Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Stocks on pause after September’s strong run
By Telis Demos in New York
Copyright The Financial Times Limited 2010
Published: September 27 2010 03:47 | Last updated: September 27 2010 19:34
http://www.ft.com/cms/s/0/4dd71c22-c9dd-11df-b3d6-00144feab49a.html


Monday 18:50 BST. Government bond yields continued to tick lower as investors’ thirst for safe-haven assets shows no sign of letting up, while stocks' September rally take a breather.

The FTSE All-World equity index is up 0.1 per cent to a near six-month high, taking its advance during September to more than 9 per cent. However, with core bond yields lower and industrial commodity prices falling back today, appetite for risk appears selective.

The global benchmark has climbed 14 per cent this quarter, powered by record peaks in some emerging markets – such as Indonesia and the Philippines – and an 11 per cent rise for the S&P 500 in New York, as investors become convinced that the US Federal Reserve stands poised to take supportive action should evidence of an economic relapse cause riskier assets to falter.

The S&P is down 0.2 per cent on Monday, however, as a modicum of profit taking tempts traders, and, for the first time in a while, the pace of new supply from IPOs is outpacing demand by companies for buybacks.

Yet whatever forces are pulling up stocks in September, which is entirely possibly an exaggerated swing on low-volume trading, do not seem to be working in the bond market.

Treasury yields are still not at the lows reached in August, but they are heading sharply in that direction, with double-digit yield declines for 10- and 30-year bonds at points today, and a record-low yield at auction for 2-year bonds. The dollar, as a corollary, continues to decline as investors foresee excess liquidity due to the Fed’s buying of bonds.

Jason Trennert, chief investment strategist at Strategas Research Partners in New York, says in a note that all-time highs in gold, 5-month highs in copper, tight credit spreads and rising equity prices all seem to be indicating that the odds of a double-dip in the global economy are relatively small and diminishing.

However, he adds “This, of course, stands in direct contradiction to the still-low yields of US Treasuries. One could guess that the potential for future quantitative easing on the part of the Fed has dissuaded many speculators from betting against bonds.”

Asia-Pacific. Shares moved higher, extending a four-week rally, as investors were encouraged by Wall Street’s 2.1 per cent bounce on Friday and rising US demand for capital goods.

The FTSE Asia-Pacific index rose 1.3 per cent – after China returned to the trading fold after last week’s holiday – bringing its gains for September and the quarter to 9.3 per cent and 14 per cent, respectively.

Japan’s Nikkei 225 added 1.4 per cent, buoyed by the broader optimism but with exuberance curtailed by news of a sharp fall in the nation’s exports – perhaps evidence that the yen’s recent strength is starting to bite.

South Korea’s Kospi index has added 0.8 per cent. Australia’s S&P/ASX 200 index has advanced 1.6 per cent, as banking shares posted solid gains.

The Shanghai Composite index rose 1.4 per cent , led by commodity shares, as the country played catch-up. Hong Kong advanced 1 per cent.

Europe. The region had already enjoyed much of Wall Street’s Friday gain on the day, so was scrambling for fresh catalysts ahead of the US open on Monday. Despite the M&A news, it seems investors were tempted by September’s good run and a bit of profit taking is curtailing the otherwise bullish undertone.

A weak banking sector left London’s FTSE 100 lower by 0.5 per cent, while the FTSE Eurofirst 300 is down 0.4 per cent.

Forex. The yen is continuing to pare the losses from interventions real and perceived designed to weaken it. Against the dollar, the yen is flat at Y84.18. Masaaki Shirakawa, the Bank of Japan governor, said on Sunday that the BoJ was ready to take further action to keep the Japanese economy on track but he was against any drastic measures.

The US dollar index, which tracks the buck against a basket of its peers, is down 0.1 per cent at 79.31, pushing further into six-month lows. The euro is near-flat against the dollar at $1.3487, with few data catalysts to encourage fresh position taking.

Rates. The 10-year US Treasury yield is down 9 basis points at 2.51 per cent, and the 30-year bond is down 10bp to 3.69 per cent as investors take advantage of relatively cheaper bonds at the longer end of the curve. Meanwhile, the two-year is more expensive than ever, with an auction of $36bn of the notes pricing at a record-low yield of 0.44 per cent.

Ireland’s 10-year note yields are at fresh eurozone record highs of 6.95 per cent – and a record 429bp spread against German Bunds – as worries about Dublin’s fiscal position and its banking system linger, with Anglo Irish Bank seeing its credit downgraded 3 notches by Moody’s.

Portuguese 10-year yields are at up 4 basis points at 6.47 per cent after the OECD warned Lisbon about its fiscal strategy.



Commodities. Metals are seeing modest profit taking after their recent good run, with copper down 0.6 per cent at $3.59 a pound.

Gold, which is up 0.1 per cent at $1,297 an ounce, is seemingly steeling itself for another charge at the record $1,300 mark touched last week as news emerges that European central banks are stopping bullion sales.

Oil is down 1 per cent at $75.72 a barrel. A Reuters survey showed analysts becoming less bullish on future oil prices as concerns about slowing economic activity and rising stockpiles weigh on sentiment. Estimates for 2011 were trimmed from an average price of $83.84 forecast in August to this month’s guess of $83.00.

A clutch of soft commodities – such as soybeans and sugar – were earlier at multi-month highs as tight supplies meet steady demand, and this helped to restrict the fall in the Reuters-Jefferies CRB index, which had initially hit its strongest level since mid-January. However, even the softs could not escape some position trimming and the CRB is now down 0.2 per cent.

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




Brazil warns of ‘currency war’
By Jonathan Wheatley in São Paulo and Peter Garnham in London
Copyright The Financial Times Limited 2010
Published: September 27 2010 16:30 | Last updated: September 27 2010 19:18
http://www.ft.com/cms/s/0/33ff9624-ca48-11df-a860-00144feab49a.html


An “international currency war” has broken out, according to Guido Mantega, Brazil’s finance minister, as governments around the globe compete to lower their exchange rates to boost competitiveness.

Mr Mantega’s comments in São Paulo on Monday follow a series of recent interventions by central banks, in Japan, South Korea and Taiwan in an effort to make their currencies cheaper. China, an export powerhouse, has continued to suppress the value of the renminbi, in spite of pressure from the US to allow it to rise, while officials from countries ranging from Singapore to Colombia have issued warnings over the strength of their currencies.

“We’re in the midst of an international currency war, a general weakening of currency. This threatens us because it takes away our competitiveness,” Mr Mantega said. By publicly asserting the existence of a “currency war”, Mr Mantega has admitted what many policymakers have been saying in private: a rising number of countries see a weaker exchange rate as a way to lift their economies.

A weaker exchange rate makes a country’s exports cheaper, potentially boosting a key source of growth for economies battling to find growth as they emerge from the global downturn.

The proliferation of countries trying to manage their exchange rates down is also making it difficult to co-ordinate the issue in global economic forums.

South Korea, the host of the upcoming G20 meeting in November, is reluctant to highlight the issue on the gathering’s agenda, also partly out of fear of offending China, its neighbour and main trading partner.

The US dollar has fallen by about 25 per cent against the Brazilian real since the beginning of last year, making the real one of the strongest performing currencies in the world, according to Bloomberg.

In spite of Mr Mantega’s recent aggressive public statements, however, Brazil has so far held back from taking any action other than intervening in the local currency spot market.

The central bank bought as much as $1bn a day for much of the past two weeks – about 10 times its daily average in recent months – but this was largely to absorb money entering the country to take part in last week’s $67bn share issue by Petrobras, the national oil company.

“There’s a real gap between the rhetoric and the action,” said Tony Volpon, head of emerging market research for the Americas at Nomura Securities in New York.




Southwest acquires AirTran for $3.4bn
By Alan Rappeport and Jeremy Lemer in New York
Copyright The Financial Times Limited 2010
Published: September 27 2010 13:25 | Last updated: September 27 2010 18:40
http://www.ft.com/cms/s/0/14ff99a0-ca2e-11df-87b8-00144feab49a.html


Southwest Airlines has agreed to buy rival AirTran in a deal that values the Florida-based low-cost airline at $3.4bn.

The move by Southwest is the first example of consolidation between two large US low-cost airlines and marks a departure from the Dallas-based airline’s usual strategy of organic growth.

Southwest, the originator of the low-cost airline model that has spawned imitators around the world, put its aggressive organic growth strategy on hold during the worst of the economic downturn and oil spike in 2008 caused it to pull back.

The deal will give Southwest a foothold in Atlanta - AirTran’s hub and also the busiest airport in the US - and put pressure on Delta Air Lines which is also based at Hartsfield-Jackson International airport. Delta shares fell about 2 per cent to $11.50 in early trading.

The deal also boosts Southwest’s presence in Washington DC, New York, and Boston and will for the first time see it move into international markets. AirTran has services to the Caribbean and Mexico.

“The acquisition of AirTran represents a unique opportunity to grow Southwest Airlines’ presence in key markets we don’t yet serve” said Gary Kelly, Southwest’s chief executive. “We think of ourselves as a growth company and we’re trying to make it happen.”

He also signalled that Southwest was looking at further international expansion.

Southwest’s cash and stock deal offer amounts to roughly $7.69 a share, a 69 per cent premium to Friday’s closing price, valuing AirTran’s equity at $1.4bn. Including AirTran’s debt and aircraft leases, the value of the transaction is $3.4bn.

Last year Southwest failed in a bid to buy Frontier Airlines out of bankruptcy, hampered by employee opposition.

Kevin Crissey at UBS warned the deal was “not good news for the industry,” because it could see Southwest start to grow again. Analysts worry that additional capacity could undercut fares just as airlines return to profitability.

Monday’s deal comes hard on the heels of regulatory approval of the merger between Continental Airlines and United Airlines, which would create the world’s largest carrier by revenues.

Consolidation has gathered pace in the airline industry, as the economic downturn hit passenger traffic.

In the year to June 30, Southwest had revenues of $11.2bn, while AirTran had revenues of $2.5bn. Together, the companies employ about 43,000 workers and have 685 aircraft.

The combined company will be based in Dallas and operate under the Southwest brand.

Shares of Southwest rose 9 per cent to $13.39 in early trading, while shares of AirTran jumped 60 per cent to $7.29.





Unilever to buy Alberto Culver for $3.7bn
By John O’Doherty
Copyright The Financial Times Limited 2010
Published: September 27 2010 08:30 | Last updated: September 27 2010 19:35
http://www.ft.com/cms/s/0/70401102-c9ff-11df-87b8-00144feab49a.html


Unilever is to buy Alberto Culver, the US consumer products group, in a $3.7bn deal that will see it bring brands such as TRESemmé and VO5 shampoos into the Anglo-Dutch conglomerate’s stable of hair care and skin care products.

The deal would be the biggest acquisition since Paul Polman became chief executive of Unilever in January 2009.

It would be the second big takeover under his tenure, following on from the $1.9bn deal to acquire the European personal care division of Sara Lee in September last year.

While it produces products such as low-sodium food dressings and baking sprays, Alberto Culver would primarily expand Unilever’s operations in personal care products such as skincare, hair care and body wash.

As a result of the deal, Unilever would be the largest company in hair conditioning, the second-largest producer of shampoo and the third largest in sales of hair styling products.

It would double the company’s market share in hair care both in the UK and the US.

But the group would still trail L’Oréal and Procter & Gamble in the US hair care market.

“Personal care is a strategic category for Unilever and growing rapidly,” Mr Polman said.

“Ten years ago it represented 20 per cent of our turnover. Strong organic growth has driven it to now reach over 30 per cent, with strong positions in many of the emerging markets.” Alberto Culver was formed in 1955 by the Chicago entrepreneur Leonard Lavin, who took a Los Angeles-based supplier of beauty products and used it to develop the VO5 hairdressing brand.

Alberto Culver still owns the Alberto VO5 brand of hair care products, but has expanded into skincare with the Simple, St Ives and Noxzema brands. It owns an array of food brands including Baker’s Joy and Mrs Dash food seasonings.

Analysts said Unilever appeared to be paying a demanding price for Alberto Culver but the deal made strategic sense.

The proposed price tag values the company, including its small cash pile, at about 14 times the consensus forecast for its 2010 earnings before interest, tax, depreciation and amortisation of $259m.

The group is targeting synergies of a minimum 10 per cent of sales, or $160m, by cutting overlaps in distribution, sales, manufacturing and head office costs.

For the 12 months ending in June, Alberto Culver made revenues of $1.6bn and earnings before interest, tax, depreciation and amortisation of more than $250m.

Mr Polman described Alberto Culver as a “bolt-on acquisition” and signalled that Unilever was not about to shift strategy to target large deals.

“Organic growth remains the cornerstone of our energising ambition to double the size of Unilever,” he said.

Shares in Unilever closed up 1.28 per cent £18.16 in London.

Alberto Culver shares were up 19.7 per cent by midday in New York at $37.70.