Today's Financial News Courtesy of the Financial Times

Today's Financial News Courtesy of the Financial Times


Riskier assets struggle as September surge ebbs
Copyright The Financial Times Limited 2010
Published: September 27 2010 03:47 | Last updated: September 28 2010 16:38
http://www.ft.com/cms/s/0/4dd71c22-c9dd-11df-b3d6-00144feab49a.html


Tuesday 16:25 BST. Investors are showing further signs of rally fatigue as riskier assets struggle for a second day to build on September’s strong gains.

The FTSE All-World equity index is up just 0.1 per cent, holding the benchmark’s advance this month at 9 per cent, as traders also fret about possible profit taking into the quarter’s close and old foes such as eurozone fiscal woes and currency spats denude confidence.

Sentiment has also been dented by a downbeat slug of US economic data, such as weak consumer confidence, a negative reading for the Richmond Fed manufacturing survey and a mixed Case-Shiller house price report, which showed little evidence of a rebound in the nation’s housing market.

However, proponents of the Bernanke ‘put’ paradigm – which argues that bad data hastens Federal Reserve support and is therefore good news for stocks – will be pleased by Wall Street’s reaction to its early setback. The S&P 500, which was at one stage down 0.9 per cent, is now flat as buyers step in.

Indeed, the raised chances of quantitative easing – where central banks may buy bonds to push funds into the economy – is delivering the unusual scenario of both stronger commodity prices and sharply lower core sovereign debt yields.

It has also helped gold to break decisively through $1,300 to a new high as some investors worry about the debasement of fiat currencies.

Europe. Bourses have been struggling all day, opening lower, with banks again under the cosh, after Standard & Poor’s said the cost to Ireland of bailing out Anglo Irish Bank may exceed the forecast €35bn ($47bn). The Irish government again denied it would default on Anglo Irish’s senior debt. The FTSE Eurofirst 300 is down 0.4 per cent and London’s FTSE 100 off 0.1 per cent.

The news on Anglo Irish has revived concerns about the health of the eurozone financial system and the impact its travails may have on national budgets and – via austerity packages – growth prospects.

The Market Eye

Is this what awaits US Treasuries? The yield on 10-year Japanese government bonds has fallen back below 1 per cent, off 3 basis points to 0.97 per cent, as it appears Tokyo is considering further easing of monetary policy to boost the flagging economy. Investors seem so desperate for havens that a sale of 2-year notes with a 0.1 per cent coupon on Tuesday attracted the strongest demand in five years.

Talk that Spain is facing a downgrade of its sovereign credit rating later this week is intensifying that angst. The main Dublin and Madrid equity indices are both off 0.2 per cent.

It is also possible that traders are getting nervous ahead of the expiry on Thursday of €225bn of ECB loans to banks. Interbank lending markets today showed little sign of stress in that regard, however.

Rates. Eurozone “peripheral” sovereign bonds are under pressure as investors worry about funding difficulties. The yield on Irish 10-year notes are up 16 basis points to 6.92 per cent. Portuguese 10-years are up 9 basis points to 6.64 per cent. However, it is noteworthy that in spite of downgrade chatter, the yield on Spain’s 10-year benchmark is little changed at 4.17 per cent.

Core government bond yields continued to flirt with record lows as investors’ thirst for haven assets showed little sign of letting up.

On Monday, an auction of $36bn worth of US 2-year notes priced at a record-low yield of 0.44 per cent, helping the complex rally across the duration spectrum as investors sought yield at the longer end of the curve. US 10-year yields, which fell 8 basis points in the previous session, are down another 5bp today at 2.48 per cent. The US will auction $35bn of 5-years later on Tuesday.

UK 10-year gilt yields are down 4bp to 2.92 per cent after Adam Posen of the Bank of England’s monetary policy committee said it was time for more quantitative easing.

Forex. Despite all the rhetoric addressing the currency markets, it was a quiet start to trading. The eurozone fiscal and banking concerns began to hurt the single currency but it later rallied, perhaps helped by a tardy reaction to the latest survey of German consumer sentiment, which was stronger than expected. But it received a big boost from the dollar’s drop following the weak US data. The euro is currently up 1 per cent at $1.3573.

The wobble in broader sentiment initially led to a move into dollars, but this has faded, leaving the US dollar index – which tracks the buck against a basket of its peers – down 0.6 per cent to 78.94, close to eight-month lows.

The yen is at Y83.83 to the dollar, from Y84.25 in late New York trade on Monday. Sterling is down 1 per cent to 85.89p versus the euro following the Posen comments.

Commodities. Gold has finally make a decisive move through the $1,300 level as more QE talk excites the gold bugs. The bullion is up 0.8 per cent at $1,307 having earlier hit a high of $1,307.7.

Metals have reversed early declines as the dollar’s fall trumps growth concerns. Copper is up 0.5 per cent to $7,946 a tonne.

Oil is up 0.6 per cent at $76.97 a barrel, as signs emerge that some producers are becoming wary of future demand.

Asia-Pacific. Asian shares traded lower, tracking Wall Street’s overnight decline, and on renewed concerns about European debt problems.

The FTSE Asia-Pacific index fell 0.5 per cent, led by a 1.1 per cent drop in Japan’s Nikkei 225 as the sight of the yen starting to creep higher hurt exporters.

The market remains jittery about possible Japanese intervention to curb the yen’s strength but stock losses are being somewhat limited on expectations of additional monetary easing. The Nikkei newspaper reported that the Bank of Japan will discuss further moves to ease monetary policy at its meeting next week.

Australia’s S&P/ASX 200 lost 0.1 per cent and Seoul’s Kospi Composite fell 0.3 per cent, as the strong won also weighed on South Korean exporters. New Zealand’s NZX-50 edged down 0.3 per cent.

Shanghai fell 0.6 per cent and Hong Kong dropped 1 per cent after a poor reception for Ningbo Port’s initial public offering damaged confidence on the mainland.

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






Experts see gold price rising to $1,450
By Jack Farchy in Berlin
Copyright The Financial Times Limited 2010
Published: September 28 2010 13:30 | Last updated: September 28 2010 13:30
http://www.ft.com/cms/s/0/a16b0bd2-cafa-11df-bf36-00144feab49a.html


The price of gold will rise to $1,450 a troy ounce in the next year, according to a poll of bankers, producers and analysts attending the London Bullion Market Association conference in Berlin, the biggest gathering of the precious metal’s industry.

If realised, that would mark a 12.5 per cent increase from current record prices just above $1,300 an ounce. On Tuesday, spot gold traded at $1,289.50.

The delegates of the LBMA conference have a strong record of predicting moves in the gold price, although their forecasts have consistently undershot actual prices in recent years. Last year they forecast gold would be trading at $1,182.50 at the start of this year’s conference.

“It’s very hard to be pessimistic [about the gold price] in the short term – at worst, you’re neutral,” Kevin Crisp, managing director at Mitsubishi, the Japanese trading house, and chairman of the LBMA, told the Financial Times.

Mr Crisp’s comments summarised a resoundingly bullish atmosphere at the conference. Some delegates say gold prices could surge even further, with some analysts and bankers predicting prices above $1,500 an ounce in the coming months as investors stock up on gold in response to uncertainty about the state of the global economy and the effectiveness of monetary policy.

Interactive guide: behind the gold price

The key moments in gold’s history, plus: what’s driving the recent price-spike?

“The degree of uncertainty that is out there at the moment ... has justified a move into gold,” said John Reade, senior vice-president at Paulson, the hedge fund that made millions during the financial crisis and is now buying bullion.

Most of the delegates at the LBMA conference cited the potential of a double-dip recession and further weakness of the US dollar as the main drivers of gold prices during the next year. Some also cited fears about surging inflation on the back of further monetary easing by the US Federal Reserve.

Gold prices have surged nearly 20 per cent so far this year amid heavy investor buying, particularly during May and June. The rally was further helped by signs that central banks, led by Russia and several Asia-based monetary authorities, would this year be net buyers of gold after two decades of net selling, and by bullish comments from leading gold miners. AngloGold Ashanti said it planned to wind up its forward sales, a bet that high prices are here to stay.

The bullish forecast for gold prices bodes well for the share price of the world’s largest bullion miners, including Barrick Gold, AngloGold and Newmont Mining.

The LBMA delegates said silver would be trading at $24 an ounce in 12 months’ time, up from the current 30-year high of $21.61. Platinum prices would be at $1,857 an ounce, up from the current level of $1,614, and palladium at $702 an ounce, up from $545 currently.

The LBMA will hold its next annual conference in Montreal, Canada.






US home prices slip in July
By Alan Rappeport in New York
Copyright The Financial Times Limited 2010
Published: September 28 2010 14:31 | Last updated: September 28 2010 15:41
http://www.ft.com/cms/s/0/9015b5d8-ca75-11df-a860-00144feab49a.html


Declines in house prices and consumer confidence in new reports on Tuesday revealed persistent weakness in the US economic recovery.

US house prices slipped in July for the first time in four months and consumer confidence fell back on pessimism about general business conditions and a strained labour market.

Prices in the biggest US cities fell by a seasonally adjusted 0.1 per cent from June to July, according to the S&P/Case-Shiller home price index. That was in line with Wall Street analysts’ predictions and left house prices up 3.2 per cent from the same month a year ago.

The figures show that home price growth on an annual basis is decelerating as the effects of government stimulus measures to support the market fade.

“Anyone looking for home price to return to the lofty 2005-2006 might be disappointed,” said David Blitzer, chairman of S&P’s index committee. “Judging from the recent behaviour of the housing market, stable prices seem more likely.”

Case-Shiller’s index uses a three-month moving average, so the impact of the first-time homebuyer tax credit was still reflected in the data. Without seasonal adjustments, prices ticked up by 0.6 per cent from June to July.

“Activity plunged once the credit expired and, with supply more or less fixed in the short-term, prices will now surely decline further,” said Ian Shepherdson, chief US economist at High Frequency Economics. “The August drop will likely be bigger and September will probably mark the peak rate of fall.”

Most US cities recorded price increases in July, although weakness was most prominent in Charlotte, Dallas, Denver, Phoenix, Portland and Tampa, where home values declined from the prior month.

Las Vegas continued to be a sore spot for the housing market. Home prices in the US gambling centre fell by 1.4 per cent to a new record low and since peaking in August 2006 have plunged by 57 per cent.

Across the US, by comparison, home prices sit at 2003 levels and remain off by nearly 28 per cent since peaking in mid-2006. Mr Blitzer warned that stricken real estate sector has several obstacles to overcome.

“Housing starts, sales and inventory data reported for August do not show signs of a robust market, and foreclosures continue,” he said.

A lack of confidence in the economy has also been holding back the housing market, and this was reflected in a separate report from The Conference Board on Tuesday. Consumer confidence fell from 53.2 in August to 48.5 on its scale of 100, its lowest level since February.

Lynne Franco, director of the Conference Board’s consumer research centre said, “consumers’ confidence in the state of the economy remains quite grim” and noted that low expectations could be a drag on the pace of economic growth.





Consumer lender Takefuji collapses owing $5.2bn
By Michiyo Nakamoto in Tokyo
Copyright The Financial Times Limited 2010
Published: September 28 2010 10:30 | Last updated: September 28 2010 15:31
http://www.ft.com/cms/s/0/47006c38-cae0-11df-bf36-00144feab49a.html


Takefuji, one of Japan’s largest consumer lenders, has filed for court protection from its creditors with Y433.6bn ($5.2bn) in liabilities, the country’s third-largest bankruptcy this year.

Takefuji blamed tight credit markets and a high level of payments to borrowers who claimed they had been overcharged interest on their loans after a court ruling four years ago.

“It became inevitable that our funding ability would collapse if we tried to continue our operations on our own . . . and that this would lead to substantial deterioration in our corporate value,” the company said on Tuesday.

Akira Kikukawa, president, resigned and has been replaced by Junichi Yoshida.

Taketeru Takei, the executive president and son of the founder, also stepped down.

The bankruptcy of Takefuji, which is listed in London and New York as well inTokyo, highlights the tough business environment enveloping Japan’s consumer lenders, which have been crippled by a wave of excess interest repayment claims and stricter lending rules.

It also draws the curtain on one of the most colourful and controversial corporate stories in post-war Japan, which featured a wiretapping scandal, accusations of heavy-handed collection practices and allegations of tax evasion.

For most of its 40-year history, Takefuji stood out for its unconventional practices as well as for its controversial founder, Yasuo Takei, who started the business in 1966. The company was famous for its TV adverts featuring young women dancing in leotards.

Mr Takei, who died in 2006, expanded the company aggressively during Japan’s rapid growth era in the 1960s and 1970s by lending to housewives in the massive apartment complexes that sprang up as the economy grew, and charging high interest rates.

He had unconventional methods of assessing creditworthiness, and was said to have instructed his employees not to lend to housewives who did not keep their toilets and kitchens clean.

In 2004, Mr Takei, who was notoriously litigious and frequently sued media over negative articles about the company, was arrested and indicted for telling an employee to bug a freelance journalist’s phone.

Takefuji also stirred controversy with its money collection practices. In 2008 it was slapped with a business improvement order from the regulator after an employee played loud music in front of a borrower’s home – an attempt to embarrass the borrower into making payment.

Takefuji’s demise was not unexpected following a landmark Japanese Supreme Court ruling in 2006 that moneylenders had overcharged interest and had to repay borrowers, triggering a surge in claims from borrowers.

The situation was exacerbated by a reduction in the maximum interest rate that moneylenders were allowed to charge from 29.2 per cent to 15-20 per cent, and a limit on the amount that any one person could borrow to one-third of their annual income.

As a result, Citigroup decided to wind down its consumer finance business in Japan, GE sold its moneylending subsidiary to Shinsei Bank and many hundreds of smaller lenders have since gone out of business.

Takefuji, which does not have the backing of a major bank, was long viewed as more vulnerable than its rivals, and by the end of August, the ratio of loans approved to applications had shrunk to just 4.4 per cent as its cash situation deteriorated.

Takefuji’s bankruptcy is not expected to have any wider implications for the financial sector. The company said it could face more than Y1,000bn in excess interest payments but added that such claims would almost certainly face cuts.

The group’s borrowers are likely to suffer a reduction in repayments due to the bankruptcy.

This factor could encourage some borrowers, who have taken out multiple loans, to target other moneylenders for excess interest repayment, said Takehiro Yamanaka, an analyst at MF Global in Tokyo.