Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Traders tweak positions ahead of Fed decision
By Jamie Chisholm, Global Markets Commentator
Copyright The Financial Times Limited 2010
Published: September 20 2010 07:26 | Last updated: September 21 2010 15:15
http://www.ft.com/cms/s/0/0163b8c2-c470-11df-b827-00144feab49a.html


Tuesday 15:00 BST. Stocks are mixed and risk appetite is muted as traders tweak positions ahead of the US Federal Reserve’s monetary policy announcement later today.

The FTSE All-World equity index is up 0.2 per cent, and the S&P 500 on Wall Street is a fraction lower. The US benchmark is pulling back from the four-month high reached on Monday, despite initial signs it would open higher on better-than-expected housing starts data.

The S&P is up 8.9 per cent so far this month, after a poor August left investors susceptible to signs of improving jobs data in the US and a supportive corporate news backdrop – such as good results from Oracle and IBM’s $1.7bn purchase of Netezza.

Traders are today adopting a fairly “risk neutral” pose, with commodities and core bonds little changed. This reticence may hold for much of the global session until the Fed’s statement, due after European markets close.

One thing that had the capacity to shake desks from their Fed focus was the sovereign debt market.

The Market Eye

Markets reacted fairly positively to the round of eurozone bond auctions on Tuesday. Demand was generally better than expected and yields on some issues came in compared to benchmarks. But traders must keep this in perspective. Ireland, for example, has a 10-year benchmark yielding 6.3 per cent, 380 basis points more than equivalent Bunds. At the start of the year the spread was about 150 basis points. Similarly, the auction of Greek notes saw strong demand, but with the ECB placed as a backstop, why not take a short-term bet on a 3-month bill sporting 3.98 per cent? Clearly it is better that the auctions suggest improved appetite for peripheral paper. But at what price?

It’s a big day for new issuance, from Thailand to Brazil. But attention was trained on Europe, where Spain, Greece and Ireland offered their wares. The attitude of investors towards Spain has improved of late with 10-year yields off nearly 70 basis points from the level seen in June.

However, traders remained wary of the two nations at the eurozone’s western and eastern extremes – Ireland’s benchmark yields are close to euro-record highs – and any auction “failure” was likely to hit broader market sentiment.

In the the event, Ireland and Greece saw better demand than forecast. The news provided a brief pop for risk appetite, but this has faded as the Fed decision looms.

● Europe. The FTSE Eurofirst 300 is up 0.2 per cent, following its 1.4 per cent pop in the previous session, and the FTSE 100 is maintaining the 5,600 level, up 0.3 per cent as banks see buying.

Athens is up 1.3 per cent and Dublin up 0.9 after the relative success of the two countries’ debt sales provides support to financial groups.

● Asia-Pacific. Trading has been pretty thin, what with South Korea closed for the country’s full-moon holiday and Chinese bourses winding down ahead of the mid-autumn festival that will see the Shanghai exchange shut for the rest of the week from Wednesday. Caution ahead of the Fed’s decision is also damping speculative activity.

The FTSE Asia-Pacific index is up 0.1 per cent, the Nikkei 225 in Tokyo closed down 0.3 per cent, and Shanghai and Hong Kong both finished up 0.1 per cent. The S&P/ASX 200 in Sydney closed all but unchanged after an early advance was trimmed by profit taking as the Aussie dollar flirted with two-year highs following hawkish comments on interest rates by the central bank.

India’s Sensex is up 0.5 per cent, closing above the 20,000 mark for the first time since January 2008 as local interest is joined by heavy foreign inflows on hopes for the country’s development.

● Forex. The yen remains fairly near the level at which it settled relative to the dollar following last week’s Ministry of Finance intervention. The Japanese unit is starting to show signs of creeping higher, however, and is up 0.4 versus the buck at Y85.432.

The possibility, albeit remote, that the Fed may today extend quantitative easing in some form is continuing to weigh on the dollar. It is down 0.6 per cent versus the euro at $1.3138 and the dollar index, which tracks the buck against a basket of its peers, is off 0.4 per cent. The euro is benefiting from the outcome of the eurozone bond sales.

The Chinese renminbi is up for the ninth consecutive day – higher by 0.1 per cent relative to the dollar at Rmb6.7059 as Beijing slowly manages the currency’s revaluation. Earlier in the session it hit a recent high of Rmb6.6988.

Sterling is down 0.4 per cent versus the euro to 84.38p after the UK recorded its biggest August budget deficit on record.

● Rates. US 10-year note yields are down 2 basis point to 2.68 per cent as traders set up for a busy day of global issuance and the Fed decision.

Ireland’s 10-year yield is down 19 basis points at 6.32 per cent as the well-received auctions temper the anxiety surrounding peripheral debt. Spanish 10-year yields are down 3 basis points to 4.21 per cent and Greek equivalents are lower by 33 basis points to 11.45 per cent.

● Commodities. Gold is perched just below Monday’s new record nominal intraday high of $1,283.7, down 0.3 per cent at $1,275 an ounce. Industrial metals are slightly softer, while oil is seeing some heavy profit taking after the previous session’s 1.6 per cent rebound, losing 1.3 per cent to $73.88 a barrel.

Lumber futures moved limit up after traders piled in following the sharp rise in housing starts. In Chicago, the November contract rose $10 to $232 per thousand per board feet.

Follow the market comments of Jamie Chisholm in London and Telis Demos in New York on Twitter: @JamieAChisholm and @telisdemos





Downturn longest since Great Depression
By Robin Harding in Washington
Copyright The Financial Times Limited 2010
Published: September 20 2010 17:44 | Last updated: September 20 2010 17:44
http://www.ft.com/cms/s/0/4d45131c-c4ca-11df-9134-00144feab49a.html


The longest US recession since the Great Depression officially ended in June 2009, the body charged with dating US business cycles said on Monday.

The National Bureau of Economic Research said that the recession lasted 18 months, from December 2007 to June 2009. That was longer than the 16 months of the 1973-75 and 1981-82 recessions.

The announcement highlights the extraordinary length of the recession that began when the collapse of the subprime mortgage market triggered the most severe financial crisis since 1929.

An official end date for the recession also makes it official that the recovery since 2009 has been unusually weak and jobless. That gives evidence to those who argued that recovery from a recession caused by a financial crisis would be slow and painful as households struggle to pay down their debts.

Output is up by only 3 per cent after four quarters of recovery compared with 7.7 per cent after the 1982 recession and 6.2 per cent after the recession that ended in 1975.

The NBER said that it was not commenting on the health of the recovery. “In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favourable or that the economy has returned to operating at normal capacity,” it said.

“Rather, the committee determined only that the recession ended and a recovery began in that month.”

President Obama, speaking on CNBC, said the small-government Tea Party movement had wrongly blamed his administration for the deficit rather than past tax cuts and the rising costs of entitlement programmes.

“It’s not enough just to say, ‘Get control of spending,’ ” he said. “I think it’s important for you to say, ‘You know, I’m willing to cut veterans’ benefits,’ or, ‘I’m willing to cut Medicare or Social Security benefits,’ or, ‘I’m willing to see these taxes go up.’ ”

The trough in gross domestic product was in the second quarter of 2009 but the NBER’s committee of economists looks at a range of other statistics to date a recession. Some measures such as payrolls and the number of hours worked did not reach their lowest point until later in the year.

The declaration means that were the US to suffer a ‘double dip’ then the NBER would count it as a new recession rather than a continuation of the existing one.







Premiums for Ireland’s debt rise sharply
By David Oakley, Capital Markets Correspondent
Copyright The Financial Times Limited 2010
Published: September 21 2010 11:10 | Last updated: September 21 2010 11:10
http://www.ft.com/cms/s/0/7dbb737a-c55a-11df-9563-00144feab49a.html


Investors demanded big premiums to buy Irish debt on Tuesday amid growing fears that Dublin will have to turn to emergency funds from the eurozone because of the rising cost to bail out its ailing banks.

The Irish sold €1.5bn, the maximum target for the auction, but were forced to pay yields of more than 6 per cent on eight-year loans and just under 5 per cent on four-year loans. This is about the same amount that Dublin would have to pay to borrow from the eurozone’s bail-out fund, the European Financial Stability Facility.

Ireland has been thrust into the centre of the eurozone debt crisis as its borrowing costs have reached record levels, while this week central bank governor Patrick Honohan warned the government needed to cut its budget deficit at a faster pace.

Debt managers sold €1bn in an auction of 2018 bonds at an average yield of 6.02 per cent, compared with 5.08 per cent at the last sale of the security in June. They sold €500m in an auction of a 2014 bond at an average yield of 4.76 per cent, compared with 3.62 per cent at the last sale of the security in August.

Although the auctions saw strong demand with the four-year bond more than five times covered and the eight bond nearly three times covered, analysts warned that the Irish may be “on the slippery slope” towards a Greek-style bail-out.

Padhraic Garvey, global head of rates strategy at ING, said: “Ireland will fight tooth and nail to avoid going to the eurozone bail-out fund, but the cost in terms of yield they are paying is a worry. However, yields will have to rise to around 7 per cent or 8 per cent before it is game over and Dublin will have to follow Greece.”

One investment fund manager said: “Ireland is on the slippery slope, and it could be difficult for it to avoid turning to the international community for funds, if not this year, then maybe next year. Its banking liabilities are just too great.”

Brian Lenihan, finance minister, has sought to quash suggestions that Ireland’s economic woes might force it to seek the help of the International Monetary Fund.

Mr Lenihan insisted over the weekend that “the underlying economic structure is very strong”, reiterating that Ireland had raised sufficient funds to finance its budget through to the middle of next year.

Separately, Spain successfully sold just over €7bn in one-year and 18-month loans, the maximum target for the auction. It sold €5.28bn of 12-month bills at an average yield of 1.90 per cent compared with 1.83 per cent in August. It sold €1.76bn of 18-month debt at a yield of 2.14 per cent compared with 2.07 per cent previously.

However, Spain is no longer considered one of the weakest eurozone economies because of its determination to address the problems in its banking sector.

Bankers warned that the next big test is an auction of four-year and 10-year bonds by Portugal on Wednesday. Lisbon is expected to raise about €1bn.

Investors say the eurozone bond markets now fall into three broad categories: the strongest core countries of Germany and The Netherlands; the weaker but relatively stable economies of Italy and now Spain; and the weakest economies of Portugal, Ireland and Greece.






US housing starts hit 4-month high
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: September 21 2010 14:14 | Last updated: September 21 2010 15:33
http://www.ft.com/cms/s/0/d574f74e-c578-11df-9563-00144feab49a.html


New home construction rose to its highest level in four months in August, calming fears that the US housing market was facing a second downturn.

Commerce department figures showed that housing starts rose by 10.5 per cent last month to an adjusted annual rate of 598,000. The monthly rise was far faster than economists’ had projected and followed a modest uptick the prior month.

The data come as the Obama administration is under severe pressure to accelerate the economic recovery ahead of the November mid-term elections. Later on Tuesday the Federal Reserve will conclude its policy meeting at which it is expected to debate new measures to stimulate the economy.

During the last year, housing starts have increased by 2.2 per cent, but the market for home construction has been plagued by volatility as government stimulus provided a boost last spring before construction stalled during the summer.

“The post-tax credit plunge in housing activity, both sales and construction, is over, but we do not expect to see a strong recovery anytime soon,” said Ian Shepherdson, chief US economist at High Frequency Economics.

In August, residential building was concentrated among multi-family dwellings, which saw construction soar by 42.7 per cent. Construction of single-family housing was up by 4.3 per cent.

Michelle Meyer, economist at Bank of America Merrill Lynch, warned that the August strength in housing starts might be temporary because multi-family construction tends to be volatile.

“Typically, such big swings in one direction will be quickly reversed, suggesting we should expect a sharp drop in multi-family starts over the next few months,” Ms Meyer said.

Those concerns were buttressed by August building permits, which signal future construction. Total building permits rose by 1.8 per cent to 569,000 but single-family permits fell by 1.2 per cent from July to August, signalling more volatility is ahead.

Housing starts are an important indicator of activity in the housing market, but some economists argue that construction needs to slow so that an overhang of housing supply can be cleared from the still-fragile market. High rates of foreclosure and repossessions are putting downward pressure on prices of existing homes, and more new housing could be a further drag.

Regionally, housing starts were the most robust in the midwest and west, rose modestly in the south and plunged in the northeast.

In spite of recent signs of life in the housing market, builders remain under pressure. The National Association of Homebuilders said on Monday that builder sentiment remained depressed because of persistent concerns about foreclosures and unemployment.