comments for traders desperate to see the European economy achieve escape velocity as it strives to leave planet credit crunch behind it. But the Riksbank’s action means its main policy rate is still just 0.75 per cent. Meanwhile, the ECB has left its key rate at a record low of 1 per cent since May 2009. That such loose policy is still required 3 years after the banking crisis hit the headlines speaks to the still difficult environment facing investors.

The FTSE Asia-Pacific index added 1.1 per cent, having hit a two-week high after slumping 2.2 per cent in August on concerns about a stronger yen and the faltering US economy.

Japan’s Nikkei climbed 1.5 per cent, Australia’s S&P/ASX 200 has gained 0.8 per cent, and South Korea’s Kospi rose 0.6 per cent.

Chinese stocks also had a good session, with Shanghai adding 1.3 per cent and the Hang Seng in Hong Kong up 1.2 per cent.

● Forex. The more cautious mood is pushing traders back into perceived currency havens, though these flows have abated following the better-than-forecast data today.

The yen is up 0.3 per cent to Y84.21 against the US dollar and is higher by 0.2 per cent against the euro at Y107.98.

The dollar is little changed on a trade-weighted basis and is off 0.1 per cent versus the euro at $1.2824. Sterling is down 0.5 per cent versus the euro at 83.31p after news that UK house prices fell for a second month in a row.

● Debt. Core government paper was hard hit on Wednesday as the surge in risk appetite provided the excuse for some to claim the “bond bubble” was bursting, and indeed, Thursday’s initial bargain hunting has evaporated. The yield on the US 10-year is up 5bp at 2.63 per cent, having breached 2.47 per cent as recently as Tuesday.

Bund yields are up 6bp at 2.28 per cent, while benchmark gilt yields are up 3bp to 2.95 per cent after a £3.8bn auction of 4-year gilts met weak demand.

Spanish 10-year yields are bucking the broader trend to fall 1 basis point to 3.99 per cent after a €3.3bn auction of 5-year notes attracted €5.4bn worth of bids.

● Commodities. The metals complex is slightly firmer after the previous session’s rally, helping the Reuters-Jefferies CRB index to gain 0.5 per cent. Oil, which had been lower, rose after reports of a fire on a rig in the Gulf of Mexico. It is now up 0.5 per cent to $74.29 a barrel.

Gold is moving back towards its record of $1,265 an ounce as fans of the metal remain wary of alternative assets. It is currently up 0.5 per cent to $1,250 an ounce.

Follow Jamie Chisholm’s market comments on Twitter: @JamieAChisholm





US jobless data underscore weakness
By Shannon Bond in New York
Copyright The Financial Times Limited 2010
Published: September 2 2010 14:40 | Last updated: September 2 2010 16:34
http://www.ft.com/cms/s/0/944bd630-b68b-11df-86ca-00144feabdc0.html


New claims for jobless benefits in the US fell last week but still remain above the level economists have said is necessary to create jobs.

Meanwhile, a separate report showed a surprise rise in pending home sales in July, lifting hopes that the beleaguered housing market may have reached a bottom.

Initial jobless claims fell by 6,000 to 472,000, labour department figures showed on Thursday. Economists had expected claims to fall to 470,000 from the 473,000 level originally reported the prior week, which was revised to 478,000 on Thursday. The less volatile four-week average also declined, falling back 2,500 to 485,500.

The data “underscore that the labour market remains very weak. The claims numbers continue to be at higher levels than you would expect given the payroll results”, said Joshua Shapiro, chief US economist at MFR. “I don’t see the overall economy growing.”

The report comes ahead of Friday’s closely watched government unemployment report, which is expected to show that the US economy shed 80,000 jobs in August. The unemployment rate is forecast to rise slightly to 9.6 per cent.

On Wednesday, a report from ADP Employer Services said that the private sector cut 10,000 workers last month, the first monthly decline this year, as small and mid-sized businesses came under pressure.

The number of people continuing to claim unemployment insurance fell by 23,000 to 4.456m as long-time idle workers saw their benefits expire.

Claims for emergency benefits also declined, falling 281,676 to 4.546m

The biggest declines in claims came in California, Ohio and Michigan, while Florida, Iowa and Maryland saw the largest increases.

Economists said claims need to fall to the low 400,000 level before the economy can sustainably create jobs.

Separately, pending home sales rose unexpectedly in July after falling sharply in the months following the expiration of the government’s first-time homebuyer tax credit in April.

Thursday’s report from the National Association of Realtors showed that the pending sales index, which tracks deals that have been signed but not yet closed, rose 5.2 per cent to 79.4 from June. Economists had expected a 1 per cent fall in July after the index hit a record low of 75.7 last month.

Paul Dales, US economist at Capital Economics, cautioned that the surprise rise is a continued effect of the tax credit, which brought many sales forward to the spring from the summer. July’s increase is a “rebound as the pipeline starts filling up again.”

“It’s a good thing, but the key point is that the level of pending home sales is still below those seen before the tax credit even began”, he said. July sales were 19.1 per cent below their July 2009 level, the NAR report showed.

The housing market is likely to experience distortions from the credit for another three or four months, Mr Dales added.

“Economic conditions that tend to underpin housing activity are really weak at the moment”, he said. That includes an unemployment rate of 9.5 per cent and “languishing” levels of mortgage applications despite record-low mortgage rates.






Bernanke regrets reticence on Lehman
By Tom Braithwaite in Washington
Copyright The Financial Times Limited 2010
Published: September 2 2010 16:06 | Last updated: September 2 2010 17:24
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Ben Bernanke, Federal Reserve chairman, expressed regret for not being “more straightforward” with Congress in 2008 when he avoided saying that the central bank had no means to save Lehman Brothers.

But, pursuing the Fed’s riposte to the allegations of Dick Fuld, the former chairman of Lehman, Mr Bernanke said that was only out of concern that the full truth could have ratcheted up market pressure on other financial institutions.

Mr Bernanke told Congress shortly after the Lehman collapse that the government had “declined” to rescue the bank. He admitted on Thursday that had “supported this myth that we did have a way of saving Lehman”.

“I regret not being more straightforward there because clearly it has supported the mistaken impression that in fact we could have done something,” he told the Financial Crisis Inquiry Commission, speaking a day after Mr Fuld said the Fed could and should have rescued his group.

Asked what was different at AIG, which has received billions of dollars of government assistance, Mr Bernanke said the group’s insurance business were valuable enough to secure loans to bail-out its troubled financial products division.

“It was our assessment that they had plenty of collateral to repay our loan,” he said. “The rest of the company as far as we could tell was an effective, sound company with a lot of value.“

The FCIC is considering the phenomenon of “too big to fail” institutions like AIG and Lehman whose size and interconnectedness makes a collapse painful for the entire financial system.

Mr Bernanke said that large financial groups played an important role in the economy but he also predicted that the consolidation seen in recent years, which has worried many in the US, could reverse over time.

“My projection is that even without direct intervention by the government, that over time we’re going to see some break up and some reduction in size and complexity of some of these firms as they respond to the incentives created by market pressures and by regulatory pressures as well,” he said.

Sheila Bair, the chairman of the Federal Deposit Insurance Corporation, said in testimony before the panel that the Dodd-Frank financial reforms passed by Congress in July should help to end the problem.

But she added: “If implementation is not properly carried out, the reforms could be ineffective in preventing future crises or containing financial market disruptions should they occur.”

Ms Bair said the new law should end investors’ belief in “too big to fail”, which gives an implicit government guarantee and thus cheaper borrowing costs to large institutions: “If they think it’s still around they should read the statute itself.”





Burger King agrees $4bn sale to 3G Capital
By Helen Thomas in New York and Martin Arnold in London
Copyright The Financial Times Limited 2010
Published: September 1 2010 19:59 | Last updated: September 2 2010 15:21
http://www.ft.com/cms/s/0/f257d888-b5f9-11df-a048-00144feabdc0.html


Burger King has agreed to be acquired by 3G, an investment fund backed by three of Brazil’s foremost businessmen, in a deal valued at $4bn including debt.

3G will buy the US burger chain’s stock for $24 a share, a premium of 46 per cent over the company’s closing share price before rumours spread of a pending deal, Burger King said in a statement on Thursday.

Burger King’s stock surged 24 per cent to $23.39 in morning trading in New York.

The deal returns Burger King to private ownership for the second time in less than a decade.

While Burger King’s would-be owner, a little-known investment vehicle based in New York, has a low profile in the US, the firm is backed by a group of Brazilian entrepreneurs, collectively known as “the Trio”.

Jorge Paulo Lemann, Marcel Telles and Carlos Sicupira – all billionaires – are best known for building the Brazilian brewery that eventually became InBev, which in 2008 bought Anheuser-Busch, the maker of Budweiser. The three remain on the AB InBev board.

Mr Lemann, the eldest of the three, was also one of the founders of Banco Garantia, the investment bank that was sold to Credit Suisse in 1998.

“They are the role models for a whole generation of entrepreneurs in Brazil,” said one banker, describing them as “highly sophisticated” businessmen famed for their operating skills.

The deal to buy the burger chain, which was first reported by the New York Times, is the highest profile move by the three in the US to date. 3G has secured financing for the deal from JPMorgan Chase and Barclays Capital, Burger King said.

Alex Behring, a managing director at 3G who is involved in the bid for Burger King, is a long-time lieutenant of the men.

Burger King, which has more than 12,000 restaurants around the globe, has been battling ailing sales in the US and Canada this year, as high unemployment and weak consumer confidence has kept customers at home.

TPG, Goldman Sachs Capital Partners and Bain Capital bought Burger King for $1.5bn in 2002 from Diageo, the UK spirits group. The private equity groups embarked upon an aggressive strategy for the lossmaking restaurant chain, focusing on expansion in fast-growing markets such as China, Brazil and Russia.

While Burger King returned to the public markets in 2006, the troika of private equity firms still retain about a third of the company.




Avis raises stakes in bid for Dollar Thrifty
By Bernard Simon in Toronto
Copyright The Financial Times Limited 2010
Published: September 2 2010 15:05 | Last updated: September 2 2010 15:05
http://www.ft.com/cms/s/0/f86b9da2-b691-11df-86ca-00144feabdc0.html


Avis Budget has raised the cash portion of its hostile bid for Dollar Thrifty, intensifying its onslaught against an agreed offer by Hertz for the Oklahoma-based car-rental operator.

Avis said on Thursday that it will now offer $40.75 a share in cash, up from its earlier bid of $39.25. It is also offering 0.6543 Avis shares for each Dollar Thrifty share, giving its bid a total value of $1.35bn. Hertz’s bid, first unveiled in April, is valued at $1.1bn.

Avis said that its latest offer “is clearly superior to the Hertz offer in the two ways that matter – we are offering a substantially higher price and a more meaningful divestiture commitment”.

However, it reiterated that it would not include the reverse break-up fee sought by Dollar Thrifty as compensation for a possible rejection of the deal by anti-trust regulators.

“A reverse termination fee has nothing to do with certainty of closing”, Avis said. ”The Hertz deal is no more likely to be approved by the Federal Trade Commission simply because Hertz agreed in the context of a negotiated deal to pay a fee to Dollar Thrifty if it is not approved.”

Dollar Thrifty is prized for its presence in the low-priced “value” market catering mainly to leisure travellers.

Both Hertz and Avis – the US’s second and third biggest car-rental operators respectively – have offered to divest parts of their existing businesses to smooth anti-trust approval of their deals.

Hertz said in a presentation earlier this week that an Avis-Dollar Thrifty deal would leave only two companies controlling all US value brands. “A Hertz and Dollar Thrifty merger would better balance the industry”, it said.

But Avis accused Hertz on Thursday of presenting “baseless and inflated divestiture numbers”. It added: “Proper economic analysis shows that Hertz and Avis Budget are comparably competitive with Dollar Thrifty.”

Dollar Thrifty has so far resisted Avis’s advances. Pressing its case for a reverse break-up fee, it said last month that “a higher price cannot compensate for a deficiency in deal certainty”. It had no immediate comment on Avis’s latest offer.

Dollar Thrifty shareholders are due to vote on the Hertz proposal on September 16. Its shares closed at $47.49 on Wednesday.









Dell walks away from 3Par bidding battle
By Joseph Menn in San Francisco and Helen Thomas in New York
Copyright The Financial Times Limited 2010
Published: September 2 2010 16:26 | Last updated: September 2 2010 16:26
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Hewlett-Packard appeared to have won the bidding battle for data storage technology company 3Par on Thursday, after Dell said it would not raise its offer and was ending talks.

HP made a $33-a-share offer on Thursday, valuing loss-making 3Par at about $2.4bn and outbidding rival PC maker Dell for the fourth time in less than three weeks.

“We took a measured approach throughout the process and have decided to end these discussions,” said Dave Johnson, senior vice-president, corporate strategy.

The bidding war began after Dell made $18-share friendly offer 3Par on August 16. 3Par shares closed at $9.65 just before Dell unveiled its original offer.

The premium underscores the importance of data storage and analysis, as big businesses shift towards cloud computing, where information is housed remotely rather than on users’ computers.

3Par said that before Dell’s deadline to outbid HP’s $27-a-share offer ran out on Wednesday night, it had made an offer of $32. Dell said 3Par had rejected its final offer.

HP’s share price has fallen as investors worried that it would overpay for 3Par, which operates in a strategic niche attractive to both HP and Dell, which are both trying to mimic IBM’s strategy by becoming one-stop shops for large customers’ technology needs. With historically poor margins in the competitive PC industry, they are also aiming to get more recurring, high-margin sales.

Dell was for some time the world’s largest PC maker, but was supplanted after HP bought Compaq Computer. More recently, Dell followed HP’s move into the service business, buying Perot Systems after HP bought EDS.

On Tuesday Dell president for enterprise customers Steve Schuckenbrock, said, “We’re trying to do the best thing for customers and for shareholders. You have to think through the valuations ... There is a point when winning and losing blur.”

HP has a market value around four times Dell’s and thinks it can afford to pay more for 3Par not only because it has more cash but because it can better integrate the operations and expertise of the fellow Californian company.

Dell said it was entitled to receive a $72 million break-up fee from 3Par upon the termination of its merger agreement.





Trichet raises eurozone growth forecast
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2010
Published: September 2 2010 12:49 | Last updated: September 2 2010 14:45
http://www.ft.com/cms/s/0/40ed1210-b67c-11df-86ca-00144feabdc0.html


Official borrowing costs in the eurozone have been left at record lows for the 16th consecutive month as the European Central Bank sticks to its cautious stance on the region’s economic prospects.

The decision to leave the ECB’s main interest rate at 1 per cent had been widely predicted. Although growth has picked up in recent months, eurozone inflation, which was at 1.6 per cent in August, remains in line with its target of an annual rate “below but close” to 2 per cent.

Jean-Claude Trichet, president, announced the that the ECB would extend into 2011 its policy of matching in full eurozone banks’ demand for liquidity on a weekly, monthly and three-monthly basis.

The move reflects continuing uncertainty about the strength of the economic recovery and the vulnerability of banks in eurozone “peripheral” countries such as Spain, Ireland and Greece, where demand for ECB liquidity has been strongest.

After the publication of the results of European bank “stress test” results in late July, financial market tensions showed signs of easing. The volume of ECB liquidity in the financial system has also fallen.

But the amount outstanding on ECB operations is still almost €600bn, compared with nearer €400bn prior to 2007. Market tensions rose again recently over the public cost of supporting Ireland’s bank system.

Mr Trichet also said the ECB’s forecast for eurozone growth this year would be revised upwards from the range with a mid-point of 1 per cent forecast in June. “Annual real GDP growth will range between 1.4 per cent and 1.8 per cent in 2010 and between 0.5 per ent and 2.3 per cent in 2011.

This revision was the result of a “stronger-than-expected rebound in economic growth in the second quarter, as well as better-than-expected developments over the summer months.

“For 2011, the range has also been revised upwards reflecting mainly carryover effects from the projected stronger growth towards the end of 2010,” said Mr Trichet.

However, he said it was essential to remain “cautious and prudent” about the strength of the recovery.

So far, the ECB has not been convinced that the pace of expansion has become self-sustaining – which would make it capable of withstanding a significant slowdown in the US or Asia.

A double dip back into recession in the US could hit peripheral eurozone countries especially hard by reducing their scope for boosting growth through exports.

Financial markets do not expect the ECB to lift its main interest rate until well into 2011.

So far, the eurozone’s recovery has been dominated by an export-led surge in Germany.

The ECB is likely to take some comfort from breakdown of eurozone gross domestic product data for the second quarter, published by Eurostat, the European Union’s statistical unit.

These showed exports rose by 4.4 per cent compared with the previous three months. But consumer spending grew by a faster-than-expected 0.5 per cent and made a significant contribution to the overall 1 per cent rise in GDP. That pointed to a broadening of the upturn.





Foreign companies ‘losing out’ in China
By Jamil Anderlini in Beijing
Copyright The Financial Times Limited 2010
Published: September 2 2010 13:24 | Last updated: September 2 2010 13:24
http://www.ft.com/cms/s/0/ae64093e-b677-11df-86ca-00144feabdc0.html


Foreign companies are losing market share in China across a broad range of industries because of discriminatory treatment by the government and regulators, according to the European Chamber of Commerce in China.

In its annual position paper, the organisation aired a host of complaints from its member companies and explicitly accused Beijing of violating its World Trade Organisation commitments through its heavy-handed certification requirements.

“Compulsory certification in excess of what is reasonable is being used to keep foreigners out of the market and business license requirements continue to exclude foreign companies from entire sectors,” the group said.

China uses business licensing to restrict foreign access to some sectors and applies “vague and unprecedentedly broad definitions of public security and critical infrastructure” in its certification of a wide range of products, the EU chamber said.

This means foreign companies, particularly in industries like banking, transportation, IT and telecommunications, are often unable to get their products certified and so cannot sell them in China.

Based on information gathered from hundreds of European companies operating in China, the position paper is widely distributed in Beijing and Brussels and is important in the formulation of EU policy towards China.

The report was published on Thursday just as Lady Ashton, the EU foreign policy chief, arrived in Beijing for meetings with Chinese leaders, including Wen Jiabao, premier.

After meeting Mr Wen, Lady Ashton said he had adopted a conciliatory tone when she raised the issue of foreign investment and had admitted that the government still had some work to do but had said he wanted to create an environment that encouraged investment.

The content of this year’s position paper is unusually critical and reflects increasing dissatisfaction among many foreign businesses in China.

In recent months, a number of executives, including the chief executives of industrial giants General Electric, Siemens and BASF, have commented on the tougher operating environment for foreign businesses in China.

While it is difficult to identify any new government policies that explicitly target foreign firms, companies complain that the previous trend in China of market opening and reform has stalled and in some areas gone into reverse.

“There appears to be a growing willingness and tendency to exclude foreign businesses from the Chinese market,” said Jacques de Boisseson, president of the chamber.

“There are some parts of the Chinese administration that don’t welcome foreign investment and would be satisfied with Chinese companies taking a larger and larger share of the market.”

In its latest business confidence survey, the EU chamber found that 39 per cent of respondents expected the regulatory environment for foreign businesses to worsen over the next two years and a further 22 per cent said they expected no improvement. Only 10 per cent said they thought the regulatory environment would improve for foreign businesses.

“Although the market is growing rapidly there is hardly any industry in China where we see our market share increasing; in fact it is shrinking for foreign companies in most sectors,” said one official from the chamber.

The heavy restrictions that remain on market access for foreign companies in a wide range of Chinese industries is seen as particularly galling at a time when Chinese companies are rapidly expanding into international markets.

In just one example, Chinese carmaker Geely recently acquired Volvo in a high profile deal but foreign carmakers are limited in China to 50 per cent ownership of joint ventures with local companies, which usually require transfer of technology.

According to the EU chamber, just 3 per cent of outbound investment from Europe, or about €5.3bn, goes directly to China.

“That figure does not reflect the attraction the fast-growing Chinese market should have for European companies and if there were greater market access and a better regulatory environment then this percentage would naturally be much higher,” Mr de Boisseson said.

Unequal and discriminatory application of laws and regulations, discriminatory government procurement policies, weak protection of intellectual property and regulatory reform backsliding were all serious concerns for European businesses in China, the Chamber said.

Sectors in which foreign businesses feel especially hampered include banking, insurance, automotives, wind power, IT and telecom equipment, petrochemicals, construction, healthcare equipment and power transmission.

Additional Reporting by Geoff Dyer