Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Eurozone worries linger over markets
By Jamie Chisholm, Global Markets Commentator
Copyright The Financial Times Limited 2010
Published: September 7 2010 07:40 | Last updated: September 8 2010 11:58
http://www.ft.com/cms/s/0/9ebb052e-ba4a-11df-8e5c-00144feab49a.html


Wednesday 11:00 BST. Bourses in Europe are struggling to make headway following declines in Asia and Wall Street as concerns about Europe’s banking sector rumble on.

The FTSE All-World index is down 0.4 per cent and industrial commodity prices are mostly lower as traders also continue to fret that the advance in riskier assets seen in the first few days of September may not be justified, given the quality of recent economic data.

This caution is encouraging further flows into core government bonds, while perceived currency havens, such as the Japanese yen and Swiss franc are still enjoying demand, suggesting forex traders remain skittish. US equity futures are down 0.3 per cent.

Bulls will have hoped that Tuesday’s euro-squall may have blown over today, as many noted that talk of fudged eurozone banking stress tests was not really anything new.

Unfortunately, news that National Bank of Greece, the country’s biggest lender, is needing to raise €2.8bn to help it through the debt crisis, has only reaffirmed in traders’ minds the precarious health of the region’s banking sector. NBG’s shares are down 7.7 per cent, helping to push Athens down by 2.5 per cent.

The Market Eye

If anyone was unconvinced that Tuesday’s action pointed to increasing wariness among traders then they should take a look at the CBOE Index Put/Call ratio. Such ratios track the amount of puts and calls bought on indices, such as the S&P 500, and are a useful – though not perfect – guide to how bigger traders view prospects for the equity market (individual investors tend to choose individual stock options). The CBOE Put/call ratio has sported an average of 1.41 over the past 12 months – the pessimistic skew, more puts than calls, reflecting institutions’ greater need to buy downside protection for their portfolios. However, the ratio spiked to 2.47 during Tuesday’s session, it’s highest in nearly four years, a remarkable move given the stockmarket was down a relatively “normal” 1.2 per cent on the day. September sure is is a jittery month.

The FTSE Global Banking index, which shed 1.9 per cent on Tuesday, is lower by another 1 per cent today.

If investors who have witnessed the past three years turmoil have learned one thing, it is that worries about the banking sector are a supremely powerful driver of broader market sentiment.

☼ Factors to Watch. A quiet day for data, but traders will be keen to give the Federal Reserve’s “Beige Book” a good scan for additional clues to the health of the US economy. ☼

● Europe. The region’s banks are again under selling pressure as worries about sovereign debt exposure nag away at investors. The FTSE Eurofirst Banks index is down 1.4 per cent, while life insurers are off 1.1 per cent.

The falls in the financials are dragging the broader market into negative territory, though firmness in an eclectic mix of defensive sectors means the FTSE Eurofirst 300 is down just 0.3 per cent.

The FTSE 100 in London is down 0.7 per cent because its banking sector carries a heavier weighting, while additional softness among miners is not helping matters.

● Asia. Wall Street’s slide and renewed strength in the yen helped push the FTSE Asia-Pacific Index down 1 per cent, led by a 2.2 per cent stumble for Japan’s Nikkei 225 as exporters were hit hard.

In Sydney, the S&P/ASX 200 Index fell 0.8 per cent, with mining shares down again on lower commodity prices and fears about the impact of the resources tax now that the Labor government led by Prime Minister Julia Gillard secured a second term.

The Hang Seng in Hong Kong is down 1.5 per cent, while Shanghai is off 0.1 per cent. South Korea’s Kospi Composite lost 0.5 per cent as traders awaited Thursday’s interest rate decision by the Bank of Korea.

● Forex. The yen has risen to a fresh 15-year high versus the dollar overnight, at one point touching Y83.35, boosted by haven flows and news of a big jump in Japan’s current account surplus. The Japanese unit is currently up 0.1 per cent to Y83.75 and up 0.1 per cent to Y106.22 versus the euro.

The Swiss franc, another favourite bolt-hole for traders, hit SFr1.2776 against the euro, its strongest level versus the single currency since its launch in 1999. The Swissie is currently up 0.3 per cent to SFr1.2787.

The euro has otherwise stabilised after the banking fears led to the previous session’s sharp drop. The single currency is flat against the dollar at $1.2680.

● Debt. Core government bonds were still in demand following Tuesday’s flight to safety. The yield on US 10-year notes is down 1 basis point to 2.59 per cent, while Bunds are off 5 basis points to 2.23 per cent. The US Treasury will auction $21bn of new 10-year paper later today.

Peripheral debt remains in the doghouse. The Greek 10-year yield is up 7 basis points to 11.96 per cent, while Portuguese benchmarks are up 1 basis points to 5.90 per cent. This is a four-month high for Portuguese yields and it comes after Lisbon today had to bump up its coupon to get away the sale of €1.04bn of bonds maturing in 2013 and 2021.

● Commodities. Metals are again under pressure, though the selling is milder than the previous session. Copper is down 0.4 per cent to $7,585 a tonne. Oil is off 0.8 per cent to $73.53 a barrel.

Gold is poised just below its nominal high of $1,265 an ounce, currently up 0.5 per cent at $1,259 an ounce.

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





Fall in German exports signals slower growth
By Ralph Atkins
Copyright The Financial Times Limited 2010
Published: September 8 2010 09:32 | Last updated: September 8 2010 09:32
http://www.ft.com/cms/s/0/e6a6e508-bb1a-11df-b3f4-00144feab49a.html


German exports fell in July in the latest sign that growth in Europe’s largest economy is slowing.

News of the 1.5 per cent decline on the previous month, reported by the German statistical office, followed figures earlier this week that showed growth in industrial orders had also cooled more than expected in July.

They added to evidence that after a strong growth spurt in the three months to June, the pace of expansion would moderate over the rest of the year.

Exports powered Germany’s climb out of last year’s deep recession, buoyed especially by demand from China, for instance for luxury German-made cars. Despite the latest month-on-month decline, German exports in July were almost 19 per cent higher than a year before.

Even if German growth slows over the rest of the year, economists generally do not expect a double-dip back into recession. Although worries have grown about the outlook for the US economy, demand for German exports from Asia is expected to remain robust.

Germany’s recovery had also broadened beyond exports. The figures showed imports had risen faster over the past year. In July, imports were almost 25 per cent higher than a year before, although compared with the month before they were down 2.2 per cent. The year-on-year increase was probably the result of a surge in goods and materials imported to manufacture products that were then exported, but it could also have reflected a pick-up in domestic demand.

Germany’s economy will feel the impact of fiscal austerity programmes across the eurozone, compounded by the weakness of the southern European economies worst hit by this year’s crisis over public finances.

But Carsten Brzeski, economist at ING in Brussels, pointed out that Spain, Portugal, Greece and Ireland accounted for only about 5 per cent of German exports in the first half of this year. “German exports are now normalising,” he said, but “even at a slower pace, the export sector should remain an important growth driver”.







Obama to push business tax breaks
By Anna Fifield in Washington
Copyright The Financial Times Limited 2010
Published: September 7 2010 17:16 | Last updated: September 7 2010 20:20
http://www.ft.com/cms/s/0/5cc082b8-ba98-11df-b73d-00144feab49a.html


President Barack Obama is stepping up his campaign to regain the political initiative on the economy, preparing to announce on Wednesday a plan allowing companies to write off all capital investments until the end of next year.

The proposal, the latest in a string of ideas the president is unveiling this week, is aimed at showing voters before the November 2 Congressional elections that his administration is taking decisive action to repair the ailing economy.

But it is unlikely that the measures, which also include the extension of a research and development tax credit and $50bn of infrastructure spending, will be passed by Congress before the elections, if at all.

Democrats stand to lose control of the House of Representatives and perhaps the Senate as well, as voters express disappointment with the Obama administration’s failure to bring down the unemployment rate and boost growth.

An NBC/WSJ poll published on Tuesday found that only 26 per cent expect the economy to get better in the next year, down 47 per cent from a year earlier.

Mr Obama will on Wednesday call on Congress to pass a bill that would allow companies to depreciate 100 per cent of their capital investments made between now and the end of next year. That would extend a tax break that has allowed them to write off 50 per cent of such investments in 2008 and 2009.

“This measure would provide tax incentives for businesses to invest in the United States when our economy needs it most,” the White House said on Tuesday.

This would amount to almost $200bn in tax cuts over the next two years, the White House said, adding that all but $30bn of this would be recouped by bringing forward tax benefits from future years. The White House said it was working with Congress to fund the remainder by closing tax loopholes.

But, coming on the heels of the $862bn stimulus package, economists said the proposals would provide only a modest boost to growth.

“Put it all together and I just don’t see this as a game changer for the economy,” said Michael Feroli, chief US economist at JP Morgan in New York.

The measures will be one more thing in lawmakers’ inboxes when they return to Capitol Hill on Monday after the summer recess. They join a small businesses lending bill, which includes a $30bn lending fund designed to give incentives for community banks to lend, and the question of whether to extend Bush-era tax cuts for the middle class and the rich.

But chances of getting any of the bills passed by Congress before November, let alone providing any kind of boost to the economy, are slim.

“The only way we are going to get this through is with Republican support, and they have blocked each and every proposal we have made so far,” said Jim Manley, a spokesman for Harry Reid, the Senate majority leader who will have responsibility for bringing the bills to the chamber floor.

“We see no reason why anything would change now,” Mr Manley said.

Senate leaders are now talking to the White House about when to bring the president’s latest proposals to the floor. Regardless of when discussion begins, ending debate on the measures and allowing them to be put to the vote will require 60 votes – and Democrats are one shy of that number.

Republicans, who have derided almost every administration proposal as “job-killing”, attacked the idea. Mitch McConnell, the Senate Republican leader, said the “latest plan for another stimulus should be met with justifiable scepticism”.

Big business said the administration was trying to pick winners and losers by providing tax credits to politically favoured industries.

“[The president’s] agenda of more taxes, regulations, and mandates clearly isn’t working,” said Bruce Josten, executive vice president at the US Chamber of Commerce. “In fact, it has created tremendous uncertainty and delayed and weakened the recovery.”

Additional reporting by Robin Harding







BP tries to spread blame for Gulf spill
By Sylvia Pfeifer
Copyright The Financial Times Limited 2010
Published: September 8 2010 12:55 | Last updated: September 8 2010 12:55
http://www.ft.com/cms/s/0/e76e6e68-bb36-11df-b3f4-00144feab49a.html


BP has blamed “a sequence of failures”, including a bad cement job and the misreading of pressure tests by engineers, for the disastrous Gulf of Mexico oil spill.

In an internal inquiry into the April 20 disaster, published on Wednesday the UK oil group faulted its own engineers for the accident but also said mistakes were made by Transocean, which leased the Deepwater Horizon rig to BP, and Halliburton, the company that was responsible for cementing the well to secure it.

It identified eight factors behind the disaster, including mechanical failures, human judgements, engineering design and team interfaces.

The report – compiled by Mark Bly, BP’s head of safety and operations and a team of more than 50 specialists from inside and outside the company – is the first in a number into the accident, which killed 11 people and caused the largest offshore oil spill in history.

The factors included that:

• there were weaknesses in the cement design and testing of the Macondo well;

• BP and Transocean misread the results of a pressure test even though the well was not completely sealed;

• over a 40-minute period, the Transocean rig crew failed to recognise and act on the influx of oil and gas into the well until they were rapidly flowing to the surface; and

• even after the explosion and fired had disabled all crew-operated controls, the rig’s blow-out preventer – the stack of valves on the seabed designed to stop gas and oil escaping – “failed to operate, probably because critical components were not working”.

Tony Hayward, BP’s outgoing chief executive, said in a statement that “it is evident that a series of complex events, rather than a single mistake or failure” led to the tragedy.

“Multiple parties, including BP, Halliburton and Transocean, were involved.

“To put it simply, there was a bad cement job and a failure of the shoe track barrier at the bottom of the well, which let hydrocarbons from the reservoir into the production casing. The negative pressure test was accepted when it should not have been, there were failures in well control procedures and in the blow-out preventer; and the rig’s fire and gas system did not prevent ignition.

BP also stressed that based on the report, it was unlikely that the well design – for which BP was responsible and which was signed off by its partners in the well, Anadarko and Mitsui – contributed to the incident, as the investigation found that “the hydrocarbons flowed up the production casing through the bottom of the well”.

BP emphasised that its inquiry had been limited by access to certain witnesses and evidence.

It will be followed by several others, including one by the US Department of Justice, as well as a raft of congressional inquiries and the commission backed by President Barack Obama and Congress.

Avoiding a finding of gross negligence from official inquiries into the accident is an important objective for BP, as that would potentially limit its penalties under the US Clean Water Act to about $5bn rather than a possible $21bn.

BP asked Mr Bly to conduct his independent investigation in April, and report directly to Mr Hayward.






Paulson & Co hit by US economic woes
By Sam Jones, Hedge Fund Correspondent
Copyright The Financial Times Limited 2010
Published: September 8 2010 11:49 | Last updated: September 8 2010 11:49
http://www.ft.com/cms/s/0/60f3f6c6-bb33-11df-b3f4-00144feab49a.html


Paulson & Co, the world’s third-largest hedge fund manager, has seen another painful month thanks to growing fears over the health of the US economy.

The firm’s flagship $9bn Advantage Plus fund, which aims to profit from trading corporate events, lost 4.26 per cent in August, according to an investor, writing back tentative gains made in July. The fund was down 6.6 per cent in the second quarter.

Last month proved worse for the $3bn Paulson & Co Recovery fund, however, which was launched in late 2008 to profit from a rebound in the US housing market and economy.

The Recovery fund lost 9.13 per cent over the month, erasing its 6.5 per cent gain in July and compounding its 12.6 per cent second-quarter loss.

Paulson & Co moved in July to scale back the risk across all of its funds after a particularly vicious May and June, which had seen the firm clock some of its worst ever monthly returns.

Bullish positions in banks such as Citigroup and Bank of America, as well as bets designed to pay off an upswing in the US housing market, have soured as investors have reassessed their view of the US economy.

Even Paulson’s $7bn Credit Opportunities fund – which shot to prominence in 2007 thanks to its spectacularly successful bets against the US subprime housing market – has seen mixed performance this year. The Credit fund lost 1.04 per cent in August.

The month was positive for the firm’s Gold fund, however, which returned 9 per cent. Drawdowns in Mr Paulson’s other funds are also likely to have been mitigated for clients that chose to invest in the funds through the firm’s separate gold-denominated share class, designed as a hedge against monetary debasement.

Around a third of the $35bn in assets the firm manages is estimated to be denominated in gold share classes.

A spokesperson for Paulson & Co could not be reached for comment.

Paulson & Co is far from alone in having had a difficult year. Very few hedge fund managers have been able to report strong performance this year.

The average hedge fund manager made just 0.17 per cent in August, according to Hedge Fund Research, and has returned just 1.29 per cent so far this year.

Pressure is now on for many managers to deliver stronger returns in the remaining months of the year.





HP sues to block Hurd’s move to Oracle
By Richard Waters in San Francisco
Copyright The Financial Times Limited 2010
Published: September 7 2010 21:08 | Last updated: September 8 2010 00:48
http://www.ft.com/cms/s/2/f82676e2-bab9-11df-b73d-00144feab49a.html


Hewlett-Packard has sued to block Mark Hurd, its former chief executive, from taking up a senior role at Oracle, adding a twist to a saga that has transfixed Silicon Valley.

The lawsuit, filed on Tuesday in a California court, came a day after Mr Hurd became a co-president at Oracle, giving him a key role as the software maker competes with HP in computer hardware. The suit seeks an injunction preventing Mr Hurd taking up the role.

The appointment marked a quick return for one of the industry’s most highly regarded executives. He was forced out by HP’s board in August after being found to have breached its code of conduct by mis-stating expenses linked to a relationship with a former HP marketing consultant.

HP said it had gone to court to protect important information. “In his new position, Hurd will be in a situation in which he cannot perform his duties for Oracle without necessarily using and disclosing HP’s trade secrets and confidential information to others,” the suit said.

Mr Hurd’s severance deal did not have a non-compete clause, said a person familiar with the issue. But he had signed agreements with HP preventing him disclosing trade secrets, the lawsuit says.

Lawyers predicted HP would struggle to prevail since California courts have been unwilling to bar executives from switching employers in cases involving “inevitable disclosure”.

“California does not enforce non-competes and it does not allow you to shoehorn anything else into a non-compete,” said Stephen Kramarsky, a partner in Dewey Pegno & Kramarsky.

HP has asked the court to block Mr Hurd from “holding a position with a competitor in which he will serve in a capacity that will make it impossible for him to avoid utilizing or disclosing HP’s trade secrets and confidential information”.

Oracle reacted angrily to the suit. “Oracle has long viewed HP as an important partner,” said Larry Ellison, chief executive. “By filing this vindictive lawsuit . . . the HP board is acting with utter disregard for that partnership.”