Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Eurozone banking worries batter stocks
By Jamie Chisholm, Global Markets Commentator
Copyright The Financial Times Limited 2010
Published: September 20 2010 07:26 | Last updated: September 23 2010 13:59
http://www.ft.com/cms/s/0/0163b8c2-c470-11df-b827-00144feab49a.html


Thursday 14:00 BST. European stocks have been slammed into reverse as worries about the Irish banking system return to haunt investors already put on edge by weak eurozone data and nagging fears about the implications of the Federal Reserve’s hint at further monetary easing.

The FTSE All-World index is down 0.5 per cent and core sovereign debt is in demand, pushing yields lower, as traders seek perceived havens. S&P 500 futures are down 1 per cent, suggesting Wall Street’s benchmark will open below the 1,130 support/resistance level, as worse than expected US weekly jobless claims add to the woe.

The dollar is also attracting funds, following its drop to 6-month lows in reaction to the Fed’s pledge on QE, while gold appears poised to strike at $1,300 an ounce.

The European session had begun with modest gains as a swath of holidays in Asia ensured the global trading day started with a whimper.

The FTSE Eurofirst 300 fell 1.5 per cent in the previous session, with financials leading the sell-off, as investors worried about the dour message the Fed was in effect sending regarding the health of the US economy when it left the door open for more quantitative easing.

Those concerns are clearly lingering today – and they were distilled by reports showing growth in Germany’s manufacturing and service sectors slowed more than expected in September.

The Market Eye

Talk of QE2 may have the equity markets in a bit of a dither, but the consequent low bond yield environment seems to be offering an unequivocal bonanza for top-rated corporates. Microsoft on Wednesday issued a 3-year bond at a record low yield for a company of just 0.875 per cent, trumping IBM’s recent 1 per cent offering. The US government must currently pay 0.67 per cent to flog 3-year paper. Microsoft says it is raising the money – $1bn from the 3-years and another $3.8bn split between 5-,10, and 30-years – to pay for capital expenditure, and acquisitions. It will also spend money on buybacks. And why not, when your stock yields more than 2 per cent.

However, selling really kicked in as traders picked up on a report from the Irish Examiner that said Ireland’s finance minister Brian Lenihan “has given the strongest indication yet that the riskiest lenders to Anglo Irish Bank will soon be told they will not get all their money back”.

News that Ireland’s GDP fell 1.2 per cent in the second quarter added to the concern, as did rumours of a default by Allied Irish bank. It should be stressed there has been nothing to suggest the latter is anything other than market scuttlebutt at this stage.

The Eurofirst is now down 1.2 per cent, with banks off 2 per cent. London’s FTSE 100 is down 1.4 per cent with the heavyweight sectors that were initially in the black – oils, financials, and miners – all turning tail.

Factors to Watch. US leading indicators for August and last month’s existing home sales will be released later.

Forex. The US dollar index, which tracks the buck against a basket of its peers, is off the six-month lows it hit on Wednesday after investors speculated Fed governor Ben Bernanke would flick the greenback “printing” switch. The DXY, as the gauge is known, is up 0.3 per cent to 80.02 as traders flee the euro on the revived banking concerns.

The single currency is down 0.4 per cent versus the dollar to $1.3340 and lower by 0.6 per cent relative to the yen at Y112.48. The yen is up 0.2 per cent versus the dollar at Y84.31, and is now around 1.5 per cent stronger than it was in the immediate aftermath of Tokyo's intervention last week.

Rates. US Treasury yields are adding to the sharp falls over the past two sessions on hopes the Fed would buy more bonds as part of any quantitative easing programme. The 10-year benchmark yield is down 6 basis points at 2.50 per cent on haven flows and following the soft jobs numbers.

Worries about Ireland is spooking the eurozone peripheral sector, pushing yields higher. The Irish 10-year note is dropping, pushing yields up 19 basis points to 6.53 per cent, a new euro-record, while the nation’s credit default swaps have also hit a fresh record high of 500 basis points.

As investors flee peripherals they move into the core, forcing yields on 10-year Bunds down 6bp to 2.28 per cent. German paper is also benefiting from news Berlin will cut back on planned issuance as better than forecast growth eases budget pressures.



Commodities. Gold seems poised to pounce upon the $1,300 an ounce level as fears over a bout of competitive currency revaluations drive some investors into the metal. The bullion is up 0.2 per cent at $1,292, just shy of Wednesday’s intraday nominal high of $1,296.1. Silver is just holding on to the $21 an ounce mark, having earlier hit a two-and-a-half year peak of $21.21.

Industrial metal prices are a touch stronger, quite surprising given the risk aversion elsewhere. Copper is up 0.2 per cent to $7,857 a tonne, close to its 5-month high. Oil is succumbing to the “risk-off” trade, dropping 1.1 per cent to $73.90 a barrel.

Asia-Pacific. Tumbleweed blew across the trading rooms of the region as China, Hong Kong, Japan and South Korea were closed for various national holidays. Those exchanges that were open inherited scant fresh drivers from Europe and the US overnight, other than the reverberations from the Fed’s policy statement.

Sydney benefited from the previous session’s jump in metal prices, pushing miners higher and helping the S&P/ASX 200 to a 0.2 per cent advance. The FTSE Asia-Pacific index is down 0.1 per cent.

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





Germany leads slowdown in eurozone
By Ralph Atkins in Frankfurt
Copyright The Financial Times Limited 2010
Published: September 23 2010 10:23 | Last updated: September 23 2010 10:23
http://www.ft.com/cms/s/0/6d97f410-c6ee-11df-a806-00144feab49a.html


Eurozone growth is slowing markedly, with Germany leading the deceleration, according to a closely watched survey.

A larger-than-feared slump in purchasing managers’ indices for the 16-country region indicated that the pace of expansion had tumbled in September, presaging a significantly weaker final few months of the year.

The weak data added to evidence that gloomier global prospects, a strengthening euro, and the crises conditions facing the Greek and Irish economies are taking a toll on eurozone prospects. They did not point to a double-dip recession in continental Europe as a whole – but highlighted the vulnerability of countries still struggling to bring their public finances under control. “The turn in the world trade cycle has finally reached the eurozone,” said Nick Kounis, economist at ABN Amro in Amsterdam.

The eurozone economy expanded rapidly in the second quarter of this year, when gross domestic product surged 1 per cent compared with the previous three months, and by 2.2 per cent in Germany. However, the composite purchasing managers’ index, covering manufacturing and service sectors and published on Thursday, fell from 56.2 in August to 53.8 in September – the lowest since February.

The survey is regarded as a good indicator of likely trends in growth, with a figure above 50 indicating an expansion in activity. Germany saw a particularly sharp fall, with its composite index dropping from 58.4 in August to 54.8 in September.

The latest readings were consistent with eurozone GDP growing 0.6 per cent in the third quarter but then slowing to 0.3 per cent in the final three months of the year, said Chris Williamson, chief economist at Markit, which produces the survey.

He added: “Growth in France remained reassuringly resilient, and a sharp slowing in Germany may merely represent an expected cooling from the surging pace of expansion seen earlier in the year. However, outside of these two countries, double-dip recession fears will be heightened by a renewed contraction of economic activity.”

Earlier this week, the Bundesbank warned that the pace of German economic growth had weakened “markedly”. But it ascribed the slowdown to weaker global prospects and said the recovery remained “intact”. Although German policymakers worry about the county’s exposure to a fall in demand for its export goods, evidence is growing that the recovery is broadening with increases in real wages and falling unemployment gradually feeding through into stronger consumer spending.





Ireland’s economic recovery stalls
By John Murray Brown in Dublin and Jennifer Hughes in London
Copyright The Financial Times Limited 2010
Published: September 23 2010 12:35 | Last updated: September 23 2010 13:26
http://www.ft.com/cms/s/0/cc85396a-c702-11df-a806-00144feab49a.html


Ireland failed to emerge from recession after its economy contracted in the second quarter, putting further pressure on the country’s government to deal with its struggling banks.

The Central Statistics Office said on Thursday that gross domestic product fell by 1.2 per cent in the three months to the end of June. This compares with growth of 2.2 per cent in the first quarter.

Gross National Product, which strips the dividend and profit repatriations of foreign owned multinationals in Ireland and is seen by analysts as a better gauge of economic activity, declined by 0.3 per cent, compared with a fall of 1.2 per cent in the first quarter.

Describing the figures as a “disappointment” Aidan Corcoran, analyst with Davy stockbrokers, said: “We had been expecting a positive GDP quarterly growth rate to confirm the end of Ireland’s recession.”

Brian Lenihan, finance minister, took some comfort from the fact the GNP numbers appear to be “stabilising”

But most analysts were taken by surprise, and predicted the government would have to revise its full year forecasts. The department for finance is currently forecasting positive GDP growth of 1 per cent for 2010.

“It doesn’t’ augur well. I think there is very little chance we will have positive growth this year,” said Alan McQuaid, economist with Bloxham stockbrokers.

The premium Ireland pays over German borrowing costs - considered the eurozone’s strongest economy - rose to a record, at 4.16 percentage points for 10-year debt on Thursday following the release of the data.

The price of credit default swaps, a form of protection against default, reached a new record, up 14 basis points at 467bp, meaning that an investor would pay $467,000 a year for each $10m of Irish sovereign bonds they wanted to protect.

The main Irish stock index was 1.14 per cent lower in late morning trade. Bank of Ireland and Allied Irish Bank were off 3.4 per cent each at €0.61 and €0.58 respectively.

Bank bonds suffered after Mr Lenihan hinted again that Anglo’s subordinated bondholders might not get paid back. Bankers said the reports had spooked the market, even though the bondholders themselves appeared to have already factored in the risk they would not be repaid in full. Currently the bonds, which are designed to take losses before senior bonds, are trading at between 20 and 30 per cent of their face value, bankers said.

CDS on the senior debt of Bank of Ireland, the country’s strongest bank, rose 38bp to 530bp, according to Markit, while protection on its subordinated bonds, rose 26bp to 810bp.

Ireland has suffered one of the biggest contractions in economic activity of any advanced economy, with output falling by a tenth 2008-2009.

The bursting of the property bubble together with its ongoing banks crisis saw consumption collapse, unemployment rise, and businesses close down.

With the domestic economy still mired in debt, the government is putting all its hopes on the trade sector to pull the country round.

Mr Lenihan blamed the poor second quarter figures on a “surge in imports”. But he described the export numbers as strong. “I am encouraged by this – the necessary competitiveness improvements are working. We must export our way out of our current difficulties, there is simply no other way.”

In spite of the renewed turbulence, the National Treasury Management Agency successfully raised €400m in short-term funds on Thursday. It sold €300m of bills maturing next February which attracted bids worth four times the paper on offer, and €100m of notes due next April, which garnered bids for nearly 12 times the amount on offer.

Ireland has recently shrunk the amount of bills it auctions, but plans to continue running the sales to prove it can still tap the markets.





US jobless claims fuel labour woes
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: September 23 2010 14:20 | Last updated: September 23 2010 14:20
http://www.ft.com/cms/s/0/39aa0b3c-c70e-11df-a806-00144feab49a.html


New claims for unemployment insurance recorded an unexpected rise last week, underscoring the arduous path to recovery facing the US labour market.

Initial jobless claims rose 12,000 to 465,000, the labour department said on Thursday. Economists had expected new claims to remain flat after they fell to a two-month low the week before.

Claims have been improving in recent weeks after hovering near the half-million mark during the summer. The less volatile four-week average of new claims is down 3,250 to 463,250.

Economists argue that new claims need to fall to the low 400,000 level before the economy can sustainably add workers.

Companies have been cautious about hiring as they face an uncertain economic recovery. Some analysts have argued that the US is facing a “structural” employment problem, where businesses are unable to find suitable workers because of a lack of people with appropriate skills.

Last week, FedEx, the US package shipping company, said it would cut 1,700 jobs as it consolidates its struggling freight business.

At the Goldman Sachs retail conference earlier this month, Bill Simon, Walmart’s chief executive, described how customers line up at its stores before midnight at the start of each month when their electronic government benefits cards are activated to shop for items such as baby formula, milk, bread and eggs.

“Our sales for those first few hours on the first of the month are substantially and significantly higher,” Mr Simon said.

The number of Americans continuing to claim jobless benefits declined, falling by 48,000 to 4.489m. Although that improvement is welcome, the decrease is partially attributable to idle workers seeing their benefits expire.

Florida suffered the biggest rise in claims, with more job losses in construction, the services sector and manufacturing. Several states, such as California, Texas, and Nevada, had fewer claims thanks to a shorter work week.






US Congress to attack renminbi valuation
By Alan Beattie in Washington and Geoff Dyer in Beijing
Copyright The Financial Times Limited 2010
Published: September 23 2010 01:03 | Last updated: September 23 2010 05:02
http://www.ft.com/cms/s/0/769fdef4-c6a0-11df-8a9f-00144feab49a.html


Democratic leaders in the House of Representatives will move ahead with a bill allowing the US to retaliate against China for manipulating its currency, a significant escalation of the dispute between Washington and Beijing.

Sander Levin, chairman of the ways and means committee in the House of Representatives, said on Wednesday the bill would be compatible with World Trade Organisation rules.

But in a largely untested area of trade law the measure will evoke opposition from Beijing and could lead to a legal challenge in the WTO. The bill will go to committee on Friday and could be voted on by the full House as early as next week.

“This bill is being advanced in the absence of effective action on a multilateral basis,” Mr Levin said.

Hours later, Wen Jiabao, the Chinese premier, told business leaders in New York that pressure on Beijing was unwarranted.

“The conditions for a major appreciation of the renminbi do not exist,” he said. If the renminbi were suddenly to rise by a large degree against the dollar, “we cannot imagine how many Chinese factories will go bankrupt, how many Chinese workers will lose their jobs, and how many migrant workers will return to the countryside... China would suffer major social upheaval”.

China unpegged the renminbi on June 19 and allowed it to appreciate after two years of holding it constant but has intervened in the currency markets to slow its rise.

Barack Obama, US president, will have an opportunity to raise the pressure on Thursday when he meets Mr Wen in New York.

Mr Obama used a town-hall style meeting on Tuesday to reiterate the stronger line his administration had taken over the past few weeks, calling on Beijing to do much more to raise the value of the renminbi.

The bill would allow the commerce department to take currency undervaluation into account when calculating so-called “countervailing duties”, imposed on imports that are deemed to be unfairly state-subsidised.

The scope has been narrowed from an earlier proposed version and parallel legislation in the Senate in an attempt to protect it from legal challenge. The bill defines currency undervaluation as an export subsidy, which requires US companies to show that they have been materially injured before duties can be imposed.

Mr Levin said a strategy of diplomacy followed by Barack Obama’s administration had borne little fruit. “Efforts to date have not worked to correct the imbalances,” he said.

Though the administration has not taken a position on the bill, its counsel of caution against legislative confrontation with China has weakened. The US Treasury said: “We will carefully examine any proposals put forward.”

It is doubtful whether both the House and Senate will have time to pass legislation before Congress adjourns for November’s midterm elections. But the bills could be taken up in the so-called lame-duck session between the midterms and the new lawmakers taking their seats in January.

In spite of a ratcheting-up of pressure from Washington in recent weeks, the rhetoric from Beijing remains opposed to large concessions. Even policymakers who are sympathetic to a stronger currency have spoken out against giving in to the US.

“China will not go down the path Japan took and give in to foreign pressure on the issue of the yuan’s exchange rate,” said Li Daokui, a member of the central bank’s monetary policy committee. “The US should pay much more attention to its own problems. What has the US done while we have been reducing our trade surplus?”

The foreign ministry said on Tuesday it would be “unwise and also nearsighted” for the US to use legislation to put pressure on China over its currency.

US officials have said they will try to garner support from other members of the G20 to increase the pressure on China.

Additional reporting by agencies